O, Canada

We talk about our domestic problems a lot, but do we have any worse than other places? This month on The Build I speak with Mathieu Fleury of Leader Lane Developments who tells me all about how difficult it is to get building in Toronto, Canada. Some of their problems will sound very familiar, others are very surprising.  Did you know the Canadian government will give developers 95% LTC financing at 50bps? I sure didn't. 

The episode ventures deep into the evolution of Toronto's real estate scene over the last two decades. Discover how regulatory changes, such as the introduction of a green belt, steered developers towards high-rise condominium projects. Get an insider’s view on the meticulous process of developing a condominium, from zoning hurdles to securing pre-sales for financing. Mathieu and I explore the distinctive zoning dynamics of Toronto, including the challenges posed by the "yellow belt" and the scarcity of mid-density housing options.  Mathieu also gives us some insight into mass timber construction, which he is now deploying at a mid rise development in suburban Toronto.

Some links from the episode:

• Leader Lane https://leaderlane.ca/
• Toronto's tallest building https://condos.ca/toronto/one-bloor-1-bloor-st-e
• Canada Mortgage & Housing Corp https://www.cmhc-schl.gc.ca/
• MLI Select https://www.cmhc-schl.gc.ca/professionals/project-funding-and-mortgage-financing/mortgage-loan-insurance/multi-unit-insurance/mliselect
• Book recommendation: https://www.amazon.co.uk/Nuclear-War-Scenario-compulsive-non-fiction/dp/1911709593

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Episode Transcript

Speaker 1 (00:15):
Mathieu, ça va.
Oui, ça va bien.
Excellent.
That's the end of my French.
Je suis désolé.

Speaker 2 (00:21):
It's all good.

Speaker 1 (00:22):
Mathieu, would you mind just giving us a brief
introduction?
Who are you and what do you do?

Speaker 2 (00:26):
Sure, my name is Mathieu Fleury.
Mathieu Fleury, I'm originallyfrom grew up in Quebec, canada.
I grew up speaking French andI've been living in Toronto for
about 15 years now.
Hence the Mathieu is a loteasier for a lot of people than
Matt's here.
But yeah, I'm a real estatedeveloper here in Toronto.

(00:49):
I've been doing this for about15 years.
Like I said, I grew up inMontreal.
My background is really in.
I did my undergrad inmanagement accounting way back
when at l'Université du Québec àMontréal.
I wanted to specialize in realestate and ended up.
I actually ended up during myundergrad going on exchange at

(01:10):
the University of Manchester,which is when I met you,
probably over probably coming on15 years actually.

Speaker 1 (01:16):
I think it is.
It's probably about that.

Speaker 2 (01:18):
You know from there, really enjoyed living in England
, wanted to specialize in realestate and started applying for
a master's program in England.
So I applied to a few schools,got into the University of
Cambridge, went into the landeconomy department, did a
master's in real estate financethere and I graduated in 2008 at

(01:40):
the very peak of the mortgagecrisis, you know was left kind
of stranded there in Englandwith no jobs and really no
prospect.
At that time I had interviewedfor Lehman Brothers, I think
about a month before theycollapsed, to give you an idea
of how bad it was.
Excellent timing, excellenttiming, yeah.
So I was kind of forced to comeback to Canada and then started

(02:01):
applying for jobs here, but themarket was actually really slow
in Canada even back then andended up took almost a year but
ended up finding my first job inToronto working for a grocery
store called Loblaws.
I was working for LoblawProperties, the Weston family,
which has some ties, actually,with Ireland, funny enough.

Speaker 1 (02:20):
I'm going to interrupt here just to quickly
explain the ties between theWeston family and Ireland and
Galen Weston's extraordinarycontribution to Irish retailing.
Galen was born in Britain butmoved to Ireland in 1962 to set
up a grocery chain which evolvedinto Powers Supermarkets.
He then bought a bankruptdepartment store called Todd
Burns, which he renamed Pennies,before acquiring Quinsworth,
which was later acquired byTesco.

(02:41):
In 1971, he acquired a stake in, which was later acquired by
Tesco.
In 1971, he acquired a stake inBrown Thomas before taking full
control in 1984.
So three of Ireland'sbest-known retail operations
today Pennies, tesco and BrownThomas were all touched by Galen
Weston.
If that isn't a good enoughstory on its own, the IRA
attempted to kidnap him in 1983.
The attempt was foiled andseveral of the attackers were

(03:04):
shot dead.
The man lived an eventful lifeand created thousands of jobs in
Ireland.
There should be a statue of him.

Speaker 2 (03:10):
Yeah, very interesting.
It was a very interestingcompany.
So I was hired.
There was kind of a new role.
I was in charge of kind ofrunning any of the analysis for
any CapEx investment that theywere doing, really over a
million dollars.
I was, you know, running theanalysis for that.

(03:32):
So so actually got really goodexposure to, uh, you know, galen
jr um and alan layton at thetime was the uh, was the
president, so um, any new storeopening, um, any large
renovation project.
That was kind of in charge ofthe analysis so so it was pretty
interesting.
But I wanted to get more intodevelopment so ended up applying
for, applying for a roleworking for a merchant developer
called Grey Golf Homes andended up getting that job and

(03:53):
that was my first foray reallyinto mostly residential
development there.
So I was in charge of runningall the numbers for their
high-rise division.
So they had probably five orsix projects at the time going
large condominium projects herein Toronto and about a year and

(04:13):
a half into that they kind ofrealized that they had no one
kind of doing the same thing onthe low-rise side.
Great Golf is a fairly largevertically integrated merchant
developer here in Toronto.
So they do high-rise.
They do low-rise landdevelopment.
They're a general contractor.
They have a commercial divisioncalled First Golf.
They have a very large businessactually also in the States

(04:36):
called Ashton Woods Not a lot ofpeople know that Ended up being
there for about four years.
After that an opportunity cameup to work for a larger group
called Dream Dundee Real EstateAsset Management A chance to
progress in my career.
Larger company, public and Ikind of took the plunge there,
created a team there at Dream tomanage all the other

(04:58):
development projects that wasgoing on.
Yeah, I ended up being therefor about three years.
Got a little bit tired of thenature of working for a public
company doing a lot of reporting, a lot of accounting.
You know I felt like I wasspending probably half of my
time, you know, sitting downwith accountants.
And then an opportunity came upto by coincidence, a year

(05:25):
before I joined, and then hetook the plunge to move to this
company called ForgestoneCapital.
He recruited me to come overFast forward.
That person is actually mybusiness partner now.
His name is Don Manlapaz.
So we've been following eachother for coming on 15 years now
, almost yeah.
So then move into private equity.
So this company Forgestone hadat the time to to closed ended

(05:48):
fund, really investing into,into development projects.
So I was kind of in charge of,you know, really investing money
on their behalf.
You know they were trying toplace 10 to 15 million dollars
at a time into developmentproject, investing into joint
ventures.
So you, you know, really tryingto allocate capital there
between really across thecountry.
Yeah, so that was kind of mylast, my last seed before

(06:10):
starting the.
Uh, the company that I startednow called leader lane
development.
So when I was at forged stonewith my colleague don, we kind
of looked at each other one dayand figured, you know, we both
wanted to go back to actuallydoing, as opposed to watching
other people do, and kind of bein charge of our own destiny.
So probably halfway through ourtime there, you know, we came

(06:30):
up with a plan to start abusiness.
So maybe I'll stop there, seeif you have any questions at all
no, it's an exhaustive historybut, well it's it's.

