HYSTERIA
BUYING IS NOT THE WAY TO INVEST IN CONDOS --- Charles Hanes, August 20,
2007
I’ve been doing this for a very long time - too long it sometimes feels like. For
almost three decades I’ve been involved in selling Toronto condominiums and over this
time period and in all modesty I would say that I’ve pretty well seen it all!
The one and most significant consistency in this very complex (to get a clear
“handle” on) industry. I’ve learned that there are not very many people in
the industry with a handle on it so you can well imagine the confusion and ignorance of
the poor little guy consumer who’s trying to break through that financial glass
ceiling that they feel has been holding them back and invest there way into a better life.
Great aspiration but in this industry that aspiration opens up a minefield that takes
skill, knowledge and persistence to get through unscathed.
The most consistent observation that I’ve been able to make is that the little guy
consumer is one of the weakest cog in the entire process. I’m certainly not trying to
dump on the little guy (I’ve been one all of my life and quite frankly prefer them to
most of the supposed big guys that I’ve known) but - really!
When you are making the single largest investment that you will ever make do you think it
is wise to just jump in, throw your money down and hope. That’s what you are limited
to doing in the stock market and despite all of the hoopla that were are bombarded with
about the stock market, my first hand reality from blowing tons of money over the years
trying to “invest in the market” I’ve concluded that I would be better off
going to Chinatown and sitting in at a weekend mahjong table or flying off to Vegas and
trying my hand at baccarat.
For years I worked as a “Seller’s Agent” and am known as one of the
“big fish” in the industry. My sales skills were renown for being able to
“close” deals with even the most ardent non-buyers. Many went home and cancelled
but buy they did! Having actually participated in structuring the “fleecing of the
lambs” as we called back in the day, I am amazed to see that the tactics that we
worked out thirty years ago are still being so well deployed today.
There have been some refinements over the years as in the old days developers did not
“co-operate” (pay commissions to) with Realtors while today Realtors are the
prominent investor pool and the undisputed top way to bring in optimum numbers of buyers.
This is logical as Realtors are self employed and dependent upon straight commission to
earn our living.
Having a Realtor represent you in the purchase of a new and/or resale condo is a very
important thing BUT ONLY IF your Realtor has a solid background in the industry. I see
lots of people attending pre-launch sales events at condo sites with their relative who
just got a real estate license. I actually had a surprising number of people come to me
and ask for my expertise and then go to the sales site and buy using their relative who
obviously did not have the knowledge that they needed but they wanted them to earn the
commission.
Most of my clients would tell you that my expertise continues long after the ink has dried
on the Agreement of Purchase and Sale. This is not to say that I’m the only Realtor
in the city with an extensive background in condos as there are quite a few of us now.
Most of the most knowledgeable on condos (condos are a specialty field within real estate
that are not taught in real estate school) in the city are guys and girls like me who
started by working on the sales floor of condos working for the developer
“selling”.
I think that once you’ve read my site you will agree that I’m the guy that you
want to work with if and when you are seriously looking at buying and/or investing in
condos, but if for some reason you prefer to work with someone else, please for your own
good make sure that they have years in the business.
The single most beneficial resource that a Realtor has to give you when dealing in condos
in a first hand knowledge of all of the developers. An idiot can hold your hand and get
you into this new marketing phenomena of “Realtor Prerelease Sales Events“. You
see, consumers got smart a few years back and stopped buying into much of the developer
“hype” about their developments. They were catching onto the tricks and tactics
frequently applied to selling condos (used car salesmen have proven quite adaptable to
condos due to the similarities in sales “tactics”).
The developers realized that of the 24,000+ Realtors registered on TREB (“Toronto
Real Estate Board“) only a very few had hands-on experience in the condo industry
thus offering lucrative commissions to this mass of prospective referral agents. One of
these people could introduce dozens of prospective purchasers without burdening the
developers as the great majority of them do not have any more background knowledge than
the consumers that they will be introducing. A great marketing twist!
So now, developers are holding these Priority Realtor Pre-Release Sales Events (makes us
all look and feel important) where the Realtors sleep out in the parking lot with their
clients to be in line to “be able to get one”! I love the psychological picture
that this paints because it’s absolutely untrue and totally manipulated by the
developer.
