LBD3300 Advanced Real Estate 002 Real Estate Case Studies Prepared for: LearnByDoing.ca By: @ProfBruce Date: September 2012 Create the Future

LBD3300 Advanced Real Estate002 Real Estate Case Studies

Prepared for: LearnByDoing.caBy: @ProfBruce

Date: September 2012

Create the Future

Professor Bruce Murray FirestoneB. Eng. (Civil), M. Eng.-Sci., Ph.D.

Founder Ottawa Senators, Ottawa Senators Foundation and Scotiabank Place Entrepreneurship Ambassador, Telfer School of Management, University of OttawaExecutive Director, Exploriem.org Novelist, Quantum Entity TrilogyWriter, Entrepreneurs Handbook IIColumnist, Ottawa Business JournalBroker, Century 21 Explorer Realty

•Follow him on Twitter at @ProfBruce •Read his blogs at www.EQJournal.org and www.DramatisPersonae.org •Current motto: “Making Each Day Count”

Residual income from yr PB4L? Minimal work? Low management intensity? Not really, unless you have several million dollars

in GICs or T-bills Every biz, even PB4Ls, require some level of care

and attention And it takes time to develop a great biz (7 to 12

years according to Sir Terence Matthews)

Terrace Investments Ltd (An Example of Bootstrap Capital)

Bought from group set to retire Asking price: $350k First offer (October 1982): full price offer, rejected Second offer (February 1983): full price offer (coldest day of the

year), accepted $10k down, STB 5 years, 0 interest w/ principal pmts every yr Fully paid off < 2 yrs “Why should we sell to you, Bruce?” “Because I’ll actually pay you and you trust me.” “Where did you get to $10k?” “I borrowed it!”

1025 Merivale Road (An Example of Trading Behaviour)

Plaza part of the TIL package of assets, valued at $185,000 End of 25 year lease with IGA at $1.87 per s.f. Seen as a huge problem—plaza soon to be100% vacant Actually huge opportunity to BUY LOW/SELL HIGH (trade!) Lipstick renovation with architect Barry Hobin: $120,000 Sub-divide space: $14.00 (Beckers), $6.85 (Active Components),

$5.00 (Martial Arts) Sell for $1.1 million 18 months later

1025 Merivale Road

(An Example of

Trading Behaviour)

Bob Campeau (An Example of Stand Your Ground)

TIL partner Admiralty Enterprises goes bankrupt Campeau Corp buys 80 properties from Receiver including 5

TIL/Admiralty warehouses TIL had right of 1st Refusal clause Invoke rights Campeau invokes “Principal of the Greater Good”


Andrew Jacob: “What do you want for your half, Bruce?” “$2.1 million.” “But we’re getting Admiralty’s half for $400k!” “Why don’t you want to be partners with the great Bob

Campeau?” Larger, better capitalized partner can kill you

“He (or She) who has the Gold, rules,” Anon


They can make $$$ by leasing space to tenants in bldgs they own 100%

Empty out 50/50 buildings Then come to weaker partner and do them a ‘favour’ TIL might lose their ½ share for 0 or even negative dollars < 2 to

3 yrs out Hard to argue for the ‘greater good’ when you are still getting your

interest for 43% than FMV 10 minutes < court hearing, “How much do you really want?” “$2.1 million.” 5 minutes before: settlement for $2 million, cash

Brookstreet Resort and the Marshes Golf Club (An Example of Trading Behaviour and Bootstrap Capital)

Bought 62 acres of industrial land in 1994 for $365k Tough recession Industrial land in Kanata had gone down by 90% + Actually huge opportunity to BUY LOW/SELL HIGH (trade!) Two investors put up 100% of capital Loaned Bruce the $$$ for his 1/3 interest at 8%, capitalized Sold in 1997 to Sir Terence Matthews for $2.2 million Investors each get $725k Their IRR is 57% p.a.

Brookstreet Resort and the Marshes Golf Club (An Example of Trading Behaviour and Bootstrap Capital)

Bruce’s IRR? Infinite Sell for $1.1 million 18 months later Why wld investors loan Bruce the $$$ to co-invest? Asymmetric information + operational and sales experience

(Use IRR to calculate yr real returns: Cap rates are simply a ‘rule of thumb’. www.dramatispersonae.org/IRR/IRR

PowerOfLeverageGoalSetting.htm)

Stittsville Bungalow (An Example of Asymmetric Information)

REALTOR puts Seller and Buyer clients together Not on MLS Seller wants to sell with 0 showings Seller wants to sell/lease back so his elderly parents-in-law can

remain in situ for up to 3 yrs Sale is ‘handicapped ‘ as a result Buyer is investor with limited budget Buyer requires co-investors to complete Co-investors want in on project because: purchase of home for

