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Tag Archives: real estate investors

How the rich are investing in real estate right now

Thane Stenner – Globe and Mail

I was catching up on a backlog of reading last weekend when I came across an interesting, if worrisome, article in The Economist. In it, the British newsmagazine suggested the Canadian real estate market is overvalued by 25% or more, and is now “frothier” than the U.S. market was at its peak in 2008.

Comment: Except no one here with any experience with our real estate market puts any stock in that report.

A provocative suggestion, one sure to make millions of Canadian homeowners a little concerned. For better or worse, real estate remains a significant asset for most Canadian families. If our real estate market is in bubble territory, the financial implications would be serious.

Now, by no means am I an expert real estate investor. I’ve owned each of the principal residences I’ve lived in over the past 25 years, and they’ve all done reasonably well for me. But real estate is not the focus of my portfolio, and beyond the old adage about “location, location, location,” I have little in the way of secret wisdom or guru-like tips to pass on to real estate investors.

The wealthy people I know, however, are quite another story. Many of the smartest, wealthiest people I have ever met have made millions in real estate. These people are shrewd investors. Real estate is something they talk about often, and when they do, I listen.

Based on these conversations, I would say high net worth (HNW) investors seem to be pulling back from the Canadian real estate market. Not exiting altogether, mind you. But instead of allocating new money by buying Canadian residential property, they’ve decided to invest in real estate in a different way.

The following four “profiles” describe some of the different approaches HNW individuals are currently using to invest in real estate. I offer them as a jumping off point for how you might allocate your own real estate assets, no matter what your net worth.

Many of the smartest, wealthiest people I have ever met have made millions in real estate.

The developer

Many HNW real estate investors are in fact real estate businesspeople. They tend to be highly experienced investors with detailed knowledge of a particular market, along with a vision for what a particular piece of property could be (as opposed to what it is now). They are prepared to take big risks. But they can reap equally big rewards.

Playing the development game requires a strong stomach and deep pockets. It also requires a somewhat paradoxical mindset. On one hand, bringing a property from raw land to completion can take years, so patience is a necessity. On the other hand, once a site is built, cash return becomes a priority, so quick-flipping is standard.

Investors with neither the mindset nor the capital for development can still invest like a developer by putting money behind publicly listed companies in this line of work. Firms related to development (engineering firms, for example) are another possibility.

The income investor

Real estate has always been an attractive asset for income-oriented investors. With the current low interest rate environment, that interest has only grown. More and more HNW investors I talk to are taking a look at apartments, office buildings, malls, and warehouses, where there’s potential for capital gains, but the primary goal is income.

Like the developer, the income investor takes a businesslike approach to real estate. But the business is more conservative, with less focus on vision and more focus on balance sheets, cash flow, and cap rate. These investors seem to be in it for the long haul, and many times, with the intention of handing down through multiple generations.

Investors of more modest means can easily take the same approach. There are several REITs that focus on apartments and long-term tenants, both in Canada and the U.S.

A diversified portfolio of them could make an intriguing income investment. Accredited investors can also consider investing via Limited Partnership structures.

The opportunist

Legendary value investor Benjamin Graham talked about putting his money into “cigar butts”: companies that had been beaten up and discarded but still have a “few good puffs” in them. That’s a good analogy to what many HNW investors are doing with real estate. The opportunist sees real estate as a contrarian play—potentially the greatest of the past 50 years—but not necessarily a long-term hold.

Since 2008, the prime target for this type of real estate investing has been U.S. housing. With prices down 50% or more from their all-time-highs in sun belt states such as California, Arizona, and Florida, dozens of HNW investors I know have bought condos, houses, and also apartment buildings and commercial property. A strong Canadian dollar doesn’t hurt, either.

There is nothing to stop investors of more modest means of doing the same, either through direct purchase (condos in many Snowbird destinations can be had for $150,000 or less), or a U.S.-focused REIT.

The loaner

Some HNW investors have decided to invest in real estate not by owning, but by loaning. Instead of buying property, they’re funding mortgages, investing in private real estate financing pools, or by backing companies that do the same.

Such an approach has several advantages over owning. It’s a good way to diversify, for one. It’s also a good way to move up the capital structure: mortgage holders generally take precedent over equity holders if a project goes sour. And of course, mortgages and real estate debt can be good income generators, too.

There are several publicly traded securities that offer exposure to mortgages and other financing pools. Many Canadian mutual fund companies offer mortgage loan funds. They’re more expensive than publicly traded securities , but active management may arguably offer additional risk control. Limited Partnerships are also an option for Accredited Investors.

