Table of Contents
Rob Break [00:02:01] Welcome back, everybody. Thanks for joining us again. We are really happy to have you with us today for another exciting episode full of, you know, chock full of knowledge and real estate stuff. So excited to get to that. And as always, with me here again is Sandy MacKay. How are you, Sandy?
Sandy Mackay [00:02:20] Fantastic, Rob. Excited to be here again. And, you know, we’re getting into some interesting real estate stuff in the market and the world. So I think we’ll have a good show discussing all sorts of stuff around that.
Rob Break [00:02:32] Yeah, we are. Things are changing, man. They are changing a little bit. So we do have some exciting updates. It’s not just like the market’s going up, the market’s going up as a little bit of volatility there. So yeah, we can discuss that in a little bit, but everybody listening should go over to our website, break through REI podcast dot S.A. They can get all of our past episodes from there. They can interact with our guests through the show notes and get access to any, any, you know, materials that our guests have left for us on there. So very few REI podcasts. Yeah. You can also get our free gift.
Sandy Mackay [00:03:14] Yeah. The ultimate strategy for building wealth and real estates. And of course, like you all know, you get on our email list when you do that and you will hear about everything else we’ve got going on and all the updates, all the all the maybe events we’ve got coming up, webinars, whatever we whatever we’re putting out there, you will hear about it and never miss an episode.
Rob Break [00:03:33] And please go over to iTunes and leave this rating review. You guys know that helps. It doesn’t take too long. Go over there. Tell us what you think. Leave a five star review that always helps. And more people will be able to hear the show. More people when they go on search. Real estate investing podcasts, though ours will pop up and they’ll be able to hear all of our past guests and all the info that we’ve shared over the years over the past eight years. Outstanding. Going on eight years now. So receiver, we’re still here. We’re still going strong and we’re still excited every single time we get behind these microphones. So. So. Yes, sir. Yes, sir. Listening.
Sandy Mackay [00:04:15] Keep. Keep listening. Keep growing. I think we’re you know, it’s fun. We’re doing a we’ve got lots of transitions over eight years and different ways. And, you know, we’re ramping up, if nothing else right now, we’re not slowing down. So we’re going to ramp up and keep pumping up more shows.
Rob Break [00:04:31] That’s right. And just like always, today is no different. We have an exciting guest and Jesse is back. He was our guest on episode 126 in September of 2020. So we’re excited to hear the progress that he has been doing since then. He’s been doing a lot of exciting things, so we’re going to be hearing about that and we’re really excited to have you with us.
Jesse Fragale [00:04:59] Thanks, guys. Pleasure to be here. Good to see you guys again.
Rob Break [00:05:02] You know, I don’t want to mess up your last name, so I just didn’t say it.
Sandy Mackay [00:05:06] No problem. I think for Gally, I think you got it right. Let’s get a quick little backstory on who you are and that so our listeners could recall if they missed out on episode 126 but just forgot was a commercial real estate broker and investor start investing in student rentals we’re over ten years ago I guess on that now and I’ve been investing since then. Single family homes, condos, etc. and definitely into multifamily apartments. And we’ll talk a little bit about that with him today. He’s also got his YouTube channel is a contributor on bigger pockets. He’s got his podcast growing all the working capital and certainly has some insight to share over the commercial landscape as well as his, like I said, a commercial broker in the lovely city of Toronto. And of course, we’ve seen some major interesting stuff happening in that world over the last couple of years with what’s covered so well, talking about all these things that more in the show. So yeah, welcome again and happy to have you here.
Jesse Fragale [00:06:10] A pleasure to be here. It’s pretty amazing. Eight years, guys congrats on that. That is a I feel like I don’t I don’t even think I was listening to podcasts eight years ago, let alone knew what they were.
Rob Break [00:06:23] You. You’re too young back then, is that it?
Jesse Fragale [00:06:26] Yeah. Yeah. In the mid-twenties is too young to get into podcasts.
Sandy Mackay [00:06:31] Yeah. Well, why don’t we start with. Why don’t you start with a little bit of backstory, and if someone’s listening to your previous episode, you’ve probably heard this. But how did you get into real estates in the first place? What brought you here?
Jesse Fragale [00:06:43] Yeah, sure. Yeah. For any repeat listeners, I won’t bore them to go into super granular detail, but I got started in in Waterloo. I went to school and I went to university in Waterloo, Ontario. For those I don’t know, it’s about an hour and a half west of Toronto. And I started renting out student housing out there. So that’s how I got my first. That’s the area that I started originally. And from there I continued to do that, finished my degree. I worked in Toronto and eventually shifted from the student rentals that I kind of built up from there to different areas in southern Ontario. Switched from buying those into buying condos in Toronto. And you know, if anybody knows the Toronto market, even now, especially back then, it was a bit of a hockey stick graph continues to be. Prices were going up quite a bit and then at the time I was doing some assignments of condos. So for, you know, any American listeners, typically you’ll hear the term wholesaling, but basically selling the contracts of condos, which at the time you had to be really careful about because, you know, the CRA was just the Canadian Revenue Agency was getting very particular on how this income is treated. So from there, I switched my geography to Toronto and started buying assets there. And then I work with Avis Inyong commercial real estate. Met my partner John there and we started buying multifamily apartments. And the first one that we bought was in Hamilton, which again is west of Toronto, about an hour. And from there, I think we talked a little bit before the show bought our first deal that we had, we raised capital for, and that was in pretty much downtown Toronto. If you’re from Toronto, you’d probably call it Midtown. But for those that don’t know the city, it’s pretty much right in the city.