Speaker 1 (06:38):
it's great to hear it actually, because you know you
and I, like you said, we knoweach other a long time but but I
don't think I've actually eversat down with you and gone
through you know your backgroundin that kind of detail, so it's
cool for me to hear it too.
I mean, I could ask you athousand questions, but, like
one of the themes that I noticed, canada, you know, has about 35

(06:59):
million people in it, right?
We just passed 40, actuallyJust passed 40 million.

Speaker 2 (07:03):
Okay, right, we just passed 40, just past 40 million.
Okay, a crazy amount ofimmigration over the last few
years and even just the last fewquarters, you know, I think
last quarter of 2023, I thinkwe've added 400 000 people in
canada, like right percent thatlike crazy, crazy amount of
crazy amount of growth, right,but still like particularly by
comparison to your southernneighbor a relatively small

(07:25):
population.

Speaker 1 (07:25):
Right, like less than the UK, certainly a lot more
than Ireland, but Canada seemsto have a very big proportion of
large developers.
It seems to be a very big partof the economy, right.
The construction, yeah.
Do you think that Canada hasall of that development because
of its population growth and itspro-immigration policies?
Or do you think that thepro-immigration, the immigration

(07:48):
that comes from the fact thathousing has been up to
relatively recently has beenvery available?
I know that Canada, inparticular Toronto, is going
through serious challenges atthe moment, like a lot of places
, but up until the mid-2000s,right, property wasn't expensive
in Canada.
It was very available housing.
There was no particular housingcrisis.
Do you think that thatattracted people?

(08:10):
Or do you think that thedevelopment community kind of
grew up around the fact thatthere were more and more people
coming into the country all thetime?

Speaker 2 (08:17):
Yeah, that's a good question and it's a pretty
intricate question too, I mean.
So you know there are a lot oflarge developers in our market.
A lot of them really started,you know, in the low-rise.
You know market way back when,like you know, go back 20 years,
you know, or 25 years, you knowthe the high-rise market was
almost non-existent, right liketoronto had a lot of, you know,

(08:38):
empty parking lots and you knowwe were, you know developers
were building a lot ofsubdivisions and that's how a
lot of the very large developersright now, uh, you know, cut
their teeth and that's that'sreally when they, they kind of
became giant, like the giantsthat they are today, right, so
yeah, and as a subdivision foranyone who's not Canadian, we
refer that as a as a housingestate.
Yeah.
So single family homes on ondetached lots really, so so, and

(09:01):
we were building a lot of thosereally.
But then, you know, theprovincial government enacted a
green belt around our greaterToronto area which kind of, you
know, limited the amount of landavailable to, you know, to
build subdivisions.
And then we had a big shift inour market.
You know, we've always kind ofbeen delivering the same amount
of housing units, but the typeof housing has really changed

(09:22):
over the last 20 years or 25years really.
So it used to be all low-risesingle-detached homes and now
it's really moved and thesingle-family market is almost
inexistent now.
It's all moved to high-risecondominiums and that comes with
its own kind of set of rules,you know, to be able to develop
a condominium in Canada so forthose who don't know, maybe I'll

(09:42):
give you a little bit of anidea, I guess, how you build a
condominium here.
So to be able to startconstruction on a condominium
building you need roughly 70%pre-sales.

Speaker 1 (09:53):
Is that because of financing or is that an actual
yeah, because of financing.

Speaker 2 (09:57):
Okay.
So what the lender wants to seeto get a construction loan,
really, you need your zoning inplace, your entitlement to be
kind of completed, you need abuilding permit, you need to
have, let's say, 60%, 65% ofyour costs tendered and kind of
locked in, and you needpre-sales for a condominium.
So, yeah, around 70% of yourrevenue has to be kind of

(10:18):
contracted.
So the way it works is that yougo through your entitlements,
you get your zoning, which is avery cumbersome thing in Toronto
specifically and in theprovince.
But I think we're one of themarkets, I think in North
America, where it takes thelongest amount of time to get
your development approvals, tobe able to put a shovel in the

(10:38):
ground.

Speaker 1 (10:38):
So how long does it typically take if you just find
a vacant lot and you want to getto?
When you say zoning, we referto planning permission.
Right, because we yeah, we havezoning as well.
So we do it twice, we we firstallocate the land to residential
building and then we have to goand submit a design on top of
that and at either time it canbe, you know, prevented so yeah,

(11:00):
so um, there's kind of threelevels I guess that you could
potentially go through.

Speaker 2 (11:05):
So there's the highest tier would be like an
official is the official planwhich kind of dictates the use.
So that would be like you know,some lands are employment land
where you can't buildresidential Right, so but
sometimes if you think you havea shot, you can try to go
through an official planamendment to try to change the
use.
So so a lot of the sites likekind of rare that people want to

(11:25):
go through an OPA because it'sa very long process and
sometimes you can't even, youknow it's not even possible to
go through that.
Then the next layer would beyou know zoning, bylaw
amendments which would permitthe use and the you know kind of
the form of the building whichyou know more often than not we
would go through here in Toronto.
And then the last level wouldbe your site plan application,

(11:47):
which kind of have your box, youknow what you can build, that's
kind of set, but you still needto go through you know more
approval in terms of you knowthe, you know urban design
guidelines and angular planesand step backs and you know so
Shadow analysis and all thatstuff right, shadow stuff,
shadow, yeah, so kind of moregranular type thing.
So and that's kind of the lasthurdle.

(12:07):
So to go through a zoning bylawamendment, I think the average
right now in toronto is, I thinkit's about 38 months to go
through that, if you can believe.
And then now even in torontothey're not even letting you go
through.
You used to be able to gothrough your, your zoning bylaw
amendment and your site planapplication at the same time and
and now they're trying to youknow they want you to go through
the zoning process first andthen the site plan, which adds

(12:28):
even more time.
So it's not rare to you know,wait three, four years to get
your you know, your permissionto be able to not that you need
it to essentially to go tomarket, but you need to have a
very high level of you knowcertainty before you start
selling condominium units, right, because have a very high level
of you know certainty beforeyou start selling condominium
units, right, because you don'twant to start selling something
and then realize, oh, should Ilike I don't have the permission

(12:53):
to actually build those units.
So you need to have a certainlevel of comfort before you
start your sales and marketingprogram and then, so typically
so you go through your zoning,then you start your sales and
marketing program, you try toget to your amount of pre sales
that you that you need as soonas you can, but again, depending
on the size of your building,you know it can be anywhere from
, you know, a couple months to,you know, to a year to maybe a
year and a half, depending onyou know, on your timeline.

(13:13):
And then you need to get to abuilding permit and then, you
know, you start construction.

Speaker 1 (13:25):
So how long if I gave you a piece?
Of land and I said, all matt,get out of it before you put a
shovel in the ground like, yeah,it could be four or five years,
yeah, and then yeah, if you'regonna go through a rezoning,
yeah and everything takes twoyears or three years to build
right like there's nothing.
So I mean the turnaround is.
Best case scenario six yearsfrom start to finish.
Worst case scenario maybe 10.