$40k < FMV, 3 yr leaseback at rent > FMV, Tenant pays all utilities, stable/predictable cashflow, paydown of mortgage by Tenant, increase in value over time, bungalows in increasing demand

Stittsville Bungalow (An Example of Asymmetric Information)

2 x Dentists co-invest They have money but no time Managing partner has time but no money Managing partner brings connections with REALTOR, property

management skills, the opportunity to buy below market and to rent above market

Investor ROE: 6% cash-on-cash + 7% pay down of mortgage by Tenant + 1.5% r.e. inflation (~4.5% on equity) + $40k from below mkt purchase

Much better return that GICs (3.15% to 3.85%) Managing partner gets 20% of the deal for ‘nothing’

Robertson Mews

Bought 11 acres for $55k per acre Purchased adjacent 1.7 acres for $225k Bought 1.2 acres for $35k from Ontario Put in sewers and water mains and services

for $850,000 Sold lands for singles, condos, towns and

high rise retirement home

Robertson Mews

Traded off four Barry Hobin towns ‘Calling card’ for Robertson Mews

Robertson MewsSpreadsheet: http://learnbydoing.ca/robertson-mews.xls

Sep-12 Robertson Mews

Parcel A 11 acres $65,000 per acre $715,000

Parcel B 1.7 acres $161,764.71 per acre $275,000

Parcel C 1.2 acres $29,166.67 per acre $35,000

Total 13.9 acres $73,741.01 per acre $1,025,000

Robertson Mews

Planning and Legal Costs $125,000

Servicing Costs $850,000

Misc $85,000

Total $1,060,000

Sub-Total $2,085,000

Financing 9% 2 years $375,300

Grand Total $2,460,300

Robertson Mews

Serviced Land Sales 13.9 acres $315,000 per acre $4,378,500

Gross Profit $1,918,200

Robertson Mews

Project IRR

0 ($1,025,000)

1 ($1,060,000)

2 $1,751,400 40%

3 $2,627,100 60%

IRR 42.6% p.a.

Target 100% p.a.

Industrial Industrial

Condo’sCondo’s

Investment Opportunity

Investment Opportunity

Brought to you by:Brought to you by:

Thurston Drive/Auriga Drive Industrial Condos (An Example of Build and Hold + Differentiated Value)

Too many investors chasing ‘shopping plazas’ or ‘res duplexes, triplexes, quads’

Buy product that others overlook/avoid the behemoths like Banks/Pen Funds/Insurance Cos et al

Can purchase industrial condos in Ottawa from $165k to $350k+ Create some DV (Differentiated Value): e.g., add a mezzanine

with separate entrance Can rent upper level separately from ground floor or both together


Compare industrial condos with residential rentals:

INDUSTRIAL RESIDENTIAL5 yr leases (typ) 1 yr lease (typ)net/net/net leases gross or semi grosslittle investor competition everyone wants inlow vacancy rates low vacancy ratesnot too management intensive medium amt of mgt requ’dfew debt collection problems many debt collection probsno RTA– simple distrain RTA– evictions difficultnormal wear and tear mega damage possibleTenants self reliant Tenants needy


Investors inevitably ‘chicken out’ due to unfamiliarity with product category

Only want to buy when 1st class tenants are in place on long term leases and with 0 risk

But remember: buy whenever everyone else is selling and sell whenever everyone else is buying/you make money in r.e. when you buy not when you sell

Units become available because they are vacant– great opportunity for you!

Buy in a recession– great fortunes are made in recessions

(Baron Rothschild in 1871): “Buy (real estate) when there’s blood in the streets.”

What

W

hat

is

it?

is it?

Industrial Condominiums are

Industrial Condominiums are

typically smaller 800 square

typically smaller 800 square

foot to 3,500 square foot

foot to 3,500 square foot

Warehouse Units.

Warehouse Units.Usually consist of 7-14 Units

Usually consist of 7-14 Units

per Building.

per Building.Rent from $10.00-$14.00 per

Rent from $10.00-$14.00 per

sq. ft. triple net

sq. ft. triple netAre in high demand in the

Are in high demand in the

Ottawa areaOttawa area

Wher

e W

her

e ar

e ar

e th

ey?

they

?

There are two projects

There are two projects currently being offered:

currently being offered:South South (Hawthorne & Rideau Rd)

(Hawthorne & Rideau Rd)::West West (190 Michael Cowpland Drive)

(190 Michael Cowpland Drive)::

What

W

hat

is

the

is t

he

cost

?co

st?

