91: How the Purpose-Built Rental Market is Impacting Kelowna with Tradecraft Consulting's Jeff Hancock

0:00 Okay, welcome to the Cologne Real Estate Podcast. I'm your mortgage broker host, Taylor Atkinson. I'm your real estate agent host, Matt Glenn. Although, by looking at this video, you'd think I was the mortgage broker host. Yeah, you're in my seat. Yeah, good. I feel like I got so much power. Yeah, well, we just finished the recording with Jeff Hancock. Yeah, he brought it. It was awesome. Yeah, he's a commercial agent at William Wright, but also runs a consulting company, Tradecraft. This guy knows his spreadsheets. I freaking love this. He's a spreadsheet kind of guy. This is stuff Matt and I have been just bullshitting on the podcast. Like, yeah, these numbers, these numbers. And, you know, we're not far off. So it was really nice to actually have some concrete numbers to look at. But just wild data. Yeah, he's done a lot of work on this. brought it. So, yeah, thanks, Jeff. It was fun talking to him, you know, like it kind of.

0:42 Really good picture of what's going on, especially in the purpose built rental space in Kelowna, just construction in general. And it was, it was awesome. I mean, one thing that you brought up kind of the end is it's not like the show had a negative feel about it, but there was a lot of like realistic. numbers and, you know, deals that we're looking at vacancy rates and where these projects are in the pipeline. So it felt a little bit heavier, like, oh man, it's tough out there, but there is always opportunity. It just shows like, you actually have to do your research and due diligence and speak to guys like Jeff, you know, and run some numbers and you will find something. But yeah, it was very interesting show. I loved it. Absolutely. And then, so a couple of items of news here. So first one is Taylor's favorite DCC is up. 2 .4 in Kelowna.

1:22 Your thoughts, Taylor? Yeah. I mean, I don't think that's that big of an increase. Yeah. 2 .4 is reasonable. Yeah. Is it because there's less development? Is there less development? Projected less development? No. I mean, Yeah. 2 mean, I've seen some of the data from City of Kalina. Yeah. It looks like on their infill side, they're getting more applications, but kind of a profit loss, right? They're running a balance sheet of what they need to develop in the city. You know, it's funny. I was in City Hall a couple of weeks ago doing a building permit for myself, sat down. I was just paying for it pretty easy. And hey, FYI, you can do your building permit online now. which is pretty cool. So you just submit all the documents online? That's what I did for my Facebook suite. a online? That's what I did for my Facebook suite. Yeah. Did it work for you? Yeah, it worked well. It did not work for me. Well, I went in beforehand and talked to the woman there. I can't remember her name. Tammy, I worked with.

2:03 It wasn't Tammy. It wasn't Tammy. But she was wonderful, whoever I was with. She told me what to do and I went home and it like first try. So yeah, So yeah, I did it all. And then I signed, but for whatever reason didn't work. So I called like two weeks later. I'm like, hey, I'm pretty sure this should be through by now. And she's like, oh, well, you need a docusign. I'm like, yeah, no, I haven't. It's done. The system isn't up and right. So I think there's still a couple of kinks. But anyways, I went into pay and there was a guy beside me, you know, having a discussion with someone from the city as you do when you're, you know, doing projects. And they listed his DCC fee. It was like something like the $60 ,000 range. And he's like, what? I am building like a shed. Well, sir, if it was like attached to your house, like it wouldn't be a DCC fee, but because it's not, it's, you know, and this is kind of the city's explanation for it.

2:45 I won't get into it. It was pretty valid on why they have to kind of have a standard set fee for certain areas and projects. So it makes sense why they need that, but pretty tough to swallow if you're that guy. So 60 grand. So you're building a shop. Like what's the budget for the shop? 60 grads. Exactly. And then you go to, God, geez, that is a stinger. Yeah. So guaranteed. Yeah. He's, he's doing that without a permit for sure. That's right. Also news city Kelowna coming back to provincial regulations on Airbnbs. So that means. Amen. Airbnb is coming to your neighborhood, but not to awkward event. Yeah. I think it's totally reasonable about time. Well, yeah. Should have never gone above and beyond in the first place. and beyond in the first place. That was definitely a major fumble.

3:28 Fumbled bank, I'd say. Yeah. Well, hey, you know what? At least they realized it. Yeah. Like, if you make a mistake, raise your hand. I mean, I never do, but I never make mistakes. Yeah. Honestly, Yeah. Honestly, I agree completely. And then, like, if the vacancy rates start coming up like they're expected to. we're talking to Jeff here in the next few years, like the city might, obviously they haven't said this, it's totally just me making this up. They might apply for the exemption, right? Yeah, I think you're right. think you're right. I think everyone at this point sees the light at the end of the tunnel. And yeah, speaking of Jeff, like definitely listen to this podcast because it does look like vacancy is going to stay up or keep increasing for the foreseeable future. And if that happens, yeah, opportunity for Airbnbs to get in maybe.

4:09 It's like we said this in the show, like we said this in the show, but it's almost like if something's right, you don't have to stomp on it with every single thing you have, like a little tweak here and there or a couple of rules at a time. Yeah. You know, because like sweet Jesus, man, this pendulum is just keeping us all on our toes. like Yeah. And the third item is January 21st. And the third item is January 21st. No 25 % tariff so far. And, you know, he's still threatening. It says it might not be as bad. But so far, we got through day one. I mean, the threat alone, though, still kind of slows. Yeah, but he was threatening day one. So we're day two as of recording. And he said no. We're in the clear. Yeah, well, he said probably going to be less than 25%. And maybe by the end of January.