Speaker 2 (13:40):
Yeah, it could be on the large projects for sure,
yeah, yeah, if you're've got togo through a rezoning.
So one thing that we've beentrying to do with our own
projects is trying to find sitesthat don't require a zoning
bylaw amendment, so trying tofind sites that only require
site plan approval, which is ashorter process.
So we're really trying to getto a construction start within

(14:03):
one year for our our approvalright so, and the rules are
changing kind of slowly, but youknow they are moving on.
You know the right directionfor mid-rise buildings right now
and, uh, so, out of the fivesites that we currently have,
you know under development, forthose we're going through this
site plan and minor variancekind of route which is really
trying to compress the, you knowthe schedule.

Speaker 1 (14:25):
And so why is it so hard to find land like that?
Is there just a lot of landthat's got a use on it, a zoning
use?
That's just not A lot ofantiquated bylaws.

Speaker 2 (14:34):
Yeah, like that only permits you know, four stories
as of right, or you know, oralmost nothing as of right, you
know.
So we're going through thatright now on our latest site
where we are, we're able tobuild nine stories pretty much
as of right.

Speaker 1 (14:46):
So I just one thing that struck me there I thought
might be interesting question.
I kind of know the answeralready.
I'm going to ask you mid-rise.
What does mid-rise mean inToronto?

Speaker 2 (14:55):
So mid-rise, I would say, is below 12 stories, would
be the definition.

Speaker 1 (15:07):
Holy shit, shit, all right, yeah, so like that.
That's I mean if you, if youtry to get a 12-story building
in dublin.
It'll be in the newspaper forsure like uh, you know, they'll
be calling it a towering edificeum, oh, they still.

Speaker 2 (15:14):
They still call it like the.
Our neighbors are still callingit a tower.
They'll give you wrong.
They're still think.
They still think this is ahigh-rise building, but but
technically, yeah, under 12story you're, uh, you're a
mid-rise building, buttechnically, yeah, under
12-story you're a mid-risebuilding.

Speaker 1 (15:25):
And what is the tallest residential building in
Toronto?
Do you know?

Speaker 2 (15:29):
Probably one below east, which I worked on, which
ended up being 76 stories at theend, but there are quite a few
projects right now underconstruction that are going to
surpass that.

Speaker 1 (15:41):
So like a 50, 60-story building would not be
unusual.

Speaker 2 (15:44):
No no.

Speaker 1 (15:45):
In front of any of them.

Speaker 2 (15:46):
No, it's not unusual.

Speaker 1 (15:47):
For anyone who hasn't been.
First of all, toronto, lovelycity.
I've been there many times.
Just don't go in the winter.
But secondly, when you go there, it's really remarkable how
built up and how high the citycenter is.
You see all these tallbuildings, some of them very
nice architecture, actually alot of the time.
Then what's even more amazingis right next to them there
might be a surface level carpark.

(16:07):
So I mean, I've never seen thisanywhere where you will go from
a 50, 60 story building then acar park with 14 spaces.
That's like operational, it'snot like it's abandoned, it's
like there's a guy operating acar park and then the other side
of that there's another60-story building.

Speaker 2 (16:23):
Yeah, it's very dense in certain areas, but then,
yeah, there's what we call theyellow belt, which is, you know,
the zoning map has a lot ofyellow areas which are
considered neighborhoods whereyou can't really build anything
of significance.
So you know, so the highdensity is kind of very
concentrated, but it kind oftapers off very quickly.

Speaker 1 (16:46):
Yeah, it falls off a metaphorical cliff when you go
just past.
I always remember driving outthe Gardiner Motorway in Toronto
and seeing how you have, likeall these tall buildings on one
side of the street and the otherside of the street there's
nothing.
Yeah.

Speaker 2 (17:02):
It was really incredible.
So this is what we're missingin our market, which is what
we're trying to focus on, iswhat we call the missing middle.
So the missing middle is really, you know, anything that's
between the single family home,the detached house and the high
rise building.
So there's just, there reallyhasn't been much in between.
You know those two housingtypes.
So it's either you know a 40,50, 60 story condominominium

(17:22):
building or it's a single-familyhome.
So we're probably one of theonly places in North America, if
not the world, where you canactually live in a single-family
home in a detached house, youknow, 50 meters from a subway
station.
Yeah, it's just that doesn'texist in too many places Like
we're such low density alonghigh-order mass transit, but

(17:44):
it's.

Speaker 1 (17:45):
it's very hard to get approval for some of those
sites yeah, and that's due tolocal opposition to, to density,
and we like to the way thingsare and we'd like to keep it.
So that's that's trueeverywhere in the world, right?
It's not, you know.
Canada but what's that kind ofand you have to call it policy
in a way, right, because forsuccessive governments have
allowed this to continue.
That policy has led to veryinteresting dynamics in the real

(18:05):
estate market.
Right, where those singlefamily homes that you speak of,
that are near the subway, areincredibly expensive in the
right area, right, yeah, likeit's not unusual for somebody to
spend $2 million on a house oh,$2 million is nothing these
days for a single family home.

Speaker 2 (18:21):
I think the average single family homes right now in
the greater Toronto area isprobably 1.2,.
I want to say Like that's anaverage over a very large
metropolitan area.
Like you know, in the pocketsthat we're talking about on
Subway, you know, the average is, you know is for sure, north of
$2 million in a lot of placesLike and that's typically just,

(18:43):
you know, that's typically justbuying just a lot really.

Speaker 1 (18:49):
Yeah, because the houses are timber frame and
they're not particularly.
You know, they're not designedto be there for 400 years, right
, Like they're kind of there and30 years later they get torn
down.

Speaker 2 (18:59):
Yeah, so it's not.
You know it's easy to spendover a million dollars on, just
you know, a small plot of landthat's called 40 feet wide by
110 feet deep to build a singlefamily home.
So that's absolutely crazy.
Yeah, and this this is why,really, where we kind of saw a
gap in the market when we werethinking about what we wanted to
focus on for for leader lanedevelopments, for leader lane

(19:21):
developments, you know we sawthis kind of market it's
untapped market or you knowreally what we call the end user
, which is really people thatwant to live in the buildings
that we're going to build.
You know, when we talk aboutthe 40, 50, 60 story tower, like
I told you, you need 70%pre-sales, you know, to be able
to start construction.
So really, all those units areall targeted to the investor

(19:42):
market.
Really, all those units are alltargeted to the investor market
.
So people that want to placetheir money into that want to
invest in real estate with theintention of either flipping
their unit once the constructionis completed or hold it for
long-term income.

Speaker 1 (20:09):
Because when you sell , when you have that 50-story
building and you want topre-sell those units, what does
the purchaser have to do Likethey've signed a contract?

Speaker 2 (20:11):
Do they pay like just a deposit and then you call
them four years later, or howdoes it work?
Yeah, so you pay a deposit.
So typically deposits can varyanywhere from 10 to 20% of the
purchase price.
You know, over a certain periodof time typically 5% when you
sign the contract or within 30days of signing the contract,
and it's kind of scattered over.
You know, developers try tostretch it as long as as
possible, obviously to make itmore appealing for those

(20:31):
investors so they try to slowdrip the you know your deposits,
that you have to put the leastamount of money before you, you
know, take occupancy, but you'lleventually reach, you know uh,
the 20 mark on that investment.
And then yeah, and then you.
But the thing is it takes solong to deliver that unit of
housing that, um, you know yourmoney can be out there for you

(20:51):
know five, six, seven years,like we said, you know, before
you actually take possession.
Right?
So a lot of people have beenbanking on the price
appreciation, thinking, okay,I'm just, I'm going to put down
the you know the, the 15% it'stypically 15% called the prior
to occupancy.
I'm just going to park my moneythere and then I'm, you know,
hopefully the price goes up andthen I'm in the money by the
time you know I get the keys andthe price has been going up

(21:14):
right.

