[interested]

From the Star today: I have bolded the pricing. I point this out as in a previous post it was mentioned that housing would likely descend in a worse case scenario to the cost to build and land. I suspect in Chicago at $300/sq. ft they may be below these amounts. I don't expect this in Canada but again food for thought.

http://www.yourhome.ca/homes/reales...arket-tour-reveals-health-of-ontario-industry

Housing Study: Chicago market tour reveals health of Ontario industry
October 8, 2010

Michael Collins-Williams

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CHICAGO—In a tale of two Great Lake cities, the grass isn’t always greener on the other side of the lake.

Gleaming skyscrapers and a rich history have sadly been unable to spare this great American city from feeling the effects of the worst recession the United States has experienced since the Great Depression. Back home in the GTA, after a brief pause in sales activity while global financial markets plummeted, the real estate market caught fire and took off for nearly a year before settling down to a more normalized and stable pace of sales activity.

During the past year, the housing market and residential construction across the Golden Horseshoe have been significant job creators and, unlike the U.S., this important sector of the economy has helped lift Ontario and Canada out of recession far sooner than our neighbours to the south. We certainly aren’t out of the woods yet, but the housing market along the shores of Lake Ontario is in far better shape than along the shores of Lake Michigan.

During a whirlwind housing tour of the windy city earlier this month — conducted by the Hamilton-Halton Home Builders’ Association and led by executive officer Doug Duke — we viewed firsthand a number of new housing developments struggling to swim against the tide in a depressed American housing market.

The tour group of home builders were surprised — not by the high quality of housing products being marketed, but by the significant price declines builders have offered in an attempt to drive sales traffic in a very quiet market. Builders are still building and buyers still exist, but prices have come down drastically since their peak a couple years ago and sales volumes are a fraction of what they were for most of the past decade. The Chicago experience certainly places the slowing of sales activity in the GTA and Hamilton areas in a very different perspective.

A visit to the Chicago South Loop and the Central Station urban renewal project by Enterprise Development is extremely impressive and dwarfs the size of any large-scale urban project in the GTA.

The Central Station development is the third phase of a massive urban renewal development started in 1975 and is the last section of available land on Chicago’s famous Lakeshore Dr.

High-density condo projects in Chicago peaked in value in the $500 to $600 per square foot range only just a couple of years ago, while today’s prices have dipped to approximately $300 per square foot, with some units in foreclosure going for even less. In the Toronto condo market, prices downtown have continued to escalate and, according to Urbanation, new openings are now averaging $565 per square foot.

The most recently completed tower in the Central Station development is the 62- and 54-floor Museum Park Towers, which overlooks the waterfront and Grant Park. Despite stunning skyline views and an incredible location, many buyers walked away from their deposits and the developer is now selling discounted units in the $350 to $500 per square foot range.

The suburban portion of the housing study featured America’s luxury builder, the Toll Brothers’ master-planned Bowes Creek golf course community in Elgin, Ill. Most residents from Southern Ontario would be surprised by just how much house one can purchase for so little in today’s U.S. housing market.

However, with prices in the 950-home project reduced 20 per cent since their peak a couple of years ago, and sale traffic down significantly, the project will certainly take longer to complete than originally planned. A typical 2,800-square-foot single-family home can be purchased for just under $400,000, and townhomes in the 1,700 to 1,800-square-foot range sell for as little as $237,000. All the homes all feature high ceilings, upgraded standard features, and open-concept layouts situated on very large lots with a city-run golf course just steps away.

A look at the American housing market is a quick reality check and reminder of just how good it is to be Canadian.

With our strong financial sector, strict mortgage lending criteria, lack of sub-prime lenders and responsible home builders that rarely build speculative product, we find ourselves in a far better situation than the U.S.

Home builders and home buyers across the GTA have been experiencing a slower housing market the last few months, but the experience of visiting and discussing real estate with our American counterparts certainly reveals not that we are lucky, but that specific building and lending practices helped insulate the Canadian economy from suffering the blows of a major global recession that has throttled and continues to ravage the American economy.

Michael Collins-Williams is a Registered Professional Planner and is the Director of Policy at the Ontario Home Builders’ Association. Go to wwaw.ohba.ca for more information.


Editor's picks

 

[CN Tower]

You beat me to it Interested.

A look at the American housing market is a quick reality check and reminder of just how good it is to be Canadian.

With our strong financial sector, strict mortgage lending criteria, lack of sub-prime lenders and responsible home builders that rarely build speculative product, we find ourselves in a far better situation than the U.S.