———————————————————————————————————————
Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.

———————————————————————————————————————

Toronto Real Estate on Facebook     Toronto Real Estate on Twitter     Toronto Real Estate on LinkedIn


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  • Dundas-Sherbourne poised for a surprising rebirth

    Robyn Doolit­tle – Toronto Star

    With the top down in her bur­gundy con­vert­ible, real­tor Kristyn Wong-Tam was enjoy­ing a sunny sum­mer day as she cruised east along Queen St. towards an office sup­ply store.

    When the light turned red at Sher­bourne St., Wong-Tam was day­dream­ing about legal fold­ers and labels.

    Sud­denly, some­one was scream­ing. A young woman with leath­ery skin and mat­ted blonde hair sprinted into traf­fic, then hurled her petite frame into Wong-Tam’s pas­sen­ger seat.

    Drive! Drive!” the woman shrieked hys­ter­i­cally, div­ing into Wong-Tam’s lap. “They’re going to kill me!”

    But it’s a red light, there’s a car in front of me,” Wong-Tam stammered.

    Within sec­onds, two men appeared on oppo­site sides of the Mer­cedes, madly swing­ing their fists towards the woman. Wong-Tam was receiv­ing the major­ity of the blows.

    The light changed. She hit the gas. In pain and trem­bling with fright, Wong-Tam pulled over a block later to call the police. The woman ran away.

    Two years later, Wong-Tam is the neighbourhood’s city coun­cil­lor. She has never pub­licly spo­ken about the attack, but men­tions it reluc­tantly dur­ing an inter­view as proof of her per­sonal com­mit­ment to turn the area around.

    It won’t be easy.

    Year after year, the down­town east­side con­sis­tently tops every major Toronto police crime indic­tor list. Sim­ply put, this is the area in Toronto where, sta­tis­ti­cally, you are most likely to be shot, stabbed, robbed or sex­u­ally assaulted.

    And while other prob­lem areas of the city — think Cab­bage­town, Leslieville, Park­dale, Regent Park — are cleaned up and gen­tri­fied, Dun­das and Sher­bourne has been left wait­ing for its turn.

    That time is now, says Wong-Tam.

    As builders snap up cheap plots of land, new lux­ury con­dos hit the mar­ket, and city hall plugs away at plans to over­haul its shel­ter sys­tem, Wong-Tam is work­ing to bring together iso­lated com­mu­nity members.

    This per­fect storm of polit­i­cal will and pri­vate devel­op­ment money has city offi­cials, urban plan­ners and real estate investors pre­dict­ing a renais­sance on the Dun­das corridor.

    I would guess that, 10 years from now, you won’t be able to rec­og­nize that area,” said Ernie Light­man, an econ­o­mist at the Uni­ver­sity of Toronto. “To be hon­est, I’m sur­prised it has taken this long.”

    It’s 8 a.m. on George St. The edge of the road is lit­tered with crack cocaine para­pher­na­lia — glass tubes, Brillo pads, chop­sticks — used con­doms and bot­tle caps.

    Wong-Tam is com­ing to check up on a Toronto Com­mu­nity Hous­ing build­ing she vis­ited dur­ing the campaign.

    I was at the front door and a res­i­dent stopped me: ‘You don’t want to go in there,’ they said. It looked like it had never been cleaned — ever.”

    Wong-Tam inher­ited a neigh­bour­hood in trouble.

    The rea­sons are obvi­ous. The solu­tions less so.

    Accord­ing to sta­tis­tics com­piled by Toronto police between 2005 and 2009, which the Star obtained through a free­dom of infor­ma­tion request, the Sher­bourne and Dun­das neigh­bour­hood ranks first in every major crime indi­ca­tor list.

    The area hand­ily beat out neigh­bour­hoods tra­di­tion­ally regarded as trou­bled, such as Jane and Finch, Rogers and Keele, and Weston and Lawrence — areas where community-based polic­ing and social invest­ment have coin­cided with decreas­ing crime rates.

    This has not been the case on the down­town eastside.

    Bor­dered by Carl­ton St. to the north, Par­lia­ment St. to the east, Queen St. to the south and Jarvis St. to the west — an area less than one square kilo­me­tre in size — this tiny quad­rant of the city har­bours three of the city’s largest home­less shel­ters, 32 legal room­ing houses and 14 sus­pected ille­gal ones, more than a dozen aban­doned lots and build­ings, and one of the largest clus­ters of social hous­ing in the city.

