$125K/door Calgary Multi-Family

[JDaley]

QUOTE (ThomasBeyer @ Jul 29 2010, 10:09 PM) 150/door for upgraded large 2BRs with a view of the Rockies is not too expensive even if the building next door sells for 125/door as it may be uglier with more 1BRs ..

I don`t mean to be contrarian, but I did see the building, its quite nice with fairly large two bedrooms 850 sq ft (11 - I believe although I`d have to check the docs again) and it sits atop a hill. I didn`t check the mountain view however just as important its close to 17 Ave and the DT core/beltline. There`s a reason four offers were put foreward in less than two days and sold fairly quickly (although as I underastand it its still conditiional until the first week of August ?). Anyway, I recall not long ago, you said Calgary multifamiles were too expensive, why the change of heart ? The price per door in Calgary hasn`t changed much in about a year.

 

[Thomas Beyer]

QUOTE (JDaley @ Jul 30 2010, 07:53 AM) .. Anyway, I recall not long ago, you said Calgary multifamiles were too expensive, why the change of heart ? The price per door in Calgary hasn`t changed much in about a year.
Calgary, like Vancouver, is always more expensive than Edmonton or Scarboro or N York ..

We`re looking to potentially buy in Calgary as the gap to Edmonton is now narrower .. but I am mindful it has a lower CAP rate .. or as we call it: a CRAP rate ... so we try to buy the cream of the crap !

Still much money out there chasing few deals .. tight supply !

Finding properly valued assets is very hard .. very .. that`s why we haven`t bought anything for almost a year ... but have now 2 possibly 3 assets under contract in Edmonton .. but are also looking at a 100+ unit building in Calgary at 120`s/door !!

 

[JDaley]

QUOTE (ThomasBeyer @ Jul 30 2010, 08:46 AM) Finding properly valued assets is very hard .. very .. that`s why we haven`t bought anything for almost a year ... but have now 2 possibly 3 assets under contract in Edmonton .. but are also looking at a 100+ unit building in Calgary at 120`s/door !!

At $120k/door you can`t go wrong. I`ve owned multi familes in the past and I still have one and I agree the average cap rate in Calgary is far too low - a danger sign, and I don`t think the market can grow its way back to normal levels. That`s why I found the listing in this post interesting at $125k/door.

 

[BrianPersaud]

QUOTE (JDaley @ Jul 30 2010, 11:05 AM) At $120k/door you can`t go wrong. I`ve owned multi familes in the past and I still have one and I agree the average cap rate in Calgary is far too low - a danger sign, and I don`t think the market can grow its way back to normal levels. That`s why I found the listing in this post interesting at $125k/door.


Are there residual effects from the condo conversion craze?

 

[JDaley]

QUOTE (BrianPersaud @ Jul 30 2010, 09:49 AM) Are there residual effects from the condo conversion craze?

Brian, I don`t have direct experience with condo conversions although I`ve dabbled with the idea every now and then. I don`t know the market in Toronto but there`s a signifcant amount of volume coming online in Calgary next year and the year after that. Volume will push prices lower. I have a friend who did do a condo conversion in DT Calgary - it was a 21 suiter. The building was gutted which was in pretty bad shape to begin with. Construction proceeded fairly quickly because the contractors were pretty effcient but they did run into many issues invovling HVAC and fire saftey (City Inspectors), even though the building was concrete. Interestingly there was not enough parking but the City waived this issue even though parking has become a real problem in the DT. Total cost for renovations were about $1MM which came to about $50K/unit + carrying costs. This included appliances, stainless steel, tiled bathrooms, permits etc. Mainly 1 bedroom units about 500 Sq ft with a few small 2 bedroom units 650 sq ft, you get $90/sq ft (seems a bit high). Selling price for a condo in DT Calgary varies from $180k-$250k/door. So there`s defintely some money to be had in this kind of business if you control costs.

 

[Thomas Beyer]

QUOTE (BrianPersaud @ Jul 30 2010, 07:52 AM) Hi Thomas,

Two recent solds in Toronto:

1. $120/door with a 6.3% cap (the buyers assumed the first at 55% LTV and put the remaining cash down) 322 doors - Nice area in Scarb
2. $55k/door cap hard to determine because the amount of repairs and maint involved (all cash offer at $4 million) 72 Doors - North York

Ever think about coming to Toronto?
always thinking .. but:

I used to live in Scarboro (Guildwood actually) for 3 years from 1993 o 1995 when I worked for IBM at Eglinton and Don Mills in their large software lab. Great job .. decent pay .. lots of worldwide travel .. interesting times .. when I was the worldwide SAP/PeopleSoft/DB2 manager knocking off Oracle, Sybase, Ingres, Informix off its UNIX RDMBS space .. [to the point where today SAP develops on DB2] .. but I digress ..

