The GTA condo boom will go on: Cranson Capital offers a cut of the action.
The number of new construction starts in June came in well above expectations. Actual starts were 198,185 compared to consensus forecasts for 190,000 starts. The debate on whether or not the Canadian real estate boom will go on, will go on.
It seems everyone from the IMF to my next-door-neighbour has an opinion on the direction of the real estate market these days. But one company unabashedly bullish about the downtown Toronto condo market is Cranson Capital, an investment firm offering limited partnership units to accredited investors in a range of alternative investments.
The market for exempt investments has boomed in recent years. Cranson is one of the players on the scene, albeit, one of the more successful ones. The company has won three “deal of the year” awards, has a place on Profit magazine’s 500 fastest growing companies. WP will be publishing a larger story on Cranson in an upcoming issue, but the real estate market news this morning reminded this reporter of some recent comments from the company.
The company has investments in tech, medical buildings, as well as downtown Toronto condo developments. As anyone familiar with the GTA real estate market knows the number of condos going up in the city is astounding. More tall buildings are going up in Toronto than in New York and LA. Well over 200 towers taller than 15 stories are under construction. The market is hot.
But for the most part investors have had to sit on the sidelines and watch as the profits of this boom go to the traditional, decades-old, family-held property development companies have had all the fun building and financing these projects. That is, until recently. Cranson now offers accredited investors a place in these deals. Most recently the company raised $14.5 million for Plazacorp, one of the leading real estate developers in town, for a new condo development in Toronto's downtown core. This development project allowed over 100 accredited investors direct equity stakes, along with Plaza, entitling the investors to a share in the profits of the proposed development. The money will have to be tied up for several years, sure, but conservative forecasts for the project call for a 122% rate of return.
“The condo boom has only been open to wealth property developers, the family businesses that have been in the family for years. It’s a tight network of investors. Everyday investors have never had access to these investments," says Michael Aziz, vice president of sales at Cranson. "There is no public vehicles for these kinds of developments. There never will be. A public security doesn't make sense because of the long hold times on these investments. But the return on these vehicles is in the low '20s annually."
Isn’t the condo boom late in the game, though? Isn't the market ready for a slowdown? Not at all, not in the downtown core. Approximately 80,000 new immigrants moving to the GTA annually, condo vacancy rates at a decade low of 1.7% while the Greenbelt Protection Act, has forced a deep densification trend in the city that has yet to run its course. The creation of the so-called Green Belt around Toronto, a region where suburban sprawl is no longer allowed, has forced developers to buy up any vacant lot downtown and put up a condo in a desperate bid to keep up with the population growth. This a race in which demand is running ahead of supply. "They haven't built any apartment buildings for a long time. There is shortage of housing,” says Devon Cranson, president of Cranson capital in an interview with WP. According to him, the housing market is moving towards a supply crisis. In order to meet the projected demand, the number of condo units in the GTA will have to grow by 230% over the next 20 years. “We’ve been building lots, but we’re still 40,000 units short. By 2017-2018 we’re going to have a real shortage of housing.”
Stayed tuned for more to come on Cranson and the company’s investments in tech and medical buildings.