Rob Break [00:08:36] So let’s dove into that deal then, Mike. One of the things that we like to do here is talk about some of the big challenges, right. Involved in something like that. So. So, you know, that’s a massive undertaking. First of all, raising the capital and then finding the right building that’s going to, you know, have the return that your investors want. So there’s all kinds of challenges in there.
Jesse Fragale [00:08:58] Yeah, I guess you could start with the first one and finding the property. There’s, you know, seeming seemingly continues to be quite a bit of capital out there. Deals are harder to come by good deals. So from that perspective, it was pretty much the same program that we use in brokerage in finding clients. You know, you’re looking for off market deals and this particular deal was an off market deal. Know, I used the resources that we have available for those in Canada, whether that’s the land registry or you’re lucky enough to have access to corporate searches and, you know, software like Costar in the States, it would be secretary of state to find owners. And then from there, it’s just a matter of calling owners and seeing if they are open to selling. I found that there’s a lot of owners out there that will maybe not necessarily take a lower price, but some will take a lower price if it means that they’re just dealing without marketing the property, without going through the hassle of bringing it to market. Sometimes it’s the anonymity of not every single person knows you’re selling your property. So is really just a just an old fashioned cold call. You know, I said just if really I’m an investor in the in the Toronto area passed by this property today. I just wanted to see if you consider selling. And we kind of went back and forth and that was how we initially took down the deal. So, you know, number one, it’s always great if you can find off market, you know, once they’re out on MLS or wherever people are marketing, the values pretty much eroded from the, you know, the premium you pay on it. And then from there, we knew that we wanted to raise capital for it. It was just under $4 million. So it wasn’t something that, you know, it’s right on the cusp, I would say, at least from a Canadian perspective, on if you would need outside capital. But what we wanted to do is get practice at actually raising capital because really the all the process that you go through, the, you know, creating in our case, the corporate structures, the limited partnership agreements, going to others to talk about the investment, creating a, you know, information memorandum that looks good and you know, that you can actually sell it to investors. All that is the same whether you’re buying 5 million or 30 million and we see them in brokerage. So for us, we wanted to cut our teeth on this one, raising outside capital. And that’s what we that’s kind of the process that we went through for this one.
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Jesse Fragale [00:12:02] Yeah. The chicken or the egg. You know what? Well, I you know, there’s a bunch of resources online. You see it a lot more in the States now, syndicated deals. And you’re starting to see a more in Canada, people syndicating deals for us. What we did was the process I wanted to follow was not have actual signed commitments from investors, but soft commitments that I kind of looked at people that I did my MBA with, people that I did. I went to university friends from high school that I still connected with. Basically, if you go to your iPhone or whatever, whatever phone you have, I just know because I have the iPhone, you go to your phone book, you scroll all the way down to the bottom. That shows how many people are saving your phone. It’s pretty crazy how many people you actually save and you can export that to excel. And literally, I just emailed people that I just described. I said, Hey, you know, if you don’t know what I’m doing in real estate a lot, you know, a lot of them did were starting to look for properties to acquire, manage, and we’re looking for investors. This is the type of properties. So we had kind of a model property. These are the type of returns we’re going after. And if you’re interested, you want me to let you know if we do come across a property like this and if not, no pressure, you know, basically unsubscribe type of thing where if, you know, you don’t want to be involved. So through that, we got a lot of interest of people that gave us kind of a soft commitment. But then when we actually went to get the deal under contract, we definitely gave ourselves a couple outs in terms of financing. So to answer your question directly, deal under contract first, then investors. But it wasn’t like we, you know, we didn’t even think about investors until we put the offer and it was definitely part of the process.
Sandy Mackay [00:13:52] Go. How much were you raising for the exact amounts, I guess. But how many investors were you bring into it was intended to bring on, like, you know, dozens or was it like one or two?
Jesse Fragale [00:14:02] Yeah, the intent was to. So part of it was to not just make it like a partnership of four people, because then it kind of defeats the purpose of what we’re trying to, you know, start to practice. I don’t know the exact amount, but it was probably, I think with the like with us, which are my two partners, probably around nine or ten. And it wasn’t supposed to be that high either. But we had a couple investors that we really wanted to get in the deal and it was when we were at the end, you know, it was tough to getting to the halfway mark. That was easy then, like getting that extra bit like really stretched for it. And then in the end we had a bunch of guys that were just or a couple of guys that were just like, Yeah, no, I, I want to get in. And we, we had to fit them in. So we basically had to go back to some investors and say, Listen, we want to get this other person in the deal. Would you be cool with, you know, having a $75,000 investment set up 100? So that’s kind of the process we went from there. So it wasn’t just one or two. We wanted to raise like a normal limited partnership.
Sandy Mackay [00:15:07] Cool. And, you know, I think a lot of people are surprised, like you said, is pretty in a way, kind of made it pretty simple. You just went through your phone book and asked people, which is people a lot of times are kind of scared to do that. How did you how did you like what type of people ended up coming in on this? Are these like, you know, super rich uncles or something? Are they like everyday kind of just homeowners that have home equity?
Jesse Fragale [00:15:34] So, you know, for those that, you know, like from the outset, I I’m in commercial real estate. So there were a few of the guys in the industry, surprisingly not as many as you would think. I think we talked about this last time. I’m always surprised, you know, how few people in our industry invest in our industry. So the type of individuals, what we did in Canada, you have a couple exemptions that you can use to get a get outside of having to file like you would if you’re IP on a stock and those what they’re called prospectus exemptions. One of them is friends and family, the other one is accredited investor status. So we were going to go specifically with accredited investors, but we noticed that there was a few of the guys that we had investors that were kind of on the border. And so for that status, you have to meet a certain income threshold in a certain amount of time. So for us that for us it was not really like super rich guys. Well, I mean, we had a couple of hockey players, but it wasn’t because like we were searching for high net worth individuals that was like word of mouth because our industry, there’s just a lot of ex hockey players and so good connections there. But generally speaking, it’s accountants in Toronto, you know, real estate brokers, you know, a couple other finance guys like not, you know, not some rich old dude that has millions of dollars. So it was pretty, pretty evenly split. We went in with 75. 75,000 was the minimum investment.