4:50 But hopefully, he's just full of shit. And we can just move on, right? But yeah, I agree with you. The threat is having already, I think, the Canadian dollar is down on this. Yeah, this. Yeah, we're getting crushed. Yeah. So the thread alone is annoying, but the actual hammer has not dropped. All right. This podcast, like every podcast, sponsored by the best brokerage in town, Century 21 Assurance Realty. If you're an agent looking for a new spot to call home, we're a collaborative atmosphere. We help each other out. We want you to succeed. We love listings. Century 21, you can get listings for free. photography is included so if you're an agent looking for listings which is what you should be doing century 21 is a good spot for you to go or if you're a buyer a seller looking for an agent call a century 21 agents there is a bunch of beauties at the brokerage so uh bunch of beauties oh yeah me included that's what i have to say about that enjoy the show guys it is a good one Okay, welcome to the show, Jeff Hancock.

5:44 Thanks for joining us. Thanks for having me, guys. Appreciate it. Yeah, it's been a long time trying to get you on. We met, was it like seven, eight months ago? Yeah. Excited for this one. Great. So we just start our show kind of like, what's your perfect Friday look like? What do you do in the morning, productivity for work, and then leading into the weekend for some fun? Yeah, you bet. That's a good question. Perfect Friday. I mean, living in the Okanagan, it's got to be a boat day. But yeah, usually, you know, get up. I'm an early riser. Start work, sort of clear off emails, have a coffee. And then basically just take it as it comes, right? Whatever pops up, try and tackle it. And then if I can scoot off and get an afternoon off, then yeah, on the boat and get on the lake is ultimately what I like to do. Nice. Yeah. I love it. That's awesome. For work, you're kind of wearing two hats. Do you want to talk about both of those quick? Yeah, you bet.

6:26 So I have a company called Tradecraft Consulting, and we provide consulting services, a range of consulting services to the development community. to public entities, municipalities, as well as service providers? tell us, forward us, that kind of stuff. We do outside land agent work. We do feasibility consulting, just sort of a whole host and a whole range of different services that we offer. That's sort of my background. I've been in the business for about 20 years, just over 20 years. The majority of that has been in consulting in some form or another. And then I also do commercial brokerage work through William Wright Commercial here in Kelowna, focusing on the Okanagan, mostly income and development stuff. You know, up here, you have to wear a bunch of different hats when you're doing this type of work. So two pieces to it, really, it's the transactional work and the consulting work.

7:07 Yeah. Yeah. You were originally in Vancouver, right? Correct. Yeah. Born and raised in North Van. And then, yeah, the majority of my career was down in Vancouver. I worked with a consulting company down there called MPC Intelligence and then worked at Deloitte for a while in their financial advisory practice and then transitioned up here about 13 years ago. Awesome. What brought you up here? How come you decided to come to Cologne? That's a good question. At the time, we had a five -year -old. My wife didn't really want to go back to work. We sold everything we had down in Vancouver and it was Operation Small Mortgage. We always had summered up here. We really loved being up here. We had sort of a social network built in. A lot of people had, you know, kind of migrated up here over the years. And yeah, we just kind of took a shot. And when we got here, we just never really looked back.

7:49 Now it's home and we love it. It's great. Awesome. Yeah. Yeah. Cool. Okay. Well, you sent us some amazing information, which isn't public knowledge. And we'll kind of keep that close to our chest. Reviewing this, I guess it's an Excel sheet. You've converted it to a PDF for us. It is wild how much information is on here. So thank you. Yeah, you bet. This is priceless. Can you kind of summarize it? I know summarizing this is going to be tough, but like in a few minutes, give us kind of high level or give the listener high level what it is, what we're looking at. Yeah, you bet. So it's a supply summary of all of the purpose -built rental product. it's a supply summary of all of the purpose -built rental product. that's coming to the market in the foreseeable future. This is one of the offerings that Tradecraft provides to different clients that are looking to develop purpose -built rental product or own purpose -built rental products. We help them understand the market, understand the supply picture, understand... pricing and that kind of stuff.

8:33 So this is just sort of a high level spreadsheet for you guys to get a sense of kind of what Tradecraft can deliver. The supply picture, I don't think it's no real surprise, especially considering the vacancy rate that was just announced about a month ago. The supply picture in Kelowna has changed quite dramatically and it continues to change. There's a lot of supply in the pipeline and there's been a lot of supply delivered over the last, call it five years. And I think that's a good thing, right? I think from the city standpoint. And from a renter standpoint, you know, that's what you want. You want a healthy vacancy rate. Everybody has a different opinion on this, but call it between three and 6 % is sort of healthy. certainly getting to that point. From a developer standpoint, and maybe from an owner standpoint, it's obviously a little different. You're looking at it a little differently. So it's, you know, I think a little concerning for purposeful rental developers, you know, starting to look at this market or have product and development in this market.

