Listen to “Why Are Pre-Construction Condos Always Delayed” on Spreaker.
Michael Siskind, Principal, Decade Group, which is building Yorkdale Village by Yorkdale Mall & Midtown Lofts in Kitchener/Waterloo
- Michael discusses why delays happen in the pre-construction industry such as strikes, building inspections, the registration process etc
- Things to know when purchasing pre-construction condos
- State of Toronto condo development
Transcript
Davelle: On today’s episode we have Michael Siskind, a principal of Decade Group Incorporated, a real estate development firm focused on self storage, industrial, and commercial Developmental within the Ontario market, and a principal and founder of Decade Homes, a leading residential developer with projects in Toronto and Kitchener Waterloo. Welcome Michael, thank you so much for joining us today.
Michael: Thanks for having me Davelle.
Davelle: Awesome, you know, consumers are always complaining about how long it takes to get their condo built so I thought it would be a great idea to speak to someone like Michael, a condo developer, to talk to us about what are some of the challenges that you face on meeting those timelines?
Michael: Well, I think it’s about setting expectations and probably condo buyers may not understand all of the stuff that it takes from which the time it takes to buy a condo to the time in which it’s ready for them to move in. What they probably don’t understand is the amount of things that are out of control of the developer or of the builder. What I mean by that is condos are typically sold pre-construction, so the plans have been developed, the site plan is approved by the city but the plans to build the actual building are not finalized. Once the developer has enough sales, they’ll go and they’ll finish the building plans, they’ll get them approved with the city. That can be the first time in which you have a delay. The city may take a bunch of time to go back and forth with you and with the plans and so on meeting the building codes, finalizing the urban design on what they want to see on the street scape and so on. That’s stage one and then stage two is when you actually go into construction.
Builders will always depend on the trades, so if the trades are, the builder may say I want to build this and the building should be designed to build this way, but the trade, the electrician, the plumber, the drywaller, it’s all those firms that we have to depend on to meet a certain schedule.
Davelle: Okay and what’s it like to work with some of those trades then?
Michael: It can be a great process, it can be a challenging process. I would say that when a project starts, everyone has the right intentions that they want to build it on time, on budget, and they hope that the plans are complete. When you get into construction especially residential construction it’s a very, very complex build form. When you look at the way that the codes is done, well it’s from the fire code and building perspective, there’s a lot of intricacies that goes on. Inspectors that are coming in, so the city is watching you. In Ontario, Tarion is watching you, protecting the home buyer. It’s complex and so what happens then is every time there’s a question, it might have to go back to the consultant, it might have to go back to a trade, it might have to go back to the developer. You have layers of questions and answers that must happen in a certain sequence. All of those have potential to add delay as you go.
Davelle: Got it, so when you are dealing with some of the inspectors, do they let you know up front what their expectations are so at least when they come on site, things go smoothly?
Michael: Great question. The building inspectors, typically, I would say that the personality can probably drive a bit of how they react to your development and how they treat you, but you can have an effect on them by treating them with respect and giving them the proper information. Some of the breakdown occurs to some degree in the that a [inaudible 00:03:48] department meaning the city, is approving your plans. With that being said, that’s in the two dimensional scape and when the building is built it’s in three dimensions. The building inspector will walk through and look at what they interpreted, basically are those plans matching what is the build form and if the inspector doesn’t agree that they do or has a different interpretation, the building inspector actually has the final say so they can say to you, “I don’t like that, I understand it was designed that way, but I’d like you to do it that way”.
Davelle: When those kind of things arise, when that happens with that building inspector, lets say they don’t like a way a certain thing is done, now when you go back to your trade that did that work, does your plumber or does your architect necessarily agree with what that building inspector said or is there discrepancies sometimes?
Michael: The consultant is the first person you would talk to, to say is the building inspector coming from the right point of view, and if they are and as I said some of this can be gray and so it’s their interpretation and we must follow it. The trade, we’ll go to them and say “Did you build it per the spec?” They’ll say “Yes, here it is on the drawing.” Or if they didn’t, they’ll rebuild it for us at their costs. That being said, if the inspector has given us something that is not on an accordance with the plan, it’ll become an extra to the developer, so the trade will say “No problem, we’ll get that done for you” and then they’ll charge you an extra to do so.