Rob Break [00:17:07] Awesome. Which if you think about it, I mean, if you’re going to buy something on your own, I challenge you to be able to fund it with 75,000. So this is an exciting deal for a lot of people, you know, in that position. Yeah.
Jesse Fragale [00:17:21] I think for a lot of the guys like they wanted to get into real estate in some capacity. We’re all you know, my close buddies were all in our kind of, you know, late twenties, early thirties. And it’s kind of that part in their career where they’re starting to make, you know, make pretty good money. And, you know, they don’t want to go do what we do, you know, and actually own the property, speak with property managers. They just want to be connected with it in some way. And this is a route for them.
Rob Break [00:17:50] Okay. So now let’s talk about the building itself, right? You found the deal. You must have some kind of a plan for, you know, increase in value. Let’s talk about that.
Jesse Fragale [00:18:00] Yeah. You know, that’s like the Canadian landlord landscape and that should be a book or something. But it’s pretty challenging for landlords. It’s definitely a tenant centric market. But that being said, you know, there are ways that we can add value to buildings and do it properly and make sure that, you know, our investors are taken care of. But you’re also treating tenants with dignity and doing everything above board. So for us, the area that we bought is it’s place called Erode the Intersections, Bathurst and Eglinton, Toronto. So for anybody that knows, it’s pretty much in the heart of Forest Hill and Forest Hill, I think probably some of the most expensive homes in Canada in this neighborhood. So part of the appeal of this property was the fact that the market, the rents were way under market. And what we thought or we came into our plan was we could take these to condo quality. And by that I just mean putting washers and dryers in the units, dishwashers, you know, the creature comforts that a lot of people take for granted. But in a lot of rentals, they don’t have them and basically turn over the suites and put them into where we would class like a high end rental. So we had to pivot on that because this was we closed the middle of last year. So we’re right in the middle of the pandemic. So for us it was that high end market. And if you guys remember, rental rates were going up, going up, and then the pandemic happened and they kind of plateaued. So for us to be able to get the higher, high end, it started to the thesis didn’t really work from our vantage point. So what we did was okay, instead of spending $75,000 on a suite turnover, we spent $50,000 on a suite turnover, but we turned them into B class, you know, not super high end, but B class and where we can still get our return and we’re not spending a crazy amount of money. So that’s kind of that was the strategy going in. So since then we’ve renovated one suite. We’re working with tenants right now on the other suites and know just anticipate the question about dealing with tenants and how to how to come to an agreement to actually get the units because we did buy these fully tenanted and part of the art not science of Canadian real estate investing is working out an agreement with the tenants if they’re willing to end tenancy. And it’s a very you have to be very delicate about dealing with that because, you know, for listeners that don’t know, you can’t just kick a tenant out because you’re at the end of the lease. It’s not the way it works here. So that is something that we’re navigating and we have for the last six months.
Sandy Mackay [00:20:47] Yeah. One of the beautiful parts of investing in Ontario, at least, is, is that that landlord tenant stuff, lots of opportunity in it, I guess is the is the is the positive part of it if you can navigate your way through it. But it’s yeah, it’s, it’s, it’s also a deterrent at times. So yeah.
Rob Break [00:21:06] I mean, it can be tough because, because you’ve bought the building with the rent significantly under market what they should be and nobody in that position is going to be like, yeah, I volunteer to just leave. Right? Like they, they know they’re going to have to go find something else. It’s probably going to cost them more. So the whole thing is to work out a win situation for everybody so you can go in there and renovate those suites.
Sandy Mackay [00:21:32] You had a few tools that you mentioned before. I wanted to ask you about Costar and some other ways of finding deals. You kind of breezed right through it, but I think there would be some listeners that might have gone, What the heck with that? How do I use that? How do I find how do I use that to source deals? Because that’s the that’s the everyday dilemma with investing in real estate. It’s not necessarily the capital part, which is, you know, that’s one thing, but it’s finding the deals is always the hardest part. How do you use the tools you mentioned?
Jesse Fragale [00:22:01] Yeah, 100%. Like I said, for listeners that have the benefit of a tools that a lot of you know, the guys and our guys and gals in our world and brokerage take for granted. So we use Costar quite a bit. Costar tracks pretty much almost all of the commercial real estate properties. So multi rest retail, industrial office. So a lot of times if I’m looking in an area and I’m trying to find the owner of a building, I’ll go directly to Costar look for the numbered company or the individual. I guess if you’re if you’re looking purely on the residential side, you’ll find individuals. But for us, a lot of times there’s that extra layer that we have to go through, and it’s typically a corporate name. And then from there, the corporate searches, I believe you can pay for them online. Again, a nice benefit of being in a brokerage. You know, we can email somebody in our brokerage and say, can you run a corporate search? And all that means is that the corporate veil of the numbered company, it’ll just show who the actual individuals are. And then taking that to the next step, whether it’s Canada 411 or you’re trying to figure out based on the address, you know, what the actual phone number is. You know, sometimes you just can’t find them. You just have an address and we have snail mailed stuff before too. And, you know, especially on the brokerage and you’re just like, I want to connect with them and we cannot find a number for the person. Sometimes your only option is mail. So that’s like if I if you’re going to costar again, if you have access or you have a friend that’s a broker, you know, then you typically will have access to stuff called real net and real track in. But in Ontario, I think it’s I think it’s specific to Ontario, but I’m sure every province and state has something similar. And in that case, you know, you’re looking at the actual record of the last sale. So it will typically show the stakeholders that a lot of times they’ll show the banking, you know, it was paid for in cash. And I think Railtrack was actually purchased by Altice, which is another company similar to Koester. I think that was fairly recently, if you would probably know no Sandy.