9:20 They need to understand that, you know, things have changed. And, you know, because of the supply picture, there may be some rent compression, they may be sitting on vacancy for a little bit longer than they anticipated. A lot of the these rental developers, their pro formas were very tight to begin with. Building purpose -built rental product, it's a difficult endeavor. The reason why there's been so much is because the federal government supported that type of development through CMHC financing, which was really the only financing that a lot of these developers could get. So they decided to start building purpose -built rental. So a lot of developers were pivoting from market condominium product to you know, purpose -built rental because they could get these types of projects financed. There was an appetite on the municipal side for these types of projects.

10:01 And, you know, the conditions were favorable. There was a really low vacancy rate. Rents were, you know, continuing to increase and, you know, it just made sense. But now that things are starting to change a little bit and that picture is changing a little bit, you know, some projects, you know, that were penciling, you know, not to say that they're not going to still pencil, but it's just going to be a little bit more difficult for these developers considering, you know, vacancy in. you know, rank compression. Yeah. So looking at the totals and correct me if I'm wrong, roughly 4 ,963 units are projected to be coming on. Correct. Yeah. Yeah. So that's projects that are at some point through the entitlement phase, right? So actual projects, not just, you know, a piece of land that somebody bought that they think they're going to, you know, deliver.

10:42 rental product. This is stuff that is, you know, actually been formally introduced to the city and is working its way through the entitlements process. Yeah. You know, it's funny. We just had on city of Kelowna and one of the architects that won the fast track program talking about infill and, you know, Matt and I were talking off air and during the intro, like. These things really don't pencil out yet. In terms of like an investor, it's great for infill and to maybe, you know, take down a single family house that isn't up to standard and something better with it. But we're talking about kind of the levers of what you can pull to make it cashflow as an investor. And then we don't really have a lot of power, but I guess one of them would be if rents increase.

11:22 Looking at this, I cannot see rents increasing in the near future. And I mean, I've seen it personally, you know, my buddy has a basement suite just down the street from here, tenant left. going to be getting a lower rent than what he was. And I thought it was a pretty affordable rent to begin with. I have tenants that are leaving in West Kelowna, you know, not sure what the rent's going to do there, but like, yeah, I guess how long till we see rents come back up? Like, are they going to dip down? Or at least stop going down. Yeah. Yeah. I mean, I mean, that's a really good question. You know, I don't think there's any real, you know, answer. I mean, I shouldn't say that. Of course there is an answer, but. But to predict it is going to be very difficult. I'm not sure. I mean, I think with purpose -built product, you know, we're starting to see a lot of inducements.

12:05 So developers that are advertising a free month's rent or, you know, additional parking or, you know, some sort of inducement that we haven't seen in this market for, well, as long as I've tracked the market, right? Rental developers have never had to offer any sort of incentive because it's been such a tight rental market for so long. They're trying to protect their face rate though. So you're not going to see. The rental rates, you know, like a $1 ,700 a month, one bedroom. They're trying to protect that number. They're not going to, you know, start discounting it dramatically. The net effect of rent will probably go down because of these inducements or the way that they're trying to incentivize. But, you know, on the secondary market, you know, like what you were just describing, Taylor, like it will be interesting to see, right? I think there's going to be a flight to quality because now renters have choice. So, you know, product that's well located, you know. built by a good developer as newer finishings, you know, that kind of stuff, maybe location close to the lake or whatever that may be.

12:49 Those guys won't suffer as much on the vacancy side because again, renters have more choice. They'll be able to pick up rental opportunities in buildings that maybe they couldn't afford before. I think that's one thing we had Wendy Waters on a couple of months ago. think that's one thing we had Wendy Waters on a couple of months ago. And that was one of the things she highlighted too in Vancouver was basically looking for that movement of tenants. And yeah, there will be a dip in, you know, rental income. But it's mostly from those people that have been in those affordable rentals for a long time. And they don't want to give up that because BC Tenancy, we can't increase the rent that much. So she's saying like, yeah, maybe a bit of a lateral move. But then those lower rents should come up a little bit. So it kind of evens things out. But like time horizon on that, it would take a long time.

13:30 Yeah, 100%. And that's the million dollar question is how long, right? I think there's not going to be a huge dip in rents. I think just because. You know, especially for a new product, developers can't afford to offer it at less than, you know. Yeah, their financing income. Exactly. Right. So they're in a position where they'll eat the vacancy and they'll sit on it and they'll wait, you know, and then just hope that. I think you're going to see. The supply lever get pulled back. So you're going to see a lot of guys, projects that, you know, even that are on that spreadsheet that I sent that look like they're moving forward. If they're not under construction, you know, there's a high likelihood that they may not move forward and just wait for better conditions. You know, every developer is a little different in terms of what's driving them, but I could definitely see that.

14:11 happening without the rents where they are currently, it's going to be really hard. A lot of guys are going to be underwater and they're performing and they're just not going to be able to make it work. Right. So it's kind of a different story. kind of a different story. Like a narrative we've heard, right. Is like, we need more housing supply, which I agree with. Like, even if you're looking at this of three and a half, 4 % vacancy, it's not a lot, but when you're talking, it's just not affordable. So how do we fix both issues, right? Like how do we provide developers opportunity to build and be profitable and how do we make affordable houses? Yeah. It's definitely, it's a tough question. And, you know, I think when you have... From the city's perspective and, you know, from the public's perspective, the more supply, the better, right? The higher the rental rate, the better provides opportunity. It creates affordability, all of those things.