Davelle: Got it. Wow, that sounds like a lot of fun and a lot of negotiations. Now, how do strikes affect your business?
Michael: Again, the builder is really only as good as the trades that show up on the site and so I like to think of us as a conductor in all of this and the players of the instruments are our trades. We are just actually ending an Ontario strike that happened over the last six weeks, which involved, I think, six or seven different trades. What happened there is you encounter what’s called an unavoidable delay with respect to Tarion and it really just … not only does it delay you. Sorry, if I can pause and just go back to the sequencing?
Davelle: Yep
Michael: It will take by way of example a drywaller, so look at the drywallers on strike. The drywalls on strike, you can imagine there’s many things that can’t happen. You can’t put your kitchen in, you can’t put your flooring in. You obviously can’t paint, so things can really be at a halt and then when the strike ends, everyone who was wanting that trade for the last six weeks, they want them to come on site. Sites that are like mine, that are going, they want them to come back. There’s not enough labor basically to fill the demand. A strike, for instance, here that lasted six weeks might cause a project 12 to 15 to 18 months delay. I’m sorry weeks, weeks, weeks, not months.
Davelle: Geez, that’s crazy and then I guess obviously there’s a ripple effect because if they can’t come and do the work that means everyone else is sort of stopped working for that same period too as well, right?
Michael: Absolutely, and not only that, I mean, we as developers for our purchasers feel terrible because they had dates that they wanted to meet. They’ve given notices on apartments or they’ve sold their homes and their expecting us to meet that date. When you have an unavoidable delay like this, there’s really nothing we can do and as I explained to one of our purchasers the other day, we feel the pain probably a little bit financially more than they do because during all of that delay, which you can imagine can extend our schedule, say it’s by three months. We have to pay interest on the land, interest on all the construction and all the operating costs of our contractors and trades because your site is still running. There’s still a lot of costs that happen, that are not recoverable from my perspective.
Davelle: Right, of course, now does weather play into anything in terms of delays in your business?
Michael: Well, it does. From a builder’s point of view one hundred percent it does. You can have a mild winter, which allows you to more easily do some of your work. Two years ago, what was it? We had our coldest February that we’d ever had, which, you know, we had days, I think 15 days under -20.
By the union regulations, most trades just won’t show up in that kind of absolute freezing cold. In the same way, believe it or not, when it gets too hot, trades will also not work on your site. If it’s 30 degrees and then you have the humid X on top of that the trades will leave your site.
Davelle: Wow, so global warming is not good for your business?
Michael: No, we like mild, tepid weather that just continues. Of course, the other one is rain delays. You have to budget for that, but that’s why when you predict at the start of a building when your date is going to be, it really … you have to understand that there’s flexibility that needs to happen because of some of the issues that we’re talking about.
Davelle: Got it, anything else that you regularly see that could end up causing delays from your perspective?
Michael: I think it’s just the coordination of timing and the people need to understand. For instance, your roofer, when you say I would like you there on March 15th and then in February you have a bunch of delays because of snow, you had something that had to go back to your consultant and all of a sudden you don’t need them until April 1st.
If you call them and say I want you on April 1st, they say, “well, that’s great except that I started a job on March 16th because you didn’t want me anymore now I can’t come until April 15th”.
Davelle: Awe, that’s totally frustrating.
Michael: It’s very frustrating and imagine on a site at any one time, you probably have 30 trades of which 15 are major trades.
Davelle: Wow, so now tell me, walk me through the process once the building is built and for people who don’t understand there’s an interim occupancy phase there. Once the building is built, consumers get to move into their condo, there’s an interim occupancy fee until it actually finally closes and transfer ownership over, so Michael can you just walk us through the process of closing the actual condo and why sometimes there is a delay during that interim occupancy phase?
Michael: Sure. The easiest way to think of interim occupancy is really just a replacement of rent, so as the condo completes and let’s say Davelle, you are buying a condo from me and I say “Okay, September 1st you will have occupancy of the condo.” We meet that date and on September 1st you move in. I’m not allowed to close that condo until I have what’s called Registration and the Registration is a document that’s provided by the city, it’s a legal process, whereby, we are registering the finalized surveyed plans of the condo.
