Working Capital The Real Estate Podcast

Real Estate Development with Bader Elkhatib | EP66

Aug 11, 2021

In This Episode

Bader Elkhatib is a Vice President at CentreCourt. Prior to joining CentreCourt, Bader worked as an Investment Associate for Tricon Capital Group, a Real Estate Private Equity firm, and prior to that he worked as an Analyst in Investment Banking at CIBC Capital Markets.

In this episode we talked about:

  • Bader`s background
  • Bader`s first Real Estate deal
  • The Transition from Tricorn Capital Group to CentreCourt
  • Bader’s Investment Philosophy
  • Land Assembly
  • Real Estate Development
  • Replacement of Rental Housing
  • 2021-2022 Real Estate Prospectives and Opportunities
  • Mentorship, Resources and Lessons Learned

Transcriptions:

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time. Ladies and gentlemen, welcome to working capital my name’s Jesse for galleon today, I have better Elica deed. He is vice president at center court. Prior to joining center court batter worked as an investment associate for Tricon capital group, a real estate, private equity firm. 

 

And prior to that, he worked as an analyst and investment banking at CIVC capital markets. And today we’re talking all things, acquisition, all things development better. How’s it going? 

 

Bader (47s): No complaints. It’s a 38 degrees outside and then my basement is good. 

 

Jesse (52s): Yeah, I was going to say, I just, I totally forgot today. We have Italy versus Spain. Hopefully by the time I’m listening to this, we have one and have advanced to the finals, but yeah, it’s, it is quite hot in, in Toronto. Right now. It is close to 40 or feels like 40. 

 

Bader (1m 9s): Well, I’m sorry to keep you on the, on the line in that. How have you known him? He was playing Spain. I think we would have moved the call. 

 

Jesse (1m 15s): No sweat. I’m one eye is looking to the, to the screen here, but no, thank you so much for coming on. Really appreciate you taking the time. I thought listeners would get a lot out of somebody from your background in real estate. And talk a little bit about development, how, you know, center court, underwrites assets, and just kind of your general path in, in the real estate industry. So on that note, maybe where we could start is a little bit about your background. 

 

I mentioned Tricon CIVC for listeners. Give a little bit of a background and how you got into this, this world of real estate. 

 

Bader (1m 54s): Yeah, so it’s, I mean, pretty interesting story. I guess I, my graduated, I thought I was going to be in the tech space. I thought that was going to be, you know, where I’d find my path. And to that end, I, I kicked off my career in tech investment banking. So I was covering, you know, Roger’s tell us a bunch of data centers, a lot of small tech companies back when it wasn’t really sexy in two thousand ten thousand eleven. And it was, it was a great time. I did a ton of really interesting work, but the one deal that kind of really got me excited was the data center deal. 

 

And I, I kind of saw that as an intersection between kind of real estate and technology, it was tangible, it made, it made real money at the time. So you could follow the cash flow that really kinda stuck out to me as a potential angle. But the more I kind of dug into what I was really interested in, it was really on the resi side. So I said to myself, well, look, people are making careers out of real estate. You can work in real estate finance. There’s so many different ways to look at it. And, and through, through that, got introduced to tri Kahn. 

 

Who’s a real estate, private equity firm focused exclusively on residential real estate at the time, primarily in the U S. And I said, well, I would love to learn what the more with the us. I felt like I was just in Toronto at the time, and I kinda wanted to expand my horizons. It was residential, it was Toronto based a really young entrepreneurial team, a good track record. And I found a home there and I w I was there for, you know, just over four years, did a lot of really exciting work. But one of the pieces that I wasn’t getting was the development piece. 

 

Like, you know, we would invest in development projects and we would, you know, see a lot of the work, but as a Canadian based investor with porches in the U S it’s very difficult to have that boots on the ground experience. So I decided I need to kind of learn the trade if you will. And I started embarking on a journey to find the, the right development group here locally to really take me in and take a bet on me. Cause I had different development experience and I found a home at center court. So I’ve been within our court now for four years. 

 

And today I lead our land acquisition program. So, you know, really looking at every deal that comes through the door and seeing fits without and within our box. And that’s how I spent the vast majority of time. 

 

Jesse (4m 14s): Right on. And before we kind of moved to center court, I’m curious the, the type of deals you mentioned, residential, but the type of deals you’re doing at Tricon, maybe you could talk a little bit about that, where they kind of vanilla where they, you know, a little bit more complex. How, how did that, how did that go 

 

Bader (4m 32s): Very complex? You know, I remember the very first deal I did. I, I, my, my biggest tri con was a land development deal. So people think high is complicated, but this was like a, you know, a few hundred acre site in North Carolina. Yeah. So a brand new market, a time for, Tricon definitely a brand new market for me, you’re talking about buying like a wood. What is law area putting in, you know, road sanitary, sewer, water, building like a highway off ramp and then selling, you know, blue top loss, the builders, or going vertical yourself. 

 

So, you know, just the sheer size scope, like it’s like a 10, 15 year deal, the market risk associated with that. Like, it was just a very complicated process. That was a lot of the work that I did there. The other bucket of work was, you know, probably a bit easier to wrap your head around. It was manufactured housing, it’s the land lease communities. So we, we had a portfolio of manufactured housing communities primarily in Arizona, in California. So that was a bit easier to kind of, again, execute on wrap your head around cash, flowing assets, you know, easy value, add programs that are executable while we’re on the risk curve. 

 

For sure. And so that’s how I spent most of my time. Certainly not plain vanilla. I wish I saw a couple of plain vanilla deals when I was there, but just tremendous learning opportunity on very complicated things. 

 

Jesse (6m 5s): Yeah. That’s, we’ve had people on the show for a manufactured housing and it’s definitely has its intricacies, you know, when it comes to whether it’s it’s owned, whether it’s land lease. So it sounds like it was predominantly Landlease that you were dealing with there. 

 

Bader (6m 20s): Yeah. So I try Collin. One of the things that we did, and this was super exciting, you know, we ended up really basically taking $50 million of balance sheet capital in the first instance and, and using that to feed a manufactured housing portfolio, we, we found the right GP partner based out of Chicago to kind of lead those efforts on the ground. And what we were doing was we were buying, you know, call it one-off assets in the, you know, three to three and a half star category, good bones, or just really needed some, some significant TLC. 

 

And we would effectively go in and do the value add program, rebase that try to effectively bring it from like an 85, you know, 88% occupancy up to that 95, 97, 90 8%, and really repositioned the entire park. That was the whole business plan. But if you can imagine, like effectively involves us flying down to, you know, Arizona jumping in like an SUV and you’re cruising down, you know, like various parts, like I’m not talking Scottsdale fucking like Glendale and, and other areas. 

 

And once we’re parks, friended meet owners, like it’s that traditional door knocking and trying to find opportunities. And if that’s the way we built a portfolio of 14 assets where we own all the land, the tenants actually own the channel is what we call it, which is the house. They lease the land from you, it’s all triple mess. And basically what you’re trying to do is optimize right by building a portfolio, you know, spread the management costs, do the value, add program five and cap rate compression, grow the NOI, and then sell it off to another institutional, you know, owner who may not want to do that heavy lifting. 

 

And, and we did that. We actually ended up selling it to Blackstone. 

 

Jesse (7m 58s): Yeah, very cool. So pretty much a turnkey getting it to the point of turnkey and models, basically model, suite it for them and hand it over. And you said it was sold to Blackstone. Yes. Right on. And they, they had a fairly large play into single family. You know, everybody was trying to figure out how do you scale single family? And I think it was something like 38,000 or 40,000 units at the time. And I think they, I think they IPO the company or the company that they created. I totally forget the name. But do you recall? 

 

Bader (8m 28s): I think the American, I think as American homes for rent, if I remember correctly, I think that was it there’s. Yeah. Let’s the single family rental, like Tricom was super active in that when I joined, it was like a big bet that was may coming out of the, the 2010 recession. And that business has continued to grow. I remember at the time there’s a bunch of people who just couldn’t figure it out. They couldn’t understand how you could manage so properties, but you know, here we are 10 years later and it’s a, I’ll call it an institutional asset class with, you know, real, you know, pension players looking to grow the portfolio. 

 

And, you know, we recently heard about a company here in Canada, who’s going to try and do something similar. So it’s super exciting. I like the whole time I tried it on was very innovative. I didn’t work on single family rental, but just being around the folks who were working on it, you know, you just, don’t, you, you start to appreciate the thesis and yeah. There’s risks to it, but yeah, there’s always risks. 