Sandy Mackay [00:24:07] But I know because we use real track a bit too and. Yeah. It must be all just.
Jesse Fragale [00:24:14] Studio or something now. Yeah. I remember logging in. Been like this.
Sandy Mackay [00:24:19] But I mean, it’s a good tool.
Jesse Fragale [00:24:21] So that’s the wrote that I would typically take now if, if you’re an individual that, you know, you don’t have access to the majority of these things, you know, there’s different avenues you can go. The land registry is one of them. And if you go in any city you can Google the land registry for ownership. And then you kind of have to follow that same that same process. The challenge for most people, especially if they’re looking for commercial and they’re not associated with any brokerages or they don’t have a realtor that they’re working with is the fact that the numbered companies there’s you know, there’s very few tools aside from actually paying for corporate searches, which you can do as well. There’s a bunch of like, you know, online places that you can actually buy corporate searches to figure out who the owners are. But end of the day, you can always you know, you can still. Drive for dollars and find properties you like, figure out what the addresses and go that road as well. But yeah, that’s kind of the process I use.
Rob Break [00:25:18] In City Hall often as a kiosk where you can just sit down and, you know, do a register search.
Jesse Fragale [00:25:25] Yeah.
Sandy Mackay [00:25:25] I know. It used to do that. We started were able to do that. Oshawa, I did.
Rob Break [00:25:29] It all the time.
Jesse Fragale [00:25:30] Yeah.
Sandy Mackay [00:25:31] I moved to Hamilton and they wanted to charge us for all that crap, so I kind of got annoyed by it. But every city is a bit different, so some of them are really easy and open source of info. Some of them are a little more. Holding it hostage and want you to pay or want you to go through hoops to get it. But, you know, whatever you’re willing to do, you got too got to go through a couple of hoops. That just means there’s probably more power on the other guy. Yeah.
Jesse Fragale [00:25:56] Yeah. So do you guys do you guys still do? Will you go through Land Registry or do you guys now use different software? I know you guys. I think. Well, Sandy, I know you do a lot on the residential side.
Sandy Mackay [00:26:08] That we use real track though a lot for the multi runs. We’ve been using that for a couple of years. I would say once I found out about it, that’s been a we’ve done a few deals from there. It’s, you know, you got to you got to go through the work after like just finding the info is one thing but then yeah. Talking to the calls and you know, it’s, it’s, it is quite a bit of work which is, you know, I, why this is why there’s good opportunity on the other end of it. But real tracks have been pretty good. I mean I think for us paying for it was roughly five grand a year. I’m not sure that that financial elements change now with their setup. But there are some real estate boards even that have free access to that. So depending. That’s one of the perks you mentioned, you know, some of the perks of having a real estate license or being a part of a brokerage. There’s also real estate boards even that give you I know there’s a few that have free access to real track.
Jesse Fragale [00:27:02] So yeah we had a few of our so I work in in kind of investment sales on the off and office but our actual multi razz team in our brokerage they they’ve a lot of the younger guys have had a lot of success on real track they’ve you know and it’s probably because Costar is you know is so crowded now because it’s easy like you can type in a coaster this property and then you get the information. But if every other broker’s chasing the same thing, that’s where real track, if people aren’t using it as much in our world, that’s the benefit. But like you said, it’s one thing to get the information you got to do the other 70 or 80%.
Sandy Mackay [00:27:41] Yeah. Make the calls sometimes all the non-glamorous stuff.
Jesse Fragale [00:27:45] Yeah.
Rob Break [00:27:45] My last three or four deals have been and the last deals that nobody wanted, generally stuff that I showed to my clients over and over and over again. And, and nobody was, nobody was taking it. So I’m like, okay, well, there’s a deal here. I guess I’ll take this one.
Jesse Fragale [00:27:59] Was that because they like there is the concern that if it’s not MLS, it’s not going to be a good deal or.
Rob Break [00:28:05] Oh, no, I mean, hey, that’s what I do. Like I’m a realtor, so my clients are buying stuff all the time. It would just be so I’ve always been, you know, I’ve always been not necessarily property first, but like when I find something really, really that I think is really juicy anyways, I’ll push it. Right. And so those are typically the ones where I did the, my ten bedroom student rental in Peterborough that’s up and running. Now legally I’ve got all the like everything’s above board. And I mean I showed that I would say at least 20 of my clients saw that building and it was just maybe it was too daunting. Maybe, you know, I had more vision than the people I was showing at the time. I don’t know, whatever it was, but, you know, over and over and over again and then just got, okay, why does nobody want this? Like, it’s an it’s a goldmine so, you know, stuff like that.
Jesse Fragale [00:29:01] Yeah. Yeah. I’m pretty bullish on student rise again. I feel like it’s going to come back. I know everybody well, not everybody. I think conventional wisdom or a lot of individuals just thought, you know, the pandemic that’s going to be the end of schools. And I was getting calls from Waterloo University, Sir Wilfrid Laurier University in Waterloo. They were calling me and they were like, Mr. Farghalli, do you own a property on Marshall Abbott? I was like, sold that like six years ago. Okay, our records indicate you still own it. We I’m like, what’s the call for? And the individual is like, we are desperate need for housing for students. So like they, they’re trying to go the private route and get students that I guess are oversubscribed on residents to housing. And, you know, that’s one data point. But even in our brokerage, we’ve started to sell more.