Hawthorne Industrial Condo’s:

Hawthorne Industrial Condo’s:

-Start at $229,000.00

Start at $229,000.00

-Additional parking spaces at

Additional parking spaces at

$15,000.00$15,000.00-1,250 square feet

1,250 square feet-32’ Ceilings32’ Ceilings-$10,000 Fit up allowance

$10,000 Fit up allowance

-$175/sf$175/sfMichael Cowpland Industrial

Michael Cowpland Industrial

Condo’s:Condo’s:-Start at $181,500

Start at $181,500 -860 square feet

860 square feet-26’ Ceilings26’ Ceilings-$10,000 Fit up allowance

$10,000 Fit up allowance

-$199/sf$199/sf

What

do t

hey

ren

t

What

do t

hey

ren

t fo

r?fo

r?Typical Rent is $10.00 to

Typical Rent is $10.00 to

$14.00/square foot

$14.00/square foot-190 Michael Cowpland Drive:

190 Michael Cowpland Drive:

$14.00/Square Foot

$14.00/Square Foot-$10,320/year ($860/Month)

$10,320/year ($860/Month)

-Hawthrone Rd:

Hawthrone Rd: $12.00/Square Foot

$12.00/Square Foot-$15,000/year ($1,250/Month)

$15,000/year ($1,250/Month)

What

are

W

hat

are

m

y m

y C

arry

ing

Car

ryin

g

Cost

s?C

ost

s?

- Carrying costs are the costs

Carrying costs are the costs

associated with Real Estate

associated with Real Estate

Ownership. Ownership. - With Industrial Rentals,

With Industrial Rentals,

Tenants pay all Common

Tenants pay all Common

Area Maintenance, Condo

Area Maintenance, Condo

Fee’s, Property Taxes,

Fee’s, Property Taxes,

Insurance, Operating Costs

Insurance, Operating Costs

and Utilities.and Utilities.- What does that mean for

What does that mean for

you? Your only Carrying

you? Your only Carrying

Cost is your Mortgage!

Cost is your Mortgage!

So W

hat

’s

So W

hat

’s

My

My

Mort

gag

e M

ort

gag

e T

hen

?T

hen

?

190 Michael Cowpland


Drive:Drive:

-Assume a Purchase Price of $171,500

Assume a Purchase Price of $171,500

netnet-Assume a Interest Rate of 4.5%

Assume a Interest Rate of 4.5%

-Assume a 25 year Amortization

Assume a 25 year Amortization

-LTV: 70% ($51,450 down)

LTV: 70% ($51,450 down)

-Mortgage: $664/Month

Mortgage: $664/Month5000 Hawthorne Road:

5000 Hawthorne Road:

-Assume a Purchase Price of $219,000

Assume a Purchase Price of $219,000

netnet-Assume a Interest Rate of 4.5%

Assume a Interest Rate of 4.5%

-Assume a 25 year Amortization

Assume a 25 year Amortization

-LTV: 70% ($65,700 down)

LTV: 70% ($65,700 down)

-Mortgage: $848

Mortgage: $848

What

’s t

he

What

’s t

he

Cas

h F

low

C

ash F

low

L

ook L

ike?

Look L

ike?



Drive:Drive:


Mortgage: $706/Month-Rent: $1,003/Month

Rent: $1,003/Month-Cash Flow: $297/Month

Cash Flow: $297/Month5000 Hawthorne Road:



Mortgage: $907/Month-Rent: $1,250/Month

Rent: $1,250/Month-Cash Flow: $343/Month

Cash Flow: $343/Month

So w

hat

my

So w

hat

my

retu

rn o

ver

5

retu

rn o

ver

5

year

s?ye

ars?



Drive:Drive:-Mortgage Pay down: $14,576

Mortgage Pay down: $14,576

-Cash on Cash: $20,312

Cash on Cash: $20,312

-Inflation (1.25% P.A.): $13,851

Inflation (1.25% P.A.): $13,851

-IRR: 16.2% p.a.

IRR: 16.2% p.a.5000 Hawthorne Road:


-Mortgage Pay down: $18,613

Mortgage Pay down: $18,613

-Cash on Cash: $24,065

Cash on Cash: $24,065

-Inflation (1.25% P.A.): $14,674

Inflation (1.25% P.A.): $14,674

-IRR: 14.7% p.a.

IRR: 14.7% p.a.

What

do

What

do

thes

e C

ondos

thes

e C

ondos

look lik

e?lo

ok lik

e?

Site Plans?Site Plans?

Haw

thorn

e:

Site Plans?Site Plans?

Mic

hael C

ow

pla

nd D

rive

Flo

or

Flo

or

Pla

ns

Pla

ns

Oth

er

Oth

er

Rea

sons

to

Rea

sons

to

Inve

st in

Inve

st in

Indust

rial

In

dust

rial

C

ondo’s

Condo’s

1.1.Owning your own real estate gives you

Owning your own real estate gives you

financial flexibility

financial flexibility2.2.