There’s a bunch of things that’s involved in that. We are aligning with the purchaser in that, when they’re paying us interim occupancy, it’s really just instead of them having to pay their mortgage and paying their operating costs, the developer is paying those costs for them and then by this interim occupancy fee or this rent it reimburses us. When we close, which is the registration of the condo and that can be anywhere on a very fast timeline three months. On a long timeline maybe nine months. That’s the point at which the purchaser is able to close, they’re putting in their final payment, their starting their mortgage and the developer is getting paid. Again, I don’t think purchasers understand that until the condo is registered, the developer is not taking their money out so the developer is still paying their mortgage and the developer still has all of their money invested. It’s good that both the purchaser and developer are on the same side.
Davelle: Right, of course. Now, is there a certain percentage of occupancy … during that interim occupancy phase, do you have to wait for a certain percentage of people to be occupying the units before you can apply to close the condo building?
Michael: Well, it’s the first question that, I think you’ve stumped me. I think the answer is that there is a certain one, but in our case luckily by the time we’ve bought the registration we’ve been over 95 percent sold in our development so it hasn’t been an issue. The other thing that I would like to add is that from the developer side, we actually don’t have control over the timing of the registration. We start the process many, many months before we are completed the project, but it sits in the City’s legal department, which is really the delay that happens. We wait alongside our purchaser’s waiting for the closing to happen.
Davelle: Got it, that makes sense. Is there anything you think consumers should know when they are going to purchase pre-construction condos?
Michael: I think in lieu of the discussion today, I think it is good for them to understand that in pre-construction you have to be prepared for timelines to extend. Typically, people would think, okay, I’m going to move in two years out so they would look at that date and sort of schedule their life around it. As we’ve talked about, there can be many things that influence that. I think keeping in touch with the developer to understand what those timelines are will help them make their planning easier. I’d say the other thing is planning for a couple things when they are buying their condo.
A condo purchase is one of the financial considerations. The second is that there’s also an upgrade process that some purchasers may not think about which is a condo or even a home is typically going to have a base building package. From that, the purchaser will be offered upgrades into their homes. I’m a big believer in doing certainly a minimal amount of upgrades.
Davelle: Okay, how come?
Michael: Because it’s a chance for you to really design your home in the way you want. From personal experience, I know that when you renovate, the best time to do your renovations is the time you’re doing it. Don’t say I’m going to wait and I’ll do that later, I’m going to do that later, because it’s a mess in your home. It’s a hassle, it’s stressful. It’s best to get it done. Also, the builder when they’re doing the upgrades within the process will be the best chance for the purchaser on a cost basis to get things done because, for instance, replacing your granite later will cost you a lot of money versus upgrading into the granite you want at the start.
Including, if I were to suggest a few, you always wanted to put in an under amount sink. You always want to upgrade your faucets. You may want to upgrade some spots, like you want to put in all your cable connections for where you are going to put all of your TVs, things like that. It’s worth thinking it through.
Davelle: Got it, no absolutely, that makes sense. What do you think about all the condo development going on the city right now?
Michael: As a condo developer, I’m encouraged that we still have faith in our economy here. I think that people are being a little bit more careful of what they’re doing. It’s important to understand that what we’re seeing right now was planned many years ago. When you see the cranes in the sky, those are developments that started four to six years ago in the planning phase. Where the sites were bought or you work with the city for year and a half to two years and it may have been in construction for a couple years.
Michael: Even if our economy turned tomorrow, those buildings are all going to be built there. We’re always cognizant of what’s happening in the market and being careful, but I think we’re still in a very healthy market.
Davelle: Yeah, it’s interesting to me because I remember a few years ago there was a lot of information in the media. They were, you know, the usual scare tactics and negative news about “Oh, their overbuilding, their overbuilding, there’s too many condos”. As a residential real estate agent, one of the things I’m seeing right now in the resale market is we’re now going into bidding wars for resale condos because there aren’t enough condos for people to buy and the people who own them are staying in them, therefore, they’re not putting them up for sale. I had a little giggle when I think that a few years ago or even currently in the media, people are saying that we’re overbuilding on condos but on the other side, I’m now seeing, no we’re not because there actually aren’t enough condos to service the needs out there.
