Ministry of Sound – Proactively Being Loud

I’ve never liked the type of person that moves into a new neighbourhood and then complains about the noise, traffic, prostitution, smells, sound and vagrants. They’ve always seems like arrogant pricks to me. When you’re buying into an existing neighbourhood, you are buying into the neighbourhood. The good (hopefully, I mean there must have been something good that would have attracted the person to the block) and the bad.

When it comes to the bad, a big complaint of these new residents is sound.

The Ministry of Sound, a hugely successful nightclub and record label resides in an area of London that in undergoing revitalization and new development. Instead of waiting for the developments to go up, and the new owners’ complaints to come in, the nightclub has – for 2 years – been very active with petitions, leafleting and advertising against the new developments.

This last week Southwark council’s planning committee against the development proposal – a 41 story tower block, proposed by developers Oakmyne, that would have been built near the club.

I’m very excited about this development. It reaffirms that existing businesses (and the Ministry of Sound is a landmark and cultural icon as well) can continue to flourish, and councils recognize that when new development is erected is often has a significant negative impact on existing business. In almost every case the new developments force out old business. This time that whole battle is avoided, and the existing business is respected.

Toronto and Singapore Experience the Shoebox Condo

Some trends cover the world, but the underlying reasons may be different. For example, Singapore and Toronto both are experiencing a surge in shoebox condos (500 sqf or less) but for significantly different reasons.

With Singapore, prices on condominiums are averaging $1185USD/sqf – putting the price of anything lager than shoebox well outside the financial means of most local residents.

In Toronto, price is not nearly as sensitive (running about $630USD/sqf), but tax legislation is pushing units to list at $390k or less or suffer, and one bedroom condominiums now make up almost 60% of new construction. This forces smaller shoebox units to be built in order help create consumer choice in a market that prefers one bedroom condominiums.

In both cases though – Singapore and Toronto are both seeing massive preconstruction sales to investors and foreign buyers. This is likely a strong incentive to build shoebox condominiums, as they become more “affordable investments” and require smaller capital down. If that’s the case, shoebox condominiums are creating a new form of downtown transient population – encouraging renters to populate the cores of each city.

I live in an 1150 sqf 2 bedroom condo – with wife and 2 cats. At 500 sqf, one of those would have to go! (I love you hunny!)

$340,000 Garage – Seriously, That’s Just For a Garage

Just a few days ago I blogged about a company in the US building storage space condominiums. These units are not zoned for human habitation and are intended as owned storage on Units range up to 1250 sq.ft. and cost about $82,000. I though it was a fabulous idea – a good use of condominium controlled development, it meets a need, and reasonably priced.

They have been outdone.

A luxury car garage – 34 units total – called The Dens – has been recently been completed near Calgary, Alberta, Canada. The kicker – a 1600 sq.ft. garage was purchased for $340,000.

In other news, reported by the Globe and Mail today, income inequality is rising quickly in Canada.

Municipalities Should Never Be Residential Condominium Developers

They were teased by the success of small scale urban development projects that successfully helped their community. But when the Borough of Collingswood NJ decided on being the developer of their own downtown condominium project, they took on a multi-year headache now culminating in over 8 million in debt for the municipality.

The 120 residential units, the commercial units, and the parking facilities of The Lumberyard Condos were the cornerstone plan in revitalizing their municipality. An 18 million loan to the municipality started the project in 2006. Now, 5 years later and with only 2 of the 3 phases completed, Collingswood will issue a six million ordinance to help cover the remaining 8.3 million on the loan and now focus on renting the remaining 14 (of 24 units in phase 2) to help pay down the remainder.

In March, the Mayor James Maley indicated the project was picking up, and 8 of the 24 units had been sold. It appears that things weren’t looking up that much, and only 2 more units sold in the last 6 months.

Development risks should really be left to developers – and not to municipalities where the cost to citizens, as in this case, is expensive against both tax revenue and in the energy expended by the municipality in working with this long losing project.

I agree that municipalities should take a very active role in wooing developers if they feel a population “mini-boom” is required to keep their city alive. I also believe in the municipality, in hand with the wooing, set out strict development requirements that would have generated a project that meets their vision and goals.

But they should always refrain from being the actual developer.

When Developers Face Resistance

While I can sometimes fail to be the biggest fan of developers – based on experience; and there are a few that I love and champion with proven track records, a commitment to quality, a stand behind fixing deficiencies quickly and without balking – I admit fully that they can often face significant barriers in getting proposals accepted by the municipality and local residents.

Such has been the case for the Ilkay Development Corporation attempt to build out a 236 hectare parcel skirting beside the Juan de Fuca Provincial Park and sitting on the ocean edge.

