Who & What You Need To Build Missing Middle

[00:00:00] Welcome to the Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:12] Okay, welcome back to the Canadian Real Estate Investor podcast today. It is Dan and Nick,

[00:00:17] plus one of my favorite people in Canadian real estate, to be honest with you. I've been

[00:00:21] following you on Twitter for a long time. We've been out to a couple of nice dinners together

[00:00:24] on my home turf in Toronto and your home turf in Calgary. I'm really grateful for your contribution

[00:00:31] to Canadian housing. Alkareem Devani from, I guess, many different sub-brands of Al, Middle

[00:00:38] and Round Square. Can you tell me a little bit about yourself and what you've done and are

[00:00:43] continuing to do in Canadian real estate? Yeah, Dan, thanks obviously for having me.

[00:00:49] I was obviously super honored when you and I connected and we went for dinner in Toronto

[00:00:53] and then again had the chance to meet Nick here in Calgary. And obviously big fans for what you

[00:00:58] guys are doing. And so for me, the synergies were quite clear, like both of us really trying to figure

[00:01:03] out how to support others and kind of their entrepreneurial journey. And so I've always

[00:01:07] been a big fan of yours. And I know housing is a sensitive topic for a lot of folks when it comes to

[00:01:13] how does it tie into business? And we've had many discussions over the actual social nature of

[00:01:19] housing and the sheer requirement of having to make profit or else why else would other folks actually

[00:01:24] take their hard-earned money, personal guarantees to pursue these projects because I've spent my life

[00:01:30] doing it. So yeah, a bit of segue. I got my real estate license when I graduated high school when I

[00:01:36] was 18. And it just was easy to get at that time. There was not a ton of requirements. So I went and did

[00:01:41] the course, wrote the test, got my real estate license. My brother, my elder brother was a realtor.

[00:01:46] And then I went to University of Calgary. I got my business degree and then I graduated. And at the

[00:01:51] time I thought like you had to pay off your investment. Like, so I had the student loan debt and I was

[00:01:56] like, I can get a job downtown Calgary. I'm going to go do it. So I bought a briefcase. I got a job.

[00:02:00] I went through the training seminar for two weeks. I walked the plus 50 was like so excited about it.

[00:02:06] And I was like, oh my God, I can't do this anymore. And so I felt really bad because I quit on the

[00:02:12] like last day of the training program and shout out to CPRL for giving me a chance. But I know

[00:02:18] how expensive it is to train staff and then they leave the first day. So I always felt bad, but

[00:02:22] it was like a real good opportunity for me to learn that I wanted to be an entrepreneur. And so I called

[00:02:26] my brother. I said, Hey man, you're building stuff. I helped you the whole time, sat in show homes,

[00:02:31] did whatever. And there seems to be this movement happening within the established neighborhoods

[00:02:35] in inner city. So let's start a building company. And he had already had one and was kind enough to

[00:02:40] help me start one in the inner city called beyond homes. And so that was, you know, some 10 plus

[00:02:46] years ago. And we started building infill side by sides and, you know, recognized really quickly

[00:02:52] through the volatility of, you know, the Alberta market. We start our first infill sold for 650

[00:02:56] grand for a duplex. I think I went on to like, when I realized things were going really wonky in 2014,

[00:03:02] we built a, like a three car front drive garage, 3000 square foot home. And I was like,

[00:03:07] it was 3 million bucks. And I was like, what are we doing? Like I thought we were helping like

[00:03:11] revitalize established neighborhoods and bringing families, but we weren't. And so 2015 came and I

[00:03:17] said to my brother, I think there's an opportunity here to change the way in which we build. Like if our

[00:03:23] motto is like, we want to bring families back. So we started round square in 2015 and kind of history

[00:03:28] from there, we went on to build, you know, a ton of middle housing units, but honestly, again,

[00:03:33] like every entrepreneur, real estate person, we went on to build like a medical center.

[00:03:38] We did multifamily mixed use mid rise largest project was in Winnipeg, which had a heritage

[00:03:43] restoration, 200 units, seven story concrete building. And so really like, like took like the

[00:03:49] expert course in real estate. And I've learned the hard way of like what you can and can't accomplish.

[00:03:54] And just by learning, by hitting the ground running.

[00:03:57] Yeah. You played, played real estate on legendary mode for all my Halo fans out there.

[00:04:03] Yeah. It's funny. I love how, I love how the story starts. Obviously you're, you're far from a

[00:04:09] real estate agent now, but you know, the story usually starts with, I actually didn't know that.

[00:04:13] So that's hopeful as you're giving me hope as a, as a realtor who has ambitions to one day be able

[00:04:19] to be take pride in what I tell my kids I do for a living. Yeah. I love, I love the, I love the

[00:04:25] progression and the story through. So, so let's, let's walk through maybe that progression outside of,

[00:04:30] you know, okay. Did the real estate thing, got the briefcase, you know, put the suit and tie on and

[00:04:34] you're obviously very not much, not a suit and tie briefcase guy anymore, which is great.

[00:04:40] Started with like the luxury stuff, did some of the side by side, but you are in a very,

[00:04:44] I I'd say niche, but almost emerging market of, of construction right now. Tell us about what kind

[00:04:52] of projects you, you build and we can go into your education on helping other developers kind of

[00:04:58] enter this niche, but, but talk to us about the missing middle.