Buildings don’t run out on you

Buildings don’t run out on you

3.3.Get Rich Slow

Get Rich Slow4.4.

No Residential Tenancy Act

No Residential Tenancy Act

5.5.Real Estate tends to appreciate in value

Real Estate tends to appreciate in value

6.6.Not as volatile as stocks

Not as volatile as stocks

7.7.Tenant pays your mortgage– you get

Tenant pays your mortgage– you get

wealthywealthy8.8.Long Term Tenancies (Typically 3-5

Long Term Tenancies (Typically 3-5

years)years)9.9.No Over Holding Provision for Tenants

No Over Holding Provision for Tenants

10.10. Security of tenure

Security of tenure11.11. Demised exactly the way you want

Demised exactly the way you want

12.12. Branded, distinctive designs

Branded, distinctive designs

13.13. Gateway real estate

Gateway real estate

14.14. Highly visible signage

Highly visible signage

15.15. Low vacancy rates

Low vacancy rates

16.16. Excellent glazing

Excellent glazing17.17. Tax advantages from real estate

Tax advantages from real estate

ownershipownership

Haw

thorn

Haw

thorn

e e

Des

crip

tio

Des

crip

tio

nn

These high design industrial condos are situated on

These high design industrial condos are situated on

Hawthorne Road close to the heartland of industrial

Hawthorne Road close to the heartland of industrial

property in Ottawa. This is an opportunity to own your

property in Ottawa. This is an opportunity to own your

own real estate or to invest in commercial real


estate affordably. These industrial condos have 32


ft clear height with a floor plan area of 1,250 sq. ft. You

ft clear height with a floor plan area of 1,250 sq. ft. You

can combine units to form larger spaces. There is

can combine units to form larger spaces. There is

sufficient clear height for a mezzanine to be added later

sufficient clear height for a mezzanine to be added later

or on first construction—it is your choice. For the first

or on first construction—it is your choice. For the first

seven industrial condos sold there is a $10,000 fit up

seven industrial condos sold there is a $10,000 fit up

allowance available to help you customize your unit. Each

allowance available to help you customize your unit. Each

unit comes with fully glazed front exposure with excellent

unit comes with fully glazed front exposure with excellent

signage and double doors. Rear elevation

signage and double doors. Rear elevation

includes an over–sized overhead door for easy access for

includes an over–sized overhead door for easy access for

equipment, shipping and receiving. Warehousing of 7-foot

equipment, shipping and receiving. Warehousing of 7-foot

containers stacked four high is possible. The electrical

containers stacked four high is possible. The electrical

panel is installed ready for distribution. Each unit comes

panel is installed ready for distribution. Each unit comes

with a w/c and its own HVAC systems ready for

with a w/c and its own HVAC systems ready for

distribution. One parking spot is included with each unit

distribution. One parking spot is included with each unit

and additional ones can be purchased. Truck access is

and additional ones can be purchased. Truck access is

excellent and zoning allows a wide range of uses.


Occupancy is scheduled for February 2013.


Mic

hae

l M

ichae

l C

ow

pla

nd

Cow

pla

nd

Des

crip

tion

Des

crip

tion

These industrial condos are designed in a traditional

These industrial condos are designed in a traditional

manner to suit the environment in the Kanata South

manner to suit the environment in the Kanata South

Business Park. This is an opportunity to own your

Business Park. This is an opportunity to own your





foot clear height with a floor plan area of 860 sq. ft.

foot clear height with a floor plan area of 860 sq. ft.

You can combine units to form larger spaces. There

You can combine units to form larger spaces. There

is sufficient clear height for a mezzanine to be added

is sufficient clear height for a mezzanine to be added

later or on first construction—it is your choice. For the

later or on first construction—it is your choice. For the

first six industrial condos sold there is a $10,000 fit up

first six industrial condos sold there is a $10,000 fit up

allowance available to help you customize your unit.

allowance available to help you customize your unit.

Each unit comes with fully glazed front exposure with

Each unit comes with fully glazed front exposure with

excellent signage and double doors. Rear elevation

excellent signage and double doors. Rear elevation

includes an over–sized overhead door for easy

includes an over–sized overhead door for easy

access for equipment, shipping and receiving.

access for equipment, shipping and receiving.