    This high con­cen­tra­tion of poverty lures preda­tors from other regions.

    It’s hard to say the exact num­bers, but I bet at least half of the deal­ers live in other parts of the city or not in Toronto at all. They come here because they know there’s a mar­ket,” said Sgt. Mike Ferry, who fre­quently patrols the area with the TAVIS rapid response team.

    And in that same area there are few community-building ameni­ties. No gro­cery stores. No banks. And no friendly neigh­bour­hood pubs, unless you count the Filmore’s strip-club/hotel at the foot of George St.

    Round­ing out the neigh­bour­hood are rows upon rows of expen­sive Vic­to­rian homes, which have been for­ti­fied with 2-metre-high wrought-iron fences.

    It’s prob­a­bly one of the worst-planned areas in the city,” said Wong-Tam.

    And fix­ing that prob­lem is no sim­ple task.

    For her part, the coun­cil­lor has helped resus­ci­tate a Busi­ness Improve­ment Area on Queen St. Wong-Tam, who owns a con­tem­po­rary gallery on Queen West, has been look­ing at ways to entice artists and their fam­i­lies to move into the com­mu­nity. She’s in talks with Artscape about build­ing afford­able homes and work­spaces. And in early May, she’ll be speak­ing with local young moth­ers about get­ting some proper play­ground equip­ment for Allan Gardens.

    I’ve also been meet­ing with devel­op­ers — ‘What do you need? Help me do this. How can we work together?’” she said.

    If it’s true that a healthy neigh­bour­hood is a mixed-income one, the Dun­das cor­ri­dor needs more afflu­ent res­i­dents. Money brings local busi­nesses, which in turn get peo­ple walk­ing and shop­ping on the streets. The more eyes on the street, the safer the neigh­bour­hood becomes.

    But it’s a chicken-and-egg prob­lem, says Light­man, an econ­o­mist with the Uni­ver­sity of Toronto fac­ulty of social work. Peo­ple with means typ­i­cally avoid areas with high crime rates. The neigh­bour­hood needs urban pio­neers to move in, plant roots and start the cycle.

    The thing that Dun­das and Sher­bourne has going for it is that it’s so close to every­thing,” he said. “The prop­erty is too valu­able. You’re already see­ing it. The devel­op­ment is clos­ing in.”

    About four years ago, real estate mogul Brad J. Lamb was handed a seem­ingly impos­si­ble task: find buy­ers for lux­ury lofts at the cor­ner of Jarvis and Queen Sts.

    It wouldn’t be the first ven­ture in the area. Some small-scale devel­op­ment had already taken place to the imme­di­ate south, but the Glasshouse Lofts was the first major project in the embat­tled region.

    The 88-unit con­tem­porar­ily designed condo build­ing would be just one block away from where Wong-Tam was assaulted at Queen and Sher­bourne Sts.

    In 2008, the owner of that corner’s noto­ri­ous Cof­fee Time was arrested for sell­ing mar­i­juana and crack to cus­tomers. Across the street from the dough­nut shop, now a fast-food chicken joint, is Moss Park Arena, where the city’s home­less con­gre­gate, and one of Toronto’s largest shel­ters, the Maxwell Meighen Center.

    It was a tough site. There were lit­er­ally crack­heads shuf­fling in front of the sales office,” said Lamb. “Before I came on, the project had failed at least three times. The devel­oper called me and I said, ‘I can make this work.’”

    Lamb’s advice: Build with the buyer in mind. What types of peo­ple would over­look some neigh­bour­hood grit to be close to the core? Young pro­fes­sion­als. Arsty types. Investors. And what did those peo­ple want? Good-sized apart­ments with mod­ern fin­ishes and a very good price. Don’t bother with 1,000-square-foot units, because that buyer can’t afford them.

    It worked. Glasshouse opened a lit­tle over a year ago.

    Com­ment: Are we for­get­ting the fail­ure of Kor­mann House at the cor­ner of Queen & Sher­bourne? Or the East­side Lofts at Britain Street and Sher­bourne? The neigh­bour­hood is a very very touch sell. There are fan­tas­tic lofts in the area, already built, but I can­not sell them for love or money. No one wants to live there.

    Gavin Mor­ris, a 35-year-old who works in finan­cial tech­nol­ogy, moved in this month.