14:52 But again, for the guys that are actually delivering this product and taking the risk and putting their own capital at work to work, excuse me, all of these numbers drastically impact, you know, the feasibility of their project and slight changes in rents or, you know, slight increases in vacancy. All of that just ends up being dollars in the pro forma. Some of it can kill their performance and kill the supply. And then again, like you say, it's kind of all the supply slows down, right? And then vacancy comes back up. It's kind of a bit of a cycle, right? Do you think this will be kind of a catalyst to start stratifying some of these properties? you think this will be kind of a catalyst to start stratifying some of these properties? I was going to ask, going to ask, how does this affect the pre -sale market? Because obviously, we're talking about purpose -built rentals, but we bought condos and stuff. So the rental market really started to blow up when the pre -sale market just collapsed, how started to blow up when the pre -sale market just collapsed, right?

15:33 developers that were typically pre -sale guys or would do the majority of their work building market condominium product, all of a sudden needed to keep the lights on and needed to keep their guys busy. And so then they pivoted to purpose -built rental. Like I mentioned earlier, they could finance through CMHC and they could continue to build as builders do. So yeah, I think you're going to see if the pre -sale market comes back and with interest rates dropping, I think that you're going to start seeing that. You're already hearing whispers of things coming around again, which is great. So then some of those guys will pivot back to that product. and sort of maybe steer away from the purposeful rental side of things. But like, if you're talking about the condo product that is currently under construction and bought by investors and will end up on the rental market, is that kind of what you're referring to matter? Yeah.

16:16 Yeah. So, you know, typically. In Kelowna, for high -rise or new wood frame condominium product, it was usually about 30 % investor bought, depending on the project. So some more, some less. So like Aqua and Caban, those were higher percentage of investor buyers because they were really marketed as short -term rental opportunities, which obviously that's a whole different story in podcasts. But the expectation is that a lot of those units are going to come back as secondary rental units, right? So owner. rented. We don't really track that market. It's a little bit more difficult to track. We only really track the purpose -built rental market, but we've done some work on that in the past and looked at, you know, all the condo product that's completing in the next, you know, whatever, three years or two years, probably two years now, just because there's not a lot of new stuff being built, but how much of that's going to come back to the rental market. And it's another like 2000 units based off of that 30 % investor bought sort of benchmark.

16:57 So yeah, I mean, it's a whole other. you know, rental inventory, I guess, that needs to be considered for sure. for sure. I mean, this is pure speculation now, but I guess we've seen the condo market pretty flat. It seems very saturated, a lot of listings. There is getting to be some more activity in that right now. So I know firsthand that it's picking up. Yeah. But even for just owner occupied, I guess, like we've looked at that market and I think it still has another six to 12 months of, you know, on the lower end where single family homes, it seems like it's kind of bottomed out and coming back up. Yeah. If we're seeing all these purpose -built rentals come online, does that not continue the saturation of the stratified properties, even if an owner -occupied wants to buy that? So I guess, how long do we think the condo market's going to stay down?

17:41 Yeah. I mean, that's a good question. A lot of renters want to own, right? So, you know, they'll pivot back in and start picking up condo product, new condo product. When we start seeing that being built again and offered to market, you know, the amount of supply that we're dealing with both on the purpose -built rental and on the secondary market with, you know, market condominiums that our investor bought, it's a lot of product and it's going to be interesting to see. I don't really have an answer for you in terms of like how long. Yeah. It's funny when you think about causes of this, right? Because like everyone points to land prices being kind of the driving factor. But then like Taylor and I were talking about this, like if you talk about a fourplex, you buy the property for a million, million one or something. And then you build a place, cost you two and a half million bucks or whatever it is, two million bucks to build it.

18:26 But you drop that price for the land 20%, like which is not going to happen, but like a big, that's like $200 ,000 off, which really doesn't help. It helps a little, obviously. Everything helps, but it's not the golden ticket. Then you think about how does this cash flow? Rents could go up or building costs come down, but prices of stuff is not going to come down. Wages are not going to come down. What has to change? It feels like the only two things that could realistically change are land prices or rents. Right. And there's kind of like the land prices come down a bit and the rents go up. Like what has to happen for that to happen? We're kind of seeing the opposite of that though. I mean, like rents are coming down and land prices are going up. I think land prices are kind of plateaued, but yeah, coming down. So like what has to happen? It's almost like our spike, like the COVID spike just threw everything out of whack.

19:10 Right. Like just so badly. And then like everyone was living the gravy train and then just kind of the opposite and kind of like a pendulum. Yeah. I mean, that inflation spike was brutal for a lot of developers, like the cost side. The cost side was always, for a lot of guys, it was pretty manageable, pretty predictable. And then they would bank on increased revenue, whether it's market condominium prices continuing to go up or rents continuing to go up. That's how they would make it work. But then, yeah, inflation and interest rates, obviously, that just really threw, I think, a lot of developers into. a position where, yeah, they just couldn't make their numbers work anymore. But to your point, Matt, I think even on the revenue side, there's not enough upside to make it work, right? So we are seeing land prices starting to correct specifically for purpose -built rental product, which is great. We're still seeing guys able to rationalize a land buy based off of today's rental rates and vacancy rates, still saying, okay, look, I can still make this work as long as this land is 70 bucks a buildable square foot or whatever.

