We see a lot of real estate listings on our team and we would say we’re pretty hard to surprise when it comes to choices made by listing agents.
Whether it is a poor decision on which photo to use, misspelled or improperly used words or just an overall low level of effort put into the listing, we regularly see listings that could use some improvement.
In our work with a client this past week, we came across a listing for a semi-detached house located in the east end of downtown Toronto. Here’s the run down.
- It’s an income property, with four rental units in it, bringing in about $90K a year in rental income.
- It’s registered as a residential property having three self-contained units, but it isn’t unusual for a basement unit to be added into the mix.
- It’s a pretty small lot, under 20 ft wide and it is also shallow, at just 70 feet deep.
- There are no parking spaces with the property, but it is close to some TTC stations.
- It’s being sold in “as is, where is” condition, so probably not in the best shape.
- It has been on the market for 100 days as of the date of this article.
- The last time it was on the market was back in 2008 and it was for sale for $750K. It didn’t sell and the same owners have held onto it since then.
The only other thing you should know about the property is the list price, which is $25,000,000.
Yes, you read that correctly, they are asking $25 million.
If you do the math, that works out to over $1.3M per foot of frontage. We know Toronto real estate is expensive, but that feels a bit excessive.
Is it the cathedral ceiling in the 3rd floor living room that allows it to ask this price? Or the fact that it is a vintage Victorian home that comes with central air conditioning? The answer lies outside of these features and above the home itself. Here’s why they are asking this price and why they think it’s worth it!
A zoning change can mean a huge valuation change.
The first clue as to why the list price for this small lot with a semi-detached house on it is $25M can be found in the remarks for clients on the listing, where the agent says “Zoning Recently Changed To Allow Up To Approx 30 Storeys”.
While this building has sat on a busy street near lots of commercial properties for decades, it is just recently that the zoning was changed to allow for “as of right” heights that would make building a condo tower possible. A quick review of the prior zoning for the property shows it was 16 metres, which is a far cry from 30 storeys!
It’s not the air conditioning, it’s the air rights.
While this property has been listed a semi-detached, the list price is actually reflective of just the land value. The building on the property, the tenants in place, the improvements done over time, the rental income – all of it pales in comparison to the value that a developer could realize by tearing down the existing structure and building a new, high density tower on the lot.
It is what is above the existing house, the air that the property also has the right to build up into, that makes this property worth a lot more now that it used to be worth. Just 14 years ago, the seller would have taken $750K for the property, but with these zoning changes, they are now asking for over 3000% more!
Will they get it?
That is of course the big question. Anyone can ask any price for a property. In order for a deal to take place, you need a buyer who is willing to pay a price that the seller is willing to accept.
There are other nearby listings for similar properties in a similar situation that are asking for even higher prices. When a developer is considering buying a small plot of land for $25M or $40M, they need to have a very good handle on what it will cost to build a high-rise tower, how long it will take, what financing is available and what the eventual sale price of the units in the tower could be in a future market.
It’s a complicated exercise, and only time will tell if the sellers of this property have stars in their eyes or if they will realize a huge windfall from the zoning changes that have been put in place.
Not all zoning changes are as dramatic as this example, but the value of any property can be significantly impacted by what is permitted to be built on it. When the highest, best-use for a property changes, the value can change accordingly.
If you love the idea of buying a property that could see a huge value increase due to a zoning change, then let’s talk. You can get in touch with us here.