Warehousing of 7-foot containers stacked three high

Warehousing of 7-foot containers stacked three high

is possible. The electrical panel is installed ready

is possible. The electrical panel is installed ready

for distribution. Each unit comes with a w/c and its

for distribution. Each unit comes with a w/c and its

own HVAC systems ready for distribution. High speed

own HVAC systems ready for distribution. High speed

fibre optic cable already installed on street. One

fibre optic cable already installed on street. One

parking spot is included with each unit and additional

parking spot is included with each unit and additional

ones can be purchased. Truck access is

ones can be purchased. Truck access is





Sch

edule

Sch

edule

1. Refundable Deposit for each

1. Refundable Deposit for each

unit: $2,500unit: $2,5002. Due upon signing Reservation

2. Due upon signing Reservation

AgreementAgreement3. Review of APS by Buyer’s

3. Review of APS by Buyer’s

lawyerlawyer4. Second deposit: 5% of

4. Second deposit: 5% of

Purchase Price less $2,500 upon

Purchase Price less $2,500 upon

signing of Agreement of

signing of Agreement of

Purchase and Sale

Purchase and Sale5. Third deposit of 5% of

5. Third deposit of 5% of

Purchase Price due upon close-

Purchase Price due upon close-

in of buildingin of building6. Occupancy: Feb 2013 (est)

6. Occupancy: Feb 2013 (est)

7. Completion April 2013–

7. Completion April 2013–

balance due

balance due

Hawthorne Spreadsheet: http://learnbydoing.ca/investment-break-down-lease-20-aug-2012-res-vs-industrial-2.xlsx

Hawthorne Industrial Condo's

Purchase Price $ 240,000.00

Down Payment $ 60,000.00 25.00%

Legal Fees $ 850.00

Land Transfer Tax $ 2,400.00 1.00%

Closing Costs $ 3,600.00 1.50%

Total Costs on Closing $ 66,850.00

Hawthorne Spreadsheet

Mortgage $ 180,000.00

Interest Rate 5.00% p.a.

Amortization 25 years

Payment ($1,052.26)


Rental Rate $ 12.00 /SF

Size 1250 SF

Total Rent $ 15,000.00


Estimated Operating Costs

Condo Fees $ 1.50

Operating Costs $ 4.00

Total $ 5.50

Administration Fee $ 0.83 15%

Property Management Fee $ 0.72 6%

Total Fees $ 1.55

Total Yearly Fees $ 1,931.25


Total Mortgage $ (12,627.14) /annum

Vacancy Allowance $ (900.00) 6.00%

Cash Flow $ 3,404.11 /annum


Mortgage Paydown (5years) $ 20,555.66

Real Estate Inflation $ 31,537.97 2.50% p.a.

Equity $ 60,000.00

Cash Flow $ 3,404.11

Sub-Total $ 115,497.74

Commissions $ 14,934.59 5.50%

Closing Costs $ 4,073.07 1.50%

Total On Sale (5years) $ 96,490.08


IRR `

0 $ (66,850.00)

1 $ 3,404.11 $ 3,404.11

2 $ 3,404.11 $ 6,808.21

3 $ 3,404.11 $ 10,212.32

4 $ 3,404.11 $ 13,616.42

5 $ 96,490.08 $ 110,106.50

IRR 11.35%

Maple Leaf Design and Construction (An Example of Bootstrapping)

Bootstrapped their way to success Source of capital (essentially supplier credit) Friendly landowner provides options on land, basically at no cost Owner gets paid by home buyer not Maple Leaf

Self Capitalize

-why?-VC-funding is hard to get and takes a lot of time-also, you may end up losing control of your business-VC funded biz are just large biz w/ 0 revenues-power comes from having real clients/real cashflow-if you do go for financing and you do it at the mezzanine stage,

you’ll have more leverage-Maple Leaf Design and ConstructionBrain Saumure, B. Arch (CU and SOA)Fred Carmosino, B. Com (Sprott)

-No serfdom for Brian: wanted to be his own boss because he could create more interesting work for himself than others could create for him-Started with $0

Maple Leaf Design and Construction

Option on lots Sweat equity: summer in a trailer with plans, signs and

Agreements of Purchase and Sale Pre-sell Collected deposits Now have $$$ in their bank account– impressed with a trust Used homeowners credit scores to get construction financing

What is cheaper? Debt or Equity?

Debt.

What is cheaper than debt?

Bootstrap Capital (e.g.: Trade Credit, Deposits,…)

They’re FREE!

Reverse out the work

-the Internet is the most important new invention of the last 50 years-it is where electrification was at same stage, 20 yrs in-create custom outputs from standard inputs (e.g. new age virtual home

builder)-reverse out the work to customers and suppliers -match making -mass communicate at ~ no cost (Twitter, FB, blog, Skype, email, IM,

messaging,…)-Crowd sourcing (voting on designs)-user generated content by customers (and suppliers) e.g.: YouTube,

Twitter, FB, Reddit, Digg & Threadless (suppliers: artist community submit t-shirt designs voted on by customers)

Virtual home builder:

-tried in 2000 to get home builders to do this

-very conservative industry

-put lots available and designs online in a physics engine together w/ all options/finishes

-allow everyone to use physics engine

-go online: choose lot, design, fit-up, finishes (carpet, tile, kitchen cabinets, lighting package, plumbing fixtures, etc.)