19:57 whatever the number is for them. Those are really the only two things that can kind of give, you know, the cost piece is kind of, it is what it is. It's really about getting either a really good land buy or, you know, catching the market at a place where, you know, rents continue to go up. And I've seen lots of developers pro formas on the rent side, like looking at the 6 % to 8 % a year for the three years while they're building this thing out. And then at that point, so at stabilization, then they're like, oh, these numbers work. Even then, it's still pretty tight. Low double -digit IRR, maybe even below that. And that's a big bet, saying that this thing's going to go up 6 % to 8 % or rents are going to go up 6 % to 8 % over the course of the three years while we're building this thing. then at So, you know, now, you know, guys that were in that position and round in 21 or 22 and are now completing.

20:41 And, you know. Yeah. Not only did they get killed with inflation, the rents are there. are there. So like, just like talking this out loud, do you talk like it does feel like there's going to be an opportunity to buy some of these because like you have these developers that pre -sale is just not penciling. So they're just not doing it. So they're just basically. for no other reason than to keep their, well, other reasons, but like main reason is just to keep their crews going. They're building these rental projects that are just breaking even at best. And then once the market does kind of shift, like you're going to have all these people holding these things. Are they just going to be like, do I really want to have this building?

21:23 Yeah, it's a great observation, observation, Matt, because when you're a purpose -built rental builder, there's two businesses, right? There's the development of the property and the construction of that. And then there's the management of it. right and so there's lots of developers and builders that are you know very good at building but They don't have the infrastructure to actually operate and manage the building because that takes people, resources. You need to have Edna in the rental office. Yeah, exactly. It is an operating business. A lot of guys aren't necessarily prepared for that, especially because they just pivoted into this product because it was the only thing to get going. Basically, the market pushed them into it. Yeah, exactly. Everybody was saying, we got to build more rental, more rental. The city was on board.

22:05 Again, the federal government's financing it. Okay, we can do this. idea was, okay, we're going to stabilize this and then we're going to turn around and sell it to a REIT or to a pension fund or whatever that may be, private investor group, whatever. But what we're seeing now is... a lot of the REITs and a lot of the guys that were active in the Okanagan are looking at the supply picture. And there, I mean, these are very sophisticated groups and they're going, no, we're not interested in buying up there. So there's going to be a lot of guys that are going to have to figure it out and hold it probably longer than they thought. And, you know, there might be some investors that are going to, you know, maybe not getting the type of return that they thought they were going to get. Right. So it's going to be interesting for sure. be interesting for sure. Like the government did kind of want this by, you know, really pushing CMHC, like the MLI Select, like it was the only option for developers.

22:48 100%. Now that they've achieved what they want, now what? Yeah. Like the vacancy rate goes up. It just feels like they come up with, It just feels like they come up with, like something happens, they come up with all these things and it goes too far. Pendulum times. Yeah, they go too far. Like, it's crazy. Instead of little tiny. Yeah, it's a little tweak here and there. It's just kind of right the ship. It's like, no way. Everybody to the left. Totally. just feels like they Pendulum times. Yeah, they Everybody to the right. Totally. And we get there and it's just like, like, sweet Jesus, man. I mean, this is going to be a really hard one to analyze. I don't know if you've spent a lot of time on it, but Airbnb, like. Has it affected these numbers that much, or is the data just not there yet? Yeah, there hasn't really been any consolidated data that we can point to.

23:32 I mean, there's lots of chatter and people saying, oh, there's another 3 ,000 units that have come back to the market. I haven't done any of that research myself, so I'm not 100 % sure where that ends up, but there's been an effect. There's no question. Again, on the secondary market, like you were just talking about, it's more anecdotal, but your buddy who just said - said - How long do we hold it and lose money while rent goes down? You're right. It's definitely had an effect. I'm just guessing, as we were talking about the pendulum swinging, it's like, well, you guys already pushed it so far this way, and then you added on 400 players to keep it that way. Yeah. players to keep it that way. Yeah. I think the city of Kelowna is recognizing that as of a couple of days ago, they just said they were going to go to council. That's just for personal residents. That's basement suites. basement suites. Yeah. Essentially, they're just trying to align with the provincial regs because they had pushed it even further than what the province had suggested.

24:15 Yeah. They should have done that from day one. We love you, City of Columbia. Come on. Yeah. That was a fumble for sure. Yeah. I think they recognize that. They heard a lot from the tourism industry over the last summer. I think that's going to correct. I also feel that if we're over 3 % for two years, we're going to get probably exempted or at least - partially exempted. I think the city will probably create a new zoning bylaw and do it more specific. for short -term rentals. Maybe some of the projects like Aqua and stuff that were designed and originally approved for that use, I could maybe see them going back and saying, okay, look, we'll allow this under these conditions. It was on the shadow market, but it was a lot of inventory that all of a sudden was available and has affected the rental market for sure. Another thing the city is reading this morning is upping the DCCs, Taylor's favorite. Are they? Yes. You have to. It's pretty. Yeah. Yeah. They have to. It's kind of with inflation, I guess. But it's pretty nominal, to be honest. They could have gone probably a lot higher.

24:57 Certainly, if you look at Metro Vancouver and what's happening down there, it's nothing like that. I think it was two and a half percent is what they were talking about. So every little bit is difficult, especially from a developer standpoint. But, you know, we want infrastructure. We want a nice place. place. So when we had Ryan Smith on, it was like he did phrase it pretty well. He's like, you know, you're kind of shooting yourself in the foot because like you build this beautiful city. But like. That's what it comes with the cost of, you know? So like, yeah, you can complain about it, but it has to be there. Yeah, exactly. Yeah, exactly. And you know what? The city of Kelowna, I think they do a really good job in terms of trying to keep it as fair as they can and to manage it and manage expectations around it and to pass it along, you know, gradually.

