Safe Deposit Boxes Sold As Condominiums

I have already blogged about the use of condominium designation for storage facilities (here, and here for super luxury) – so it seems a natural evolution to offer really really tiny storage. SafeBox Condominium Vaults (Parallax Investment Corporation is the developer) will be opening up the first (world wide) condoized safe deposit box facility in Toronto, with further development in most large cities across Canada.

On a square foot basis, the units go for either $2160/sq. foot (for 3” ceilings), or $3300/sq. foot for the luxury 8” ceilings.

I’m all thinking this is a phenomenal idea, until I checked out their website and see they are marketing the purchase as “the ability to own a prime piece of real estate at an affordable price.” This is not an investment opportunity, this is a different way to manage and secure valuables. That the company is even marketing 1.67 sq. foot condos as a real estate play is not only inexcusable, it makes that plan feel a little scammy to me. Now I’ve got a little of that “buyer beware feeling.”

District Energy Advantages and Risks for Condominiums: Research Paper

Phenomenal full envelope failures in the last few years of new development – including Leduc, Fort McMurray, and Calgary all indicate that the industry needs to evolve both the development process, and likely the costs and processes involved in creating multi-unit housing.

For existing buildings, under-funded reserve funds and higher than expected maintenance costs are forcing corporations to find innovative methods (including borrowing against future use) to avoid fiscal hardship or bankruptcy on current owners.

District Energy (the supply of heating or cooling from a central source usually though piped water or steam, also known as District Heating or Teleheating), where available, may be a powerful and sustainable solution for condominiums – both at the development phase and at the maintenance level. Based on experience from existing implementations in Canada, the US and Europe, District Energy may lower development costs, maintenance costs, and reserve fund contributions.

247Condo has released a research paper (with additional focus on the ENMAX implementation in Calgary, Alberta, Canada) that outlines the advantages and risks of tying your condominium to a District Energy solution.

More Fallout to Toronto’s Falling Glass: $20 Million Lawsuit

In 2010 and 2011 two recently built condominium – the Murano Towers (731 units) and Festival Tower (378 units) literally rained down glass on the ground below. 13 panes of glass balcony railing released and fell.

Since then the glass from all those balcony units (somewhere short of 1000 units) has been removed and the owners forbidden from utilizing the space.

Yesterday the owners launched a $20 million dollar class action lawsuit. That’s about $18,000 per unit – to cover loss of use and to have the issue fixed in a timely manner.

Developer Accepts Full and Utter Responsibility for Catastrophic Failure

I have written many times that the final and full responsibility for critical failures of a condominium are the sole responsibility of the developer. End of story.

So I found it surprizing refreshing that Kevyn Frederick, developer for the failed Leduc, Alberta, condominium development Bellavera Green, has stated:

As CEO of Bellavera Green, I take full and utter responsibility. I felt that to speak to anything involving anybody else’s responsibility would be to minimize the impact that I’ve caused upon the people of Bellavera Green. So I had no other choice but to do the right thing and speak to only my failures.

The failure of the Bellavera Green has most likely forced significant and likely in some cases complete, fiscal ruin for the 150 people forced out of the development. That doesn’t include unpaid bills to subcontractors and other stakeholders.

People are still going to be madly angry at Mr. Frederick – and rightfully so. There is significant pain and hardship now, and lasting well into the future, from such an absolute failure of the development.

But there is an upside.

A developer that takes no responsibility acts as a roadblock to an investigation. We’ve seen bad developers destroy documents, launch counter suits, attack people’s reputations and lives, in all – do everything in their power to cloud the issue and slow down an investigative review. All at the cost of hurting even more innocent people.

Having accepted responsibility (which I am still stunned, and think is an amazing step forward), it may open up Mr. Frederick to cooperate with an investigation.

Specifically, with the developer on side, an investigation can get a direct understanding on how the “development dream” changed into a “development disaster.” A personal reconstruction makes it significantly easier for an investigation to isolate key failures or holes in current legislation and best practices that could be rectified.

With Mr. Frederick, given his willingness (the acceptance of guilt is a positive sign), we may have a very unique opportunity to improve the process of condominium development and protect future buyers a little better.