-put cash register online too

-consumer can see what granite or concrete counter tops add to cost

-can fool around for 30+ hours

-then hit “submit” button

Homebuilders fear putting prices online – their competitors might find out!

Ever heard of “Secret Shoppers?”

-Put CPM (schedules) online: let customers see where their home is at and let suppliers see too when they’re needed for Footing and Foundation, framing, roofing, windows, electrical, plumbing, insulation, dry wall, paint, carpet, cabinets,…

-As more options are available, more users will visit the site, as more users visit the site, more suppliers come onboard and you have a virtuous cycle

-Now “Best Homes 4 U” is enjoying network effects-Suddenly, the flow of cash could reverse direction w/ suppliers

becoming advertisers and sponsors

More about Best Homes 4 U:-Allow lawyers access for e-closings-Allow lenders access for e-funding-Now if your WS attracts 10,000s of visitors,

you can get your suppliers and your suppliers’ suppliers to pay for ads so more people will buy higher-end products (chandeliers, beveled mirrors, granite, counter tops, home theatre,…)

-more options => more people => more options => more people…

-In a virtuous, self-reinforcing cycle (Google is also an example of Network Effects)

-30+ hours in Design Centre with clients can become just 60 minutes

-Imagine the productivity increase for homebuilder sales staff, lawyers, mortgage lenders, the GC, the foreman (Worst problem? Homebuyer questions about when this or that happens..), suppliers, trades, subs, …

Also, customer satisfaction increases since:

a) they get EXACTLY what they want,

b) they feel they had a hand-in its creation (like Aunt Jemima Pancake Mix: just add eggs and milk).

The folks who bring you this pancake mix famously had an erroneous insight years ago—they thought that by adding powdered eggs and milk to their mix and eliminating the instructions “Just add eggs and milk”, they could save the busy consumer time and sell more product

It turned out that homemakers liked adding ‘real’ eggs and milk: first, they thought it was healthier that powdered eggs and milk and, second, they wanted to be involved in ‘making’ their kids’ breakfasts

For most kids, you are what you do for them By taking this away, sales went down not up Best Homes 4 U, by involving the consumer in the

design of their own home are catering to a deep seated need in humans to ‘buy-in’

This is a powerful lesson for tech—giving consumers the power to customize products and services is big business. For example, Dell is currently using Threadless.com’s platform to allow artists to submit and prospective customers to select winning designs for laptop covers

Triole Street (An Example of BUY LOW/SELL HIGH)

Streetscape is a mess Crappy tenants/crappy building

stock But… baseball home run

distance from St. Laurent Shopping Centre

Visibility from Queensway Bought 9 acres at $1 per s.f. One yr later– offer for 50 cents! “Oh, oh, I made a mistake!” OJ reminds me: “BUY

LOW/SELL HIGH” Why so hard to do?


People can be sheep “Is this dress/suit popular/in-style?” Banks only lend when u don’t need the funds– i.e., they only lend to people

who don’t need the money! Banks lend when everyone else is lending and when the press is good The reverse is also true Investors invest when everyone else does and when the press is good The reverse is also true

Pittsburgh investor buys 300 homes in 2008 for $350 each; everyone tells him he’s crazy. Now makes his original investment back every 3 weeks.

Three victims of the Sept. 11, 2001 attacks meet in a stairwell & head down. Then they run into another larger group who are heading up to await ‘helicopter rescue’. 2 join up because everyone else is going up. 1 defies conventional wisdom & goes down thru the smoke and heat because he figured it out (wld take 2 days (!) to evacuate everybody by helicopter) and he didn’t panic. He was the only 1 to survive. He made it out w/ < 5 mins to spare.


Two years later sold 4 acres to Car Dealership for $8 per sq. ft. And 5 acres to Roofing Company for $12 per sq. ft.

Mont Cascade and Pro Slide Rick Hunter, former Canadian Ski Team

Member Retires after injury Buys a ski hill Mostly on credit and a bit of savings Loses an atrocious amount year 1 Sitting on the hill in Spring of that year– what

to do?

Mont Cascade and Pro Slide Family to support Debt to repay Bankruptcy facing him Looks at hill/looks at lake/looks at hill again Eureka!