25:41 And I think the development community would echo what I just said. Like, you know, there's always going to be guys grumbling whenever it costs them money. But at the end of the day, I think, you know, we could be in a lot worse situations. And again, pointing to Metro Van, like what's happening down there is crazy. Some of the costs that those guys are passing. like 30 % increases. Like, I mean, that's pretty tough to swallow that, right? Wasn't it down in the Soyuz? It was like 60 % on their property taxes or something that went up. That's from just like years and years of no tax increase at all, of no tax increase at all, right? Which is the silliest way to run a city. Like Vernon kind of did the same thing back in the day. And that's why they have all these legacy infrastructure issues that they're dealing with.

26:22 And then they're eventually going to have to pass that along. And then instead of doing two and a half percent a year, 3 % or whatever, you know, it's a game of politics, but you know, yeah. I mean, this is kind of one of our wrap up questions, but I want to focus on this for a while anyways, but like with an investor cap on, where's the opportunity? know, the opportunity? What would you be buying? Yeah, that's a good question. I think covered land place, a lot of the sophisticated guys that I deal with, that's what they're looking for is income with either some development spin or the ability to subdivide and sell off or bring their cost base down or reposition through aggressive leasing or whatever. Those types of assets are still selling. There's a lot of guys out there looking for that kind of stuff.

27:04 And that could be anything from... a strip mall to, you know, an underutilized industrial piece to, you know, a purposeful rental building, right. That needs to be repositioned or whatever. So that's where I would be looking to put my money in is something that, you know, you could get a little bit of income and then still have upside like long -term do some planning. Yeah. Yeah. Whether it's excess land or whether it's, yeah, development or redevelopment or whatever. Right. But there's some way to add value, you know, down the road. Right. Yeah. I know there's been, and maybe there's already been publications on it, but like starting to tax vacant land. Do you know anything about that? Like, where's that kind of going? Because obviously they're trying to force people to develop land that they're just holding onto. But personally, I feel it's kind of the wrong way because it just doesn't make sense to develop some land yet. Yeah. So it might not get the best development out of it. Yeah. So it might not get the best development of it. Absolutely. Yeah. Yeah. And then province is pushing that, which again, doesn't make any sense to me.

27:45 Another example of all levels of government using development and land as sort of the piggy bank and not understanding what the knock -on effect is and how that can end up contravening what they're trying to accomplish, right? Which is building supply and developing a tax base and all of those things. I don't really know a lot about that, but it sounds asinine to me. yeah i guess what's the feedback you're getting when you're being contracted by developers right now and like you come up with performers and they're kind of like yeah that just doesn't pencil like here's our thoughts here's what guess what's the feedback you're getting when you're being contracted by developers right now and like you come up with performers and they're kind of like yeah that just doesn't pencil like here's our thoughts here's what needs to happen? Yeah, it's difficult for sure. You know, right now it's a lot of wait and see. So the work that we do, it's, you know, present as much information as we can, you know, show them the lay of the land, show them the numbers, and then you can make a go or no go decision.

28:32 Right now, a lot of the decision is no go. You know, there's some guys that, you know, have owned land for a long time. So their cost -based is a little different or they have some advantage. like the high streets of the world, guys like that, that are very, very good at what they do. They're super efficient. They know their product. You know, they've stripped all the fat out of the process. Like those guys are always kind of fine. They can always figure out how to make it work and continue to build. But, you know, for one of developers or guys that are, you know, moving into a new product type or whatever, it's a tough time to make things work right now. Yeah. So High Street just developed an upper mission, right?

29:15 Beautiful. Yeah. Just financed one up there and it's... Yeah. I mean, it's fantastic. Yeah. I mean, it's fantastic. And the prices that they're offering up there and it's condo product. Yeah. It's unbelievable, right? But like good space. Oh, yeah. Like efficiently built, you know. So I guess why can't more people do that? Well, it's a lot of hard work. work. That's for sure. I mean, I think Scott Butler and his team, Christina Wilson and everybody else over there, I mean, they do an amazing job. They work really hard at, again, just construction efficiency and, you know, making sure that their design is best it possibly can be. You know, getting a good price on their land, you know, making a good buy. Right. That's critical to those guys. Like they have a very regimented approach. And, you know, if it doesn't work, they don't try to make it work.

29:56 Right. Like they just move next, you know, and they move on. Yeah. That's for They don't get emotional about it. That's a takeaway from my point of view is like, you know, we can blame the government, city, whatever we want to blame. But like at the end of the day, some developers. you know, quote unquote developers just made really bad decisions buying land that was overpriced and like, and it kind of forces the market in a direction it shouldn't go. And that can take a few years, but yeah, effectively that happened over the last few years, like bad decisions on. buying land assemblies or a couple of single family houses that they thought was going to pencil out. And it just didn't. Yeah. Yeah. I mean, which even at the time, like I remember seeing transactions in 2020, Matt, you probably do too. And you run the numbers and you're like, Howard, that makes no sense. And, you know, that's 20 % higher than what anybody could pay. And yet this guy bought it. And now you're seeing, I mean, I've never seen so many receiverships in my 22 years in the business.

