yyzer
Senior Member
wasn't sure if this entire article belongs here, but it does reference the Shangri-la project....also, note the last paragraph....
from the Finanacial Post..
Consumers nervous about buying condominiums
Garry Marr, Financial Post
Published: Friday, November 14, 2008
Ian Gillespie can't tell you where the rumours come from but he has heard them all. He will tell you they are absurd.
The owner of Westbank Properties, which is co-developing the Shangri-La Toronto, a $430-million 65-storey hotel/residential development, says he knows there is scuttlebutt about his development not going ahead.
"Go by the site. There are 120 trucks a day that are going in and out. I got wind of this rumour because someone told it to our lender," laughs Mr. Gillespie.
The only problem is his lender is the Caisse de dépôt et placement du Québec, a giant pension fund with deep pockets. The financing has been in place for months, 70% of his units are sold and he has already broken ground. "We have a loan and it's with the biggest player in the market," Mr. Gillespie says.
But in Toronto's condominium market, the largest in all of North America, consumers are jittery as they look at sliding stock markets, world economies falling into recession and a Canadian housing market that is seeing prices go down for the first time in a decade.
No wonder consumers are getting nervous about buying a condominium. They want to know what they are buying is actually going to be built.
Meanwhile, as developers have more trouble accessing financing, many in the industry predict the small fish will be squeezed out. Lenders will look to developers with solid footing and consumers will bet on the names they can trust.
"The marginal players, the guys who thought they could raise some money, hire an architect and call themselves a real estate developer -- those guys are out of business right now," says Mr. Gillespie.
He adds the field of developers has already significantly narrowed in Vancouver, and the same thing will soon happen in Toronto.
"It's good news from my perspective. There is nothing worse than looking at a piece of property and finding out there are 13 developers bidding on it. If this means the strong will survive, then I'm all for it," he says.
Up to now, just about everybody has been surviving in the condominium market. Urbanation, a research firm that studies real estate in Toronto, says there were a record 22,654 condominiums sold in 2007.
But there is no question a pullback has occurred. Urbanation only expects about 16,000 units to be sold this year. Even at that level, Toronto's condo construction market still dwarfs Chicago or New York.
Jane Renwick, vice-president of Urbanation, has heard the skeptics talk about how Toronto is building too many condominiums and the market is loaded with speculators.
Once thing missing from that opinion is a recognition that the condominium market has become the de facto market for new supply of rental accommodation. About 30% of condominiums in the greater Toronto area are purchased by investors who rent the units out after they are built.
Even with strong demand for rental accommodation, there is plenty of evidence the condo market is due for a decline. It's just not going to happen as quickly as people think, predicts Ms. Renwick.
"The banks are still doing business with people. I think they are just not as interested in taking on new risk," she says.
Some things have changed. The spread -- the gap between what lenders pay for their cash and what they loan it out at -- has gone up. "The reality is the net cost of money is about the same because rates are coming down," says Mr. Gillespie. "The other thing in our favour is commodity prices are coming off. I can buy concrete in Vancouver for 25% cheaper today than I could have a year ago. It's not an all bad news story."
Lenders have "fined tuned" criteria, he says. It depends on each project, but the percentage of the purchase price required before someone counts as a presale has gone up. Mr. Gillespie's projects ask for at least 20% down.
But there are projects where consumers put 5% down. "That's not a presale, that's an option to buy," said Mr. Gillespie, suggesting consumer who put little money down on an condo might try and walk away from their commitment.
The ante has also been upped when it comes to foreign buyers. They are now required to have bigger deposits than domestic purchasers.
Joan Dal Bianco, vice-president real estate secured lending at TD Canada Trust, says there is no question some builders have "more value than others", and it's usually because they "are bigger and have a longer tenure. We know they can come through."
She believes as the credit crisis continues, there will be more consolidation in the sector. "I can only speculate, but it's going to be those who can ride a slowdown who survive over those who can't."
As for the consumer, does he or she need to be worried about their builder? Any money you put down on a condominium is held in trust and earns some interest, depending on the agreement, lowering the probability you will lose your cash.
"There is a lot of fear in a time like this. People will go with bigger and more reliable names for everything," says Ms. Dal Bianco. "They will go with condo builders who seem to have a reputation and a history and can say, ‘look at what we've built -- 10 buildings in the last 20 years.' That's proof they can stay for the long haul."
Don't tell Brad Lamb, a long-time fixture on Toronto's condo scene on the brokerage side, who has expanded into development, that there is no room for small guys. His company, Lamb Development Corp., a mid-size player, has on-the-go seven development projects with more than 1,000 units.
He says it's the big guys with mega-projects that will have problems getting projects off the ground.
"Big players don't have a better time of it. If you are doing a 500-unit project and you're going to be launching in nine months, you are not going to sell it," says Mr. Lamb. "We don't have the same ability to move the sheer massive amounts of apartments the way we did in 2006 and 2007. This market is going to become specialized."
He also says skittish banks no longer want to fund any condominiums buildings on their own once the commitment goes past $100-million. What that means is larger buildings need a syndicate of bankers and dealing with multiple banks is always going to be tougher.
These days, any bank with money in a deal wants to take a close look at the transaction, making for a lot of hoops to jump through.
"Have you ever tried to get eight banks to agree on anything?" asks Mr. Lamb. "It's actually easier to borrow a small number. It's the small projects that will be built," he argues. "You are going to see in 2009 the big guys with big projects pull back."
The big fish do not agree. "We just bought a site in the last [month]. It's a major site, a 500-foot tower, roughly 50 stories," says Westbank's Mr. Gillespie. The plan is to build once the land is rezoned.
from the Finanacial Post..