Speaker 1 (21:14):
So that's been a really effective strategy for
people because they put themoney down.
Five years later, the thing isappreciated 15 or 20%.

Speaker 2 (21:21):
In the meantime, oh, more than that.
That's the thing it's like.
A lot of those investors havebeen making more money than the
developers.
Like you know, we've had, youknow, growth spurs in our market
where you know the price onsome of those units have doubled
by the time that you've takenoccupancy right.
It was not uncommon, back callit six, seven years ago, to buy

(21:43):
something for, let's say, $600 afoot, and then the market just
took off and it went to.
In some instances it went to$1,200 a foot With your 15%
deposit.
It went a really long way inthat period of time.
So a lot of people made a lot ofmoney.

Speaker 1 (21:59):
And, of course, the developer.
His income is fixed rightBecause he sold the unit and his
costs can go up, but hisrevenue can't go up right.

Speaker 2 (22:07):
Exactly so.
The developer is kind of leftholding the bag and just you
know, taking on all this risk.
You know there's differentstrategies when it comes to
pre-sales.
Sometimes, depending on how youfeel about the market, you want
to sell as few units aspossible just to get to your
pre-sale threshold and then holdas much as you can.
If you think the market isgoing to go up by the time the
building is built, which youshould typically get a premium

(22:29):
on, having some units that arefinished and completed and
having purchasers being able towalk through them and buy them
on the spot should have apremium versus buying off plan
five, six years before.
So if you think the market isappreciating, then you try to
sell as few units as possible.
But that can also backfire.

(22:50):
So some developers have astrategy of just blowing
everything up in a weekend ifthey could.
It wasn't uncommon for groupsto just launch a project, sell
100% of their units and try tostart construction as fast as
they can.
Now they know their theirrevenue is locked in.

Speaker 1 (23:06):
They just got to take on you know construction risk
the the change in the costdynamics in the last couple of
years, right because we had 20years of basically very little
inflation and then all of asudden we had a shit ton of
inflation, particularly inconstruction.
I know that's what it was inEurope.
I assume that something similarhappened in Canada.
Did anyone end up gettingburned by that then, who had

(23:27):
pre-sold a lot of units?

Speaker 2 (23:29):
Absolutely.
Yeah, some groups got burnedwhere they sold too many units
too quick when the market wasreally taking off and then not
being able to start constructionfast enough and then ended up
pricing their you know theirconstruction job in almost like
a different market where youknow they thought the cost was
going to be one thing and thenprices were just escalating

(23:50):
extremely rapidly.
And then, yeah, it got burnedbecause they locked in too much
of their revenue, cost went upand now you know they're left
not making any money.

Speaker 1 (24:01):
Yeah, I mean, which is like that's the risk that
you're running.
And, of course, no one reallyforesaw the, the spike in, uh in
construction costs.

Speaker 2 (24:07):
It's been the increase in construction costs
here has been.
It's been insane to, like, youknow, just looking over the last
10 years, like actually I justpulled up a chart like, uh, you
know, prior to this, just to seethey were trying to compare
cost of a unit back in 2013versus 2023.
And construction costs went up122% during that period.

(24:28):
Just construction costs alone.

Speaker 1 (24:30):
And large components of that are labor as well.
Right, yeah, so we have a biglabor shortage.

Speaker 2 (24:35):
A lot of the trades are just retiring and they're
not being replaced by anyone, soit's very hard to get skilled
laborers and they're not beingreplaced by anyone.
So it's very hard to getskilled laborers and we're not
letting in enough.
The immigration is not made upof skilled laborers for some
reason, which is a big problem.
But, just to give you an idea,the average cost of a

(24:55):
condominium unit went up bydouble in 10 years.
The cost of delivering acondominium unit went up by uh,
you know, double in 10 years,like the cost of delivering a
condominium unit.

Speaker 1 (25:03):
Okay so what is the typical cost then of, I mean,
every every project is different, but would you look at
something as a rule of thumb andsay, all right, it's going to
cost, you know one, a, onebedroom.
You know it's going to costthree hundred thousand dollars.
Four hundred thousand dollars,uh, just in pure construction
costs?
Like, well, generally, whatwould that would?

Speaker 2 (25:19):
that be.
I would say historically landhas been about, call it 10 of
your total construction cost.
Hard cost would be 50, 55, 60of your of your total cost and
the rest would be soft cost.
But soft costs have also beenincreasing extremely rapidly.
You know, mostly government fees, so right, you know, government
fees during the same period oftime went up three times.

(25:41):
To give you an idea, like thereare, there's so much like and
this is one thing that peopledon't realize is that, call it,
20 to 25 percent of the cost ofof a unit here is government
fees.
Wow, you know, between hst,which is the equivalent of your
vat, yeah, you know, developmentcharges, building permit,
parkland dedication, communitybenefits charges, road occupancy

(26:04):
, just all the application feesfor your zoning, we have two
line transfer tax here inToronto.
It's crazy the amount ofgovernment fees that we're
paying.

Speaker 1 (26:15):
And so we have VAT here and it's 13.5% that comes
off the purchase price of newproperty, again something that's
not well understood by thenon-property sector public,
because they see a price andthat's just the price.
It doesn't say here's the priceplus the tax.
So you know, it's a littlestealth one for them, because

(26:36):
you're only levying the tax onpeople who don't already own a
home, which is kind of insane.
If we, if we only spoke aboutthings that were insane here,
we'd be here all night.
The the other government feesthat you have, like what do they
typically make up on a unit,like in dollar terms?
Would would you be, you know,because here our government levy
, so we we 5 000 euros per unit,uh, for water connection, and

(26:58):
then anywhere from you knoweight, nine thousand euros up to
maybe fifteen thousand eurosper unit for local government
charges.
And then there's certain placesthat have like special schemes,
like if you're near our lightrail system, which was built 25
years ago and has already beenpaid for it, but they still levy
the units that are near it topay for it, that might add

(27:21):
another couple.
So you'd sometimes look at ascheme might have 25,000 euros
or more per unit of charges, andthat's excluding the tax right,
the VAT.
That's just purely going backto the local authority, which I
guess is 40,000 Canadian dollars, something like that.

Speaker 2 (27:39):
Yeah here.
So see, like the average costof delivering a condominium
right now in the market thatwe're in in 2023 was about
$892,000, if you can believe it,holy, that's the cost of
delivering it.
That's the cost yeah, up from$431,000 10 years before.
So it's yeah, and that averagecondominium is what Like?

(28:00):
It's 750 square feet or Used tobe, but is now much closer to
600, probably now.

Speaker 1 (28:07):
So it's more than a thousand dollars a foot.

Speaker 2 (28:09):
Oh for revenue?
Yeah, absolutely yeah.
You can't make the numbers workif you're not.
You know, depending on themarket, north of 11, 12, 1300
bucks a foot.

Speaker 1 (28:18):
Downtown, probably closer to 14 foot downtown At a
minimum.
Yeah, at a minimum.
At a minimum yeah.

Speaker 2 (28:23):
So out of that, 892,000, 170,000 is government
fees, between the HST and allthe other fees.
So that's about 20% and that'sbefore.
And this year alone,development charges in the city
of Toronto for condominium fromAugust of 2023 to now to June
6th went up 42%.