It’s a sordid history – the land was bought in a bankruptcy and for a while appeared to be illegal bought (second link) by the developer.

The plan to put in 257 summer cabins (they are not being marketed for year round inhabitation), rec centers, parks, maintenance buildings and helicopter pad is being heavily resisted locally.

Local residence, activist groups, and now a movement from within a local native band – where the band council supports the development – all oppose the development.

Even if the local residents and interests prove strong enough to stop the current development plans (likely and second link) the land still has mineral extraction rights, so if it isn’t developed it could be massively deforested. The land can also be legally subdivided for massive mansions on huge lots. Even if they win against the condominium summer cabin development, they’ll need to fight again to stop other development. Of course, if they can stop one development they may be more likely to continue their fight to stop development successfully.

Where is comes to forested land, lake front land, land abutting a provincial park (and this development has all three) – the development process is always complicated. It’s should be a risk that the developer took into account buying the property.

I’m not in a position to determine if it’s a good development. In south Florida – similar development has been terrible, with beach front upon beach front being privatized. In Alberta, there has been a very good approach to development near and in Provincial parks that had been good to the developer and the community.

In any case, it is likely that this is far from finished, and it is unclear what options the developer will choose to take in attempting to recoup their time and investment if the plan isn’t approved.

Link: Times Colonist Special Report on this story

Storage Facilities as Condominium Developments

Building storage spaces as condominiums allows for a whole different approach to long term storage. In particular, a condominium approach allows for large scale storage.

You can certainly rent space from a commercial storage provider, but the space tends to be small – 50 sq feet or less. You can get larger space by actually leasing in a commercial park, but rental costs tend to be higher because the facility allows for businesses to operate, thereby requiring additional costs to maintain.

With a condominium based storage solution you can build only for storage, and build large. South of Sioux Falls they are trying out units large enough to hold touring busses, with a few units as large as 25×50 feet.

The development – Ultimate Space – indicates that the primary purchasers have been businesses to store inventory, but give a story of “the guy with too many cars” needing more space to tinker.

By buying the storage unit, you have a sense of predictable costs, control, the ability to upgrade or modify (within the limits of the bylaws) and a capital investment that may increase in value over time. As storage only units – the monthly condominium contribution should be relatively low as well.

Sounds like a great use of building under condominium governance and maximizing value to the purchasers.

Recycling Facilities in New Condominiums Should Be Mandatory

As the president of a 40 year old 100 unit condominium complex I was completely stymied over the ineffectiveness of our recycling program.

Because of limitations on our trash compactor, along with the simple desire to offer recycling separation and pickup to over 250 residents, we converted one of the large rooms entering into the underground parkade into a separation station. We hoped to reduce our trash output (reduce the number of pickups) and become more environmentally responsible.

Unfortunately the location proved troublesome. It wasn’t attached to a trash room (each floor has a garbage shoot) which meant it was easier for owners to still dump recyclable material in the shoot. The room was very difficult for the recycling company to access – they needed access to the garage, and then building keys, along with extra room to maneuver their trailers in and out of a parkade. Without monitoring, the bins sitting right along a major owner though fare from the garage turned it into a dumping ground for garbage as well.

We pulled the program from the unit after six months.

As such, I’m all in favour of building regulations for new multi-unit residences, just like requiring things like dedicated visitor parking and handicap access, have a requirement to a recycling separation room (or rooms) that are easily accessed from a road, or otherwise build separation facilities into the functionality of the building. This should be mandated. Required. Legislated.

Sure – developers will scream that this will only add to the cost of the units they sell, but it likely will benefit the residence with lower trash removal costs and compliance with municipal recycling targets. Retrofitting recycling space is extremely difficult (or in our case impossible). It has to be included up front with all new buildings.

For those that don’t have recycling currently, many municipalities will offer free consulting and even materials (bins, notices, tenant communication) to get your condominium recycling.

Developer Sells “Panoramic Manhattan Views” Knowing He’s Building a Condo That Blocks View

I seriously wouldn’t mind working in the developer business – with a position to repair and rebuild the industry’s reputation. It seems like one of those impossible opportunities with no chance of success. I would love that challenge. People like Jamie LeFrak of the huge New York The LeFrak Organization would make every moment exciting and challenging.

As an upstanding developer, he specifically marketed 16 luxury apartments in the Shore Club condominium as having panoramic views of Manhattan. He did this while fully aware that he’s building a 32 story building that will block the view.

A court case brought by the 16 purchasers has been ruled in their favor for false advertising. They group has been awarded 3.8 Million in damages, interest, and another one million to cover legal fees.