30:39 And that's going through 2008 too. Right. And I mean, the amount of receivership in, you know, the lower mainland, the Okanagan and the island right now is mind boggling. And that's a direct reflection of that, right? Is that, you know, guys that just were making bad decisions and, you know, the guys like High Street or, and there's a million I could probably name here, but like those types of developers don't make those bad decisions, right? And they're the ones that you see for the next 30 years, years, right? Yeah. So I guess it's just kind of like a, you know, unfortunate part of the natural cycle. There's going to be some tough times out. for everyone, but it's going to happen, going to happen, I guess. And a lot of those pedigree developers, they're licking their chops, right? This is a great time to buy, right? They're watching all these guys floundering and going into receivership. And now this is when they can open up the war chest and go and buy a bunch of land cents on the dollar, right? Yeah. Okay. Lastly, just to kind of wrap it up.

31:20 So you did indicate there's a pretty big student rental going out at UBCO, like 40 acres. Yes. That's a lot of units coming on for student housing. And like right now we're in a space where internationally, I don't think there's probably going to be a huge intake for international students. Yeah. I think we're pretty well supported, you know, domestically at UBCO, but yeah, I guess what does student housing rentals do as well? Because that's going to take just rentals in general off the market. Yeah. I mean, I think You know, to your point with this new federal immigration rules and the way things are changing, I think all universities across the country are expecting enrollment to be down significantly. And a lot of those students that were coming from overseas needed, obviously, rental housing. It's going to be a big impact. There's no question. You know, UBCO, again, is well positioned and they have a pretty significant growth plan, which may be tempered a bit now, again, based off of these new regs.

32:04 But basically, the rental housing, even if it's geared for students. I mean, some of it is really geared to students, like just like from a design standpoint, from a pricing standpoint, the way that their leases are structured and everything else. So I think that will just remain specific to students, specifically at the university. But students also would rent. stuff in the city, downtown, it's part of the overall demand picture. There's not going to be as much of it, right? So that, again, is going to influence the overall absorption of all this rental product that's coming. Where are these 40 acres on John Handel? Yeah, just kind of off of Appaloosa or in that way, kind of. Okay. Yeah. Dang, that's a lot. Yeah, it's a big project. All of this stuff is going to be phased out over years, right? Yeah, yeah, yeah. It shows big numbers at build -out, but is that a 15 -year build -out?

32:46 Is it, you know, like who knows, right? So again, rule of thumb, we would expect like 150 units a year to come out of a project like that. And maybe on a good year, maybe it's two buildings, right? Maybe it's 300. But like right now, it's probably going to be like one building. like one building. Because just even anecdotally, the condos on Academy, they've slowed down quite a bit. And Mission Group has a bunch of rental up there as well, right? Yeah. So it's wild to look at this. wild to look at this. So yeah, just under 5 ,000. Units, bedrooms, right, essentially coming on? Yeah, units. Well, that's like 3 % of our population in Kelowna. We're at like 150 ,000. So like 3 % added. Is that going to be a direct correlation to vacancy then? Is that just going to bump it by 2%, 3 %? %? Yeah, it's hard to say. It was funny because there was a big bulge of rental product that came through kind of 2019.

33:30 It was like 2015 to 2019. There was a big surge of new rental product. At the time, talking to appraisers and other industry experts, the expectation was that a vacancy is going to go up probably a point or a point and a half, or we might get up to close to 3%. And then the statistics came out and it had gone down, right? The market had absorbed all of that product, no problem. But I think we've gotten to a saturation point. And then also, that coincided with the most aggressive immigration policy in the history of the country. Basically, an open door policy as many people. come in as possible. So, you know, now that that's changed and we have all this supply and again, you know, just your point around, you know, the student housing demand and there's going to be, you know, I think a big effect and whether we end up at, you know, is it over five?

34:17 I don't know. You know, I guess collectively too, like what do you guys think? Because in the past five years, yeah, we saw a ton of, you know, immigration to Kelowna, whether that's, you know, it's probably mostly domestically, but it's because, yeah, it's a beautiful place to live. But it was also a little bit more affordable than comparably some of the bigger cities. But now we're getting up there where it's not so affordable. Are we still going to see people being able to move here? Is that going to drive vacancy up? population growth is not increasing as much? as much? Well, we certainly dropped. We were the fastest growing CMA in Canada for a couple of years running. And now I think we're 21st. Our population growth has slowed. We kind of always ebb and flow a little bit.

34:58 And next year, we could be higher on that list. But lack of affordability in Kelowna is nothing new. That's certainly precluded people from coming here. But I do think that the lifestyle and the way the city's shaping up and some of the other things that are happening, I think UBCO being a big one, right? as a driver for growth and for industry and everything else. I think that we're safe to say the population isn't going to decline. We may slow a little bit and then pick up speed again. Kelowna is just too nice of a place and people want to be here. So all of this rental supply hitting the market and the rent compression that's expected, maybe that's going to allow other people that maybe said, hey, I can't really afford to be up there. Now look again and say, well, you know what? I can make that work, right? It's dropped 300 bucks a month or whatever. I can make that work and I'll make the move, right? Yeah.