(28:43):
We are now at $80,000 a doorfor a two-bedroom unit in the
city of Toronto for condominium.
Wow, that's just developmentcharges.

Speaker 1 (28:54):
Okay, so you have cost inflation.
You have soft cost inflationthrough the government just
levying insane charges.
What's's the reaction?
The market been to this, yeah,so right now.

Speaker 2 (29:03):
Yeah, so the market is completely dead.
Now I was just looking at thenumbers from that just came out.
In q2, the condominium markethas just been decimated.
Like you know, sales are down66 annually for the first.
Uh, you know, for up to q2, outof the projects that have
launched.
Uh, this year all theabsorption has only been 17,

(29:24):
which is a 20-year low.
Uh, you know where, where theunsold inventory is is up three
times from a balanced levelright now you know we're.
So, yeah, nothing is startingconstruction.
The condominium market iscompletely dead for a few
reasons.
But interest rates have beenplaying a large role, obviously.
But the numbers don't makesense right now as an investment

(29:47):
For investors to purchase acondominium unit, a pre-sales
condominium unit.
The numbers don't make sense.
Numbers don't make sense.
So there was a special reportthat just came out actually that
says, you know, out of theunits delivered in the first
half of 2024, 81% of those arecash flow negative.

Speaker 1 (30:07):
Right.
So you buy them and you rentthem and you have to put money
with them every month to make itwork.

Speaker 2 (30:12):
Yeah, you're out of pocket.
So right now, the units thathave been completing in 2023,
the average right now is about$600 a month in negative cash
flow.
Okay, to give you an idea.
So it's not a very attractiveproposition.

Speaker 1 (30:31):
So I imagine then, in that case, that there's almost
nothing being done for rentalhousing, right Like for
dedicated rental housing.

Speaker 2 (30:38):
So there.
So there really wasn't up tovery recently, because the
numbers didn't work on rental, Imean, condominium was always
better because the margins werejust, you know, a lot better.
On condominium you could alwayssell your condo for higher than
the purpose-built rental.
There really wasn't anyincentive to deliver
purpose-built rental.
So isn't that funny.

Speaker 1 (30:57):
Because that was the reverse in Dublin right
purpose-built rental.
So isn't that funny?
Because that was the reverse inDublin right.
The big blocks, like singleblocks of 200 or 300 units, were
making a premium to what thebreakup values would be.
So the investors were coming inhere and they would say, well,
we'll pay 500,000 euros a unithere on average price for a big
block to rent it out.
But if you try to sell thoseunits individually, like, first

(31:19):
of all it would take years andsecondly, you would get €100,000
less per unit, because thepreference here is for everyone
wants a house and they justdon't want to have an apartment.

Speaker 2 (31:34):
Wow, that's very interesting.

Speaker 1 (31:36):
Now it's starting to flip around now because interest
rates have risen and yieldshave consequently gone out,
which now means that thoseinvestors are no longer there to
buy those units.
And we desperately need thembecause we have a huge shortage
of rental housing here, like ofquality rental housing.
And the population here isquite transient as well, because

(31:56):
, being in the EU, you knowthere's a lot of people moving
in and out all the time.
They're not always going towant to own property, but, you
know, just in the hour of needwe also changed a lot of
regulations, made it very, verydifficult for investors to own
rental property here, so we kindof scared them all off.
But then the interest raterises came along, so they were
less interested and thenconstruction costs went up.
So now the margins aretightening even further, and so

(32:19):
it just just it's dead right,it's over.
So it's interesting to hear thatit's the opposite in Canada,
where the breakup value is a lothigher and nobody wanted the
rental stuff because the numbersdidn't work.

Speaker 2 (32:27):
Yeah, so now a lot of groups are pivoting and we're
one of them that we've pivotedout of five projects We've
pivoted forward to purpose-builtrental right now.
Wow, so very recently, they'veeliminated the uh hst on rental
housing, which makes a huge dentbecause, um, like, our hst is
13 but there's a new housingrebate.
So you know, depending it's andit's a sliding scale.

(32:50):
So you know, depending on thevalue of the units, on a
condominium, you know, 10 yearsago the hst would be call call
it as low as 5, call it and ashigh as maybe 8% on a unit.
But now that the face value ofthose units have risen so much
you can't really get a way upwith less than 10% on the HST

(33:12):
right now.
On condominiums, the way pricesare On rental, it's a similar
calculation but right now Iwould estimate, on average
you're probably eliminating,call it, 7% cost of the unit for
HST right now.

Speaker 1 (33:24):
That's straight off the top.

Speaker 2 (33:28):
So that helps a lot.
So that's part of thepurpose-built rental market
quite a bit.
And we do have attractivefinancing through CMHC, which is
the Canadian Mortgage HousingCorporation, to the similar from
Fannie Mae and Freddie Mac.

Speaker 1 (33:43):
So this is a government body that Canada has
to provide funding fordevelopers To provide.

Speaker 2 (33:49):
yeah insured loans and they do direct lending for
projects that meet certainaffordability criteria, which
could be very interesting, thatmeet certain affordability
criteria, which could be veryinteresting.
But one other very popularprogram is called MLI Select.
Here to fund new apartmentconstruction and although
they've just recently changedthe rules for the worst, like

(34:11):
for developers, so it was apoint system.
You used to be able to get to100 points mostly by providing
energy efficiency in yourbuilding and the 100 points
mostly by providing energyefficiency in your building and
the 100 points really got you95% construction loan-to-cost as
long as you met a 1.1 DSCR,that service coverage ratio.

Speaker 1 (34:31):
Sorry, did you say 95% loan-to-cost?

Speaker 2 (34:35):
95% loan-to-cost.

Speaker 1 (34:36):
Does that include the land?

Speaker 2 (34:38):
Yeah, including the land.
It's tough to get to the 95%,but it's not impossible.
And the rate on that is calleda CMB Canadian Mortgage Bond
plus 50 bps, which is low, whichis very good, and the thing is

(34:59):
so basically they provide you aconstruction loan.
The construction loan is at aslightly higher rate, like
during the construction period.
It's typically called a primerate minus 40 bps, let's say
here.
But then in turns, thatconstruction loan turns into
permanent financing once you'vestarted occupying.
Call it 60 days after occupancyand yeah, and that's 50 year
amortization.

Speaker 1 (35:20):
So you typically, and you can do a five or ten year
term, so so it's very attractiveso I just I because I I have a
feeling when we met I think itwas in february when I was in
was in toronto.
I have a feeling you kind ofwere telling me about this, but
we're walking down the streetand it was one of those biting,
wind, windy toronto days thatlooked like it should be warm
but it was actually freezing.
So I just want to recap thisthe government will lend a

(35:46):
developer 95% of their cost.

Speaker 2 (35:50):
A private lender will , but it's an insured loan.

Speaker 1 (35:52):
It's an insured loan right, so it's essentially it's
an insured loan, so you're goingto pay a premium.
The government are guaranteeingit, right.

Speaker 2 (35:58):
Yeah, so you pay a premium.
So I think so the premium worksout.
To call it 2.8, like, dependingon the depending on, you know,
the number of points you reach.
But the premium is about callit 2.8% of that of that loan
that you got to pay upfront as ayou know, as a premium, but
that gets tackled on into yourloan, okay no-transcript.