For I’m sure – and as he has indicated under questioning – he and his company are broke. So if there is no fiscal compensation, some time and assistance would be a start. Call it a form of truth and reconciliation.

Catastrophic Condo Failure Is Not Caveat Emptor – Buyer Beware

The Bellavera Green Condo, Leduc Alberta, has suffered a massive, catastrophic, failure requiring all 150 of the residents (85 units) to vacate the premises. The reasons: code-failing fire alarm system, missing or damaged firewalls, condemned exterior staircase, non-sustained heat and electric, a second phase abandoned – unsafe and unsecured, and inability for emergency vehicles to access the building.

It is unclear who has title to the units (it’s not clear if the developer handed over title to occupied units), who to go after for costs, and the developer – Kevyn Frederick – has conveniently disappeared. As with catastrophic failures of this type, residents who have mortgages will remain responsible for their payments even if they can never return to their units, or have other costs until such time they could reside again at the Bellavera Green.

In all, 150 people (and those that rely upon them) have suffered grievous fiscal harm due to the mismanagement and greed of yet another developer. And I lay the blame clearly and solely at the foot of the developer and none others. Developers have full and final control over the building and plans. It is their choice to follow legislation, or to cut corners and ignore building codes. The rest of the infrastructure – including building inspectors – is just there to try to catch errors. But these errors are not there because they haven’t been caught; they are there at the failure of the developer. Trying to pass responsibility off on inspectors is a lot like saying “you didn’t catch me, so I’m innocent.”

That’s why fools who imply that the Bellavera Green owners who put down money and purchased mortgages have a responsibility to the failure of the condominium because of “Caveat Emptor” – or “if you were stupid enough to buy into this building then too bad for you” are pathetic and dim-witted.

The whole issue of Caveat Emptor, for a situation like this, was thrown out with Supreme Court of Canada judgement of Winnipeg Condominium Corporation No. 36 v. Bird Construction Co [1995] 1 S.V.R. 85, January 26 1995 (further discussion here):

First, it is reasonably foreseeable to contractors that, if they design or construct a building negligently and if that building contains latent defects as a result of that negligence, [purchasers] of the building may suffer personal injury or damage to other property when those defects manifest themselves.

In this case, the act of negligence: that it fails to meet code, and there is a real and true concern over devastating fire; so that personal injury or damage: the effects of such fire, that –

The reasonable likelihood that a defect in a building will cause injury to its inhabitants is also sufficient to ground a contractor’s duty in tort to subsequent purchasers of the building for the cost of repairing the defect if that defect is discovered prior to any injury and if it poses a real and substantial danger to the inhabitants of the building.

And the ruling seems to support my thought that the sole responsibility for catastrophic failures like this lay solely in the hands of the developer:

Apart from the logical force of holding contractors liable for the cost of repair of dangerous defects, a strong underlying policy justification also exists for imposing liability in these cases.  Maintaining a bar against recoverability for the cost of repair of dangerous defects provides no incentive for plaintiffs to mitigate potential losses and tends to encourage economically inefficient behaviour.  Allowing recovery against contractors in tort for the cost of repair of dangerous defects thus serves an important preventative function by encouraging socially responsible behaviour.

In the end, the owners are in for a long term amount of lost monies and (more importantly) time that will be required in moving forward with their lives. It’s a sad thing, and the province needs to put better protection in place to help stave off this type of abuse by developers in the future.

Multi-Housing Development OK If Not For The Poor

Residents of the Woodbridge HOA in Sachse Texas have begun to complain that a proposed low-income block will mar their community with lowered property values, an overloaded school system, and a general discouragement of new business.

Sachse is an affluent neighborhood – only 6.5% of the community lives below the poverty level compared to a state average of 17.2%, and their median household income is 70% higher than the state average.

For a zip code that has over 21,500 residents – adding some 350 people (100 low-cost rental units x 3.46 average household size for the region) – increasing the population by 1.6% of low income individuals won’t have any substantial change to the area. Indeed, this might raise the total below poverty individuals to 1750 (including what the residents claim will be 200 new children) or so individuals in the whole community.