I don’t want to turn this into a “what’s wrong with the condo
industry” as a general reading of my site already gives you this. I want to take a
true life situation to make my point and I hope that after making my point you will hear
my message and hopefully turn my message on to as many people as you know as this industry
has gotten a way out of control! I earn my living
representing the best interests of Buyers and I can tell you that stampeding your friends
and family into this carnival atmosphere of smoke and mirrors is not really fulfilling
your fiduciary obligations to your client as a Realtor.
A few years back (February 2005 to be exact) a new presale development was announced in
the St. Lawrence Market area, London on the Esplanade. I contacted the developer’s
office and suggested that they hold a private event for my clients and I would then
publish on my web site the outcome of this private event.
I attended with approximately twelve of my clients (actually 6 attended on two nights)
visit the developers office before they even opened the sales site. I was a little
concerned as I did not know of this developer but the location was a “slam dunk”
as traffic to my site showed almost 60% of registrants requesting St. Lawrence Market area
condos and lofts.
To make a long story short, we ended up buying suites. 100% of my clients who attended
purchased. My concerns and/or caution originates not in getting the building built but in
getting the building Registered and Occupied on time and schedule and to the satisfaction
of the buyers. Having a no-name developer behind your project introduces total unknowns
and I introduced this to all of my buyers in attendance.
I was concerned to see in the developer’s printed material the representation of them
having built two buildings that I knew the developer of and that developer was not them. I
did my due diligence and tracked it down to some rather creative presentation of facts.
Talking with my clients I explained to them this rather questionable representation and/or
poetic license employed in their marketing, explained to them that I had tracked down the
facts which were that the president of this new development company had up to recently
been employed by Edilcan, one of the city‘s premier builders turned developers. The
key thing is that my clients all knew this during the rescission period as it was
disclosed to them by me which is what a buyer’s agent is required to do for our
clients. Without the knowledge on the misrepresented building (for example) I would not
have been able to completely fulfill my obligations to my clients.
Immediately following my contacting them I noticed this full colour representation removed
from their promotional kits. This is not unique to this developer (and hey, you’ve
got to create credentials as an entrepreneur) as another developer in the city always
profiles floor to ceiling murals of magnificent buildings (actually
“renderings”) in all of their sales offices but they don’t tell you that
they have yet to build any of them and to date they have only one rather flimsy attempt at
having delivered one. Again it is not rocket science to build a building as the developer
(most in Toronto are entrepreneurs who couldn’t build a reputation let alone a
building) simply hire architects and contractors and a building consistently results. The
science is in occupying an “Registering” and until a developer has successfully
done this, all of the colorful marketing material in the world remain meaningless. |
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So, on February 24th
2005 twelve of my clients purchased the prime suites (by getting early access I always get
my clients the best selection and they count on me to narrow down the field to one or two
that they like - that night we bought all the same suites) in London on the Esplanade at
prices ranging under $400 per square foot. The completion date was set at October 15,
2007.
One of my attending clients contacted me the next day reminding me that he wanted to
invest in another such condos. We had actually touched on it at the first event but it was
so chaotic that we said we’d pick it up in the weeks to follow so, on March 5th 2005
he and his wife invested in a second condo unit.
This time I recommended the Met at
Carlton St. and Yonge. The reason for my recommendation was strongly based on the
developer who, unlike the developer at London on the Esplanade, had a solid reputation.
Edilcan, the developer is the builder that many of the entrepreneurs condo developers turn
to to build their projects for them and every once and a while Edilcan will be their own
developer as well (they are turning more to this these days). They have done some pretty
impressive buildings like 1121 Bay,
The Clairmont, Signatures On Bloor.
The unit in The Met was comparable to the unit at London on the Esplanade in size, and
price, and finishes (represented finishes as you have to see the delivered product before
you can say they are comparable - easy to switch out “A” grade marble for
example for “C” grade marble). My client was impressed with Edilcan’s track
record and was impressed to purchase at roughly $37 per square foot less than his earlier
purchase while buying a much higher suite.The completion date for The Met was set at
September 28, 2007 with occupancy set within the next couple months this seems to
represent a pretty valid comparison of a rather systemic situation in Toronto. They say
that a picture is worth a thousand words and I think that this statement is certainly
warranted here.
I have no relationship with either developer and I certainly have no reason to either be
positive or negative toward either. I don’t represent either of them nor have I ever
represented them. I am not “picking on” anybody or attempting to show
favoritism. My profession requires that I know all of the facts (it’s called
“fiduciary” of which full disclosure is a key part). I publish a great deal of
information on my web site for the public at large and there is a great deal of more
significant information that I DO NOT publish. This information is made available to my
clients under agency and my obligation of full disclosure to them.