 

Jesse (9m 32s): Yeah. Very cool. I think the one I was talking to the invitation homes, which I believe I, yeah, I believe IPO. Okay. Very cool. So you go from, from Tricon down to, or over to a center court, what’s that transition like and what do you start working on once you, once you make that transition? 

 

Bader (9m 50s): Yes. You know what? It was a, I think it’s a big bet on my part, right. At the time, like I had a, I had a great thing going on for me, a Tricon, but I was really inspired by the founders of center court. You know, like working with guys like Andrew Hoffman, Jemez, Veronica, Steven, Bellevue, like everybody just has tremendous respect for them. I had tremendous respect to them and, you know, Centrepoint was still maybe five or six years old at a time and just had a great track record despite, you know, a relatively short tenure. So I knew they were on the right track. 

 

And candidly, when I first met with Hermes to, you know, just pick his brain, we, we had a mutual connection and I said to him, Hey, this is what I’m looking for. I’m looking for developer that has these types of characteristics and you know, where do you think I should go? Like, who do you think I should talk to you, but you can’t just stay away from, you know, like just kinda give me some guidance because all my work was in the U S and you know, after a few meetings, he just said, I, you know, I, I meet Andrew. 

 

And at the time Ford was not hiring, you know, they had, they had a solid team, they were growing, but they weren’t really looking for someone, but he said, Hey, like, you’re a great talent. You have the right outlook on, on the world. And it aligns well with the way we see things. So if you’re, if you’re willing to make a bet on us effectively, when we can bet on you, so we’re going to join, you won’t really have a, you know, fully based roles. So I kind of did a bunch of everything when I first joined. 

 

And then, you know, as the business grew, I grew, but the very first thing I did was a sales and marketing on our venting west project, which is a building over in Liberty village. So I took a deep dive into, you know, designing suites and coming up with the name and figuring out how to market it to brokers and, you know, our investor buyers. And that was the very first thing I did. And from there things quickly evolved and started doing more acquisition work, which is kind of more of my comfort zone. 

 

And we ended up raising a, a, a large $250 million dedicated fund. So we have permanent capital and more of a call it a, a direct mandate to put that capital in play. And, and, and through that, and some heavy lifting, I eventually transitioned over to acquisitions. 

 

Jesse (12m 14s): Very cool. So the, the fund itself, it was that, was that something that they, they created as a committed capital fund? Was it something that they created in a private REIT structure? What were the mechanics of that? 

 

Bader (12m 27s): Yeah, it was, it was committed capital fund. So prior to that, you know, we were raising capital from ultra high net worth families on an as needed basis. When we had an opportunity that we felt was worthwhile, we’d bring it to our investors. And we had a very small group of very loyal investors. And, you know, what we saw in the marketplace was w w was really two or three different dynamics. One was, you’ll just getting done a whole lot faster than ever before. Right. So that multitasking of doing your diligence, raising your capital, I mean, we were doing it, but it put a lot of pressure on the team. 

 

We also had a great track record. So we thought, how can we leverage that track record into something more? So I think really, I know we just saw a lot of opportunity in the marketplace. So it was really those three things that sets ourselves. Let’s just raise a committed fund where we know we have the money in the bank. We know we have this mandate and we know there’s opportunities out there. It’s just gonna help us execute better, you know, enhance the machine if you will. And it, it certainly did. So right now, you know, it’s been three years, we’re about halfway through that fun. 

 

And, you know, we’re, I’m super happy to report that things have worked out, you know, kind of exactly as, as we anticipated. I’m not exactly, but, you know, in the larger scheme of things, pretty, pretty close. 

 

Jesse (13m 48s): So with that mandate, what type of, what type of latitude or what type of range of investments were part of the investment philosophy when, you know, you have investors initially coming in and saying, you know, these are the returns we’re looking for. These are the asset classes that we’re looking at. What did that look like? 

 

Bader (14m 6s): Yeah, no, it’s a good question. So, you know, for us, we try to be very, I think we try to have a narrow focus. So we’re only doing high rise, residential condo for sale, right? So we don’t have a mandate to do, you know, commercial or retail or industrial it’s, it’s, it’s, it’s one asset class in terms of market. You know, we, our bread and butter is the downtown core, but we had the latitude to go out to the greater Toronto area. So for, you know, for us, that’s really the outer 4, 1 6 and 9 0 5. 

 

That’s what I would consider it to be kind of our, our playground right now. And in terms of, I guess, you know, scale and deal structure, really for us, it’s 280,000 square feet or more of GSA. So we’re looking for, you know, higher density stuff. It doesn’t need to be a vertical tower. It can be, you know, a mid rise, but certainly high density. And last but not least, we have a lot of latitude in terms of what we can buy. So I can go out and buy a, you know, a Plaza. If I think that’s positive can be converted into a high rise development. 

 

We could buy a whole piece of a, of an assembly site, right. And assembled over time, the rest of the remaining properties, we can buy a fully zone site and just, you know, put a right to range of production. So, you know, we look at a lot of different opportunities in, in varying stages of, of the on-call there development life cycle, 

 

Jesse (15m 30s): Right on. So, so that’s kind of where I was going with that, where you would, you know, potentially you’re buying something that is a different asset class today with the intention to take it to high rise, residential condo sale. Maybe you could talk a little bit. We, we, you know, on the, on the show, we’ve had people on that have been condo centric or had that similar type of mandate with their investors, but not so much a discussion of land assembly and how investors look at land assembly, because I can tell you from the point of view of the brokerage side, even on the investor side, you know, land assembly, it’s definitely an art. 

 

And for someone like myself, that doesn’t see a lot of it aside from having investors in brokerage, say, I want this, I want this. It almost looks pretty random until you see something actually come together. So how do you approach that? Maybe, maybe you could dive into that a little bit. 

 

Bader (16m 25s): Yeah, look, it, it’s not easy. It can definitely look random. I think what I always tell people who are trying to pursue land assemblies. Like if you think of like the, the area, like call it, like the spectrum of risk w land assemblies highest, highest risk, right? Like you’re, you’re taking a bet on a piece of dirt that you need to buy your neighbors out at a basis. That’s going to make sense. So you gotta think things through rezoning, like if it’s the longest life cycle and most complicated piece of the, of the puzzle, but there’s a approach. 

 

I always say, I talked to a lot of young call it young brokers or, or, you know, peers. It’s like, you know, like, what’s the best way of doing this. And, you know, we often trade notes and then I’m one thing I can say is know where to look. Right. And it sounds easy when I say that to you, but the reality is do your homework, right? Like don’t just start looking at, you know, four corners of being, well, there’s a tower over there. That’s the site next to, it must be a tower site, but it’s far more complicated than that. I, I often find people just make that assumption. 

 

You really have to understand. So if you’re working in Toronto, the city Toronto official plan, the secondary plan, the site specific policies, the tall building guidelines, or mid-rise building guidelines, you know, you’re really have to be plugged in to what, you know, the, the planning policy says is achievable. I think that is step one is to have that deep kind of Intel. And then step two is to kind of like, you know, you’re kind of layering these things on top of each other to figure out, okay, I’m going to put them through this filter. 

 

Where can I, like, what areas am I allowed to develop in? And then you’d have to go through it and say, well, okay, this area is clearly development sites, but I have to buy 16 peaks, like jumped people out. Is that something I’m going to spend my time and energy doing? It might be if you have the patients and the capital and the very long-term orientation, but realistically, I think most people will shy away from that. So then you’re trying to find the sites that have, you know, call it two or three different land parcels. And then you’re trying to make sure, well, has somebody already planted a flag there, right? 

 

Like if another developer’s already on the block, well, I’m just not gonna get into, you know, a back and forth about who’s who’s decided is and buying them out potentially. So you might want to find a block where there isn’t someone already kind of taking claim, or we’re doing that heavy lifting. And then it’s about trying to figure what is the landlord then? And oftentimes this is the part you get tripped up, tripped up on because you can find the site. It makes sense. You know, you can get, you know, 200,000 square feet of density. 

 

It all makes sense. But then you have a landowner who has, you know, very healthy expectations. And then you’re like, okay, well, is it worth the ongoing negotiation? Do I approach somebody else on the block? And then you got to figure out the art versus the science. So it’s, it can be very complicated, but, you know, knowing where to look, be persistent and be transparent. Like, I, I get a lot of guys who and girls who always say, well, you know, I’m going in. They don’t know I’m a developer. 