    It was per­fect. It’s so close to work — the finan­cial dis­trict — the St. Lawrence Mar­ket, my favourite pub, shops. Basi­cally, I now have my whole life in just a few blocks,” he said.

    And what about the less-desirable aspects of the neigh­bour­hood? The pan­han­dlers? The drug dealers?

    I don’t really think about them. I don’t even really notice them,” he said.

    Now The Mod­ern condo is pick­ing up where Glasshouse left off. Peo­ple will be mov­ing in this fall.

    And it’s not the only one. At Shuter and Jarvis Sts., Oxy­gen is slated to be fin­ished for 2013, and nearby Pace Con­dos, at Jarvis and Dun­das Sts., will be fin­ished in 2015.

    With each new devel­op­ment comes thou­sands of dol­lars for the city in lucra­tive Sec­tion 37 fees. Builders can nego­ti­ate larger den­sity and height per­mits in exchange for mak­ing invest­ments in the com­mu­nity, such as a com­mu­nity pool or green space.

    There have not been many large-scale devel­op­ments in the area, so there isn’t a large pool of Sec­tion 37 funds,” said Wong-Tam. “This is what I am hop­ing to change.”

    But just the pres­ence of those con­dos will change things, Lamb believes.

    The Mod­ern lit­er­ally touches that old crack dough­nut shop,” he said. “There’s prob­a­bly 300 con­dos in The Mod­ern, with an aver­age of 1.5 peo­ple liv­ing in each. Now 400 peo­ple are going to descend on the street — and you think they’re going to tol­er­ate crack­heads? They’re not.

    What’s going to hap­pen is huge pres­sure is going to come to bear on that inter­sec­tion. And the police and the city gov­er­nors are going to have to do some­thing about it.”

    Lamb is so sure about this, he’s con­sid­er­ing buy­ing the lot across the street to develop himself.

    It would be a wise invest­ment, said Roger Keil, direc­tor of The City Insti­tute at York University.

    The Dun­das cor­ri­dor is the last fron­tier for down­town devel­op­ment. To the east, the ground­break­ing Regent Park revi­tal­iza­tion has trans­formed a once-dangerous area into a vibrant, even chic, place to live. From the west, mas­sive invest­ments and expan­sion by Ryer­son Uni­ver­sity have added sta­bil­ity and pres­tige to the down­town east­side, said Keil.

    From the north, butting up against once-dangerous St. James Town, three condo devel­op­ments and a host of appli­ca­tions work­ing their way through the sys­tem have flooded the streets with young cou­ples and their dogs. Gen­tri­fi­ca­tion is clos­ing in on all sides.

    The remark­able thing here is the scale and speed at which these things are hap­pen­ing,” said Keil. “This is not the small-scale gen­tri­fi­ca­tion that’s hap­pen­ing in other areas, encroach­ing step by step, block by block, aban­doned build­ing by aban­doned building.”

    But not every­one is convinced.

    Mitchell Kosny, direc­tor of urban plan­ning at Ryer­son Uni­ver­sity, argues the area con­dos tend to exist as lit­tle islands within the community.

    I think the devel­op­ment will help; it will cre­ate more of a fix, but they’re not really con­nected. Peo­ple walk out­side and get right on the street­car or head to their park­ing garage,” he said.

    Fol­low­ing the the­ory that new res­i­dents will push out the home­less pop­u­la­tion, the next ques­tion is: Well, then, where do they go?

    Patri­cia Ander­son, a spokesper­son with the shel­ter, sup­port and hous­ing depart­ment at city hall, said there are no plans to remove any of the shel­ters, but there is a recog­ni­tion that some­thing needs to change.

    We want to return the emer­gency shel­ter pro­gram to its orig­i­nal func­tion. In Toronto, what’s hap­pened with some shel­ters is they’ve become de facto afford­able hous­ing. We’ll be shift­ing from man­ag­ing home­less­ness to end­ing it. We’ve already started doing that now.”

    The area is sat­u­rated, so no more shel­ter beds will be added — there are cur­rently 1,012 in that small region — and there are plans to com­pletely ren­o­vate sev­eral shel­ters, includ­ing the infa­mous Seaton House on George St.

    While the Seaton project is still in its infancy, an Octo­ber 2009 staff report sug­gests city offi­cials are push­ing for a mixed-income and mixed-use devel­op­ment. Retail, stu­dent lodg­ings, office space, per­ma­nent rental hous­ing, as well as improved coun­sel­ing and med­ical sup­port ser­vices, are all on the table.

