#12 - Imprint Is Raising Capital
Tough times create great opportunities
In This Issue
Recent Podcast Appearances
I recently appeared on two different podcasts, Toronto Under Construction and Hogtown. You can listen to them both using the links below. The conversations are a bit similar so I think you could pick just one and not miss out on very much information.
If you want to hear about my career in real estate, and how I think about the business of development and about rental housing in particular, then you will find either one very interesting.
Both of these podcasts are worth following if you are interested in Toronto real estate. I’d say that TUC focuses more on featuring individual professionals, their personal and professional stories, and what they are currently working on. Hogtown is a more recent upstart, very scrappy, with a focus on housing/zoning policy and getting into the weeds of how development works in Toronto.
On Specialization
Before starting Imprint, for my entire real estate career I worked in other people’s companies. These companies ranged in size between maybe ten and a thousand people. The nice thing about working in a company is that other people have specific jobs, just like you do. They do things for other people in the company, just like you do. That’s basically what a company is. A group of people who do things, all working toward a common goal.
One aspect of working for a company is that you can be exposed to lots of different tasks, but you generally don’t get to do all that many of them. In some cases this is a good thing.
For example, I’m very glad that I always had accountants who would do our corporate and project-level accounting. I had someone who would collect and process my project invoices, and then package them for my review and approval. They would process my expense reports. They would oversee the preparation of project tax returns. I was accountable for the accuracy of financial reporting, but I had an entire team that would do the specialized work. If I had had to do these tasks myself, then I never would have had time to build anything!
In other cases, specialization can mean that you don’t get to practice a critical part of your profession. This is a big reason why people switch companies over the course of their career; it gives them an opportunity to slot into a new organizational hierarchy and get experience doing something new. For example, in most real estate development companes there’s a rough division between people who set up projects, people who execute projects, and people who run completed projects. We might call these groups:
Acquisitions & Investments
Development & Construction
Asset Management & Property Operations
I spent most of my career in the second group, Development/Construction, but in a small company where I got to be involved in acquisitions and operations, and where the lines between project phases were very blurry. But I usually didn’t lead deal structuring or property management, my colleagues did.
One thing that I haven’t done much over the course of my career is raising capital. I would often be in the room, and I would provide input on deal structure and development proformas, but I wasn’t responsible for the negotiations and pitches. Now that I have my own company this is becoming an important part of what I do. Thankfully, I got to watch some talented people structure and pitch deals over the years, so I am not coming at it completely cold. In fact, in a few instances I’ve been able to pitch concepts that we used in my US projects (but which are not common in Toronto) to solve problems.
I’m really enjoying getting in some repetitions on a different part of the business.
Business Updates
Capital Raising
I am currently raising capital for a couple of different opportunities.
The first is a 200-unit project in the City of Toronto. My hope is that this would be a rental building which Imprint would entitle, build, and then operate alongside a capital partner. Because the market isn’t very cooperative right now, the plan is to underwrite the project as both condo and rental while we go through the entitlement process, which will take a couple of years. By that time, the market will have hopefully settled down and we will be able to make a final decision on tenure. The ideal partner for this deal would be either…
A developer who has capital to deploy on land acquisition and entitlement costs, with in-house capacity/a strong track record on the planning/pre-development phase. This group might be a condo builder who wants to get into rental housing, but doesn’t have much experience and wants to learn from someone who does. Or it might be an owner/operator of legacy rental housing that wants to get into ground up development.
Opportunistic capital that wants to invest for the rezoning period, and then exit when a builder partner is brought on board after 2-3 years.
The second opportunity is a platform for pursuing distressed development sites. This is “rescue capital” to help projects in default get back on track.
By working with our platform, an owner/lender can cap their losses, lay out a path to full recovery of principal, interest, and fees, and get access to the capital needed to carry these sites until a more favorable exit.
We will also guarantee commissions for brokers who are working on one of these sites, if they can help us close a deal.
In The News
The federal government recently announced that they would introduce 30-year amortization to CMHC-insured mortgages for some first-time homebuyers.
This announcement has drawn a lot of criticism, and rightly so in my opinion. The article linked above lists many reasons why this policy won’t be available to most buyers, so I won’t repeat them here. In short, the policy has been designed such that very, very few people will have access to the longer amortizations.
I would add a slightly different criticism, though. In Canada, the typical mortgage term is 5-10 years. If you get a 30-year amortization for your loan, it will lead to a lower monthly payment, all else equal. But it will also increase the proportion of total payments that goes to bank interest rather than paying down the mortgage principal. In the US, which has fixed-rate 30-year mortgages as the standard, a longer amortization at least provides price stability to buyers for decades. In Canada the amortization period doesn’t match the term of the mortgage, so you don’t get the long-term stability benefit.
This policy does two bad things. It is a transfer of wealth from first-time buyers to banks. Second, if it is ever rolled out more broadly, it could increase demand for housing without an increase in supply, which will increase prices further and could offset the lower monthly payments through longer amortization.
It does nothing to reduce the cost of producing housing, which is the primary reason that rents and purchase prices are so high. If the feds want to address Canada’s housing crisis, they need to stop increasing demand and reducing supply.
They need to take the opposite approach: reduce demand through sensible immigration and financial policies, and increase supply by incentivizing more apartment construction through CMHC, and by forcing provinces/territories to remove red tape and reduce taxes on new housing.
To be fair, there have been some positive changes at the federal level recently, including the Housing Accelerator Fund and the removal of sales taxes on purpose-built rental housing. But for every two steps forward, we take a step back. CMHC recently burdened rental housing projects with additional affordability requirements for its MLI Select program, which has already killed a large number of projects. We need federal political leadership with a more unified vision and a much more aggressive approach to clearing the barriers to housing supply.
That’s a wrap.
I write this newsletter because I like to connect with smart people who are doing interesting things. Feel free to reach out by replying to this email.
Thank you for reading, and have a great August.