Home builders and home buyers across the GTA have been experiencing a slower housing market the last few months, but the experience of visiting and discussing real estate with our American counterparts certainly reveals not that we are lucky, but that specific building and lending practices helped insulate the Canadian economy from suffering the blows of a major global recession that has throttled and continues to ravage the American economy.

I don't think foreign investors perceive Chicago to be as desirable a money laundering destination as Toronto or Vancouver. That's just about the only viable explanation that I can come up with. Chicago is everything that Toronto is and more. It's tough to argue otherwise.

 

[interested]

You beat me to it Interested.



I don't think foreign investors perceive Chicago to be as desirable a money laundering destination as Toronto or Vancouver. That's just about the only viable explanation that I can come up with. Chicago is everything that Toronto is and more. It's tough to argue otherwise.

I would think there is one significant difference. While I have seen alot of comparisons of New York to Toronto (which I think is far fetched: there is only 1 New York), the one thing that rings true for me is that Toronto is Canada's foremost city from a financial perspective/financial industry. In this regard, Chicago is a Tier 2 player in the US similar to Los Angelos and other cities.

I would hope that it is not only the "money laundering destination" that makes it different.

CN Tower: On a lighter note: You know what they say: Great minds think alike......OR.....Fools seldom differ.

 

[cdr108]

lol ... seems like several of us read the above article.

IMO Chicago and Toronto are comparable ... the NYC analogy that RE agents use is ridiculous.

if Chicago developers can sell units for $300 PSF and still survive (presumably making a profit), don't try to tell me TO developers are hard up and barely making any profit at $550 PSF ... they're probably at 100+% margin

 

[interested]

Actually, I can't talk about Chicago but I am aware of the figures on a condo project in Toronto. Without going into details, I can tell you that the pro forma costs were around $290/sq.ft.

Since then, land costs are up about $30/buildable foot so assuming we meet proforma, cost for a midrange condo is about $320/sq.ft. This is cost with no profit margin. Then there is the cost of capital tied up over several years. I would guess that to add another $30 to $60/sq.ft. So even allowing a 20% amount on say $350 to $380 for taking the risk and the work involved, one is around $425/sq.ft. Land in the central core would be more and further construction costs since the pro forma are up so I would think that$400 to $425 is likely cost now and allowing for 20% profit for the risk means closer to $500 now for it to be worthwhile.

No one will even begin I would think much below $500 in the core now unless there is a big decline in land price (doubt that will happen since I think those who own land will just sit on it longer) or construction costs/material costs come down. Some material costs were down last year but are up again I believe. So yes: $550 to $600/sq. ft. they are definately making money but not quite as much as I believe some would think.

I don't know if Chicago has cheaper land (likely) but construction costs (probably quite close or slightly lower than ours) likely make it that at $300 they are certainly not making anything (breaking even) or losing some money.

This is just my guess.

TO developers in Toronto are making money at $550/sq. ft no doubt but in the core, given the risk adjusted rate of capital, and the time money is tied up, I suspect their costs are closer to$380 now.

 

[CN Tower]

Actually, I can't talk about Chicago but I am aware of the figures on a condo project in Toronto. Without going into details, I can tell you that the pro forma costs were around $290/sq.ft.

Since then, land costs are up about $30/buildable foot so assuming we meet proforma, cost for a midrange condo is about $320/sq.ft. This is cost with no profit margin. Then there is the cost of capital tied up over several years. I would guess that to add another $30 to $60/sq.ft. So even allowing a 20% amount on say $350 to $380 for taking the risk and the work involved, one is around $425/sq.ft. Land in the central core would be more and further construction costs since the pro forma are up so I would think that$400 to $425 is likely cost now and allowing for 20% profit for the risk means closer to $500 now for it to be worthwhile.

No one will even begin I would think much below $500 in the core now unless there is a big decline in land price (doubt that will happen since I think those who own land will just sit on it longer) or construction costs/material costs come down. Some material costs were down last year but are up again I believe. So yes: $550 to $600/sq. ft. they are definately making money but not quite as much as I believe some would think.

I don't know if Chicago has cheaper land (likely) but construction costs (probably quite close or slightly lower than ours) likely make it that at $300 they are certainly not making anything (breaking even) or losing some money.

This is just my guess.

TO developers in Toronto are making money at $550/sq. ft no doubt but in the core, given the risk adjusted rate of capital, and the time money is tied up, I suspect their costs are closer to$380 now.

