Is The Condo Market Dead?

On today’s show we are looking at something that appears to be news, if you strictly follow the headlines. But if you’re following the industry, you will recognize that the media are reporting news that quite frankly is several years old. 

The issue is the condo market. The problem is that the condo model is flawed, at least in its current incarnation.

Any condo developer needs to achieve somewhere between 60-80% pre-sale of units in order to qualify for their construction financing, the pre-sales process is full of uncertainty. New condos are just not selling. 

The way developers in the past have got a jump on the sales process is to sell somewhere between 20-30% of the units to investors. That means designing units that are very small and will generate the most rent per square foot. Developers have also frequently relied upon the so-called friends and family contingent of buyers. These are sometimes subcontractors to the project who will commit to buy a few units, knowing that they will likely never take occupancy. These units will be sold after completion, or perhaps some of these contracts will be assigned prior to finalizing the condo registration.

Even with that, many of these units are more expensive to purchase than existing units in the market. Even units that were delivered 5 or 10 years ago are experiencing negative cash flow at today’s interest rates. So that eliminates 20-30% of the buyers right off the top. It’s now almost mathematically impossible to achieve the pre-sales targets without the investor component.

There are hundreds of incomplete condo projects across the US and Canada that are stalled and in danger of going back to the lender. 

-------------

**Real Estate Espresso Podcast:**
 Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)  
 iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)  
 Website: [www.victorjm.com](http://www.victorjm.com)  
 LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)  
 YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)  
 Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)  
 Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  
**Y Street Capital:**
 Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)  
 Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)  
 Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)