A man who makes a living helping the country’s largest bank avoid risks is preparing to double down on a market that many people believe is on the verge of a nasty fall.
Babak Habibzadeh, a 29-year-old risk manager with Royal Bank of Canada, lives with his parents and bought his first condo two years ago. He rents it out and has been delighted with the returns to date.
So today he’s buying another – a one-bedroom-plus-den, 601-square-foot unit on the 18th floor of a yet-to-be constructed building in Toronto called Core Condos that is scheduled to open in 2017. He’s not yet sure if he will rent it out or live in it, but says it will be a sound investment either way.
“Are you excited?” the saleswoman asks him as he plows through a stack of paper in the sales office, outlining the $360,000-plus deal.
“In three years I will be,” he says.
Toronto’s condo boom has given investors plenty of reason to be excited over the past decade, with prices for new units soaring by more than 70 per cent, according to RealNet Canada Inc. But the recent news is not so encouraging: Sales volumes have declined for two years, a backlog of 18,000 unsold units hangs over the market, and price growth has flattened, even as new condo projects continue to pour onto the market.
The plethora of construction cranes that populate Toronto’s skyline has made the city a prime exhibit for those who believe Canada’s real estate market is in bubble territory and a crash is imminent. But on the other side of the debate are buyers like Mr. Habibzadeh and developers like CentreCourt Developments, the company behind Core Condos. They are betting their own money on the theory that the market is still far from saturation.
If they’re wrong, the implications would extend far beyond Toronto. In December, the Bank of Canada singled out the market when outlining risks to the national economy and warned that “a sharp correction in the condominium market could spread to other segments of the housing market” with “significant repercussions on the real economy.”
Finance Minister Jim Flaherty has warned for years of the dangers lurking in Toronto’s condo boom. “I hear from some of them who are in the business of building condos that they don’t really have a plan, they’re just going to keep building them until people stop buying them,” he told The Globe and Mail in April, 2012, two months before tightening mortgage rules to discourage real estate speculation. “It will lead to a crash.”
But developers continue to see evidence that the supply of eager buyers is far from exhausted.
Andrew Hoffman, who launched CentreCourt in 2010, is confident he is providing housing the city needs. He points to growing numbers of young professionals who want to live downtown and the declining construction of houses and apartment buildings. “The question is, are we building more than the underlying demand requires? And I think the answer is no,” he says.
In November, after securing a prime parcel of downtown land, he agreed to allow The Globe and Mail to sit in on development meetings for Core Condos. This is the inside story of how a condo is made. It is also a window on the economic forces driving one of the hottest segments of a national housing market that continues to defy expectations.
The team at the top of CentreCourt is a blend of experience and youth. A lawyer by training, Mr. Hoffman spent 21 years at Menkes Developments Ltd., a prominent Toronto condo developer, where he rose to become chief operating officer before striking out on his own. His vice-president, Shamez Virani, is a 29-year-old who earned an MBA in real estate from Columbia Business School and did a stint at Goldman Sachs in investment banking before joining CentreCourt.
Core Condos is the duo’s fourth project and, as with the previous developments, the two men began by searching for the right parcel of property. Location is key, but so is price because that determines both the cost of the condo units and the returns for the developers and their equity investors.
Mr. Hoffman and Mr. Virani checked out more than 50 properties before settling on a piece of land on Shuter Street, in the core of the city, close to the Eaton Centre and Ryerson University. It was owned by Bruce Feldman, a developer who has spent 28 years building shopping centres. Mr. Feldman bought the land in 2011, hoping to delve into condos for the first time, but ultimately decided he didn’t want to do the project on his own. “It’s just too complicated and you can make so many mistakes,” he says.