Indeed, at that level of “new poor”, along with the location of area – which has been zoned for apartments and commercial development for 10 years – is relatively isolated from the single detached units (you don’t have to drive through the neighbourhood to get to the proposed development), no traffic impact. Indeed – most residents could continue living their lives without ever seeing an actual low-income resident ever step foot on the sidewalk in front of their house. (Though watch out – Google street view shows a suspiciously low income looking van for sale in the Woodbridge community, along with a lot of generic low-cost, 10 year old appearing, cars.)

So – (1) the amount of development, location, and growth on the community should have negligible impact on property values, (2) the area is 70% more affluent than the region so their already have enough of a school tax base to cover new students, and (3) apparently low-income residents drive away discourages new business. That’s so silly I don’t have a better remark.

In a country that welcomed immigrants with the words “Give me your tired, your poor” – they should update it with the tagline “as long as they live far away from me”.

$8.7 Million for a Condo You Can Only Live In 120 Days a Year

I almost get the math that would justify the purchase of a hotel condominium listed at Trump Soho (warning: the hotel website has music) for just over $8.7 million. As a hotel condo, you are allowed to use your unit for no more than 29 consecutive days in any 36, for a maximum of 120 in a year. The rest of the time it is added to the rental pool and offered to hotel visitors.

Owners of hotel condominiums still pay condominium and taxes all year long. In essence, it’s exactly like a rental property that you buy and hand over to a rental pool to manage. You get a cut of the profits and the management company takes a bit. As it’s in a rental pool – revenue is split between all units each month even if they all weren’t rented.

If the general rule of thumb is 1/16 of the price of housing is what you can normally rent it for so let’s assume a more generous 1/15, and add in an 81.5% hotel rental occupancy use and the room should go for.

Because there are room rates online for the studio units (425 sft) which match some of the available units for purchase, let’s try the math. This unit lists at $995,000.

$995,000 / 15 / 0.815 / 245 (days available) = daily room rate required. That works out to about $332/night required rental rate. Currently the hotel is offering ~435/day ($1.03/sqf/night) for room bookings, based on blended rates listed for units of about 420 sqf on the Trump Soho booking site.

Ok – that seems plausible that there might be an opportunity for the owner to actually make some money on the purchase. Don’t forget the owner is paying a fixed price (taxes, management, and hotel operation) no matter if the unit is rented – while the return from the pool is affected by the occupancy and average nightly rate. A 31% mark up over required daily rate might be enough to cover the costs of operating the hotel and miscellaneous costs.

All in all hotel condominiums may not be for the faint of heart. One would assume that if all the numbers where known, the management company is likely putting the following offer forward: the purchase should return about 4% (much like a good bond) with the bonus of 120 free days of living in Manhattan.  I really think that’s how simple the formula likely is when trying to sell the units to investors/part time residents.

So that $8.7 million unit – should return about $29,000/month in revenue, and cost (thinking that one couldn’t rent for less than a week such a large unit) about $17,000/week.

I Want To Build an IKEA Small Space Condo Complex

I love IKEA. I think it’s not only a store, but an idea towards simplified living that is encapsulated within a powerful brand (I am not brainwashed by a corporation!).

There is one innovation to marketing that I really like when I visit IKEA. It’s their Small Spaces demo rooms and units. Walking through their show suites you will stumble upon one or two “whole living spaces” in only a couple hundred square feet. And if we chain a bunch together we could test run a couple of “you life your condo by IKEA”

Hear me out. There is a need for two types of ultra-high density living situations: recently homeless and low cost/entry housing.

Recently homeless are individuals that are transitioning from homelessness to some sort of permanent residence.  Social programs have been helping people do this for decades, but this has recently become a hot topic with a movement in “rapid re-housing” which attempts to find housing and then treat the symptoms that caused the homelessness.

In this case, we would create individual “dorm floors” with a score or so individual Small Spaces, combined with shared common room, activity room, training room, and a larger onsite “dorm-mom” housing on each floor. The key is, instead of a dormitory feel, to use the Small Space approach to build fully legitimate apartments that are independent of each other – enforcing that that living there is about being independent. None the less we do wrap some common areas to help deliver the social programs and support on an individual level.