This article is not intended to solicit anyone presently under agency with a Realtor. If
you are reading this article and are presently working with a Realtor, please understand
that the information found here is published for you benefit as well however I cannot even
discuss representing you. Whether you are investing
in a condo to live in or simply as a hands-free investment (both a sound idea providing
you go about it correctly) the example set out herein materially affects you! The majority
of my clients are “Investors” and the objective is to optimize their
“return on investment” thus timing, and more specifically a developer’s
ability to deliver on schedule becomes a key factor. Things like “cost of money”
become paramount and as they always say “time is money”.
Those buying to live in the condo are also materially affected as their life literally
hangs in the air as they plan and work to get on with their lives. Don’t get me wrong
whether you are going to live in it or just invest in it the purchase of a condo is an
investment first and foremost! Delays cost in money and in emotional satisfaction.
Here is the status of both buildings today:
The Met
- example: “A”
London
- example: “B”
I trust that you can see why I say that the most important aspect of a Buyer’s Agent
(Realtor representing you in the purchase of a presale condo) is a thorough knowledge of
the developer or at least the ability to inform you that the developer has no background
leaving the ultimate decision to you after being fully informed.
The punch line to this is that Pier 27 launched a few weeks ago and like lemmings
consumers and Realtors lined up in the parking lot to buy “NO QUESTIONS ASKED”!
I’d call this Hysteria Buying especially in light of the fact that it was selling at
$800 per square foot! Oh yes, the developer is the developer of photo example (above
“B“). I did not put any buyers into Pier 27.
I did attend the pre-launch event with an investor client of mine who looked at it at the
same time that I was negotiating a group discount purchase and he quickly shifted his
interest in Pier 27 when he
learned the facts over to my group purchase where he enjoyed a serious discount.
L Tower just sold out starting at
over $500 per square foot and again it is the same developer as Pier 27 and London on the Esplanade. Again
people lined up to buy. I didn’t put any of my clients into L Tower either.
The irony that I see behind all of this is that at the same time as these developments
were employing such skilled closing tactics grabbing $500 - $800 per square foot, I was
negotiating group purchases with 15% discounts off of the developers best retail pricing!
With over 60% of the new developments being developed by unproven developers in this city,
you have got to be out of your mind to go it alone or to try to have a inexperienced
specifically in condos (even if relatives) Realtor help you. I do think that the market is
in for an “adjustment” (not a crash like I endured in the 1980’s) and I
fear that the upside is so narrow on properties running in the $800 per square foot range
by unproven developers (how much will you be able to sell it for if everything works out
perfectly)?
There are far more unproven developers than proven quality developers in the market today
and if you are considering investing (whether to live in or resell or rent out) you
absolutely know the background on the developer. The market today appears saturated with
condos. For three years the newspapers prophesized “a Bubble Market Bursting”
until they got tired of embarrassing themselves. I hope I’m not shocking you by
informing you that they are also major marketing resources for condo developers after all
they are selling them full page ads for upwards of $35,000 a day!
So, as much as I hate to say it, now is not the best time to be investing in condos if you
are out there on your own. I am advising my clients to reassess their investment
strategies as my recommendation is to cool off on presale (there’s just too much
product around out there) and shift focus over onto buying existing stuff presently being
built. This of course is dependent upon their unique investment strategy which I’m
happy to go over with you. Simply Register with me and and in the comments area specify
that you would like to meet and discuss your strategy. If you don’t have one, you had
better contact me and we’ll work one out for you.
There are some quality developments coming up like Aura at College Park that are
scheduled to come out (with all the bells and whistles) at under $475 per square foot. You
can be I’ll be putting my clients in Aura as I have a commitment from them to be one
of the first Priority Brokers. They are scheduled to launch later this fall. I have
another good one coming up next spring. Unfortunately, or fortunately depending on how one
looks at it, quality developments are few and far between in Toronto. If there is a shake
up in the market the shaky developer’s deals are the ones to watch out for. If you
don’t know who they are then you are at a definite disadvantage. That disadvantage is
taken away when you work with me!
Solid investments are on the boards so stop biting the bait on everything that’s put
out there! You are investing real money so make sure you have the right expertise on your
team. My services are FREE to you so Register with me today.
I’m Charles Hanes, Broker
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