Michael: Yeah, no I think you’ve got the right pulse on the market. I mean, empirically we understand when we’re in the market that that feel of the supply and the demand. My first comment is that newspapers have drastic headlines to sell newspapers. I love when I get summaries of the news and I’ll read two articles will be that the condo market is oversold and it’s going to crash and the other two will say relative to the world we’re doing fine. The statistics that I believe in, and I guess, some of the fundamentals we believe in are, One, You’re still sitting at one percent vacancy within Toronto. Second is that core property that thinks we’ll always be safe. I think as you get into peripheral markets and the GPA it’s a little bit more dangerous. We’ve seen a larger drive in the core and I think that, that will be protected. The third thing is that from a purchaser’s perspective, and I’m sure when you’re speaking with clients it’s the same type of advice, it’s that you’re not buying real estate to try and make money in a year or two years.
I would never advise someone to buy one of our products or any products for that matter and try to flip it. I don’t think it’s a positive strategy, but I do believe that in a five year period and certainly in a ten year period they’re going to be ahead of the game. They’re going to build themselves other good equity for their own home or from an investment property perspective. I think that if you’re buying centralized property at a good value, don’t get caught up in the clear, craziness of bidding wars. You’ve got to be careful and know what your price range should be, but when you’re buying at a good market value as long as you’re in for the long term, you’ll do great.
Davelle: Perfect, that makes sense. I always like to ask my interviewees, where abouts do they live in the city and why?
Michael: I live in the Avenue and Lawrence area. I guess, as I got older, I started in the core and really moved North sort of per decade, so I’m mid-forties now and I’m on my third house actually in Avenue and Lawrence. I did live Young and St. Clair and I lived at Young and Carlton before.
It really had to do with family and space. As my family grew we wanted a bit of a larger house, we wanted a backyard and when we couldn’t afford both a bigger house and a bigger backyard, we said “what do we want?” We started with a bigger backyard and a small house and then we traded that up. I’m a classic example of someone who made good amounts of equity in my home, which allowed me to trade within the market. We looked at proximity to the highway, I think, which helps me for work, looked at a neighborhood with a lot of families and safety within that and really convenience to friends. Those would be some of the major reasons.
Davelle: Perfect, that’s great, so you would certainly advise other people out there that owning a home has been worth it over your journey?
Michael: Oh, one hundred percent. We’re in an environment now where you can … Laurel… I just did a mortgage on the condo at 2.69. I don’t see how that number stands up in the podcast world but it’s a five year rate. It’s unbelievable that you can borrow money at that number. The way I’d like to think about it is if you can grab leverage at 2.69 percent, let the market appreciate just relative to inflation, you’re building equity on very, very cheap money.
Davelle: Absolutely, actually I can do one better than that. I just renewed my mortgage for my home at 2.2 percent fixed.
Michael: You see, there we go. Okay, well after this call you can tell me where that came from.
Davelle: Okay, now what do you think about people raising families in condos?
Michael: I think it’s really a mindset. You look at, if we lived in New York City, we probably wouldn’t the conversation. If we lived in London, England, we’d think of it as being in a teeny flat or in a condo. I like personally having a yard. I enjoy that. With that being said, could I live in a condo across the street from a big park? Probably. I think condos are great for certain stages of life. The toughest one is probably the late thirties to early fifties where the family is the biggest, where you’re utilizing your home a lot more. Earlier on in life, they’re phenomenal, later on in life they’re a great path from which you can travel and not worry about taking care of the home. That being said, also there’s lots of different build forms. I think when people say condos they think of a high rise condo, but we also have town home condominiums and stacked town home condominiums which also offer different build forms.
Davelle: Absolutely, perfect. Anything else you’d like our listeners to know about before we say goodbye?
Michael: Well, I think that, you’re in residential real estate, I’m in residential real estate, we believe in the market and I think if you buy small [inaudible 00:19:35] and you hold for the long term, I think it’s a great asset within your portfolio and I think we’ll all be in good shape if people keep the confidence in the market that exists today.
Davelle: Absolutely, I agree one hundred percent. I mean, I certainly plan on holding my holdings probably for at least another 20 or 30 years, in fact, because the whole short term buying and selling within a couple years, just doesn’t really make any sense. Buying holds for the long term makes a lot more sense to me. Thank you so much, Michael, for joining us today and viewers you can touch base with me at Davelle@bosleyrealestate.com or check out my website at morrisonsellsrealestate.com and you can find me on Twitter @DavelleMorrison. Thanks everyone for listening, bye. Thanks Mike.
Michael: Thanks Davelle.