 

Like these yields are just too complicated, just be Frank. Like if you’re in to develop, just say, I’m a developer because your diligence and your risk is so different than potentially somebody just buying it for commercial use that you have to make the vendor aware of that. So you can actually successfully closing the transaction and, and, and cover your downside. I always say, cover your downside. So that transparency is pretty, pretty critical. If you’re gonna ask why, why do you want to put a bunch of holes in my, in my back, you know, lot, if, if you’re buying this for just, you know, retail, you, so eventually the cat comes out of the bag. 

 

I mean, 

 

Jesse (20m 10s): Is that my guess, is that as a result of, you know, the expectation that an owner is going to be like, we want a development bonus as part of this deal, or we want, you know, some premium. And I feel like at the end of the day, it’s going to be really hard to go in and not just say like this, this is what we’re doing. We’re developing. 

 

Bader (20m 28s): Yeah. It’s like, you know what? I, I won’t discount that. I think, you know, once in a blue moon you’ll find a site for young native development value. You’re not paying for development value. You’re not paying the full amount, but in a city like Toronto, I, unfortunately my belief is like, it’s opposite. The people who have zero development value believes had development value. So it’s the, you know, like the, the starting point is my woman, my retail, you know, building is worth, you know, $200 a square foot of a GSA on zone, even though like it’s never going to be a development site. 

 

That’s kind of the, you know, the, the challenge is like, I actually find, I hear this from my, my friends kind of on the retail side. They say, everybody just thinks of developments. I can’t even, you know, I haven’t managed to go out and buy a 3000 square foot commercial building for one of my private investors. And I can’t get one because everybody I talked to, you know, wants to sell it at like a two town development site. Yeah. 

 

Jesse (21m 27s): And it’s just like one of those things where it’s like, well, if it’s not a development site, it’s not for sale. And we’ll, we’ll just hang on in from your experience when you are looking at these development sites. I mean, I feel like a big part of what you’re talking about is, is the reason that the risk mitigation is in place income, where you can find something that might be a longer term play. Number one, is, is that how you look at it? And the second question, I’m curious if you make a distinction between properties that are, you know, have decent buildings on them, but it’s really not highest and best use versus properties that are pretty much, you know, close as close as you can get in Toronto to dirt. 

 

Bader (22m 6s): You know what, I don’t really make that distinction all too often. I think what, what comes into play is existing use, for sure. Like I have no problem tearing down a four story building versus a two story building it’s really w what’s Lee’s use and, and there’s implications to it, right? So if you have an office building that has more than 10,000 square feet in certain areas of the city, I have to replace one for one that call it loss office space in my future development. So that has an implication on your land value. So I look at it from that lens, you know, certainly like, you know, whether or not it’s a scale of the building. 

 

Yes. It will have some implication to, you know, the demo costs or, or potentially other factors of the process. But oftentimes I’m, I’m more concerned about what is the existing use. If it’s, if it’s residential, it becomes very problematic. That’s the, like, that’s the hard part, because now you’re negotiating with a bunch of different tenants to try to get them out. And then you have to replace the existing space in your new building. And the, the process of the city is just far more complicated. 

 

You, you know, when you have to offer the opportunity to get residents to come back in the future, if now I have a rental component potentially in a condo building, so it’s just a different use. There’s a lot more complications. And, and that space just to put in perspective is a work, you know, call it 40 cents on the dollar of what a typical condo would sell for in the building. So it’s quite diluted, which is candidly, why you often see, you know, some medium-sized rental buildings not being redeveloped, even though there’s great context for it. 

 

It’s just very, it’s very difficult if the numbers work. 

 

Jesse (23m 50s): So on that point for those that you might not be aware of, like we have, we have listeners south of the 49th parallel north. I tried to tell people, you know, what we deal with specifically in, in Ontario in terms of landlord, tenant, board stuff, just residential regulations, when it comes to actually, you know, taking down a, say, mid or low rise apartment building, what are the, you know, w w what do you have to replace there in terms of replacement of rental units? 

 

And maybe you could go into a little bit more detail on, on that. 

 

Bader (24m 27s): Yeah, absolutely. So, and this is very call it city of Toronto specific. So every municipality will have their own rule that you have to be considerate of, but, okay. So 

 

Jesse (24m 40s): In terms of, maybe you could talk a little bit more about that, the residential replacement. So for those that don’t know, you know, Toronto, Toronto is pretty, pretty tenant friendly environment from a regulatory standpoint. What exactly, when you look at a, an apartment building that you need to tear down in order to build, what is that, what are the implications of that and what technically do you need to do as a developer? 

 

Bader (25m 5s): Yeah, so it’s, it’s quite complicated. So the very first thing he had to keep in mind is, you know, every municipality has slightly different rules. So what might be like, I’m going to talk about Toronto because that’s where most of our businesses, but Mississauga might have something slightly different bond will have something different. So I’m always read up and don’t take what I’m saying right now at face value. But in Toronto specific specifically, I should say, we’ll always look and see how many residential units there are. So the rule is that there’s six or more residential units. 

 

You have to replace them one for one in your future development. So both by unit type unit saw and unit size. So we all tend to know that, you know, older units typically have a larger three averages. You know, you’re seeing these like two beds that are 1200 square feet. So you have to be very cognizant of the area and the unit type, and then the rent that are being charged, because once you actually go through the redevelopment process, what you’ll have is no rental replacement units. 

 

So let’s say you have 60 units in your building. You’ll actually have 50 units in the building, the same size and similar layouts at your development. Upon completion, you have to offer the tenants who were, you know, effectively relocated during the construction periods, operating to move back into the building. And the rents that are charged at that time are the same rents that were charged prior to the construction taking place. So, as you can imagine, you’re in this condominium building, let’s say the, you know, the average one bedroom rents are $1,800 a unit for a, you know, 500 and ish square foot unit. 

 

Now you might have a one bedroom in the rental replacement portion of the building, which is going to be 800 square feet and renting out for now $1,300. So, you know, it’s very, you know, call it value destructive, which is why you often see some buildings do have rental replacement. We’ve done several developments where, you know, we’ve, we’ve had to include some call it affordable housing or rental, but there’s, you know, call it a tipping point. 

 

If you have a building, like let’s say, you know, a building where 25 to 30% of the building is going to be rental replacement. The economics of that deal tend to skew in a, in a way that don’t make it really feasible. And, you know, it’s one of those things where you’re often looking at opportunities and you’re thinking to yourself, well, there’s a, a four story building here. Why doesn’t this get redeveloped into a, you know, a 35 story tower, and oftentimes with the value that is lost, or the implications of that rental replacement in the future development don’t really add up. 

 

It becomes an N call it a deal doesn’t really pencil out with very uneconomical. So I’m sure that will change over time, right there. Like it’s always worth revisiting the math, but I was in the city for the last several years. The math hasn’t really penciled out where you could replace a large quantum of units. And in 

 

Jesse (28m 18s): Terms of the, I mean, Toronto specifically in terms of the actual replacement geography, you know, whether it’s site or you can cause we’ve seen clients where they have gotten away with being able to replace it on a different site. Is that something that you see and is that kind of where you see potentially rental replacement going? 

 

Bader (28m 37s): Yeah. You know what it’s, that is a very unique way of addressing the challenge, right. I would say oftentimes when I’ve seen it done, you know, quote unquote offsite really has to be a, maybe one of two ways. They, you have to be a really significant gift. So let’s say for instance, you know, you you’re replacing six units, but instead of replacing them six units onsite, you’re willing to do 10 units offsite in a standalone building or something, you know, I could, I I’ve seen that happen. 

 

And, you know, it’s, it, it, it certainly exists. It’s just a different challenge right now, as a developer, I have to find this other replacement site to put these 10 units in, and that’s a whole nother work stream and challenge on its own, but certainly doable. The other one I’ve seen where it’s significant. So, you know, let’s say you’re demolishing 50 townhomes that are all rental. Well, you might actually need a very large site. I’ve seen, you know, someone build a, a six or eight story, you know, rental replacement building, where it’s just a building where, you know, all those units are consolidated into, you know, a mid-rise built form, which, you know, might make sense depending on the project. 

 

So I certainly seen unique angles to solving the problem, but it’s not without challenge because now oftentimes what you’ll see in those agreements is those units have to be, have to be delivered first. So you’re front ending calls with that cash flow or your front ending, like your time and energy to solve that problem right off the bat. So certainly not impossible. There’s a lot of different ways to like, again, approach the challenge, but it’s, it’s complicated. 

 

Don’t underestimate that, you know, I find a lot of people just typically say, okay, I’ll figure it out. This is one you might want to sign that. 