Consumers nervous about buying condominiums
Garry Marr, Financial Post
Published: Friday, November 14, 2008
Ian Gillespie can't tell you where the rumours come from but he has heard them all. He will tell you they are absurd.
The owner of Westbank Properties, which is co-developing the Shangri-La Toronto, a $430-million 65-storey hotel/residential development, says he knows there is scuttlebutt about his development not going ahead.
"Go by the site. There are 120 trucks a day that are going in and out. I got wind of this rumour because someone told it to our lender," laughs Mr. Gillespie.
The only problem is his lender is the Caisse de dépôt et placement du Québec, a giant pension fund with deep pockets. The financing has been in place for months, 70% of his units are sold and he has already broken ground. "We have a loan and it's with the biggest player in the market," Mr. Gillespie says.
But in Toronto's condominium market, the largest in all of North America, consumers are jittery as they look at sliding stock markets, world economies falling into recession and a Canadian housing market that is seeing prices go down for the first time in a decade.
No wonder consumers are getting nervous about buying a condominium. They want to know what they are buying is actually going to be built.
Meanwhile, as developers have more trouble accessing financing, many in the industry predict the small fish will be squeezed out. Lenders will look to developers with solid footing and consumers will bet on the names they can trust.
"The marginal players, the guys who thought they could raise some money, hire an architect and call themselves a real estate developer -- those guys are out of business right now," says Mr. Gillespie.
He adds the field of developers has already significantly narrowed in Vancouver, and the same thing will soon happen in Toronto.
"It's good news from my perspective. There is nothing worse than looking at a piece of property and finding out there are 13 developers bidding on it. If this means the strong will survive, then I'm all for it," he says.
Up to now, just about everybody has been surviving in the condominium market. Urbanation, a research firm that studies real estate in Toronto, says there were a record 22,654 condominiums sold in 2007.
But there is no question a pullback has occurred. Urbanation only expects about 16,000 units to be sold this year. Even at that level, Toronto's condo construction market still dwarfs Chicago or New York.
Jane Renwick, vice-president of Urbanation, has heard the skeptics talk about how Toronto is building too many condominiums and the market is loaded with speculators.
Once thing missing from that opinion is a recognition that the condominium market has become the de facto market for new supply of rental accommodation. About 30% of condominiums in the greater Toronto area are purchased by investors who rent the units out after they are built.
Even with strong demand for rental accommodation, there is plenty of evidence the condo market is due for a decline. It's just not going to happen as quickly as people think, predicts Ms. Renwick.
"The banks are still doing business with people. I think they are just not as interested in taking on new risk," she says.
Some things have changed. The spread -- the gap between what lenders pay for their cash and what they loan it out at -- has gone up. "The reality is the net cost of money is about the same because rates are coming down," says Mr. Gillespie. "The other thing in our favour is commodity prices are coming off. I can buy concrete in Vancouver for 25% cheaper today than I could have a year ago. It's not an all bad news story."
Lenders have "fined tuned" criteria, he says. It depends on each project, but the percentage of the purchase price required before someone counts as a presale has gone up. Mr. Gillespie's projects ask for at least 20% down.
But there are projects where consumers put 5% down. "That's not a presale, that's an option to buy," said Mr. Gillespie, suggesting consumer who put little money down on an condo might try and walk away from their commitment.
The ante has also been upped when it comes to foreign buyers. They are now required to have bigger deposits than domestic purchasers.
Joan Dal Bianco, vice-president real estate secured lending at TD Canada Trust, says there is no question some builders have "more value than others", and it's usually because they "are bigger and have a longer tenure. We know they can come through."
She believes as the credit crisis continues, there will be more consolidation in the sector. "I can only speculate, but it's going to be those who can ride a slowdown who survive over those who can't."
As for the consumer, does he or she need to be worried about their builder? Any money you put down on a condominium is held in trust and earns some interest, depending on the agreement, lowering the probability you will lose your cash.
"There is a lot of fear in a time like this. People will go with bigger and more reliable names for everything," says Ms. Dal Bianco. "They will go with condo builders who seem to have a reputation and a history and can say, ‘look at what we've built -- 10 buildings in the last 20 years.' That's proof they can stay for the long haul."
Don't tell Brad Lamb, a long-time fixture on Toronto's condo scene on the brokerage side, who has expanded into development, that there is no room for small guys. His company, Lamb Development Corp., a mid-size player, has on-the-go seven development projects with more than 1,000 units.
He says it's the big guys with mega-projects that will have problems getting projects off the ground.
"Big players don't have a better time of it. If you are doing a 500-unit project and you're going to be launching in nine months, you are not going to sell it," says Mr. Lamb. "We don't have the same ability to move the sheer massive amounts of apartments the way we did in 2006 and 2007. This market is going to become specialized."
He also says skittish banks no longer want to fund any condominiums buildings on their own once the commitment goes past $100-million. What that means is larger buildings need a syndicate of bankers and dealing with multiple banks is always going to be tougher.
These days, any bank with money in a deal wants to take a close look at the transaction, making for a lot of hoops to jump through.
"Have you ever tried to get eight banks to agree on anything?" asks Mr. Lamb. "It's actually easier to borrow a small number. It's the small projects that will be built," he argues. "You are going to see in 2009 the big guys with big projects pull back."
The big fish do not agree. "We just bought a site in the last [month]. It's a major site, a 500-foot tower, roughly 50 stories," says Westbank's Mr. Gillespie. The plan is to build once the land is rezoned.