Rob Break [00:29:50] Student So hey, breakthrough listeners, are you a real estate investor looking to scale your portfolio but struggle to find an investment focused renovation company? Then our team at Evolution Construction Management is here for you with our standard list of features and processes. We’ve created an efficient method. To streamline you. Ovation from start to finish so you don’t have to enjoy a hassle free renovation on us. Visit our website at w evolution. Cm s.a. Or email us free your free quote. At info at evolution cm dot s.a. Yeah. No, that’s it’s coming back. It’s interesting because I think during that time too at the height of everything, right, they, in the, in the actual dorm rooms on campus, they were doing this distancing thing where let’s say the unit had six bedrooms. They would go, okay, now we’re going to put three students in there. So which made everyone else more desperate for outside accommodations, which worked for us. I’ve heard, like both sides of the story from different investors in different areas and student rentals, but ours luckily, you know, we didn’t really have a hitch. Peter Rowe That’s where ours are.
Jesse Fragale [00:31:03] Yeah.
Sandy Mackay [00:31:06] Lots of interesting outlook on the on the market and everything. Why don’t we? Why don’t we? Why don’t we talk about that on the commercial side? Why don’t we hear what’s been going on with the with that in the last couple of years? I mean, we last chatted, it was kind of starting of COVID and probably everyone was worried about commercial ever coming back or office ever coming back. Now we’re kind of rolling into the hopefully the ending here of everything. We’ll see. What’s James what’s going on in that world.
Jesse Fragale [00:31:35] So the commercial real estate like to take it from the four major asset classes. What we’ve seen is, you know, multi rise has continued to do well. You know, I’m sure it’s not a surprise to anybody that that asset class has been one that’s the darlings of the industry. There is still rental appreciation. We’ve seen a lot of investment go into apartments. So really it’s again, less, less I’m sorry, more and more capital chasing less and less product. So you really have to kind of work hard to find that product. But that is definitely a sector that boosted or kept a lot of these commercial firms income or profits high. Industrial was another one. You know, who would have thought you’d have a global pandemic coincide with a lot of shoppers going online to begin with. So a lot of these last mile delivery locations started getting built like crazy. We’re in a huge still in a huge supply constraint. On the industrial side, we were low before the pandemic. From a vacancy perspective, I think Toronto was number two in North America. I think L.A. was. I think they were number one or anyways, we were we’re right up there and now we’re sub 2% again last year, 1%, one and a half percent. So Industrial’s been crazy retailers since we last spoke retail. A lot of people are like, Oh, Rachel’s not doing that great and it’s not necessarily true. Like I always say, when you have like Joe’s Taekwondo or, you know, Stacy’s nails, you know, you have those type of plazas that don’t have any grocery store anchored aspect to them or you don’t have any essential service aspect to them. Yeah, those have struggled, but over the last year there’s been a lot of opportunities and assets purchased with those essential services and grocery store anchored that institutional and private capital are putting money into. So I think that’s going to remain strong. It’s just has to be fundamental because, you know, the states is overbuilt and we’re not at that extreme, but we overbuilt retail for years and years. And then, you know, the question mark on office is it’ll be interesting to see how this one plays out because, you know, to Rob’s point in student rise, where you have people distancing, you know, same thing and off it’s like as a company number one are we going to go back to the office? Number two, if we do go back to the office, do we need less space or do we need more space because of distancing? And, you know, this conversation was happening over the last little while. I can say that it definitely got to the point where a lot of people put inventory onto the sublease market. For some contexts in our city, we have normally 600000 to 900000 square feet on the sublease market. I think in COVID we peaked at like three, I think it was 3.3 million. So that is a lot of stuff going on. The sublease market and a lot of that is like a knee jerk reaction from a CFO or CEO. That’s like, all right, well put on the sublease, MARGARET So we’ve now come back down. I think we’re now in the low twos. So from our perspective in brokerage, that’s going in the right direction. We look at that as, you know, normalizing or have individuals that are getting a little bit clearer on what they what their plans are in the future. But I think this is a net positive, obviously, you know, for your brokerage, if you’re not glass half full, you know, it’s going to be a challenging time. And for me, that works in office. A lot of what we do is in the office space. This was something that if you’ve been in office for a long time, you saw this trajectory happening before COVID, this hybrid working Zoom. You know, we now know so well this was something that predated COVID. It kind of pushed us into really determining why we occupy space, what is the office for? And I’m sure even you guys probably see it with the businesses that you work with or even in brokerage. You know, you start asking serious questions of what are what is the office for and what is, you know, can we work in other ways? And from our clients, some of the answers were, we don’t need to be in the office for this. And other clients were like 100% this aspect of our business. We need a we need a physical location. So that’s kind of the upshot of, I’d say like the major commercial sectors.
Sandy Mackay [00:35:56] Interesting.
Rob Break [00:35:59] And would you say that those ones that sort of the ones that said, absolutely, we need an office, those are the ones that have basically brought those numbers back down. And do you think that now there’s going to be more sort of changing their minds on that? Or do you think we’re going to sit sort of rate around where we are now? And that’s sort of going to be a new plateau.