Speaker 1 (36:44):
I mean, are there not queues of people forming around
the bank's office to take onthose kind of loans and get
building?

Speaker 2 (36:47):
So a lot more groups are turning to that absolutely
just because there's no morepre-sale market for condominiums
right now.
So we're kind of being forcedinto becoming apartment
developers, which not a lot ofgroups.
It's a different thingdelivering an apartment building
versus a condominium building,and so not a lot I don't want to

(37:10):
like.
A lot of groups maybe have afeeling are going to be
struggling into making thattransition.

Speaker 1 (37:16):
Right.
Well, what are the keydifferences there?
Because obviously themanagement of the building is
one thing, but that you know.
Yeah, it's not rocket science,but is an apartment building not
functionally the same as thecondominium building?

Speaker 2 (37:30):
as there's used to be a lot more thought into, yeah,
into the operation for sure,like you know, into circulation
on the ground floor.
It's, like you know, sweetfinishes, for example, right
like it's going to be verydifferent material that you
might be using on the apartmentbuilding versus what the
traditional condo developerswould do.
Like traditional condodevelopers are just trying to
build something to sell at once.
Right like off plan, so itneeds to look good, but who

(37:52):
really cares about thedurability of it?
Right, like versus the, theapartment developer or long-term
holder is going to have torelease that unit.
You know, every single year,right and is and is only going
to lease that unit after someonewalks through the door and
actually sees the finishedproduct.
Versus on the condominium side,yeah, you might put up a sales
center with a show when you knowwhat a model suite, but this is

(38:15):
where you're doing the bulk ofyour sale.
Like you get, like the, thelevel of craftsmanship.
You level of craftsmanshipdoesn't really play into it once
the building has been delivered.

Speaker 1 (38:25):
And sometimes not great either.
I've been in some of them right.
Some of them are not great.

Speaker 2 (38:32):
No, I know yeah, but if you own it long term, you
want to make sure that it'sgoing to be durable.
Right, because you need to keepas you know.
You need to really manage yourOPEX.
It's going to be durable, right, because you need to keep as
you know you need to reallymanage your OPEX.

Speaker 1 (38:43):
Yeah, big time.
And are the regulationsdifferent?

Speaker 2 (38:47):
No, we're still bound by the same building code.
It's the same code, right.

Speaker 1 (38:50):
Yeah, it's the same code.
Yeah, so your minimum sizes andeverything are the same.

Speaker 2 (38:54):
Yeah, yeah, but again you really got to.
You know you kind of have toprogram your building slightly
differently on the apartmentside too, right, because you
really got to look at the facerent as 550 square feet.
If I can pay $2,400 a month,that's all I can pay and you

(39:26):
know now I'm competing againstother product right and rents in
Toronto are.

Speaker 1 (39:31):
I'm sure that people in Toronto think they're high,
but actually like $2,400Canadian dollars a month would
be kind of average.

Speaker 2 (39:42):
That would be a typical one bedroom right now,
yeah, so that's quite.

Speaker 1 (39:46):
That would be quite a bit less than what a typical
one bedroom would be in Dublin,for example, which I think is
interesting.
I mean, the one bedroom inDublin is going to be bigger,
but like you say, it doesn'treally make any practical
difference to the renter.
Yeah, it doesn't really make anypractical difference to the
renter.
So it's interesting that therental yield then on apartments
must be very low.
Right, it is low.

(40:07):
Yeah, to buy a condominium andrent it out, like your yield,
like you say.
Well, they're cash flownegative, so their yield must be
very, very low.

Speaker 2 (40:14):
Yeah, absolutely, and even on the purpose-built
rental side.
Ideally we'd want a 100-pointspread between our development
yield and our exit cap rate, butthat's almost impossible in our
market right now.
We're trying to build to a 5%development yield and sell at a
4% cap rate or sub-4, as whatsome group believe, what the

(40:39):
market is.
But yeah, that spread is veryhard to achieve.
Wow.

Speaker 1 (40:47):
Well, that's yeah I mean because here I mean if you
ask people, they'll tell youthat the net yield right.
So when you have your OPEXtaken out of it, that the net
yield on an apartment buildingis four and a quarter, but
there's been very littleevidence to suggest that many I
don't think anything is sold atfour and a quarter.
A lot of stuff sold below thatright when interest rates were
zero, but now that they're goneup, you know, I think it's

(41:09):
probably closer to four and ahalf, 4.75.
What do you think about themarket generally?
Do you think?
I mean, I know things are roughright now, but do you think
people still coming into Canadaright?
The population is still goingup?
As you said at the start,there's still demand.
It's just that price has becomean issue.
Prices got very high.
They spent 20 years reallyclimbing right.

(41:30):
You've had a serious bullmarket.

Speaker 2 (41:33):
Yeah, and it's been growing too fast.
That's kind of the problem.
Prices have been increasing ata crazy rate in certain periods.
Like I said, sometimes theprice would almost double within
a span of three years, which isnot sustainable.
We all know that.
But the problem is that incomeshaven't haven't been keeping up

(41:55):
.
So it's like in the last 10years, if the cost of housing is
doubled, your salary hasn'tdoubled in the last 10 years,
which is a problem.
So, and that's that's kind ofwhat, why we you know we started
the business was.
You know we saw this kind ofgeneration of young people that
have been saving money for ahouse.
You know that they thought wasgoing to cause them maybe a

(42:15):
million dollars, but thatdoesn't exist anymore.
You know there's.
There've been priced out of the, the, the low rise.
You know single family home.
That dream has evaporated andnow they're forced into going
into a condominium, but themajority of the of the
condominium being built or, youknow, or skysers, they're
high-rise towers and you'remixed in with, you know, 400
other people you know strugglingto get down the elevator in the

(42:38):
morning.
Uh, and that's some like.
That's not for everyone,definitely not for young
families.
You know the ones to raise kidin the city.
So, and so there really hasn'tbeen that.
Uh, you know, like we've hardlydelivered any mid-rise buildings
over the last 10 years, theeconomics just didn't work.
You know, on the condominiumside, because they're just,

(43:01):
they're the, you know the pricethat you could sell them for
just didn't, you know, was neverenough to kind of compensate
for the cost of building them.
Because you know, the smallerthe building you don't have any
more economies of scale.
You know there's no room tokind of amortize anything
anymore like, so your fixed costjust goes through the roof.
The efficiency of thosebuilding is is not as good as a,

(43:23):
as a high-rise tower.
So it's just, it's tough tomake the numbers work.
But you know, uh, as of veryrecently we really saw that.
You know the end user market.
You know um wanted to be inthat more boutique-type building
, living into a larger suite ina neighborhood that they want to

(43:43):
live in.
So that's kind of what we'vebeen trying to program our
building to be.
But now that the market is kindof dead, we've had to pivot to
rentals.
So we still have one buildingright now.
That's needed to be a real enduser building Average suite size
closer to the 900 square feet,with larger suite size but comes

(44:05):
with a larger price tag on alot of those units.
And if people can't qualify fora mortgage then we'll have to
see how that goes, I guess.

Speaker 1 (44:15):
But again you're targeting a segment of the
market there like kind of aslightly more people are going
to pay more for a betterexperience rather than just
getting your cookie cutter, onebed and your high rise.