 

Jesse (30m 29s): Yeah, for sure. So Bever, let’s talk a little bit about 20, 21 and beyond in terms of what you’re, what you’re looking at, where you’re seeing opportunity, you know, what’s next for center court, you know, from a real estate perspective. And given obviously with the, with the fact that we’ve gone through quite a tumultuous last 12 to 18 months, just as an industry. And I mean, as, as a world, but yeah. What are your, what are your thoughts on the outlook? 

 

Bader (30m 59s): You know, I, I sound like a book, a broken record, cause I feel a lot of my colleagues in the community will say this, but we’re very optimistic about condo and high rise development here in the city. You know, Centre court, we sold four buildings, all the downtown core or the past, you know, 15 ish months. And we launched our 55 Mercer project right before COVID in February, 2020. 

 

We launched our 1 99 church project. You know, we’re coming out of the first lockdown in, in July of 2020. We launched our eight, well, we project, you know, right. When can we have lockdown again in February of this year? And then prime are last on the heels of that. And we’re gearing up for one or two more launches this year. So we’re clearly, you know, big believers in the condo market here in Toronto. 

 

We believe that two things it’s still off the traunch is still the most desirable city in our, in our opinion in north America to live in, if not, it’s not globally, we just have so much going for us. There’s clearly a housing shortage. There’s a, you know, a problem with affordability in this city and condominiums tend to be on the more affordable end of the range relative to, you know, the town, their single family home. 

 

So, and then just, you know, more scientifically the spread between a condo a, in a home has never been wider right now. So in terms of price point, which tells us that there’s, you know, upward momentum and pricing for condominiums and, and, and certainly demands. So all in all, you know, we’re, we’re very, as a competence and an optimistic about the future. And to that end, you know, we have, we’re launching new projects and we’re acquiring more sites. You know, we’re constantly looking sites. 

 

We haven’t stopped. You know, there was a bit of a brief pause, I would say, obviously in new call it March, April, may of 2020, when, and we just, we had no idea what was going to happen here locally or in the world, but the market has found its footing. And since that time, we’ve, we’ve been very confident and, and continue to kind of operations. As I wouldn’t say I was normal, but you know, operations as close to normal as one would expect, given the backdrop of COVID. 

 

Jesse (33m 33s): And with that as the backdrop, in terms of capital markets, do you see this, you know, environment continuing over the next few years? I mean, we’ve, I mean, I don’t know how many times I’ve said historically low over the last 10 years, but we’ve, we’re in an environment where they’re very different to oh 7 0 8 where there was an issue, but there was also a credit issue. There’s a recession in conjunction with lack of credit. Whereas right now we’re, you know, we’re in a very similar type of macro economic state, except that there seems to be the opposite. 

 

There’s a glut of credit. 

 

Bader (34m 9s): Yeah. I think the biggest thing that differentiates, you know, call it COVID from the recession. And I think you’ll forget what the, you know, the, the great recession, but mostly because of Canada, you can look them up a bit on escaped, but you know, if you take a step back, there is just never the quantitative stimulant, right? Like, yes, the credit of the available is one thing, but the wage support subsidies the effectively, the banks just stepping up and working with business owners and, and, and operators, right. 

 

To make sure that they don’t repossess your, her, your business or your site or your home or whatever, like that’s unprecedented, right? So the level of cooperation and stimulus in the marketplace has never been seen before. And I think that is, you know, I think it’s absolutely the right thing to do, but it’s certainly giving people the confidence to continue as business as usual. That’s the whole point of these programs. And then when you have that, and then in the property market, ultra low interest rates, you have consumers who I would say are pretty highly qualified. 

 

Like there’s a lot of, you know, folks who, who do have significant down payments who have good income, who are working, who don’t, who have been working from home. Haven’t we been spending have either paid down debt and, and a rage to deploy that capital, whether it’s, you know, in residential or other markets. So there’s kind of this trifecta, which is kind of Lea. And then there’s just the aspirations of whether it’s home ownership or putting money to work. And in real estate, which has kind of been a bit of a bright spot in, in all of this. 

 

So you’ll all these things I think have led to a very healthy, real estate market, particularly on the resi side. And, and I think, I don’t think that’s going to change. I think again, people get interest rates are probably going to edge up right over time and that’s going to change the equation slightly, but, you know, overall, you know, it might not be as buoyant as it is today, but I still think we’re going to be looking at a very healthy market, you know, whether it’s the next one, two or three years, for sure. 

 

Jesse (36m 25s): Awesome. All right. Well, we’re just coming to the end here and before we, if people want to get more information on center court and reach out before we get there for questions, we ask every guest kind of a rapid fire. If you’re good to go, I’ll toss them at ya. All right. Something, you know, now that you wish you knew at the beginning of your career, 

 

Bader (36m 51s): You’re not going to become a, an expert in two to three years to be more patient, more like out about 10 to 15, and you’re just always continue learning. So if you think, you know it all at two or three years, you don’t keep your head down, work hard, read a lot, figure out who actually knows what they’re talking about and listen to them. And it wasn’t to people who don’t know what they’re talking about. And maybe take a couple of notes from that too. 

 

Jesse (37m 15s): It’s weighted average. All right. The I’m sorry. Next question. In terms of mentorship, younger people in our industry, specifically, what are number one, what’s your view of men mentorship, and you know, what would you tell somebody coming into this industry? 

 

Bader (37m 31s): Mentorship is critical. I know it can be awkward, right? How do I find a mentor? It gets, it’s kind of weird, but I, you know, I have two mentors that, you know, have been my mentors now for maybe five or six years. And I don’t think they know they’re my mentors. I don’t think it’s a formal arrangement, but they’re people I use as a sounding board before making major decisions are people who I listened to and, and, you know, maybe track their career path and, and, you know, have candid conversations about what has gone, right. 

 

And what’s gone wrong and you know, what I’m happy about or unhappy about. And I think if you find the right person, they can be that sounding board and, and have that north star that keeps you candidly on, on track because it’s so easy to, you know, find yourself off the, off in left field. If you, if you don’t have someone to talk to and share your thoughts and your ideas with so definitely don’t underestimate it. And biggest thing is I know it’s, again, it’s very odd. It’s hard to find a mentor. You’re not going to find a mentor, maybe your first job or your second job. 

 

It might take a bit of time, but you’ll know when, when that person’s there and, and jump on the opportunity, don’t be shy 

 

Jesse (38m 41s): Right. On what resources are you kind of reading or listening to right now that you’d recommend to the listeners? 

 

Bader (38m 50s): You know what, so we have a newborn, so I haven’t read anything I have to call in the last five months. Yeah. I don’t know on that stuff. How to keep your baby alive, what I’ve been reading, but the one book that I would recommend is am I being too subtle? Bye bye. Sam Sao. Yeah. I don’t know if you’ve read it Jesse, but yeah, I think it’s a fantastic book. You know, it’s all about importance of reputation, you know, margin of safety, having skin in the game. 

 

It’s, it’s written kind of my, you know, I’m like, I call it Bible, but like everything I, I believe is in that book. And I, I recently re-read it, you know, over Christmas break and I think it’s a good read and we’re picking up 

 

Jesse (39m 38s): The funny thing too, is for those of that know Sam Zell, I was actually surprised the audio book had his voice on it. So if you like that raspy voice, there’s five hours of it. Awesome, man, last question. There’s our layup. First car make and model 

 

Bader (39m 56s): My first car, make and model. Oh, Volkswagen Jetta VR, six block, black leather interior smashed to the ground. I had two 12 inch subwoofers in the back. It was, it was my, honestly I regrets on the park. It was my favorite. It was, I bought it. I worked, I worked so many odd jobs to pay for that car and I kept it until I was 21. 

 

And I sold it to the kid across the street for like a, a handshake. And I regret it. It’s like my, it was my favorite car. Yeah. It 

 

Jesse (40m 35s): Was always that in high school, the VR six two, it was always that unattainable. I’m just picturing like a hot wheels. Blacked-out tint windows. Awesome, man. That’s great. Yeah, listen, I really appreciate it. I thought we could probably talk for another hour here for, for listeners for those that want more information on center court and see what you’re up to. We can put some stuff in the show notes here. Just point me in the right direction. 

 

Bader (41m 1s): Yeah, absolutely. Absolutely. I’ll I’ll shoot that over to you, Jesse. Okay. 

 

Jesse (41m 5s): Sounds good. Well, I appreciate you coming on and yeah, we’ll look forward to doing this again, maybe six months or a little bit closer to the end of the year where we can kind of check in and see how everything’s going. 