35:39 Also, that's a lot of construction and a lot of construction jobs. construction and a lot of construction jobs. For sure. For sure. Yeah, that's a big one, Matt. You know, hopefully we can find work for those guys because, you know, once a lot of the product that you see being built currently finishes, I don't know where those guys are going to go, right? Other than back to Alberta. Well, they can come work in my basement because it's taken me like three years to build this. three years to build this. There you go. Yeah. You might be able to get a good deal. Yeah. Yeah, it'd be interesting to see on that side if things do come down a bit. Well, this has been awesome, man. We're going to jump into a wrap -up question. I know I already asked you one of them.

36:20 All right. If you could give your 20 -year -old self any advice, what would you do? Buy real estate. Nice. As much of it as you can. What if you were 20 right now, would you? I would still buy real estate. Me too. I love that answer because I would do. Yeah, 100%. Yeah. I think in the long term, As the long term, there's always ups and downs. Of course. I love that answer, man. Yeah. I mean, we live in such a beautiful place. we live in such a beautiful place. You got to be able to weather it and you got to have a bit of a longer term vision. But I mean, if you have those two things. all day long. I am very bullish on Kelowna real estate, all asset classes, all types over the long term. long. I would agree. This whole time that we've been talking, sorry, normally we just let you talk.

37:04 Matt, what would you do? Thank God you asked me too. No, I just love that because we're talking about, oh, this is down. How are these numbers going to pencil? To me, I'm just thinking, man, this is an opportunity. This is an opportunity. Obviously, I'm not the only one thinking this because people are still doing stuff, but it might suck. It might be hard for a couple of years, but man, just put it in your numbers when you run them and then get there. I'm with you, Matt. If you can make it work, work, I think now's a great time to buy. And I'm not saying that just... Because that's what most brokers would say. I truly believe it. And I think, again, long term, there's no downside to real estate in Kelowna. I mean, look, you got to buy the right stuff.

37:44 There's just room for error. error. You can make a mistake buying real estate and it's going to resolve itself. Any other asset class, you could lose everything. Yeah. But with real estate, most errors can just be... corrected with just waiting it out. It might be a few years, but just wait it out. You can't buy anything for three or four years, but then you can. I have a lot of stocks that have gone to zero. have a lot stocks that have gone to zero. They're not coming back. That's a great point. Also, another point on here, you and I, all three of us really, see behind the scenes and movers are moving. There's a lot of money in the city and a lot of money. Going around, like people are setting up, they're kind of setting up for the next future and like buying things that you don't see. So like a lot of people that I've talked to are like, oh, should I buy this condo right now? Step back and look at the big picture.

38:26 It's like, yes, like if it works for you now, it's good for you now, right? The tap hasn't dried up. People are still moving around, right? Can't see as much in the city, but like there's still... A lot of stuff going on. A hundred percent. So I've been in this market for 13 years and I've never seen so many like sophisticated, well -capitalized development groups from the lower mainland, branded groups from the lower mainland, from Calgary, from Edmonton that want to be in this market. Before you talked to them about it five years ago, eight years ago, and they'd say, no, I'm not interested in the Okanagan. Now they want to be in the Okanagan. Show me some side check. Let's run some numbers, that kind of thing. So that says a lot to me because those guys usually are the canaries in the coal mine, right? They're ahead of the curve. a lot of stuff happening. Even, you know, talking to the city and you guys, you know, I had Ryan Smith on the growth that the city has earmarked and some of the exciting things, all of that, it just builds on itself, right? And it creates more momentum.

39:11 And yeah, it's a bit of a blip right now. And, you know, maybe the market's soft, no surprise. That's just what the market does, right? It cycles, you know, it's a great time to position for the next big run, right? Because it will happen. There's no question. Off the air, And the air, I was talking to Taylor, how do I? buy one of these? How do I buy a fiveplex or a sixplex? Come on, tell me what I need to do. Let's do it because I believe it. I'm all in. It's happening and it might not cash flow over the next two, three, four, five years, but like 20 years, I'm definitely going to be patting myself on it. Yeah, I told you to write me that blank check. I still haven't got it. buy I still haven't got it. Yeah, you can take that blank check to any bank you want and they'll tell you the same thing. Speaking of charities, Jeff, what's your favorite charity?

39:52 Favorite charity? Well, I'd say the Okanagan Food Bank. My wife does a lot of volunteer work there. We've supported them a lot. She had a really great time at the golf tournament last year or last summer. So yeah, that would be my charity of choice. Awesome. I love that one. How can Taylor or I or our listener help you? What can we do for you? For me? That's a good question, actually. I don't know, Matt. You guys are helping me, you know. by having me on the podcast. So I appreciate that. You know, I love talking to Taylor about the business and now you, Matt, like hopefully we can connect and continue to chat. I'm always up for, you know, coffees and networking and, you know, sitting down and having conversations with people in the industry and all aspects of the industry, you know, whether it's on the lending side, whether it's on the transactional side, you know, the more people you talk to, the more opportunities to pop up. And like, for instance, this opportunity.

40:32 So yeah, no, I appreciate you guys having me on and let's just continue to grow the relationship, right? Keep trying to do some business. I love it. Well, thank you so much for this spreadsheet as well. Yeah, no problem at all, guys. My pleasure. If you have questions or stuff comes up, just let me know because we're always neck deep in that part of the market and we're always updating the numbers and looking at new stuff. Awesome. Sounds good. Well, thanks for coming on, man. Pleasure, guys. Thank you very much. Thank you. Yeah, that's great. Thank you.