Mont Cascade and Pro Slide Buy two straight plastic tubes from

manufacturer in Rigaud, Québec on (yet more) credit

Buys a couple of pumps on (still more) credit One shack for women’s change room/another

for men’s Reuse parking and food services and toilets

from ski hill 30,000 people show up that summer and give

Rick $13 to use his waterslides

Mont Cascade and Pro Slide Saved! Asks Rigaud manufacturer: “How about a

tube with a bend in it?” “No we don’t do that.” “Why not?” “We do it that way because that’s the way it’s

always been done.” Rick hires first engineer to design a

waterslide with a curve in it Non trivial problem of g-force calculations

Mont Cascade and Pro Slide One day a Disney

executive hears about this

Rick gets the contract for Splash Mountain

Pro Slide is born World leader in custom

design, engineering and manufacturing of fiberglass water rides

Wilderness Tours and Mount Pakenham

Joe Kowalski from Philly falls in love with Algonquin Park

Decides to be an outfitter– taking visitors on canoe trips

First summer is a disaster– turns out no one wants a guide

But he learns that there are force 4 rapids on the Ottawa River that no one had traversed in over a century

Wilderness Tours and Mount Pakenham Joe and his pal Robbie Rosenberger scout

out the territory Joe sees BIG OPPORTUNITY Less than 90 minutes away is a market of

800,000 outdoorsy people with lots of disposable income

Next Spring, he and Robbie ask a farmer for permission to set in to the river on his property

They launch Wilderness Tours with two rafts– Robbie in one and Joe in the other

Wilderness Tours and Mount Pakenham 100s then 1,000s of people show up Problem– while the rapids are terrific, the ride

is short Joe embraces programming: swimming the

rapids/one channel for adventurous paddlers/another for families who want to bring kids/bungee jumping/kayaking/ mountain biking/rock climbing/volleyball/ horseshoes/paddle tennis/basketball/ soccer/ball hockey/lawn chess/softball

Joe starts to buy land Joe starts to build a town

Wilderness Tours and Mount Pakenham 4,000+ acres owned

by WT Both sides of River

(Québec and Ontario)

No development permitted (other than WT)

Problem– how to keep good staff in seasonal biz?

Wilderness Tours and Mount Pakenham Buy Mount Pakenham– winter time staff

reallocation Another problem– smallest vertical anywhere

in the region Turn Mount Pakenham into largest ski school

anywhere– safety becomes their competitive advantage

Schools show up what ever the weather More programming? Add snow board park Add tubing for non-skiers/boarders

Wilderness Tours and Mount Pakenham Further expansions– jet boat business in

Lachine and Niagara Falls Another problem– smallest vertical anywhere

in the region Turn Mount Pakenham into largest ski school

anywhere– safety becomes their competitive advantage

Schools show up what ever the weather More programming—snow board park/tubing

for non-skiers/boarders Now selling fractional ownership for Presqu’ile

Wilderness Tours and Mount Pakenham– Lessons Learned? Entrepreneurs would rather ask for

forgiveness than beg for permission Start with nothing/bootstrap your way to

success/make a profit/cash is King See and seize opportunities where others fail

to go Outcompete your competitors Be innovative and creative Turn problems into opportunities– your

biggest weakness becomes your greatest strength

Villager Home Corporation (An Example of Build and Hold)




Santa Cruz, California, circa 1969 Big house/little house—1011 and ½ Seabright Avenue (Bruce and

his girlfriend) “Old” Lady—wants company, security + the little house provides

her with extra income Carry plans with me for 25+ yrs Steve Silver et al lobby Ottawa to legalize in-home suites Mayor Chiarelli does this (< he loses election) Legal everywhere in Ottawa (except for Rockcliffe Park!) Fast solution to homeless problem/affordable housing/keeping

seniors in neighborhood instead of in vertical warehouses Extra income for homeowner


CMHC provides up to $25k for conversions (forgivable loan) Bring gray market apartments up to bldg code. Fire separated/sound separated and smell separated units Flexible housing stock: 2 families, 1 family with extended family,

kids returning with kids, student housing, elder housing, 1 single family home

Add one door (or remove it) to make these changes Half level down/half level up (like Scotiabank Place!)


Tax advantages: interest on mortgage for rental portion now tax deductible

Principal residence still not subject to capital gains tax provided renovations are within existing building envelope

Forced savings from paying off mortgage People with less capital can afford a home Live in your own home for less than $600 per month Renters pay part of your mortgage for you—wealth effect All increase in value goes to equity holder


ABSOLUTE FAILURE! People don’t want to be Landlords People can afford (or think they can afford) more housing on their

own* Low interest rate environment– means why should people hassle

w/ Tenants Construction risk—cost overruns and delays are killers YOU ARE NOT THE MARKET! THE MARKET IS RIGHT EVEN WHEN IT’S WRONG!

