Planned subway line will drive King St

An argument can be made that Toronto’s downtown east is the most connected part of the entire megacity, and it stands to reason that owning a piece of real estate there will yield above-average returns.

As it turns out, Bauhaus Condos is located within a juncture that, in addition to slick connectivity to the Don Valley Parkway and Gardiner Expressway, will have a subway station seconds away. The 32-storey, 218-unit tower from Lamb Development Corp. will be located at King St. E. and Berkeley St., where the new Ontario Line subway route will have a station.

“There’s nothing better than living in central Toronto and having a subway nearby,” said Brad Lamb, owner and CEO of Lamb Development Corp. “King St. E. goes through the original 10 blocks, which are Spadina to Parliament, known as the historic city, and it’s better connected than the west side of downtown approaching Bathurst.

“King St. is also a high street, and it’s more important to commerce in Toronto than even Yonge St. It’s the most prestigious street in central Toronto, and around Bauhaus an office building and a high-rise condo are being constructed.”

That’s not all. Dream Office REIT is developing two new office towers and a residential building within a block of Bauhaus, and Lamb Development Corp. is building three other high-rises in the neighbourhood. Also, perhaps fittingly, the SAS Institute has its Canadian headquarters nearby.

Lamb believes the neighbourhood is Toronto’s most liveable because of its proximity to Corktown, the Distillery and Canary Districts, River City, St. Lawrence Market, the downtown highway network, and Union Station. It’s also near Ryerson University and George Brown College.

It’s for that very reason that Lamb, who used to sell condos for Peter Freed of the eponymous Freed Developments when units were 100 per sq ft, says owning a piece of real estate in the neighbourhood will yield returns far and above the majority of Toronto’s other neighbourhoods. There is no more untouched land in Toronto, and that means new builds will only ever be found in established locales. Lamb questions whether there’s a better neighbourhood than King St. E.

“For our financial models for three Bauhaus units, which were 434, 460 and 516 sq ft, we use pre-COVID rents, but Bauhaus won’t be completed for another three and a half years, and by then rents will get back to where they were. They will probably get back there this year or early next year—and that’s just recapturing what was lost because of COVID,” said Lamb.

“They showed a positive return on equity with 30% down, meaning that you’re making 6-6.5% on rent alone. These rents were achievable before COVID and in three and a half years, they’ll be easily achievable. The compounded returns, according to TRREB, will be a 6.6% average return over 30 years.”

Factoring in inflation, Lamb says that in 25 years a studio condo in downtown Toronto will cost substantially over $1 million.

“Inflation is not going away. It’s absurd to think in 25 years you will pay $2.5 million for a studio in downtown Toronto, but you will,” he said. “When you factor in leverage, which you don’t get with a stock but you get with real estate, you’re buying a house or investment property for 25% and your actual return, in terms of price appreciation, is 30% compounded annually plus whatever you make from rent.”

While Lamb concedes that another recession or viral outbreak could be in the cards, he noted that COVID-19 hardly made a dent in Canada’s real estate market, and that it is, therefore, unlikely anything else calamitous enough will occur.

“The six-month negative growth rate was worse than the Great Depression at minus-15%, and since then we’ve clawed back to minus-4-5% on an annual basis. What happened to real estate? Nothing. Condo prices dropped about 10% but, already in March, we’ve recovered from that and prices are already higher than they were last March.”