Jesse Fragale [00:36:21] There are a lot of offices that right now are still sitting vacant because, you know, we had so many false starts, especially in, you know, in Canada, Toronto. It’s difficult for us where, you know, we’re okay, we’re back. Oh, no, we’re not back. And I don’t want to say, you know, there’s the you know, the quote this time it’s different. And I don’t want to be that bold. But one of the things this particular time is that we have indication from the city of Toronto that they are going to be occupying their offices in March, the end of March. So they usually don’t say anything unless they’re going to actually do it because it would just look really poorly on them. And that wasn’t something we had over the last year. We didn’t have the city or any leadership really give clear direction. You know, like when we when we opened up again, a lot of the direction from the province was, all right, we’re opened up, you know, but don’t go crazy. And these are like telling us like we’re on Queen Street where retail shop. You tell them that you can leave your house but tell them not to. Yeah, everybody go shop. So I think this month particular because just recently we are now allowed to occupy without a passport, we are going to be able to unmask in a week and then the city is giving the business community direction. What you started to see after that is banks starting to put in place their policies. Because what I’ve learned over the years is that legal teams love to just point to other reasons why their decision made sense. And, you know, you have a legal team at a big bank that’s like, well, the city of Toronto did it so quickly as that sounds. So I think I think TBD on how the recovery happens but I think that it’s going to be healthy for the office market because as you guys know, it’s not just about the tenants or the landlords. It’s a tenant landlord market. And I think for a long time it’s been very unhealthy for the tenants.
Rob Break [00:38:16] I find it odd, Jesse, that you should expect leadership from the leaders. Yeah, I’ve learned. I’ve learned over the past year and a half that that’s just not going to happen.
Jesse Fragale [00:38:26] Yeah. Yeah. Well, you know, direction is, you know, not even leadership, just a little bit of direction would be a helpful piece for us. But, you know, that’s kind of how I see, you know, the next year going in terms of, you know, continued, you know, continued investment because money is still very ubiquitous. Like we have a ton of money circulating, but it’s always that inverse relationship. It’s like you got to find the deals now and then, you know, when the deals are everywhere, there’s no money. So.
Sandy Mackay [00:39:00] That’s you know, that’s what I that’s what we talk to. A lot of clients are just people that we’re talking to investments is like, you know, anyone waiting for the next opportunity or the next buying market or whatever it’s. And maybe there’s a slight bit of that even I don’t know if it’s a window right now or if it’s for a little bit of a of a few months or whatever. But there’s a little window, it feels like almost today, actually. They’re sitting here. There’s been a couple of weeks of where we’ve been having these conversations around, say, if, if you missed and you hadn’t bought in the last couple of months and you really, really want to or need to like it, now is amazing time. And it’s so funny. Every time this happens, the pushback, there’s always another reason to push back. And now they’re all place because everyone else is scared. So you’re like, Well, if you’re.
Rob Break [00:39:42] Dealing if you’re dealing with somebody that has that mentality in the first place, like the person that’s like, Oh, I’m going to wait and see what happens. That’s, that’s, you know, that’s going to be just heightened in this climate. I think, you know, it’s not going to alleviate any doubts or fears just because the market’s dipped, but they’ll be like, I’ll wait and see if it continues. Yeah, yeah, yeah.
Jesse Fragale [00:40:02] What do you guys what have you guys seen on the on the residential side? Has the has that market like is that bifurcated between homes and condos? Has one has one done better than the other?
Sandy Mackay [00:40:17] I mean, how like detached and not condos take away them, but everything else is definitely cooled a little in the in the sense that it’s only cooled and the amount of offers amount of action on the house not going in terms of price really from what we’ve seen prices, we’ve just hit that level where people have gone. Now we’re past everyone buying for hundreds of thousands over asking every time it’s still happening, but not every time because now people are listing at already the hundreds of thousands and they’re not listing at the.
Rob Break [00:40:50] Time.
Sandy Mackay [00:40:50] Where we were two months ago. Yeah, I think yeah. When you get.
Jesse Fragale [00:40:53] On that amazing with residential real estate, my mom would call me, be like, oh, this place, it’s all 4 million a half. I was like, okay, it was listed at 600. I was like, Well, that should have been less then.
Sandy Mackay [00:41:01] It’s like, No, I know, so silly. So now they’re listing out a million and a half and they’re just selling at a million and a half or the selling at a million for seven. Or they’re not or they’re not getting ten offers or 20 or 50 offers on offer. They, they’re getting one or none. And then there, you know, people are the buyers in general, a little tired of all that crap, too. So, you know, that being said, we had a it was one of our this in the past few days. We sold the four plex here in Hamilton that was went nuts when like 500 grand over asking we didn’t expect that we expected maybe 100 and change over it went way over and like I don’t know I think that that multifamily investment market is still really, really, really, really hot. Whether that be small, multifamily is bigger in the apartment building style. Like there’s that market still there’s still a lot of money out there to invest. Not people have a lot of people that own real estate for sure have made a lot of money and they need to do something and they look at real estate and go, I made my money in real estate. I guess I’ll reinvest the real estate. I think that’s a pretty common mindset out there. So investors are going nuts still and. Yeah. I think the single family knew that first time homebuyers and stuff are a little tired and maybe feel like they missed out.
Rob Break [00:42:21] And probably now might be the time for them to jump back in because like you said, like seen a drastic reduction in the amount of showings over the past. Yeah, that’s the three weeks even. Yeah. And I think that’s a good indication that now might be time for those people who have been sitting there or thinking and feeling a little defeated, you know, maybe to jump back in.
Jesse Fragale [00:42:43] I was a little surprised during the during the pandemic where people were saying the thesis was, okay, everybody’s leaving cities where, you know, the condos are dead. And I was just kind of, you know, first of all, I was surprised that that was. You’re hearing that by these talking heads or people that are supposed to be experts in our industry. When I was my thinking was good cities, like quality cities, whether it’s New York, Toronto, like the city, the city is really where everybody comes for efficiencies. And even now, like condo prices, at least like in my building, I think there there’s been a couple record condo prices in the building in the last few weeks. So it seems to me that condo is still a huge demand unless I’m totally misreading it.