I guess why I look to IKEA is recently homeless people could also benefit from being in a well-designed, modern, beautiful and well equipped home. In Calgary we have a gorgeous drop in centre. Nice enough that when it was planned and built people complained it was “too nice looking” and “too much was spent on looks.” Now, it’s been a decade, and the building acts as an icon for the community, and the hundred thousand people+ who see the building daily have a positive impression. Good architecture, looks and functionality are as important. IKEA’s Small Spaces can do the on a unit by unit basis.

For low cost (and entry) housing, there shouldn’t be a disjunction between low-cost and IKEA. Low cost housing often creates an impression of ugly, low quality, slipshod, and temporary. To me it doesn’t have to be like that. We could build a specially designed complex where low-cost means value and quality, and that value and quality is driven by IKEA.

Anyways, there’s room for a company like IKEA to move from filling a house, to being a housing developer, and doing it in a way that is phenomenal.

Allow Everyone Fruit Bearing Plants on their Balconies

In Calgary we’ve maybe had 10 days of cold (sub zero) weather this year – it has been abnormally warm for the year, recently breaking a 90 year day record earlier this month. It gets me dreaming that maybe we can have more gardening in the city. Small plot gardening is something I’ve always supported.

Most condominiums have little in the way of necessary green space for owners to even share in a community garden. In Calgary, there is little development that includes either roof or ground based plots that can be used by owners. In some city locals the community associations have created shared gardening plots – but they are few and far between.

For condominium owners, the ability to raise a little summer patch of vegetation on their balconies is often discouraged by bylaws – controlling type, amount, and use of plants. These bylaws can often shut down any real use due to the risk of watering damaging the structure of the buildings.

Developers need to begin – especially in colder locations like Calgary – to start including 2 or 3 season gardening opportunities for condominiums. Balcony based (using water resistant materials or building approaches with incorporate better drainage – here’s an article about a Florida balcony fruit garden), roof-based (covered or uncovered) or even ground based (hah! Unlikely because that would reduce building and revenue opportunities – though I think people would pay for it) should be mandated or encouraged.

It would go hand in hand with LEED or other green building initiatives.

It would also be an amazing process to build a condominium which would encourage neighbours to talk, communicate, and interact with each other. And that’s something that can be almost priceless – because it is proven conflict between owners decreases as interaction increases.

Great Salesman Barnett Asserts 10,000/sqf is 20 to 30% Cheaper than Market

Real Estate is usually the ultimate in capitalist negotiation, and ensures the price of the property reflects the true market value at the point of sale. The agent and seller are negotiating for the highest possible price, and the purchaser looks to capture the best property in their mind for their cash. In most cases the market has comparative units that can be used as benchmarks for price.

A sale completes only when both sides are happy with the value they receive from the transaction.

So when I see Gary Barnett, who just raised the price of a yet to be developed penthouse from $98.5 million to $110 million in the pre-build One57, says his properties are still 20 to 30% undervalued, well, I just have to chuckle. Anytime a seller tells you that by purchasing a property you’ll instantly increase your wealth – that the property will miraculously increase in value because you hold it – you have to just step back a minute.

Mr. Barnett has no interest at all in granting you any bonus value. It’s his job, his best interest, and it’s his positive (yes, a good trait here) greed to maximize the revenue on his sale. When you purchase his property (or purchase any property, from any realtor, no matter how inexpensive or gaggingly decadent) the property will be worth Exactly What You Paid For It.

The only possible case where the property will be worth something different than you paid, is if you paid too much. The only side of the negotiation that has the best information about the property is the seller. They hold more cards than you. They know, say, if the marvelous property that you bought with a fantastic view has a new development slated for build that will completely cut off that panoramic cityscape in only a few years.

It’s just lovely to know that the same cheezy realtor lines that I get at the other end of the market (yeah, I don’t have $110 million for a condo sadly) are the same lines at the top. Barrnett also describes the property as “there will be more room to increase prices in the near future” and “prices in the building are still extremely conservative given where the market is today”.

Ahhh, it’s the same pitch at every level of the market. “Buy now, it’s underlisted, and the market supports higher prices, but only if you buy. right. now.”