 

Bader (41m 19s): Terrific. Well, look, I appreciate it. Hopefully I haven’t checked hopefully Italy one and absolutely I’ll take you up on that offer. We can spend for something in for December. 

 

Jesse (41m 30s): My guest today has been blabber from center court Bauer. Thanks for being of working capital. Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care. 

 

 

Transcript

ions:

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time. Ladies and gentlemen, welcome to working capital my name’s Jesse for galleon today, I have better Elica deed. He is vice president at center court. Prior to joining center court batter worked as an investment associate for Tricon capital group, a real estate, private equity firm. 

 

And prior to that, he worked as an analyst and investment banking at CIVC capital markets. And today we’re talking all things, acquisition, all things development better. How’s it going? 

 

Bader (47s): No complaints. It’s a 38 degrees outside and then my basement is good. 

 

Jesse (52s): Yeah, I was going to say, I just, I totally forgot today. We have Italy versus Spain. Hopefully by the time I’m listening to this, we have one and have advanced to the finals, but yeah, it’s, it is quite hot in, in Toronto. Right now. It is close to 40 or feels like 40. 

 

Bader (1m 9s): Well, I’m sorry to keep you on the, on the line in that. How have you known him? He was playing Spain. I think we would have moved the call. 

 

Jesse (1m 15s): No sweat. I’m one eye is looking to the, to the screen here, but no, thank you so much for coming on. Really appreciate you taking the time. I thought listeners would get a lot out of somebody from your background in real estate. And talk a little bit about development, how, you know, center court, underwrites assets, and just kind of your general path in, in the real estate industry. So on that note, maybe where we could start is a little bit about your background. 

 

I mentioned Tricon CIVC for listeners. Give a little bit of a background and how you got into this, this world of real estate. 

 

Bader (1m 54s): Yeah, so it’s, I mean, pretty interesting story. I guess I, my graduated, I thought I was going to be in the tech space. I thought that was going to be, you know, where I’d find my path. And to that end, I, I kicked off my career in tech investment banking. So I was covering, you know, Roger’s tell us a bunch of data centers, a lot of small tech companies back when it wasn’t really sexy in two thousand ten thousand eleven. And it was, it was a great time. I did a ton of really interesting work, but the one deal that kind of really got me excited was the data center deal. 

 

And I, I kind of saw that as an intersection between kind of real estate and technology, it was tangible, it made, it made real money at the time. So you could follow the cash flow that really kinda stuck out to me as a potential angle. But the more I kind of dug into what I was really interested in, it was really on the resi side. So I said to myself, well, look, people are making careers out of real estate. You can work in real estate finance. There’s so many different ways to look at it. And, and through, through that, got introduced to tri Kahn. 

 

Who’s a real estate, private equity firm focused exclusively on residential real estate at the time, primarily in the U S. And I said, well, I would love to learn what the more with the us. I felt like I was just in Toronto at the time, and I kinda wanted to expand my horizons. It was residential, it was Toronto based a really young entrepreneurial team, a good track record. And I found a home there and I w I was there for, you know, just over four years, did a lot of really exciting work. But one of the pieces that I wasn’t getting was the development piece. 

 

Like, you know, we would invest in development projects and we would, you know, see a lot of the work, but as a Canadian based investor with porches in the U S it’s very difficult to have that boots on the ground experience. So I decided I need to kind of learn the trade if you will. And I started embarking on a journey to find the, the right development group here locally to really take me in and take a bet on me. Cause I had different development experience and I found a home at center court. So I’ve been within our court now for four years. 

 

And today I lead our land acquisition program. So, you know, really looking at every deal that comes through the door and seeing fits without and within our box. And that’s how I spent the vast majority of time. 

 

Jesse (4m 14s): Right on. And before we kind of moved to center court, I’m curious the, the type of deals you mentioned, residential, but the type of deals you’re doing at Tricon, maybe you could talk a little bit about that, where they kind of vanilla where they, you know, a little bit more complex. How, how did that, how did that go 

 

Bader (4m 32s): Very complex? You know, I remember the very first deal I did. I, I, my, my biggest tri con was a land development deal. So people think high is complicated, but this was like a, you know, a few hundred acre site in North Carolina. Yeah. So a brand new market, a time for, Tricon definitely a brand new market for me, you’re talking about buying like a wood. What is law area putting in, you know, road sanitary, sewer, water, building like a highway off ramp and then selling, you know, blue top loss, the builders, or going vertical yourself. 

 

So, you know, just the sheer size scope, like it’s like a 10, 15 year deal, the market risk associated with that. Like, it was just a very complicated process. That was a lot of the work that I did there. The other bucket of work was, you know, probably a bit easier to wrap your head around. It was manufactured housing, it’s the land lease communities. So we, we had a portfolio of manufactured housing communities primarily in Arizona, in California. So that was a bit easier to kind of, again, execute on wrap your head around cash, flowing assets, you know, easy value, add programs that are executable while we’re on the risk curve. 

 

For sure. And so that’s how I spent most of my time. Certainly not plain vanilla. I wish I saw a couple of plain vanilla deals when I was there, but just tremendous learning opportunity on very complicated things. 

 

Jesse (6m 5s): Yeah. That’s, we’ve had people on the show for a manufactured housing and it’s definitely has its intricacies, you know, when it comes to whether it’s it’s owned, whether it’s land lease. So it sounds like it was predominantly Landlease that you were dealing with there. 

 

Bader (6m 20s): Yeah. So I try Collin. One of the things that we did, and this was super exciting, you know, we ended up really basically taking $50 million of balance sheet capital in the first instance and, and using that to feed a manufactured housing portfolio, we, we found the right GP partner based out of Chicago to kind of lead those efforts on the ground. And what we were doing was we were buying, you know, call it one-off assets in the, you know, three to three and a half star category, good bones, or just really needed some, some significant TLC. 

 

And we would effectively go in and do the value add program, rebase that try to effectively bring it from like an 85, you know, 88% occupancy up to that 95, 97, 90 8%, and really repositioned the entire park. That was the whole business plan. But if you can imagine, like effectively involves us flying down to, you know, Arizona jumping in like an SUV and you’re cruising down, you know, like various parts, like I’m not talking Scottsdale fucking like Glendale and, and other areas. 

 

And once we’re parks, friended meet owners, like it’s that traditional door knocking and trying to find opportunities. And if that’s the way we built a portfolio of 14 assets where we own all the land, the tenants actually own the channel is what we call it, which is the house. They lease the land from you, it’s all triple mess. And basically what you’re trying to do is optimize right by building a portfolio, you know, spread the management costs, do the value, add program five and cap rate compression, grow the NOI, and then sell it off to another institutional, you know, owner who may not want to do that heavy lifting. 

 

And, and we did that. We actually ended up selling it to Blackstone. 

 

Jesse (7m 58s): Yeah, very cool. So pretty much a turnkey getting it to the point of turnkey and models, basically model, suite it for them and hand it over. And you said it was sold to Blackstone. Yes. Right on. And they, they had a fairly large play into single family. You know, everybody was trying to figure out how do you scale single family? And I think it was something like 38,000 or 40,000 units at the time. And I think they, I think they IPO the company or the company that they created. I totally forget the name. But do you recall? 

 

Bader (8m 28s): I think the American, I think as American homes for rent, if I remember correctly, I think that was it there’s. Yeah. Let’s the single family rental, like Tricom was super active in that when I joined, it was like a big bet that was may coming out of the, the 2010 recession. And that business has continued to grow. I remember at the time there’s a bunch of people who just couldn’t figure it out. They couldn’t understand how you could manage so properties, but you know, here we are 10 years later and it’s a, I’ll call it an institutional asset class with, you know, real, you know, pension players looking to grow the portfolio. 

 

And, you know, we recently heard about a company here in Canada, who’s going to try and do something similar. So it’s super exciting. I like the whole time I tried it on was very innovative. I didn’t work on single family rental, but just being around the folks who were working on it, you know, you just, don’t, you, you start to appreciate the thesis and yeah. There’s risks to it, but yeah, there’s always risks. 

 

Jesse (9m 32s): Yeah. Very cool. I think the one I was talking to the invitation homes, which I believe I, yeah, I believe IPO. Okay. Very cool. So you go from, from Tricon down to, or over to a center court, what’s that transition like and what do you start working on once you, once you make that transition? 