    And Wong-Tam is going to make sure this isn’t just another city ini­tia­tive that sits on the shelf col­lect­ing dust.

    Every time I see Phil Brown (gen­eral man­ager of the shel­ter, sup­port and hous­ing admin­is­tra­tion), I say: ‘We’ve got to do some­thing spec­tac­u­lar with Seaton House,’” Wong-Tam said.

    Today I bumped into him in the café. He looked at me and said: ‘Don’t say it. I know. We’re going to do it,’” she said. “And that’s just the beginning.”

    ———————————————————————————————————————
    Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

    Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
    They did not write these arti­cles, they just repro­duce them here for peo­ple
    who are inter­ested in Toronto real estate. They do not work for any builders.

    ———————————————————————————————————————


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  • East end ‘hood is flourishing

    Jennifer Febbraro, National Post

    It was once considered the undesirable fringe of the downtown core. East Bloor at Sherbourne, and its surrounding blocks, connoted the sick and the homeless, rundown coffee shops and prostitutes. But over the past nine years, beginning with the demolition of the asbestos-filled Wellesley Hospital, the neighbourhood has revamped its reputation and brought back a little sparkle in the eyes of real estate investors.

    “People used to think the Sherbourne and Bloor neighbourhood was scary,” says Sophie Taskas-Kehdi, sales manager at The 500, an area condo project. “But now it’s completely flourished.” Ms. Taskas-Kehdi explains that the Times Group, The 500′s developers, deemed the neighbourhood an untouched market and were the first to make a footprint in the area. “I remember selling out of a little trailer,” she laughs. “It was so desolate even just a few years ago — and hardly anyone walked by. Now it’s a pedestrian thoroughfare bustling with residents, families, children.”

    With development came retail outlets to accommodate residents. Of course, the regular players such as Shoppers Drug Mart and Tim Hortons made their way east. And Ms. Taskas-Kehdi notices the young, urban demographic gravitating to the pub, Gabby’s, at the Isabella Hotel at 556 Sherbourne. A recent retrofit sports a refurbished patio that bursts at the seams most summer nights. It’s the largest patio in the ‘hood, accommodating up to 75 outdoor diners. “It’s the place to be from May to October,” Ms. Taskas-Kehdi says.

    Not one to miss out on a real estate opportunity, Tridel, the largest condo developer in the GTA, also saw dollar signs when the Wellesley Hospital came crumbling down. They acquired the site where the hospital once stood in 2005 and began launching the Verve Condos and Lofts just east of Jarvis on Wellesley. What happened next was a surprise even for Tridel. They sold 70% of the 440 units within the first 10 months. And not a brick had been laid.

    “What we underestimated was the sales in that location,” says Jim Ritchie, senior vice-president of sales and marketing. “At the time, there weren’t many competing condo units and yet here was prime real estate in the heart of the business district, easy access to transit, great parks, and all things downtown. You really don’t even need a car if you live here.” Rabba and other retail outlets soon scrambled for limited rental opportunities at the base of the first tower.

    With this kind of sell-out success, Tridel launched a second development, the James Cooper Mansions, on Sherbourne about 100 metres south of Bloor. As a heritage site, the James Cooper Mansion, built in the early 19th century by the shoe entrepreneur James Cooper, could not simply be demolished. So Tridel performed the heaviest residential move in Canadian history. They picked up the 800-ton house, set it aside, dug out a parking garage, poured new foundation for the tower, then shifted the mansion back into place. A jaw-dropping video of this procedure can be viewed at tridel.com.

    “The interesting thing about the Verve and the James Cooper Mansions,” says Mr. Ritchie, “is that the majority of our buyers came from other parts of the city simply because they wanted a place in the downtown core.” With 274 suites, Mr. Ritchie says the demographic consists mainly of singles and couples and not too many families with kids.

    Development begets development. For the Bloor-Sherbourne neighbourhood, the results appear impressive, considering the fact that this was a zone previously written off in the ’90s as too remote to develop. To the north sits Rosedale Valley, to the south, Allen Gardens — and in between — a few lucky buyers who got in on the action early enough. Now that Toronto’s core has come to include the revitalized Bloor-Sherbourne ‘hood, latecomers to the game are making sure they’re in before prices swing upwards.

    ———————————————————————————————————————
    Contact the Jeffrey Team for more information – 416-388-1960

    Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
    They did not write these articles, they just reproduce them here for people
    who are interested in Toronto real estate. They do not work for any builders.

    ———————————————————————————————————————


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