"With all this interest, the market can only be in for a fall,"
from the toronto star recently:
Mar. 7, 2004. 09:08 AM
Build it and they'll come
A pair of U of T students were miffed to discover there were no campus clubs catering to real estate
TONY WONG
Who wants to be the next Donald Trump?
With the Toronto real estate market firing on all cylinders, University of Toronto economics students Andre Charoo and Gavin Wimalasena decided that if they were going to be real estate moguls, they needed to learn a whole lot more.
But to their surprise, apart from the graduate business school, no undergraduate real estate courses were offered on campus.
Moreover, despite a plethora of clubs, ranging from archery to chess and debating, there had never been a real estate club in the history of Canada's largest university.
"Real estate is such a fundamental thing that it was really surprising to me that no one offered any kind of program," said Charoo, sitting in a lecture hall on campus one recent evening.
So Charoo and Wimalasena decided to start the school's first real estate club in September of last year. Since then, the two — much to their surprise — have signed up 130 members and lined up as guest speakers a who's who of the real estate world, including top executives from Oxford Properties, Royal LePage, First Pro Shopping Centres, and Borealis Capital.
He hasn't asked New York developer Trump to speak at a meeting yet, but he's not ruling that out. After all, the Donald has plans to build a hotel in Toronto.
"Wouldn't that be exciting? We would love to do that — he could be the big finale for the year," says Charoo with a grin.
Despite the fact that real estate is big business, it's not typically a formal program in university. There is no school for budding developers, so the real estate club becomes the de facto breeding ground for the next generation of apprentices. Or at least that's what Charoo hopes.
Students enrol in the club for a variety of reasons. Some want to be the next Trump. Others want a career in commercial or residential real estate.
Some are simply interested because they are purchasing their own home.
"This is a great idea. There wasn't a real estate club when I went to U of T, and I wish there were," said Paul Brundage, a developer who was the Toronto chapter chair of education at the National Association of Office and Industrial Properties association when first contacted by the club last year.
Brundage helped the fledgling group last year by assembling a team of developers to meet the students at their first meeting.
"We've had a challenge attracting top quality graduates to the industry, because real estate isn't seen as sexy," said Brundage. "But when I graduated in the '80s, real estate was the place to be."
Brundage says other universities such as Guelph, the University of Western Ontario and Ryerson do offer some real estate courses. York's MBA program has a specialty in real estate. The U of T's MBA program offers some real estate courses, but nothing at the undergraduate level.
With the field making a big comeback over the last few years, students are taking a harder look at profession, says Wimalasena. And with the help of the real estate club, they're getting unprecedented access.
Yesterday, Charoo and Wimalasena managed to score a private tour of the largest single condominium building project site in Toronto, courtesy of Concord Pacific Group Inc.'s Dennis Au-Yeung, a vice-president and CFO of the company, which is in the process of building 20 condominiums on former railroad lands in downtown Toronto.
Developing is a "team effort" stressed Au-Yeung. "Each executive is part of the team that contributes to the final success."
Au-Yeung, who holds an MBA and an undergraduate degree in computers and math, says the company does not hire "developers" per se. "We don't focus substantially on their knowledge from school. Related experience is our focus." Which is why getting their feet wet in a real estate club can be a good idea.
And when they're not getting their shoes muddy on a construction site, earlier this week 30 students gathered in one of the school's lecture halls to discuss fundamental economic theory.
Professor Lawrence Smith, one of the country's pre-eminent housing economists, is drawing demand and supply curves on a dimly-lit overhead projector. He laces his lecture with references to some of the most dramatic points in Canadian real estate history.
There was the fall of developer Bramalea Ltd, the great apartment flip scandal of the early '80s, and the build-it and-they-will-come mentality of developer Robert Campeau.
"You probably have never heard of these people," says Smith recognizing that just about everyone in the audience was a toddler when Campeau was in his prime.
But Smith's point is easy to understand. The past is bound to repeat itself, because housing markets are cumbersome financial instruments and "developers by their nature are optimistic. As long as they can get financing, they tend to build."
His message to the students is that while many developers go on gut instinct, there is a place for theoretical analysis in the real estate market, and his analysis says Toronto is due for a fall.
"You can only stretch this market so far — and we've stretched it."
Smith is forecasting that apartment rental units will fall in value by as much as 20 to 30 per cent over the next several years because of high vacancy rates and overbuilding.
"The moral of the story is do not go out and buy rental units. Rent for the next couple of years and then, four or five years from now, buy," said Smith.
Still, the professor admits that he thought the market was over-valued as early as last year when he sold 30 per cent of his holdings. What happened? The market still went up.
Low interest rates and a frenzy for real estate by overseas investors helped keep the market hopping. But Smith tells the club that the market is due for a correction, first in the rental market, followed by condominiums, and then possibly impacting the single-family detached home market.
This is not good news for some of the students gathered, including Charoo, who purchased an investment townhome in Pickering two years ago that is due to be completed by the end of this year.
"We'll see, I'm not that worried yet," he says, not looking all that confident.
Another student asks Smith why so many analysts have such rosy predictions while Smith seems overly pessimistic.
"Because they're wrong," says Smith bluntly. "If you go to the people in the building industry they'll tell you it went up last year, so maybe it'll go up again this year. It's in their interest."
Real estate is a discipline, says Smith, not something you do "flying by the seat of your pants."
Smith, incidentally, is partly the reason the club was formed. Five years ago he retired, taking with him the only undergraduate real estate economics course. Since then he has managed his own private real estate investment company.
Wimalasena, 24, says the club is now so successful that it is attracting students from other universities who do not have similar clubs at their campuses.
"I think we tried to aim high and get the best calibre of people out there, and we were really surprised at their enthusiasm and willingness to help out," said Wimalasena, the club's co-founder.
Computer engineering student Kevin Tam is one of the more enthusiastic members. He peppers Smith for a job. "I can't think of a better way to learn than to work for you for free," he tells Smith.
Smith says he would love to say yes, but is afraid there wouldn't be enough work for Tam.
"My company is really quite small," he says a little sheepishly.
Tam says he's interested in real estate because it's one of the few investments where banks will loan you money to invest.
"If you have $100,000 down, you can go out and buy a $400,000 place and increase your equity. What's the worst thing that could happen besides losing the property?" asks Tam.
Still Charoo and Wimalasena have a thing or two to learn about economics. Over the last week, the club spent $350 on egg and roast beef sandwiches and cream soda, mostly out of their own pockets, but took in only $110 in revenue from gate receipts.
And there is another warning sign. Smith says he could always tell when the real estate market was about to correct. His class would be filled with new recruits. So then, what does this say about the success of the U of T Real estate club?
"With all this interest, the market can only be in for a fall," laughs Smith. |