Sandy Mackay [00:43:29] I think at the rate at a at a at a standard sort of priced condo, like if you get the more expensive ones is definitely a little slower, but an average price condo for sure. I mean, we’re saying we’re seeing new builds a mountain now 4000 square foot, which is while new for Hamilton, not new for Toronto I think Toronto or more for a 5000 square foot maybe. Or up in that range. Yeah. Yeah. So some of these, you know, a Hamilton market, 2000 per square foot is seemingly crazy for condos. They’re going to sell. They’re selling. It’s not like you’re not going to sell out. They’re going to sell it for sure.
Jesse Fragale [00:44:03] Yeah, it’s crazy. But people are still buying them. And like the developments in Hamilton, because there’s a few condos, I think it’s a Brad Lam had a condo development and ah, there are a couple other.
Sandy Mackay [00:44:15] Televisions and it was his big one which has been in a few years in the works, which is why it had maybe a little more hype around it than, then some. But a lot of the Toronto developers for sure are coming and coming that way. And I know Hamilton’s not probably alone in that. There’s other markets that have had some version of that, like a Kitchener-Waterloo or London, and I think there’s definitely a lot more to come. I mean, Hamilton’s going through a condo explosion that’s been that’s been a few years in the making and certainly more to come than in the whole waterfront developments, all that sort of stuff. A lot of the Toronto because I think it’s just tough to the numbers are tight in Toronto I mean I’ve heard Toronto is about as tight as any market in North America in terms of building and developing those type of products.
Jesse Fragale [00:45:00] You see like how many times people said, myself included, where it’s just like if I was just out of school right now, I wouldn’t be able to afford the place that I live in. You know, it’s very difficult to get into the market at this point. Like pre-construction, I always thought was a great kind of way to get into, you know, break into a market because you have a bit of a for a savings plan, especially if you’re younger. But, you know, it’s typically a little bit more achievable to get in when you have somebody, you know, saying you got to make this payment every 60 or 90 days, whatever that is.
Sandy Mackay [00:45:35] Yeah. Now it’s. You know, you’re getting into what’s certainly over half a million, if not up to 40 million of it in some cases. So it’s yeah, it’s really hard to get in at that point now. Yeah, it’s hard to say. We could be. By the time the show airs, you know, and we’re sitting here reviewing this, we could be this all could change a lot of things in the world. They’re making changes happen pretty fast. We know the government historically government didn’t intervene. So they could they could be jumping in here at any point saying, know, we’re changing the down payment amount needed on an investment properties or changing the, you know, the dreaded one that everyone’s worried about as they no more or taxing no on your sale of your primary residence like that could be anything major like that could change that completely. So that’s another reason why I tell people just get in because you never know when anything could happen. And we learned in 2017, it’s like a week’s notice and all of a sudden there’s major changes that are going to.
Jesse Fragale [00:46:35] You’re such a broker, said. Any reason is get in. You hear the news didn’t know it makes sense we’ve had like the capital gains thing is something that has come up with investors like interest rates too but it’s funny like it’s it is something that people think about like that aspect of the business and not even just capital gains on principal residents, but for our investors who are it’s normally investment properties where they’re just, you know, just increasing. I think Trudeau mentioned, I don’t know if it was like in the middle of last year of increasing the actual inclusion rate on even investment properties. So it’s definitely something people are thinking about. I think across the board it’s not just interest rates, it’s definitely tax policy. But like you said, like anything can change. You know, there’s a global pandemic, there’s a war in the Ukraine. Like a couple of things change and everybody needs to pivot.
Rob Break [00:47:23] Yeah. And I mean, it’s almost impossible now for us to stick to this. But Sandy and I, you know, sort of started out saying, okay, we’re not going to do like market updates and stuff like that because, you know, we want to stay timely if someone listens to this down the road. But you know what? I do think it’ll put some little like the bookmarks, you know, in history and it adds like a way of saying, okay, that’s where they were. Then here’s where we are now. And sort of how has it changed since then, right? Yeah.
Jesse Fragale [00:47:51] So yeah, you notice when you do a 50 minute podcast, it’s really hard to have evergreen content, you know, like somebody saying something topical and you know, something’s going on this month or this year.
Rob Break [00:48:01] Yeah. Speaking of topical, why don’t you tell us about your podcast?
Jesse Fragale [00:48:05] Yeah, sure. So working capital, the real estate podcast, that’s the name I started it just coincidentally, the first episode started at the beginning of COVID where people were like, Oh, that’s great. You know, you’re doing stuff to keep yourself occupied. But it was like, you know how podcasts are. They don’t just come out like that. You actually have to prepare. And I think on the last episode I kind of bent Sandy’s ear. He helped me out at the beginning. I’m like, You know, when you’re not in the in your world, it’s like, where do the podcast live? Where like, how do I click a link? Where does that link come from? So for the podcast, I think we’re close to 100 episodes now. I’ve been I haven’t taken a week off, so I’ve been pretty happy to be consistent. You know, it’s like going to the gym where you, you know, people are like, I don’t have time, but if you make time, if you’re committed to it and it’s very selfish of me to bring on, you know, people that are a lot smarter than me and get to talk to them for 45 minutes. And I’m sure you guys, you know, same thing where especially being in brokerage, you know, I have access to a lot of individuals that I have no business having a 50 minute conversation with that are, you know, high up in our industry but can give great advice to listeners. So for me, the way I kind of summarize it for individuals that are that are curious what it is, is it’s focused on real estate investors, but it comes from all different types of gas, you know, from lawyers to actual investors to people that are, you know, tax attorneys or tax or just accountants. So for us, it’s really kind of holistically looking at it. And, you know, just a small example, we talked about raising capital at the beginning of the show. You know, having somebody on that’s actually a securities lawyer and kind of walks through what that processes and, you know, obviously get legal advice but can give you kind of an understanding of that aspect of the business. So yeah, that’s it. You can I mean Google it it’s you can go to working capital podcast dot com if you want to check out any of the recent episodes.