There are so many factors- land costs, underground parking, level of finishes, etc but suffice it to say most projects today should be profitable well under $400 psf. I wouldn't factor in the cost of capital in the proforma. That is your equity investment. Also, it is a super complex development world today. So many builders are effectively brands for hire with some stake in the profits. They elect to build to generate project management and developments fees while the investor has the real dollars at stake. Every project is different.

My comparison to Chicago was not intended to draw attention to the developer's profit- hey good luck to them all and I wish them all limitless success- I was trying to highlight that in a market larger than Toronto units are languishing at nearly 50% of the price because there are no buyers. Here there are buyers but a fractional amount of bona fide end user buyers. Projects here would not get off the ground were it not for the broker-driven investor syndicates.

And for the record, I doubt very much developers in Chicago are profitable at $300 psf. They are likely selling and completing projects on behalf of their lenders and creditors who are themselves probably taking a big hit at that number.

 

[interested]

CN Tower:

Your points are well taken. I am not sure even if I factor out the cost of capital that projects are still profitable "well under" $400/sq. ft.

I can imagine they are probably even without capital costs 325 to 350/sq. ft. For say $50/sq. ft would you take the risk to build? Sure prices are up now but a 10% decline would not be hard to imagine and all the headache a developer would have for that small margins would makehim/her rethink building. I would imagine at $550/sq. ft for mid range product they are making "a lot of money". I would believe that developers aim for 20-25% margins for a 4 - 5 year endeavour or longer to get from initiation to registered project. I admit I do not know if I am correct with these assumptions, just making some educated extrapolated guesses.

That said, I believe you are quite right when you say the developers are into project management, retaining common elements and ground floor space for revenue streams, and even condo management.

 

[Condo George]

This week has been very busy folks right across the GTA for me and watching different regions demand and sales are picking up for first week in October.

Offer on Shaw St Bloor W
Offer on Linsmore, East York
2 offers on Neptune one bachelor and one bed

Currently have 17 active listings

Looks like we are going to make it past 2010 and look for a strong spring 2011

 

[Condo George]

Will have floorplans and pricelist for Yonge and Front next week. Sim u are going to be all over it!!!!

 

[interested]

This week has been very busy folks right across the GTA for me and watching different regions demand and sales are picking up for first week in October.

Offer on Shaw St Bloor W
Offer on Linsmore, East York
2 offers on Neptune one bachelor and one bed

Currently have 17 active listings

Looks like we are going to make it past 2010 and look for a strong spring 2011

George, could you put some context to the comment that this week has been very busy. How does it compare to most 1st weeks in October. I appreciate last year Oct was "crazy" and things were going "up in both price and volume" so say the previous 2 or 3 years. Are prices going up, staying the same as the past month or 2, or coming down? Are volumes picking up, the same or less than during Oct the last 2-3 years?

I appreciate you can only extrapolate from your own experience and perhaps what you see but with someone with his ear to the ground, what is your best estimate. We can then see if yours is a shared experience when the numbers actually come out.

I believe the rally will be continued in the near term and you will have been right for a while longer. Since the recent indication that there will be further quantitative easing and the Bank of Japan and the Fed both bringing interest rates to zero/near zero the world is awash in cheap money but I believe we are further borrowing future sales yet again in the near term(read rest of this year and early next year. I believe many of these sales should probably not be being made as people are being lured into a real risk that they believe low interest rates are here to stay "forever" which I believe is very risky.

I am concerned that more and more marginal players are entering as well as some well capitalized investors and that in the longer term, this will be a bad thing. Just my thoughts.

 

[KA1]

This week has been very busy folks right across the GTA for me and watching different regions demand and sales are picking up for first week in October.

Ah! There you are, Condo George, with, as always, spiritually uplifting message. It is just like having a nice hot cup of chocolate on a Sunday morning.

Bless you.

 

[Condo George]

Int.....better than 2008 , not as good as 2009.

What I think is happening is sideliners are not seeing the plunge people spoke of that was forecast for the last half of 2010, so they are getting in there before the spring

 

[Condo George]

Cheers KA1

 

[CN Tower]

Int.....better than 2008 , not as good as 2009.

What I think is happening is sideliners are not seeing the plunge people spoke of that was forecast for the last half of 2010, so they are getting in there before the spring

That's great info about the flippers and gamblers. We all know that they eventually crash and burn and leave us resident taxpayers with the headache of cleaning up their mess.

Now, does anyone have any info about the real demand for new condo living in this city?

 

[interested]

CG: Better than 2008 of course 2008 Oct was the bottoming so it was dead. 2009 was crazy with the pull forward so it was too strong.
Can you hazard a guess from memory about 2006 and 2007 Oct. I know that is a tough thing to ask.