Toronto is a great city .. unfortunately it is governed by socialists wrecking the economy with insane policies. Thus, a CAP rate in Toronto has to be 1.5% to 2% higher than a more liberal area of the world such as Calgary. It has rent control. It has rent collection policies that would make formerly communist eastern Europe or Chavez proud. It has brutally cold winters and brutally hot/humid summers. It also has more drug/gang activity in certain pockets of N York or Scarboro, some almost 3rd world like conditions unknown here in the west. Thus, prices in certain areas have to reflect that. They don`t usually.

I would consider a highrise (no termite issues like in wood frame buildings) ... at the right price .. in a decent part of town (and there are many) but the prices are as insanely high compared to Edmonton or Calgary, with low low CAP rates .. thus we`ll likely not buy in GTA.

We would consider KWC, Barre or Hamilton areas for multi-family due to growth and better CAP rates .. but every area takes research and our firm is not that large .. only $100M in assets .. less than 20 buildings .. and for that size we can buy enough out in the colonies called W-Canada !

 

[Thomas Beyer]

QUOTE (JDaley @ Jul 30 2010, 10:43 AM) ..So there`s defintely some money to be had in this kind of business if you control costs.
.. and have enough cash to sustain vacancies and long selling timeframes !

condo conversion is a high risk business that can lead to disastrous consequences if not properly planned and funded !

 

[Savard]

Seems right Brett.

Apparently, this building has an engineering report stating that is it is structurally sound. It settled on a tilt. I am not sure what premium would be expected from a finance company to offset this risk. It is conditional in around the asking price with 25% vacancy. There is a back up offer that is also a cash offer.

Seems like there is still too much money chasing low quality product. It is a concrete building with low quality fixtures and the boiler may have to be replaced.

I would love to buy a multi-family in Calgary at a cap rate that makes sense. The multi-family market is not here… yet.



This listing is from my shop.

 

[Thomas Beyer]

QUOTE (Savard @ Jul 30 2010, 12:51 PM) ... I would love to buy a multi-family in Calgary at a cap rate that makes sense. The multi-family market is not here… yet.
..
And office at 6% CAP rate makes more sense ?

What CAP rate makes sense to you in Calgary for multi-family ?

[If office is at 6% CAP and interest rates for office are 1.5% higher .. and vacancy and lease risk is far higher too .. then multi-family at 4% CAP rate is about right !!]

 

[JDaley]

QUOTE (ThomasBeyer @ Jul 30 2010, 12:19 PM) .. and have enough cash to sustain vacancies and long selling timeframes !

condo conversion is a high risk business that can lead to disastrous consequences if not properly planned and funded !

Agreed, always proceed carefully and plan well. I would expect that once the project is done the units would be sold or mostly sold - that should negate the need for allot of cash on hand for vacanies. Get a good realtor that knows the condo market and has clients in the pipeline.

 

[Thomas Beyer]

QUOTE (JDaley @ Jul 30 2010, 03:56 PM) .... I would expect that once the project is done the units would be sold or mostly sold - ...
or keep dreaming .. assume a sale of 2/month to owners .. unless heavily discounted and heavily marketed which costs money too !! So if retail value is 200K .. and real estate commission is about 10K . then discount a further 10-15% or 20-30K .. so net 160K .. minus reserve fund costs minus upgrade costs + carrying costs = tight tight margins !!

so for 24 units budget a ONE YEAR sales cycle .. unless they are tenanted with good rents and sold to investors .. then it is doable much faster !

Condo conversion is a great exit strategy for a long term hold project with a partially dischargable mortgage ! NOT so great if purely done as a get-rich-quick scheme ..

We are looking at picking up several defunct condo projects right now in both Calgary and Edmonton .. there are quite a few .. in various states of (dis)repair !!!

Proceed with extreme caution for condo conversions !!!

 

[JDaley]

QUOTE (ThomasBeyer @ Jul 31 2010, 10:04 AM) or keep dreaming .. assume a sale of 2/month to owners .. unless heavily discounted and heavily marketed which costs money too !! So if retail value is 200K .. and real estate commission is about 10K . then discount a further 10-15% or 20-30K .. so net 160K .. minus reserve fund costs minus upgrade costs + carrying costs = tight tight margins !!

Thomas I was refering to presales, but point taken. I agree after all expenses are taken into consideration profit margins drop off. Same problem with home construction/infills.

QUOTE (ThomasBeyer @ Jul 31 2010, 10:04 AM) Condo conversion is a great exit strategy for a long term hold project with a partially dischargable mortgage ! NOT so great if purely done as a get-rich-quick scheme ..

Sadly too many people do real-estate because of the leverage available in the pursuit of get fast rich schemes only to find when the market turns downward they`re stuck with a declining asset, their net worth considerably reduced or wiped out and tenants they don`t like

I love this business!