Rob Break [00:50:02] And obviously we’ll put that link in the show notes.
Sandy Mackay [00:50:06] Definitely got to be interesting. Just there’s been some news around that people getting in trouble with their securities and stuff like that. You definitely want to be careful and know what you’re doing when you’re getting involved in that sort of side of raising money and making sure it’s, you know, just I don’t want to say stuff because I don’t want to give advice really on it, but you got to be careful. Just make sure you’re doing.
Rob Break [00:50:26] Everything we say on the show is our opinions only and our experiences. Not legal advice. Yeah, but you want to say Sandy. Yeah, yeah.
Sandy Mackay [00:50:36] I mean.
Jesse Fragale [00:50:37] Even on the, even on the investor end of things like that, even just the legal piece. But obviously you’re you owe a fiduciary responsibility now. And for people that don’t work in brokerage, maybe that might be the first time they’re doing something like that. But one thing I have found is it’s not for everybody. Some people are investing on their own, bootstrapping their own properties, or maybe working with one or two partners is the way to go because there are stressors that are involved in capital raising that are not involved. But you know, if John and I and my partner, we own our property, let’s make an executive decision to do this for us. That same decision we’re thinking about ten other people or 50 other people, whatever that your investment is. And it’s something that is definitely a different way because you’re kind of a steward for these investors. So it’s definitely something you want to be careful of just jumping in to talk to people that have done it before.
Sandy Mackay [00:51:30] Totally different mindset. Yeah, it’s like owning a private versus public company. It’s totally changes the way that the leaders of the of the company or the investment make decisions. It changes the whole mindset. I certainly want to. Yeah certainly lots to talk about that when we don’t have time to get into it. But definitely go check out your show. That’s awesome. They’ve built up that much content. I think that’s one of the things that any real estate investor or any anyone in business of any kind really could really benefit from is going and interviewing people. Like that’s like the easiest way to learn and grow yourself but also provide value to the marketplace is a lot of people are really, really excited to get interviewed and they won’t really much matter who it is talking to them but it’s there. You know, you invite someone to come and hear your blog and your show and your videos and your book. They read a magazine, whatever. It’s a pretty easy way to get access to people. That’s a great way. So, you know, we’re kind of encouraging the competition with that, but a lot of people should get into that. I think that’s one of the most underutilized versions of kind of business growth in general, right?
Jesse Fragale [00:52:35] Yeah, 100%.
Rob Break [00:52:36] Just see what’s next for you.
Jesse Fragale [00:52:39] So we didn’t touch on it here, but I purchased a property, a townhouse in Florida. And part of the reason I did that was I wanted to, you know, start actually again, do the training wheels version of investing in Florida on the small scale and then figure out maybe in a year or two if we want to raise capital to buy stuff in the States. So that will probably be something I do in the next few years or hopefully expand. But yeah, we’ll see. We’ll talk to you in a year or two and see where we’re at.
Rob Break [00:53:10] All right. That sounds good, man. That sounds good. Costa Rica. Any thoughts on that?
Jesse Fragale [00:53:16] I’m going to have to bug you about that. That’s pretty cool that that you’re down there now.
Sandy Mackay [00:53:22] So many people are following volunteer or you’re following them or whatever. The packages just go online. So many people are going that way now. So, yeah.
Rob Break [00:53:30] There’s been a lot of interest for sure. Yeah. And it’s been exciting so far, definitely to spend a whole winter, you know, not in the snow.
Jesse Fragale [00:53:42] Yeah.
Rob Break [00:53:43] It’s been a different experience. So. Okay. So, Jesse, what is the best way for someone to get in touch with you?
Jesse Fragale [00:53:50] They can get in touch. Working capital podcast dot com or at Jesse for Galion Instagrams. Funny, I spent a lot of time there. People will die. I mean, oftentimes that turns into kind of an email conversation if it’s more formal. So. Jesse. Jesse, f r a grizzly. You can look me up. And if you have any questions about real estate, don’t. Don’t hesitate to reach out. I’m always happy to help.
Rob Break [00:54:15] Are you still looking for investors for other projects?
Jesse Fragale [00:54:19] Yeah, we’re. We’re always keeping investors kind of interested because we’re always actively looking. It’s just, you know, like we’ve talked about, it’s more so finding the right deal. But when we do, definitely, you know, if you’re interested on that aspect, happy to have a conversation.
Rob Break [00:54:36] As. Perfect. Then again, those that those points of contact will be in the show notes for Jesse. Anyone that missed that can just go back in there and they’ll be able to contact him through their Sandy How can people get in touch with you?
Sandy Mackay [00:54:51] The easiest way now is just through social media for sure. Or Cindy at freedom reps dot com.
Rob Break [00:54:58] You can reach me at Rob at Mr. Breakthrough. Okay. Thanks for joining us, everybody. We’ll see you next time.
Rob Break [00:55:04] You’ve been listening to the Breakthrough Real Estate Investing Podcast. We hope you’ve gotten some useful and practical information from the show, and we hope you’ve been inspired to take control and live life on your terms. We’ll be back soon. But in the meantime, make sure to like, rate and review the show. And don’t forget to subscribe and listen on Apple Podcasts and Spotify. See you next time.