Speaker 2 (44:28):
Yeah, that's what we're hoping for.
There hasn't been a ton ofthose buildings delivered?
Yeah, I think so.
I think it's a real shift rightnow in our market.
A lot of developers have beendoing the same thing for forever
and they've been making moneyand there's been no you know no
incentive to change the you knowthe formula.
But now that the market is kindof broken, I don't know that
it's going to come back to whatit was.
The prices are just too highnow to be able to bank on.

(44:51):
You know that it's going tocontinue at the same rate,
that's just a very toughproposition.

Speaker 1 (44:56):
And right construction costs would have to
collapse to reset things right,because it's not as though you
can just say, oh well, we'lljust make less margin.
The margins were never actuallythat big to begin with.

Speaker 2 (45:06):
No, that's the thing, the margins are not that high
Like it's yeah to begin with.
It's to begin with.
So it's a misconception from alot of people out there that
developers are making money handover fist, and that's just not
the case.
If we'd be able to, in someinstances, sell the unit for

(45:28):
lower, we would More often thannot.
It's just the price has to bewhat it is, just to make your
margins, to be able to borrowthe money and take the amount of
risk that we're taking.

Speaker 1 (45:38):
And do the next one right.

Speaker 2 (45:39):
Yeah, well, that's the thing, yeah, and like here
in our market, it is very muchrecourse financing, like you are
on the hook personally for theamount of money that you are
borrowing.

Speaker 1 (45:52):
Like the bank will come after you oh.

Speaker 2 (45:53):
I didn't realize that , so they'll come after you
personally.
Absolutely.
It's not like in the Stateswhere they have non-recourse
financing.
We're providing personalguarantees on all of the loans
that we have.

Speaker 1 (46:04):
Wow, okay, that used to be how things were here,
right?
So before the crash in 08, 09,everything was on a personal
guarantee and then since then,almost nothing is.
I'm conscious that I've takenup nearly an hour of your time
and I we haven't even yet reallytalked about your projects Like
so.
So, Leader Lane it's it's youand your partner, and I know you

(46:27):
got you got a couple of guyswith you there that are are
doing the analysis how do youyou, how do you go about, uh,
sourcing the, the land and andand what?
It gives a little flavor forthe projects that are are?

Speaker 2 (46:38):
I know some of them are in planning that that are
underway yeah, so we've got,yeah, so we've got five projects
right now on our own account.
Uh, four of them are with thesame partner.
We're co-developing with agroup called windmill
developments.
Um, they're originally fromOttawa.
They have a big track record insustainability.
I think they've delivered thefirst lead building and

(47:01):
community in Canada way backwhen.
Yeah, so we're partners withthem on four projects.
Three of them are part of thesame kind of partnership.
So Windmill started a fund withan asset manager called Epic
Investments.
They created a fund called theOne Planet Living Fund.
You might know the One PlanetLiving Framework.
Yeah, one Planet, it's asustainability framework out of

(47:21):
the UK run by BioRegional, sothey actually created a fund out
of it.
We had bought a property justoutside of the core in Etobicoke
.
Call it a 15-minute train fromthe core of the city.

Speaker 1 (47:34):
Nice part of town.

Speaker 2 (47:35):
Yeah, a nice part of town like gentrifying definitely
you know um changing rapidly uhattractive place for for people
to to want to live in.
So the first site that webought was a small corner site
on an Avenue place on a streetcalled the Queens way.
It's a lot.
That's 50 feet of frontage butabout 110 feet deep with a
laneway at the back, and really.

(47:57):
So we wanted to find sites thatagain that didn't require any
rezoning, that we can just gothrough the site plan and the
minor variants to kind ofstreamline our approval.
And we wanted to really try tocreate a prototypical building
that we can replicate on thosesites, and the idea was to
deliver them, and still is todeliver them in mass timber.

Speaker 1 (48:14):
Okay, well, that's interesting now, because mass
timber is not something that we.
We're not allowed to do thingsin mass timber because of fire
regulations.

Speaker 2 (48:22):
Very interesting.
So our national building codeactually went up to 12 stories
now for mass timber buildingrecently.
Yeah, so the idea and the ideareally, with the mass timber I
mean it's a few things, but it'sit's obviously it's, you know,
more sustainable than concrete.
You know the speed of deliveryis greater because it's mostly
prefabricated offsite.

(48:42):
You know the the structure andit's visually appealing in terms
of you know, when you're in theunits you typically have
exposed wood ceilings, whichgives you a different vibe than
just a concrete box.

Speaker 1 (48:53):
All right, okay, and I guess, is there is there less,
like a lot less labor required,then for when you're putting it
?

Speaker 2 (48:59):
up Less labor, a different type of labor which is
, you know, a little bit trickybecause the assembly, you know,
not a lot of groups are familiarwith, the erection of the, the
mass timber Right.
It's, like you know, dependingon the system that you're using,
it could be like a, you know, agasket system where things kind
of, you know, fit together andit needs to be assembled by,
most likely by the group that'sproducing the.

(49:22):
You know the material Right.
Okay, so you know, our firstbuilding right now is nine
stories, 60 units, and you know,the tip up of the building of
the structure should be done inabout 10 weeks.

Speaker 1 (49:39):
So pretty quick.
What's the manufacturing leadtime then, before it comes to
site?

Speaker 2 (49:44):
Probably close to six months like off site.

Speaker 1 (49:49):
Well, that's still pretty.
I mean, that's still prettyfast, though, right, because
you're getting up to roof level.
Then in seven, eight months,call it right from when you give
the order.

Speaker 2 (49:55):
Yeah, it's quick, so ideally at speed.
We would want to be from start,from demolition to first
occupancy.
We would like to be 12 months.

Speaker 1 (50:07):
That is really fast.

Speaker 2 (50:08):
Yeah, we're probably closer to 16.
Right now we're doinggeothermal also on those sites,
which is also interesting.
It's been growing rapidly.

Speaker 1 (50:17):
Is that common in Canada?
Geothermal.

Speaker 2 (50:20):
It's starting, yeah, Like more and more A lot of the
new developments because of, youknow well, again, because of
the financing.
Like you know, to get to thosepoints for energy efficiency to
qualify for the CMHC MLI Selectfinancing, you need to be 40%
above building code to get tothe higher level, and geothermal

(50:41):
gets you a long way there.
But, yeah, so you used to beable to get to 100 points with
the energy efficiency.
Now they've toned this backdown to 50 points because they
want you to provide affordableunits.

Speaker 1 (50:52):
All right.

Speaker 2 (50:52):
So now, if you want to get to the 50 or 1.
A 1.1 dscr, you're going toprovide 10 affordable units.

Speaker 1 (50:58):
Okay, which is, you know, which is challenging
obviously I don't feel too sorryfor you because we have to
provide 20 on every site and wedon't get any kind of discounted
financing in in return for that.

Speaker 2 (51:08):
It's just straight off the top so, yeah, so this,
so, um, so so we bought the.
So we bought our first sitewith that idea in mind and
initially we wanted to do it aspurpose-built rental because we
saw this as a quick delivery,not having to go through
pre-sales.
But we had one site.

(51:29):
Nobody really believed in therents that we were underwriting
back then and it was just toosmall to attract any type of
capital Because I think theirfirst building required just
over $3 million of equity, whichdoesn't really move the needle
for any of the private equity orfund investors.
So when we approached Windmillthey were interested but they
said, okay, we need to deploymore money than that.

(51:52):
So we went and bought two moresites in the same neighborhood
and we kind of created acollection of three buildings.
But when we pitched them on itthey said, well, again,
condominium is a lot easier forus to get investment committee
approval Because back then acouple of years ago there was
eight projects in our node.

