Photo via flickr / Ozont
By Kevin Ali
Mississauga’s Absolute World Towers, nicknamed Marilyn Monroe, were lauded the world over. Their impossibly curvy, helix-like facade were hailed as a miracle of modern architecture. Winning the coveted “Best Tall Buildings in the Americas” award, they were to bring the promise of a better urban tomorrow.
They have failed spectacularly.
With over eighty units for sale between both buildings, it is clear that the only promise they have fulfilled was one of over speculation. All the awards, flashy design, media attention, and hype did exactly what it was designed to do – sell condos. Evidently it did its job a little too well.
Whenever a new building becomes registered, you expect to see a handful of people dump their units onto the open market. These are the investors. This is normal, and even healthy, in a balanced real estate market. It frees up supply for those who were unable to purchase in the pre-construction phase of the project, while presumably giving some return on the investors’ investment.
Over eighty units listed between two buildings, however, does not a balanced market make.
And in spite of this massive amount of supply, the prices still trend higher than any building in the surrounding area. Substantially higher. While the the average price per square foot is roughly $350 in neighbouring condos, the Absolute World Towers’ units are consistently listed at $450 per square foot or higher – nearly 30% greater than the neighbourhood average.
When you combine high prices with high inventory, one inevitable word creeps to mind: bubble. And while I am not a real estate pundit who drops the ‘b’ bomb like it is going out of style, I do believe in very specific circumstances that word can apply.
For years, real estate analysts have been talking with broad strokes about the real estate bubble our nation was in. And for years those analysts have been wrong. Even during the great recession of 2008, the Toronto real estate market weathered the storm just fine. Sure, things were stagnant for a few months, but it picked up again with no real loss in value. No bubbles popped.
The real estate “market” is not a national, provincial, or even municipal one. The real estate market is local. Hyperlocal even. It changes from neighbourhood to neighbourhood. Building to building. So to state that Mississauga is currently experiencing a Marilyn Monroe bubble, to my estimation, is the only proper use of the term.
Here’s the thing. We have seen condo bubbles crop up before. Toronto proper is notorious for them. From One Bloor East to the Trump International Hotel and Tower, Toronto has a rich history of these bubbles. When one such project launches, lines will snake around entire city blocks. Would-be purchasers are so bedazzled by the hype and glam of the launch that all common sense goes out the window. Spots in line are sold for literally thousands of dollars. For a while, overpaying for a condo made little difference. Toronto’s red hot condo market meant that next year was virtually guaranteed to bring a double digit return on your investment. This is no longer the case. In the words of the great Bob Dylan, the times they are a-changin’. To be oversold on hype now is a dangerous thing.
What makes the Absolute World Towers so unique is that this was the first time that Mississauga had seen anything of this caliber. With all the accolades and media rave, it is understandable to see how purchasers could get swept up in the hype. This was to revolutionize the Mississauga landscape, afterall.
And to be fair, there is no problem with the buildings themselves. The contrary actually, they are elegant and dynamic. They add interest to the city’s skyline – though seem like they would be more at home in urban Toronto, rather than Mississauga’s suburban sprawl. The towers share a 30,000 square foot amenities building containing nearly any feature you can imagine. This is also a nice perk. The floor plans do leave something to be desired though, given that many of the units are oddly shaped. This tends to be a problem with any curvy building and makes furniture placement an interesting challenge. This challenge is further compounded by the fact that square footage is already at a premium. The overall interior design, construction, and finishes, however, appear to be of high quality and well done.
The problem is that the general public were oversold and overpromised on a dream. This made purchasers eager to cough up their cheque books and pay higher prices than other comparable projects in the area. And now that the frenzy has died and the music has stopped, it is these purchasers who are left holding the bag.
This will lead to one of two outcomes: either investors sell off their units at a loss, or they are forced to wait for the rest of the market to catch up to their price (which is effectively a loss since the same money could had provided a return in a better selected investment). If this latter case becomes the predominant occurrence, then the buildings’ owner to tenant occupancy ratio will skew to the tenant side of the equation. And while there is nothing wrong with tenants in a building, they tend not to take as much care of the building as the owners do. This can further deflate property values.
Revolutions seldom begin with high vacancy rates. The next time you see purchasers setting up camp at the site of a condo sales centre – take a deep breath, ignore the hype, and walk away. It may just be the best investment you make.
Correction: Previously this article mistakenly referred to One Bloor West instead of One Bloor East. We regret the error.
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Kevin Ali is a Toronto-based real estate broker and the founder of Fresh Space. Follow him on Twitter @FreshSpaceCo
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