 

Bader (9m 50s): Yes. You know what? It was a, I think it’s a big bet on my part, right. At the time, like I had a, I had a great thing going on for me, a Tricon, but I was really inspired by the founders of center court. You know, like working with guys like Andrew Hoffman, Jemez, Veronica, Steven, Bellevue, like everybody just has tremendous respect for them. I had tremendous respect to them and, you know, Centrepoint was still maybe five or six years old at a time and just had a great track record despite, you know, a relatively short tenure. So I knew they were on the right track. 

 

And candidly, when I first met with Hermes to, you know, just pick his brain, we, we had a mutual connection and I said to him, Hey, this is what I’m looking for. I’m looking for developer that has these types of characteristics and you know, where do you think I should go? Like, who do you think I should talk to you, but you can’t just stay away from, you know, like just kinda give me some guidance because all my work was in the U S and you know, after a few meetings, he just said, I, you know, I, I meet Andrew. 

 

And at the time Ford was not hiring, you know, they had, they had a solid team, they were growing, but they weren’t really looking for someone, but he said, Hey, like, you’re a great talent. You have the right outlook on, on the world. And it aligns well with the way we see things. So if you’re, if you’re willing to make a bet on us effectively, when we can bet on you, so we’re going to join, you won’t really have a, you know, fully based roles. So I kind of did a bunch of everything when I first joined. 

 

And then, you know, as the business grew, I grew, but the very first thing I did was a sales and marketing on our venting west project, which is a building over in Liberty village. So I took a deep dive into, you know, designing suites and coming up with the name and figuring out how to market it to brokers and, you know, our investor buyers. And that was the very first thing I did. And from there things quickly evolved and started doing more acquisition work, which is kind of more of my comfort zone. 

 

And we ended up raising a, a, a large $250 million dedicated fund. So we have permanent capital and more of a call it a, a direct mandate to put that capital in play. And, and, and through that, and some heavy lifting, I eventually transitioned over to acquisitions. 

 

Jesse (12m 14s): Very cool. So the, the fund itself, it was that, was that something that they, they created as a committed capital fund? Was it something that they created in a private REIT structure? What were the mechanics of that? 

 

Bader (12m 27s): Yeah, it was, it was committed capital fund. So prior to that, you know, we were raising capital from ultra high net worth families on an as needed basis. When we had an opportunity that we felt was worthwhile, we’d bring it to our investors. And we had a very small group of very loyal investors. And, you know, what we saw in the marketplace was w w was really two or three different dynamics. One was, you’ll just getting done a whole lot faster than ever before. Right. So that multitasking of doing your diligence, raising your capital, I mean, we were doing it, but it put a lot of pressure on the team. 

 

We also had a great track record. So we thought, how can we leverage that track record into something more? So I think really, I know we just saw a lot of opportunity in the marketplace. So it was really those three things that sets ourselves. Let’s just raise a committed fund where we know we have the money in the bank. We know we have this mandate and we know there’s opportunities out there. It’s just gonna help us execute better, you know, enhance the machine if you will. And it, it certainly did. So right now, you know, it’s been three years, we’re about halfway through that fun. 

 

And, you know, we’re, I’m super happy to report that things have worked out, you know, kind of exactly as, as we anticipated. I’m not exactly, but, you know, in the larger scheme of things, pretty, pretty close. 

 

Jesse (13m 48s): So with that mandate, what type of, what type of latitude or what type of range of investments were part of the investment philosophy when, you know, you have investors initially coming in and saying, you know, these are the returns we’re looking for. These are the asset classes that we’re looking at. What did that look like? 

 

Bader (14m 6s): Yeah, no, it’s a good question. So, you know, for us, we try to be very, I think we try to have a narrow focus. So we’re only doing high rise, residential condo for sale, right? So we don’t have a mandate to do, you know, commercial or retail or industrial it’s, it’s, it’s, it’s one asset class in terms of market. You know, we, our bread and butter is the downtown core, but we had the latitude to go out to the greater Toronto area. So for, you know, for us, that’s really the outer 4, 1 6 and 9 0 5. 

 

That’s what I would consider it to be kind of our, our playground right now. And in terms of, I guess, you know, scale and deal structure, really for us, it’s 280,000 square feet or more of GSA. So we’re looking for, you know, higher density stuff. It doesn’t need to be a vertical tower. It can be, you know, a mid rise, but certainly high density. And last but not least, we have a lot of latitude in terms of what we can buy. So I can go out and buy a, you know, a Plaza. If I think that’s positive can be converted into a high rise development. 

 

We could buy a whole piece of a, of an assembly site, right. And assembled over time, the rest of the remaining properties, we can buy a fully zone site and just, you know, put a right to range of production. So, you know, we look at a lot of different opportunities in, in varying stages of, of the on-call there development life cycle, 

 

Jesse (15m 30s): Right on. So, so that’s kind of where I was going with that, where you would, you know, potentially you’re buying something that is a different asset class today with the intention to take it to high rise, residential condo sale. Maybe you could talk a little bit. We, we, you know, on the, on the show, we’ve had people on that have been condo centric or had that similar type of mandate with their investors, but not so much a discussion of land assembly and how investors look at land assembly, because I can tell you from the point of view of the brokerage side, even on the investor side, you know, land assembly, it’s definitely an art. 

 

And for someone like myself, that doesn’t see a lot of it aside from having investors in brokerage, say, I want this, I want this. It almost looks pretty random until you see something actually come together. So how do you approach that? Maybe, maybe you could dive into that a little bit. 

 

Bader (16m 25s): Yeah, look, it, it’s not easy. It can definitely look random. I think what I always tell people who are trying to pursue land assemblies. Like if you think of like the, the area, like call it, like the spectrum of risk w land assemblies highest, highest risk, right? Like you’re, you’re taking a bet on a piece of dirt that you need to buy your neighbors out at a basis. That’s going to make sense. So you gotta think things through rezoning, like if it’s the longest life cycle and most complicated piece of the, of the puzzle, but there’s a approach. 

 

I always say, I talked to a lot of young call it young brokers or, or, you know, peers. It’s like, you know, like, what’s the best way of doing this. And, you know, we often trade notes and then I’m one thing I can say is know where to look. Right. And it sounds easy when I say that to you, but the reality is do your homework, right? Like don’t just start looking at, you know, four corners of being, well, there’s a tower over there. That’s the site next to, it must be a tower site, but it’s far more complicated than that. I, I often find people just make that assumption. 

 

You really have to understand. So if you’re working in Toronto, the city Toronto official plan, the secondary plan, the site specific policies, the tall building guidelines, or mid-rise building guidelines, you know, you’re really have to be plugged in to what, you know, the, the planning policy says is achievable. I think that is step one is to have that deep kind of Intel. And then step two is to kind of like, you know, you’re kind of layering these things on top of each other to figure out, okay, I’m going to put them through this filter. 

 

Where can I, like, what areas am I allowed to develop in? And then you’d have to go through it and say, well, okay, this area is clearly development sites, but I have to buy 16 peaks, like jumped people out. Is that something I’m going to spend my time and energy doing? It might be if you have the patients and the capital and the very long-term orientation, but realistically, I think most people will shy away from that. So then you’re trying to find the sites that have, you know, call it two or three different land parcels. And then you’re trying to make sure, well, has somebody already planted a flag there, right? 

 

Like if another developer’s already on the block, well, I’m just not gonna get into, you know, a back and forth about who’s who’s decided is and buying them out potentially. So you might want to find a block where there isn’t someone already kind of taking claim, or we’re doing that heavy lifting. And then it’s about trying to figure what is the landlord then? And oftentimes this is the part you get tripped up, tripped up on because you can find the site. It makes sense. You know, you can get, you know, 200,000 square feet of density. 

 

It all makes sense. But then you have a landowner who has, you know, very healthy expectations. And then you’re like, okay, well, is it worth the ongoing negotiation? Do I approach somebody else on the block? And then you got to figure out the art versus the science. So it’s, it can be very complicated, but, you know, knowing where to look, be persistent and be transparent. Like, I, I get a lot of guys who and girls who always say, well, you know, I’m going in. They don’t know I’m a developer. 

 

Like these yields are just too complicated, just be Frank. Like if you’re in to develop, just say, I’m a developer because your diligence and your risk is so different than potentially somebody just buying it for commercial use that you have to make the vendor aware of that. So you can actually successfully closing the transaction and, and, and cover your downside. I always say, cover your downside. So that transparency is pretty, pretty critical. If you’re gonna ask why, why do you want to put a bunch of holes in my, in my back, you know, lot, if, if you’re buying this for just, you know, retail, you, so eventually the cat comes out of the bag. 