(52:13):
They had all sold very quicklyat around $11.65 a foot.
Back then a couple of years agothere was eight projects in our
node.
They had all sold very quicklyat around $11.65 a foot back
then.
So it was just a lot less riskyto do it as condos.
So we kind of went on thattrack and then obviously things
changed and now we've pivoted tothe purpose-built rentals.
But again, on the firstbuilding that we're doing as a
condominium, we were at about 42units and now we're doing as a

(52:33):
condominium.
We were at about 42 units andnow we're at 60 units, now as a
rental.
So we've shrunk our averageunit size.
You know from what we weretrying to deliver.
So yeah, so we're startingconstruction on this building
right now in September.

Speaker 1 (52:45):
Okay.
And where is the timber comingfrom?
Is that?

Speaker 2 (52:51):
Yeah Well, so right now we're using a group called
Intelligence City.
They're from Vancouver and theyhave a proprietary structural
system.
It's a cassette system made outof CLT.
It's made in their factory inDelta, bc.
So for the first project, thisis where the mass timber is
coming from, so it's actuallygoing to be trucked all the way
from Vancouver.

Speaker 1 (53:12):
Oh my gosh 3,000 miles.

Speaker 2 (53:13):
Yeah, so they are in the process of opening up a
factory here, I believe.
So the goal is for the nextproject to have, you know, to
have the supply coming from alot closer.
Yeah, we're definitelypioneering Like there hasn't
been there's been one otherresidential building right now
delivered in mass timber.
In our market there's been alot more, um, you know,

(53:34):
commercial buildings, likeoffice building, delivered like
that.
But yeah, so we're, we'redefinitely pioneering you're,
you're the pioneer.

Speaker 1 (53:41):
Well, I mean, I think it's fantastic, I love to see
it here and I think a lot ofpeople have tried.
But the, the fire regulationshere are just.
I mean, how do you get over?
I mean, I know the, but I'masking the question for the
benefit of everybody else.
Oh, you're going to build abuilding out of timber.
Is that not dangerous?
Will it not go on fire?

Speaker 2 (53:58):
Yeah, so there's been .
There's definitely been astigma around that and there's
still, for sure, questions frompeople, but I think a lot of
people have been spending a lotof time kind of educating on the
fact that you know, this, thisheavy, this, um, mass timber
that we're using.
So there's different types but,uh, right now our building is
mostly made out of of clt, crosslaminated timber, which is

(54:19):
really a bunch of two by foursthat are glued together into,
you know, multiple layers.
So a typical panel will be fiveplies, so it's five different
sections of of uh, of two byfours glued together in cross
sections to make up, uh, youknow, a panel.
So and it, so it becomes heavytimber which, you know, under
fire will char, but will not,you know, is a lot more

(54:42):
structurally sound than steel,for example.
Steel will melt after, you know, above a certain degree.
Yeah, uh, mass timber will notlike it will char.
But so, yeah, so you know, weused to be at at six stories,
you know, in mass timber up torecently, and now we're up to 12
and and you know, people aregetting alternative solutions to
get up to even to 18 stories inin mass timber.

(55:03):
So, yeah, yeah, so this, butit's been a long road, like you
know a lot of education to getto that point.

Speaker 1 (55:09):
Yeah well, I think it's fantastic and I salute you
for doing it, because I knowthat, um, you know, the easy
thing to do sometimes is just todo the same old thing over and,
over and over again.
Mathieu, I do the thing on thepodcast where I give a magic
wand out where you can justchange something to help housing
supply.
What would it be?
You got one thing.
What you got.

Speaker 2 (55:27):
Definitely eliminating government fees
right now, like just if we couldeliminate even a you know a
fraction of development chargesparkland dedication, community
benefits charges like that wouldreally prop up, you know,
developers to start buildingagain.
Like I said, you know, it'slike 20, 25% of the cost of the

(55:48):
unit is is, you know isgovernment fees.
So there's been a realapprehension to you know,
raising property tax in ourmarket and it's the new home
buyer that's paying for thegrowth and they don't realize it
.
But it's just the burden shouldbe on everyone to pay their
share of living in the city andpaying for services.

(56:09):
It's just that's not who'svoting.
This is not how you getreelected.

Speaker 1 (56:17):
Yeah, because the people who don't have a house
don't get to vote right, sobecause they don't live there.
So that makes perfect sense.
We have the same problem here.
People don't know, they don'twant to pay high property tax,
so we just lump it onto thepeople who can least afford it,
which are the first time buyers,the younger people, so that the

(56:37):
older people get to keep theirbigger houses Because, as you
say, they vote.
That's really depressing.
This has been great, matt.
I really appreciate it.
I know I've taken up an hour ofyour time.
It's probably early in themorning still for you, and I
know that you probably got toget your kid up All those
schools out, so maybe you don'thave to do that.

Speaker 2 (56:54):
It's summer camp right now, but yeah, no, all
good.
Yeah, I can talk about thisstuff all day, oh.

Speaker 1 (56:59):
I know and you and I will be sitting here and we can
retitle this episode TwoDevelopers Whinge at Each Other.
But you know, I just think it'svery helpful for people to hear
, because sometimes we like tointernalize this stuff and think
that we're the only ones havethis problem, and and the
problems are are slightlydifferent and the markets are
slightly different, but actuallythe the themes are the same.
Right, that governments want tolevy costs on developers.

(57:21):
They don't want to get out ofthe way.
Then they want to complain thatthings aren't being built and
the housing costs are high.
Right, it's, it's the same shit.

Speaker 2 (57:28):
Uh, yeah and it's very and it's very interesting
to hear your side of know howit's going in your market and
how you're.
You know you're overcoming someof those issues.
It's, yeah, I think there needsto be more collaboration
between you know, betweendevelopers overall, you know.
So, no, it's great, alwaysreally enjoy talking to you.

Speaker 1 (57:46):
No, thanks a lot.
Oh, and there's one other thingthe book.
Did I ask you to recommend abook?

Speaker 2 (57:49):
Oh yeah, you know what?
So I read a really interestingbook recently.
Actually nothing to do withreal estate, but uh, I don't
know if you've come across it,it's called nuclear war scenario
by Annie Jacobson.
Uh, it's kind of runs, it runsyou through, uh, just basically
a nuclear war scenario.
Uh, that's incredibly realisticand that could actually happen.

(58:10):
Uh, you know, and it's just you, you have, you have to read
that book.
It's just it will.
It's, uh, it's, you know,eye-opening, uh, mind-boggling.

Speaker 1 (58:21):
It really puts a different, you know, perspective
on yeah, maybe puts the cut,the chick conversation that
we've just had into perspective.
Um, yeah, it sounds.
It sounds fascinating.
So that's that's going on myimmediate mostly read list.
So thank you for that and we'llput it in the show notes as
well.
Mathieu, merci beaucoup.
Thank you for the chat and forthe time.

(58:41):
I hope to get back over toToronto sometime soon.

Speaker 2 (58:43):
Absolutely yeah, hopefully I'll be able to tour
you through at least twoconstruction sites.

Speaker 1 (58:48):
Yeah, maybe give me a job I can help turn a wrench on
some of that CLT that you'reputting up.

Speaker 2 (58:53):
Very much looking forward to that.
Thanks for having me, Rick.

Speaker 1 (58:56):
All right, mate Thanks, thank you.