About real estate, buying during down periods, and navigating periods of negative media coverage… with TCS CEO Simon Mass.
What was the general sentiment in the real estate market during the downturn you invested in? How did the media influence investor confidence at the time?
SM:
It’s typical when the market is in a correction or downturn, the sentiment is mostly negative and based around fear and misinformation. My own experience has been to watch as investors become driven by fear typically read too much of the media’s reporting, creating uncertainty so that they are viewed as ‘experts’. I find it disheartening to always watch a significant number of clients not get where they need to be due to ‘noise’.
Can you describe the challenges you faced as an investor when the market sentiment was overwhelmingly negative? Did these conditions deter you or create opportunities?
SM:
In 2008, the media pretty much announced that the Toronto condo market was in full crash mode and that it would take a decade for the inventory to be absorbed and investors and primary owners to be at a break-even position, similar sentiment to what we have seen from 2022-2024. Back then, the Toronto market came to a standstill but prices in the condo market stayed stable (as they are now more or less), and developers felt confident that they would be able to hold on to their projects by simply going on a hiatus of 12+ months and allowing the market to rebound quickly due to the lack of supply in the market (as we are seeing now).
What happened then was: In early 2010, the Toronto market came back with a vengeance. Sales skyrocketed as there was immense pent up demand and a lack of housing that was crippling the supply chain for owners and tenants alike. New projects as well as balance of inventory of stalled projects hit the market at approximately $200/sf higher and not only did sales flourish, but prices also continued to rise to allow for a 100% increase per sq. ft by 2012.
If investors had been aggressive and purchased units in 2008-2009, they would have seen capital appreciation of 50-100% in several years, which would have been the opposite to what the media promoted in their efforts to shut off the supply chain and to convince anyone that they should never ever contemplate purchasing real estate.
In Miami, the story was different. It’s fair to say that prices did drop by 25-40% in many brand-new buildings in Miami; the entire fabric of the investor base was wrong (in my opinion) as the developments were marketed and sold purely to speculators who never had any intention of moving in or even closing on their pre-construction investments.
The Miami phenomena was different in that it allowed for savvy, educated and positive-minded investors, as well as end-users, to buy at the lowest price point and simply wait for the market to rebound in its own good time.
Can you share a specific deal you secured during a down market that turned out to be a transformative investment? What factors gave you confidence to act when others hesitated?
SM:
We managed to secure several hundred condo deals in downtown Toronto in 2009/2010 that all ended up having incredible returns (a 2x of the initial purchase price which we are very proud of). To break that down, the returns for investors were even more impressive when you consider the cash-on-cash returns set a benchmark for an even more intensive sales cycle over the next 5+ years.
At the Thompson Residences, in trendy but still-being-gentrified King West, we managed to secure the purchase of approx. 35% of the entire complex where clients purchased units in the 350sf range for $300K with only 10% to 15% in down payments. When these units were sold following completion for $550K to $650K it allowed for a very impressive ROI for all our clients and a positive return to a fantastic real estate investment marketplace.
Did you encounter properties that others overlooked or undervalued due to the negative media environment? How did those investments perform over time?
SM:
I always enter a down market with an eye for opportunity but because our business model is based on securing a bulk purchase (meaning a large percentage of a particular building), no matter how positive I was, without the strength in numbers, the opportunities could not be implemented as we never push our clients to participate, it’s not our style of doing business.
Every project we looked at, evaluated and wanted to pursue that didn’t come to fruition due to a lack of interest from clients had returns that are hard to generally find in the stock market and other arenas showing the value of the bricks and mortar investment thesis holding true.
How did the deals you secured during the down market impact your portfolio in the long run? Would you consider these investments pivotal to your success?
SM:
These properties and their returns have allowed for leverage due to re-financing options as we bought low and once the market rebounded and the frenzy continued, we had the privilege to utilize the power of leverage and continue to expand our portfolio in a manner that was not possible if we had not stayed true to the evaluation and purchased when others say not to.
Success is all relative. I have clients who have a total of four units as investment properties, and they are happy, stable and others who have 50+ properties and feel they are far away from their goals. I’m not here to make those decisions for clients but rather here to advise them of an opportunity and see if they wish to be part of the positive and profitable wave.
If you could give advice to investors facing a similar market climate today, what would you emphasize based on your own experiences?
SM:
Think outside of the box and don’t fall victim to click bait media that are there to proliferate scaremongering. Go back in time and see what has happened in every down market: things come back to normal and then they balloon in value. That’s a historical, cyclical, and repetitive process that will continue until the end of time.
The Condo Store Realty Inc. (Brokerage)
TORONTO • MIAMI
Tel: 1.416.533.5888
Email: office@condostorecanada.com
The Condo Store Realty Inc. (Brokerage)
TORONTO • MIAMI
Tel: 1.416.533.5888
email: office@condostorecanada.com
To learn more ...