 

I mean, 

 

Jesse (20m 10s): Is that my guess, is that as a result of, you know, the expectation that an owner is going to be like, we want a development bonus as part of this deal, or we want, you know, some premium. And I feel like at the end of the day, it’s going to be really hard to go in and not just say like this, this is what we’re doing. We’re developing. 

 

Bader (20m 28s): Yeah. It’s like, you know what? I, I won’t discount that. I think, you know, once in a blue moon you’ll find a site for young native development value. You’re not paying for development value. You’re not paying the full amount, but in a city like Toronto, I, unfortunately my belief is like, it’s opposite. The people who have zero development value believes had development value. So it’s the, you know, like the, the starting point is my woman, my retail, you know, building is worth, you know, $200 a square foot of a GSA on zone, even though like it’s never going to be a development site. 

 

That’s kind of the, you know, the, the challenge is like, I actually find, I hear this from my, my friends kind of on the retail side. They say, everybody just thinks of developments. I can’t even, you know, I haven’t managed to go out and buy a 3000 square foot commercial building for one of my private investors. And I can’t get one because everybody I talked to, you know, wants to sell it at like a two town development site. Yeah. 

 

Jesse (21m 27s): And it’s just like one of those things where it’s like, well, if it’s not a development site, it’s not for sale. And we’ll, we’ll just hang on in from your experience when you are looking at these development sites. I mean, I feel like a big part of what you’re talking about is, is the reason that the risk mitigation is in place income, where you can find something that might be a longer term play. Number one, is, is that how you look at it? And the second question, I’m curious if you make a distinction between properties that are, you know, have decent buildings on them, but it’s really not highest and best use versus properties that are pretty much, you know, close as close as you can get in Toronto to dirt. 

 

Bader (22m 6s): You know what, I don’t really make that distinction all too often. I think what, what comes into play is existing use, for sure. Like I have no problem tearing down a four story building versus a two story building it’s really w what’s Lee’s use and, and there’s implications to it, right? So if you have an office building that has more than 10,000 square feet in certain areas of the city, I have to replace one for one that call it loss office space in my future development. So that has an implication on your land value. So I look at it from that lens, you know, certainly like, you know, whether or not it’s a scale of the building. 

 

Yes. It will have some implication to, you know, the demo costs or, or potentially other factors of the process. But oftentimes I’m, I’m more concerned about what is the existing use. If it’s, if it’s residential, it becomes very problematic. That’s the, like, that’s the hard part, because now you’re negotiating with a bunch of different tenants to try to get them out. And then you have to replace the existing space in your new building. And the, the process of the city is just far more complicated. 

 

You, you know, when you have to offer the opportunity to get residents to come back in the future, if now I have a rental component potentially in a condo building, so it’s just a different use. There’s a lot more complications. And, and that space just to put in perspective is a work, you know, call it 40 cents on the dollar of what a typical condo would sell for in the building. So it’s quite diluted, which is candidly, why you often see, you know, some medium-sized rental buildings not being redeveloped, even though there’s great context for it. 

 

It’s just very, it’s very difficult if the numbers work. 

 

Jesse (23m 50s): So on that point for those that you might not be aware of, like we have, we have listeners south of the 49th parallel north. I tried to tell people, you know, what we deal with specifically in, in Ontario in terms of landlord, tenant, board stuff, just residential regulations, when it comes to actually, you know, taking down a, say, mid or low rise apartment building, what are the, you know, w w what do you have to replace there in terms of replacement of rental units? 

 

And maybe you could go into a little bit more detail on, on that. 

 

Bader (24m 27s): Yeah, absolutely. So, and this is very call it city of Toronto specific. So every municipality will have their own rule that you have to be considerate of, but, okay. So 

 

Jesse (24m 40s): In terms of, maybe you could talk a little bit more about that, the residential replacement. So for those that don’t know, you know, Toronto, Toronto is pretty, pretty tenant friendly environment from a regulatory standpoint. What exactly, when you look at a, an apartment building that you need to tear down in order to build, what is that, what are the implications of that and what technically do you need to do as a developer? 

 

Bader (25m 5s): Yeah, so it’s, it’s quite complicated. So the very first thing he had to keep in mind is, you know, every municipality has slightly different rules. So what might be like, I’m going to talk about Toronto because that’s where most of our businesses, but Mississauga might have something slightly different bond will have something different. So I’m always read up and don’t take what I’m saying right now at face value. But in Toronto specific specifically, I should say, we’ll always look and see how many residential units there are. So the rule is that there’s six or more residential units. 

 

You have to replace them one for one in your future development. So both by unit type unit saw and unit size. So we all tend to know that, you know, older units typically have a larger three averages. You know, you’re seeing these like two beds that are 1200 square feet. So you have to be very cognizant of the area and the unit type, and then the rent that are being charged, because once you actually go through the redevelopment process, what you’ll have is no rental replacement units. 

 

So let’s say you have 60 units in your building. You’ll actually have 50 units in the building, the same size and similar layouts at your development. Upon completion, you have to offer the tenants who were, you know, effectively relocated during the construction periods, operating to move back into the building. And the rents that are charged at that time are the same rents that were charged prior to the construction taking place. So, as you can imagine, you’re in this condominium building, let’s say the, you know, the average one bedroom rents are $1,800 a unit for a, you know, 500 and ish square foot unit. 

 

Now you might have a one bedroom in the rental replacement portion of the building, which is going to be 800 square feet and renting out for now $1,300. So, you know, it’s very, you know, call it value destructive, which is why you often see some buildings do have rental replacement. We’ve done several developments where, you know, we’ve, we’ve had to include some call it affordable housing or rental, but there’s, you know, call it a tipping point. 

 

If you have a building, like let’s say, you know, a building where 25 to 30% of the building is going to be rental replacement. The economics of that deal tend to skew in a, in a way that don’t make it really feasible. And, you know, it’s one of those things where you’re often looking at opportunities and you’re thinking to yourself, well, there’s a, a four story building here. Why doesn’t this get redeveloped into a, you know, a 35 story tower, and oftentimes with the value that is lost, or the implications of that rental replacement in the future development don’t really add up. 

 

It becomes an N call it a deal doesn’t really pencil out with very uneconomical. So I’m sure that will change over time, right there. Like it’s always worth revisiting the math, but I was in the city for the last several years. The math hasn’t really penciled out where you could replace a large quantum of units. And in 

 

Jesse (28m 18s): Terms of the, I mean, Toronto specifically in terms of the actual replacement geography, you know, whether it’s site or you can cause we’ve seen clients where they have gotten away with being able to replace it on a different site. Is that something that you see and is that kind of where you see potentially rental replacement going? 

 

Bader (28m 37s): Yeah. You know what it’s, that is a very unique way of addressing the challenge, right. I would say oftentimes when I’ve seen it done, you know, quote unquote offsite really has to be a, maybe one of two ways. They, you have to be a really significant gift. So let’s say for instance, you know, you you’re replacing six units, but instead of replacing them six units onsite, you’re willing to do 10 units offsite in a standalone building or something, you know, I could, I I’ve seen that happen. 

 

And, you know, it’s, it, it, it certainly exists. It’s just a different challenge right now, as a developer, I have to find this other replacement site to put these 10 units in, and that’s a whole nother work stream and challenge on its own, but certainly doable. The other one I’ve seen where it’s significant. So, you know, let’s say you’re demolishing 50 townhomes that are all rental. Well, you might actually need a very large site. I’ve seen, you know, someone build a, a six or eight story, you know, rental replacement building, where it’s just a building where, you know, all those units are consolidated into, you know, a mid-rise built form, which, you know, might make sense depending on the project. 

 

So I certainly seen unique angles to solving the problem, but it’s not without challenge because now oftentimes what you’ll see in those agreements is those units have to be, have to be delivered first. So you’re front ending calls with that cash flow or your front ending, like your time and energy to solve that problem right off the bat. So certainly not impossible. There’s a lot of different ways to like, again, approach the challenge, but it’s, it’s complicated. 

 

Don’t underestimate that, you know, I find a lot of people just typically say, okay, I’ll figure it out. This is one you might want to sign that. 

 

Jesse (30m 29s): Yeah, for sure. So Bever, let’s talk a little bit about 20, 21 and beyond in terms of what you’re, what you’re looking at, where you’re seeing opportunity, you know, what’s next for center court, you know, from a real estate perspective. And given obviously with the, with the fact that we’ve gone through quite a tumultuous last 12 to 18 months, just as an industry. And I mean, as, as a world, but yeah. What are your, what are your thoughts on the outlook? 