(* Imagine the average home price in Vancouver is now > $1 million. Now imagine being able to ‘rent’ $1 million from a Bank on a variable rate mortgage for, say, 2.15% p.a. or just $1,791.67 per month!)

Blue Heron Corporation (An Example of Build and Hold)


CO and CC biz—overrun by large scale players Their cost of capital: less than 1.5% (Banks, Pen Funds,

Insurance Cos, REITS, Publicly traded r.e. firms) Our COC: 8 to 12% That’s like competing in the 100 metre dash but giving up a lead

of 80 metres at the start line! Go under the market (and over the market– Ottawa Sens + SBP) Mini-offices (Terrace Corporate Centres & Exploriem.org) + mini-

storage


15 acres of industrial land in Kanata North Cost to construct sheds: $35 per s.f. Rents are $12 per s.f. per year gross +/- Not too management intensive Lots of competition Our competitive advantage—built a duplex on site where

Manager lives + month-to-month leases Retired person Provides security/leases units Free rent and other benefits


Kanata wanted BHSC to fence and gate with razor wire entire site Part of Village We never fenced it but did put in a gate Gate never closed! Zero vandalism/theft (so far!)


92% to 96% occupancy (can never actually get to 100%) Bought lands for $92,500 Rezoned ‘Old fashioned’ rural development: mom/dad/family in front with

the factory/warehouse/workshop/farm/barns/storage in back Sold for $1.1 million

Presidential Executive Travel Apartments (An Example of Build and Hold)

16 condos—Holland Cross and Robertson Mews Ground floor access Lockboxes—self admittance at all hours Furnished units Telephone, cable, basic kitchen foodstuffs, etc ready to go Cleaning service—extra charge/profit centre Apartment rents: $1,200 monthly (1990s) PETA rents $3,000 monthly (1990s) Used for Sens players/trades

Presidential Executive Travel Apartments (An Example of Build and Hold)

Not too management intensive High quality tenants—paid by tech cos/few problems with

collections Limited competition Developed long term relationships with HR managers at local

firms Simple exit strategy– MLS.ca Leases were 30 days to 90 days—more sales required than

typical one year res leases No significant damage to units

Ottawa Senators (An Example of Bootstrap Finance)

Terrace gets $18 per s.f. for its office space/five years later it’s $6

What to do? What does Toronto have that

Ottawa doesn’t have? A zoo/Princess of Wales

Theatre/ Wonderland/NHL Team Conversation w/ Cyril Leeder

and Randy Sexton Bring Back the Senators


Cyril asks how much will it cost? $35 million (est. based on NBA) Actual NHL ask? $50 million USD Randy says let’s go for it Cyril asks how will we pay for it? Bootstrap capital, that’s how


Buy 600 acres at $12,500 per acre Put a NHL team and NHL-calibre building in the middle of it Drive up the value of the land to $112,500 per acre Keep 100 acres for Scotiabank Place and parking lot Sell extra 500 acres for a profit of $100k per acre or $50 million! NHL franchise cost = ZERO!


Also get 32 Original Corporate Sponsors at $15k each And 500 Corporate Sponsors at $500 each Sell 15,000 PRNs at $25 each Raise $1,105,000 to help with bid As Al Davis once said: “Just win, baby.”

If u want a short, pleasant annual meeting w/ yr Bank, make a profit every year, no excuses.

Terrace Investments Ltd St. Laurent Blvd and the Queensway Bank Street and the Queensway Moodie Drive and the Queensway Eagleson Road and the Queensway Palladium Drive and the Queensway March Road and the Queensway

Is there a pattern here?

Conclusion Part 1

When something isn’t working, do something new Learn from your competitors Commitment is important: “YOU’LL NEVER, EVER GET A

FRANCHISE IN … OTTAWA” You can bootstrap big projects Even Fortune 50 companies do that (Disney and the Anaheim

Ducks 4 example) Sponsorship can apply to many industries and is a form of

Bootstrap Capital Keep your core competencies in house– outsource the rest If you are profitable, you will get financing not the other way round Entrepreneurs make their own rules

Conclusion Part 2

Entrepreneurship takes guts Sweat equity is important Creativity and innovation are key Sometimes you need to trade to get ‘table stakes’ Avoid competing directly with behemoths Try to add some differentiated value to your PB4L Be trustworthy Surround yourself with a competent, trusted team–

REALTOR/MORTGAGE BROKER/LAWYER/MENTOR/ETC. The harder u work, the luckier u get Let 100 opportunities go by but when the right one comes along,

strike! MAKE A PROFIT!

Documents

LBD3300 Advanced Real Estate 002 Real Estate Case Studies Prepared for: LearnByDoing.ca By: @ProfBruce Date: September 2012 Create the Future