P.S. – For Feng shui reasons, the Shore Club has no 2nd, 4th, 13th, 14th, or 24th floor – which means if you buy on the 25th floor you are actually on the 20th. That seems awesome – now you can have that 25th floor experience even with your fear of heights over 20 floors! [sarcasm]

Over Supply, Investor Demand, Interest Rates, May Decimate Toronto Condominium Prices

I often suggest to my American friends that the read the Globe and Mail for a non-partisan, third-party, observation of the US. They are so bombarded with the us-or-them approach in US media (everything is either a Republican source or a Democrat source) that the Globe’s articles on US politics and economy have become a powerful neutral source of information for many of them.

So it’s in the same light that I read a recent Wall Street Journal on the likelihood significant correction in the Toronto condominium market. I mean, if a US paper wants to spend reams of paper informing their citizens about a growing risk in our condominium market, maybe its worthwhile listening.

To summarize –

1. The WSJ equates Toronto to Miami – where foreign buyers created a real estate bubble that burst, leaving exceptionally large numbers of abandoned units.
2. There are 40,000 units under construction, increasing the supply by 20% in the next 24 months.
3. Bank of Canada Governor Carney has expressed condominium prices are being driven by investors not owners
4. 60% or so of all pre-construction unit sales are investors, not owners
5. Ratios are rising rapidly between yearly rent and unit cost (moving above the magic ratio of 1:16 yearly rent to unit cost)

As the condominium prices driven by investor demand have risen to about $305,000 – even a one percent increase in lending rates would require $255/month increase in rent to cover the new rate. Interest rate increases matched with a 20% increase in available units (which should help suppress the costs – or in investor terms, equity) in units, Toronto could see a very big and self-feeding drop in unit prices over the next two years.

So says a non-partisan observer looking in.

Housing Should Be Only For Those That Can Afford It

There are common shared social moments in people’s lives that root their life experience within society.

Assassinations (the “I remember where I was when President Kennedy /Martin Luther King / John Lennon was shot”), Marvels (the “I remember Neil Armstrong’s first step on the moon”) and event experiences (the “I remember the entire scare over the year 2000 bug”) are all common shared social moments.

I must be a little out of phase, because my experience that roots my awareness in society is the great subprime mortgage collapse. The experience has made me a little jaded about the housing industry. Maybe a little more than a little.

The root of the issue is granting people credit that they cannot support.

The housing industry has done a great job in painting a picture that if only everybody had their own home, then financial security would be universal. There is a picture painted that home ownership is a safe, secure, and promising way for people to build equity and generate savings – all very important for that new family who is buying for the first time.

But in the US, we have seen the massive dislocation of people from homes they purchased in the last few years (and it’s still happening with an extended and renewed economic collapse as seen in the most recent job figures). People who never had the ability to properly service their loans were offered amazing housing deals. Low and behold, the mortgagees defaulted and the houses are standing empty.

The UK has recently offered their second new and non-wealthy new-home buying program called FirstBuy. In this process, the developer and the government both take a 10% equity stake (that’s important here) with interest. The new home buyer then needs to put down only 5% of the total cost of the house, and the bank will mortgage the remaining 75%. New home buyers can get a house with 5% down.

Given the history of the US, I am now prone to say that 5% down isn’t enough to show the ability to service the loans (see plural!). One is the bank loan of 75%, the second is the builder and government equity purchase that are really loans. They convert at the 6^th year to interest bearing loans (vs. interest free).  If the unit is sold before the equity loans are paid – the builder and the government get paid out first their share of the selling price.

So what we really have is a 95% mortgage that only people making £60,000 a year or less can apply for.

What does housing costs entail – capital repayment, interest, taxes, utilities, maintenance, and upkeep on the appliances – things indirectly covered in a rental situation with one monthly, predictable, contracted cheque. The problem with owning a house is costs are not predictable – especially maintenance and upkeep. Even in condominiums, we see special assessments which are non-scheduled sums owners are required to pay beyond their monthly contribution.

For low income families which have not proven their ability to service debt, documented through their inability to amass a respectable down payment, non-scheduled costs (like new roofs, etc.) will be beyond their payment ability at some time.

So, incentives like these do nothing to ensure home ownership is a safe, secure, and promising. They heap credit debt on the least able to afford it, offer a discounted rate for 5 years on the belief that life will always be better (ie. make more money to afford the full loan) down the line. It doesn’t always happen, especially for the poorer, where we know their marginal income doesn’t rise.

Until people can get a respectable down payment for the purchase of their house, rental provides an extremely stable, predictable method to secure housing. Further, unlike a mortgage, renting allows for easy mobility – either to lower cost housing, or to move unencumbered from a housing debt to pursue better employment.

PS. That 20% loan held by the government and developer for 5 years interest free, and then jumps, feels a lot like those US subprime financing schemes that people couldn’t afford.