 

Bader (30m 59s): You know, I, I sound like a book, a broken record, cause I feel a lot of my colleagues in the community will say this, but we’re very optimistic about condo and high rise development here in the city. You know, Centre court, we sold four buildings, all the downtown core or the past, you know, 15 ish months. And we launched our 55 Mercer project right before COVID in February, 2020. 

 

We launched our 1 99 church project. You know, we’re coming out of the first lockdown in, in July of 2020. We launched our eight, well, we project, you know, right. When can we have lockdown again in February of this year? And then prime are last on the heels of that. And we’re gearing up for one or two more launches this year. So we’re clearly, you know, big believers in the condo market here in Toronto. 

 

We believe that two things it’s still off the traunch is still the most desirable city in our, in our opinion in north America to live in, if not, it’s not globally, we just have so much going for us. There’s clearly a housing shortage. There’s a, you know, a problem with affordability in this city and condominiums tend to be on the more affordable end of the range relative to, you know, the town, their single family home. 

 

So, and then just, you know, more scientifically the spread between a condo a, in a home has never been wider right now. So in terms of price point, which tells us that there’s, you know, upward momentum and pricing for condominiums and, and, and certainly demands. So all in all, you know, we’re, we’re very, as a competence and an optimistic about the future. And to that end, you know, we have, we’re launching new projects and we’re acquiring more sites. You know, we’re constantly looking sites. 

 

We haven’t stopped. You know, there was a bit of a brief pause, I would say, obviously in new call it March, April, may of 2020, when, and we just, we had no idea what was going to happen here locally or in the world, but the market has found its footing. And since that time, we’ve, we’ve been very confident and, and continue to kind of operations. As I wouldn’t say I was normal, but you know, operations as close to normal as one would expect, given the backdrop of COVID. 

 

Jesse (33m 33s): And with that as the backdrop, in terms of capital markets, do you see this, you know, environment continuing over the next few years? I mean, we’ve, I mean, I don’t know how many times I’ve said historically low over the last 10 years, but we’ve, we’re in an environment where they’re very different to oh 7 0 8 where there was an issue, but there was also a credit issue. There’s a recession in conjunction with lack of credit. Whereas right now we’re, you know, we’re in a very similar type of macro economic state, except that there seems to be the opposite. 

 

There’s a glut of credit. 

 

Bader (34m 9s): Yeah. I think the biggest thing that differentiates, you know, call it COVID from the recession. And I think you’ll forget what the, you know, the, the great recession, but mostly because of Canada, you can look them up a bit on escaped, but you know, if you take a step back, there is just never the quantitative stimulant, right? Like, yes, the credit of the available is one thing, but the wage support subsidies the effectively, the banks just stepping up and working with business owners and, and, and operators, right. 

 

To make sure that they don’t repossess your, her, your business or your site or your home or whatever, like that’s unprecedented, right? So the level of cooperation and stimulus in the marketplace has never been seen before. And I think that is, you know, I think it’s absolutely the right thing to do, but it’s certainly giving people the confidence to continue as business as usual. That’s the whole point of these programs. And then when you have that, and then in the property market, ultra low interest rates, you have consumers who I would say are pretty highly qualified. 

 

Like there’s a lot of, you know, folks who, who do have significant down payments who have good income, who are working, who don’t, who have been working from home. Haven’t we been spending have either paid down debt and, and a rage to deploy that capital, whether it’s, you know, in residential or other markets. So there’s kind of this trifecta, which is kind of Lea. And then there’s just the aspirations of whether it’s home ownership or putting money to work. And in real estate, which has kind of been a bit of a bright spot in, in all of this. 

 

So you’ll all these things I think have led to a very healthy, real estate market, particularly on the resi side. And, and I think, I don’t think that’s going to change. I think again, people get interest rates are probably going to edge up right over time and that’s going to change the equation slightly, but, you know, overall, you know, it might not be as buoyant as it is today, but I still think we’re going to be looking at a very healthy market, you know, whether it’s the next one, two or three years, for sure. 

 

Jesse (36m 25s): Awesome. All right. Well, we’re just coming to the end here and before we, if people want to get more information on center court and reach out before we get there for questions, we ask every guest kind of a rapid fire. If you’re good to go, I’ll toss them at ya. All right. Something, you know, now that you wish you knew at the beginning of your career, 

 

Bader (36m 51s): You’re not going to become a, an expert in two to three years to be more patient, more like out about 10 to 15, and you’re just always continue learning. So if you think, you know it all at two or three years, you don’t keep your head down, work hard, read a lot, figure out who actually knows what they’re talking about and listen to them. And it wasn’t to people who don’t know what they’re talking about. And maybe take a couple of notes from that too. 

 

Jesse (37m 15s): It’s weighted average. All right. The I’m sorry. Next question. In terms of mentorship, younger people in our industry, specifically, what are number one, what’s your view of men mentorship, and you know, what would you tell somebody coming into this industry? 

 

Bader (37m 31s): Mentorship is critical. I know it can be awkward, right? How do I find a mentor? It gets, it’s kind of weird, but I, you know, I have two mentors that, you know, have been my mentors now for maybe five or six years. And I don’t think they know they’re my mentors. I don’t think it’s a formal arrangement, but they’re people I use as a sounding board before making major decisions are people who I listened to and, and, you know, maybe track their career path and, and, you know, have candid conversations about what has gone, right. 

 

And what’s gone wrong and you know, what I’m happy about or unhappy about. And I think if you find the right person, they can be that sounding board and, and have that north star that keeps you candidly on, on track because it’s so easy to, you know, find yourself off the, off in left field. If you, if you don’t have someone to talk to and share your thoughts and your ideas with so definitely don’t underestimate it. And biggest thing is I know it’s, again, it’s very odd. It’s hard to find a mentor. You’re not going to find a mentor, maybe your first job or your second job. 

 

It might take a bit of time, but you’ll know when, when that person’s there and, and jump on the opportunity, don’t be shy 

 

Jesse (38m 41s): Right. On what resources are you kind of reading or listening to right now that you’d recommend to the listeners? 

 

Bader (38m 50s): You know what, so we have a newborn, so I haven’t read anything I have to call in the last five months. Yeah. I don’t know on that stuff. How to keep your baby alive, what I’ve been reading, but the one book that I would recommend is am I being too subtle? Bye bye. Sam Sao. Yeah. I don’t know if you’ve read it Jesse, but yeah, I think it’s a fantastic book. You know, it’s all about importance of reputation, you know, margin of safety, having skin in the game. 

 

It’s, it’s written kind of my, you know, I’m like, I call it Bible, but like everything I, I believe is in that book. And I, I recently re-read it, you know, over Christmas break and I think it’s a good read and we’re picking up 

 

Jesse (39m 38s): The funny thing too, is for those of that know Sam Zell, I was actually surprised the audio book had his voice on it. So if you like that raspy voice, there’s five hours of it. Awesome, man, last question. There’s our layup. First car make and model 

 

Bader (39m 56s): My first car, make and model. Oh, Volkswagen Jetta VR, six block, black leather interior smashed to the ground. I had two 12 inch subwoofers in the back. It was, it was my, honestly I regrets on the park. It was my favorite. It was, I bought it. I worked, I worked so many odd jobs to pay for that car and I kept it until I was 21. 

 

And I sold it to the kid across the street for like a, a handshake. And I regret it. It’s like my, it was my favorite car. Yeah. It 

 

Jesse (40m 35s): Was always that in high school, the VR six two, it was always that unattainable. I’m just picturing like a hot wheels. Blacked-out tint windows. Awesome, man. That’s great. Yeah, listen, I really appreciate it. I thought we could probably talk for another hour here for, for listeners for those that want more information on center court and see what you’re up to. We can put some stuff in the show notes here. Just point me in the right direction. 

 

Bader (41m 1s): Yeah, absolutely. Absolutely. I’ll I’ll shoot that over to you, Jesse. Okay. 

 

Jesse (41m 5s): Sounds good. Well, I appreciate you coming on and yeah, we’ll look forward to doing this again, maybe six months or a little bit closer to the end of the year where we can kind of check in and see how everything’s going. 

 

Bader (41m 19s): Terrific. Well, look, I appreciate it. Hopefully I haven’t checked hopefully Italy one and absolutely I’ll take you up on that offer. We can spend for something in for December. 

 

Jesse (41m 30s): My guest today has been blabber from center court Bauer. Thanks for being of working capital. Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.