So How Much Money Can A Strata Owner Unknowingly Leave On The Table?
KLEIN GROUP CASE STUDY
So How Much Money Can A Strata Owner Unknowingly Leave On The Table?
1075 Barclay St
PROJECT OVERVIEW
The strata owners of 1075 Barclay Street were faced with some very lucrative possibilities due in part to a new West End Plan which changed the legally allowed density of their building from 90 feet (i.e. nine storeys) to 500 feet (i.e. 50 stories).
At the same time, the building needed significant repairs so the owners decided to put $1,000,000 into a special assessment.
THE CHALLENGE
Without knowing it, some of 1075 Barclay Street’s owners were taken advantage of by a few developers who understood the potential value of the building units and were able to purchase units at a price that ultimately proved to be greatly under market value. Specifically, those developers, under the guise of numbered companies and affiliates, secretly started buying units in the building at a little more 1/3 of their value, with an additional cash bonus if sold within seven days, and no real estate commissions. In short, although the developers seemed to be offering the owner’s a great opportunity, the units actually had a much higher market value.
After getting word of these secret, off-market unit sales, the Strata Council – with the help of its building committee – decided to request proposals from a variety of commercial brokerages to: 1) Protect their interests, and; 2) Market and sell the remaining 85% of the units at their maximum market value.
SOLUTIONS AND OUTCOMES
The Strata Council, on the basis of a detailed and well-delivered proposal, ultimately selected Royal LePage Klein Group Commercial to represent the remaining owners’ best interests from a group of six national brokerages that applied. Klein Group immediately sprung into action, engaging the law firm of Hakimi & Ridgedale LLP to create a legal framework that would discourage developers from purchasing single units without bidding on the whole. This framework was successful and the individual unit sales to developers ceased at 18%.
(NOTE: If over 20% had been successfully purchased, it would have created a blocking position for the developers under the Bill 40 strata legislation. Our clients, the remaining majority of units, would have seen a significant decrease in value.)
Klein Group then assembled the units, explained the process over multiple meetings to owners and took the units to market. Stantec, our architectural partners, provided an extensive and precise review of the site and its buildable size, including a shadow analysis – all to ensure that 1075 Barclay Street owners did not leave any additional density (or negotiated density) on the table. Lastly, as is Klein Group practice, we implemented a coordinated strategy to:
• Facilitate clear communications with the owners
• Set out clear expectations for building a successful assembly
• Custom-design a comprehensive marketing plan and create attractive collateral to garner the attention of developers both locally and internationally
Once again, central to getting the best deal for the owners was aligning their collective and individual best interests. Working together provided the unified front required to ensure that the developers were very interested, serious and competitive throughout the bid process. Information to owners is then provided in written format, clear and transparent – even in multiple languages as the case may be.
THE RESULTS
No less than 85 different developers received a Klein Group marketing package, most during face-to-face meetings. As a result, 13 submitted offers or expressions of interest. Ultimately, three developers competed with multiple bids to push a record price for a West End development site. The good news was that the units which the Klein Group took to market sold for top market value, whereas the owners who sold prior to being represented by Klein Group unfortunately left very large, six-figure sums of after-tax money on the table (i.e. all profits to the developer for a smart purchase.
ADDENDUM TO THE STORY
Directly to the east of 1075 Barclay Street, a 4-townhouse site was required to complete the 130’ x 130’ floor plate required for a high-rise site. Unfortunately, the owners decided to represent themselves as a FSBO (For Sale By Owner), which resulted in in a similar financial losses as those described above. In one case a developer purchased a single townhouse for a fraction of what the other sellers got. Moreover, an even more lucrative offers than what the other sellers got was never even presented. This is another example of large equity losses to owners in the sale!
THE CONCLUSION
To reiterate, in order to get the top dollar for their properties, owners must work together and be well-aligned. Professional representation, executed correctly, will add far more value than it costs. Maximum value is created by the largest ownership group being professionally represented by a commercial real estate brokerage with specific expertise in strata land assembly and Bill 40 strata dissolutions.
