Today’s show is a case study of a specific project which my wife and I visited this weekend. It seemingly has all of the right elements. The location is one of the best in the city. It’s directly across from the Rideau Canal one of the most historic and picturesque waterways in North America. During the winter months, the canal is the site of the world’s longest 7 mile skating rink.
The property is walking distance to restaurants, shops, two universities. It’s in the heart of the community and still has lots of green space right outside your doorstep. The location counts some embassies in the same area overlooking the canal.
The project is being developed by an experienced development team who have completed several other successful projects. The architect is one of the premier architects in town. The general contractor is one of the largest and most established contractors in building concrete structures in North America having built numerous high rise buildings, government office towers. They have over 14,000 employees and have been in business over 100 years.
The showroom and sales center is situated in an old church that resides on the site of the future condo tower.
The developer took the project through the entitlement process and the project is approved. The six story building has a few technical challenges. It’s across the street from the Canal which means that the water table is going to be extremely high. The underground parking will have to be protected from water intrusion that will ultimately be present. This will increase the cost of construction.
The site is not that large. The original plan was for 32 units on 6 floors. The floorplans are large and spacious. The terraces and balconies are luxurious and spectacular.
Once you have a project that is entitled, that process defines the envelope of the building. It defines the setbacks from the property line, from the street, and the height. In some cases, if buildings are going to be higher than other properties in the area, the city will require the upper floors of the building to be set back and have a smaller footprint so you don’t have a huge rectangular block. This creates tremendous opportunities for roof-top terraces on the upper floors.
But there’s one small problem. The units are not selling. Why? Because in my opinion they’re too expensive. In fact the developer has pulled all the pricing from their marketing materials and have stated that they’re in the process of redesigning the interior. They plan to increase the number of units from 32 to 40 without changing the exterior envelope of the building.
There simply isn’t that large a market for apartments at the 2.5M price point. Underground parking spaces are going to be priced at $45,000 each. At the end of the day, the target clients are going to be people who are empty nesters who want a property in a premier walkable location combined with the security of a lock and leave condo. They want to know that the maintenance of the building is handled and that they can spend a few months away in the winter without having to worry about taking care of their property.
The problem is that the price point is too high. As developers we tend to think in terms of price per square foot. But retail buyers don’t think in those terms. Retail buyers think in terms of price point, of affordability. Tenants don’t think in terms of rent per square foot. They have a monthly budget of so many dollars per month.
They might want a large two bedroom for that price, but if they can’t get it, they’ll accept something smaller that fits within their budget.
If you’re choosing to develop a premium product, pay very close attention to your market demand and be prepared that it could take a lot longer for your project to sell than you imagine.