[00:05:02] Yeah. So I guess Nick, what I would say, like I started where everybody started, right? Like

[00:05:07] I was an entrepreneur. I wanted to make money and everyone said that how you make money is in real

[00:05:12] estate. And, and one of the things I would say that I did that I no longer give this advice,

[00:05:17] but like to each their own, it's like, there's so many great people out there that are doing amazing

[00:05:22] things that need support, including ourselves. Like we're always looking for great people. And so

[00:05:28] my brother was probably my biggest mentor in real estate, but we were both cutting our chops together.

[00:05:32] Like he hadn't made it. I hadn't made it. We didn't really know what we were doing. And so

[00:05:35] I learned the hard way and there's a lot to be said by that, but I also think there's opportunities

[00:05:40] now to collaborate and learn from others. So I would just premise by saying like,

[00:05:44] if I was to give anyone advice on your podcast, on your network is like, learn the hard way, but go,

[00:05:50] go learn with other people who are doing things. Cause there's just,

[00:05:52] I think people underestimate the ability to learn and failure in real estate is like,

[00:05:57] you're one deal away from bankruptcy. Most people don't understand that, right? Like

[00:06:01] you're personally guaranteeing everything. And so I've learned the hard way that you don't sleep at

[00:06:05] night when, when you make bad investments. And so my advice is now to most people is like,

[00:06:10] go learn with someone else who's made it that can teach you the ropes. And that kind of leads into,

[00:06:16] you know, Nick, where, where my career has taken a turn, because I went from thinking that this was just

[00:06:21] about entrepreneurship. And then you quickly learn that housing is so much more impactful and impacts

[00:06:26] a vast multitude of public, private interest holders, you know, stakeholders, neighbors who

[00:06:31] live within those communities. And so I really started to learn that this is not just about

[00:06:36] architecture and luxury and, and like selling at the highest price per dollar. Cause that has

[00:06:41] implications to people and how they live in the long-term implications. And, you know, my parents

[00:06:46] were immigrants, they were refugees. The first place they lived in was a basement suite.

[00:06:50] And so I just feel like, you know, as a kid, I'm a very proud Canadian. I'm super humbled and honored

[00:06:55] to have this opportunity to live here. And so for me, Nick, this became a journey about like,

[00:06:59] how do I give back in a way that can be meaningful, but also still find a way to make money. And that's

[00:07:05] always been my thing is like, I think there is a way to provide impact and opportunity for folks

[00:07:11] while making a living for me and my family. And I think that's kind of the line that I'm walking.

[00:07:16] And so, you know, you guys talk about so many different forms of housing on the podcast.

[00:07:20] So I feel like some of your viewers would have an understanding of what missing middle is, but,

[00:07:24] you know, we were taking single family wartime bungalows in the established neighborhoods that

[00:07:30] originally could only be one other house or two other homes. And for the last like, you know,

[00:07:35] decade, we were going through this like arduous rezoning process to turn those into four units at

[00:07:40] one time and maximum four. And then we got to six and then we got to eight units.

[00:07:44] And now, you know, in Calgary and in Alberta, some of the most progressive policy in the entire

[00:07:50] country where the standard home can be a minimum of four, but up to eight units as of right without

[00:07:57] no rezoning permit. And so I like to believe we played a role in that. I've now delivered on over

[00:08:03] 300 of these units, Nick. So as a developer with RoundSquare, you know, we were actively,

[00:08:09] that company's actively delivering 160 units today. And these are, these are eight units at

[00:08:15] a time. So 20 separate sites, eight units at a time. And they're primarily all purpose built rental,

[00:08:20] but I, I've done a huge stint back in 15, 16, where we had sold a hundred of these. And so I've,

[00:08:27] I've, I feel like, you know, throughout Canada, we're probably one of those firms that has had

[00:08:31] a huge understanding of what it takes to deliver this and what are all the constraints and what are the

[00:08:37] unknowns and what are all the factors that it comes to. And, you know, the reality is most people don't

[00:08:42] stay in the middle. And you guys know this is because it's incredibly hard to scale. It's so

[00:08:47] nuanced and difficult. And if you're going to rezone four units, you might as well rezone 400 and put

[00:08:52] all your emphasis on one project. And so like every developer that I've ever met, like us, we had that

[00:08:58] same trajectory. What's really interesting for me is this coming back to say, well, hold on a second.

[00:09:03] This, this form is one of the ones I'm most proud of. I've brought families back. I get calls all the

[00:09:09] time about like families who now can live and rent in the inner city, because the only thing that was

[00:09:14] available before was a duplex. And it was like well over a million bucks now. And so it's just really

[00:09:19] meaningful work now to see how these communities are changing, shaping, shifting, and how families now

[00:09:25] have an opportunity to live in these walkable places and might not have a car. It might only have

[00:09:30] one car. And so, yeah, it's been, it's been, I feel very fortunate to be doing the work I am.

[00:09:35] Yeah. I think, I think I just want to jump in on, on, and speaking of jumping, it's almost like

[00:09:42] the middle is kind of like that, just that like leap pad or whatever, that lily pad that, you know,

[00:09:49] you'd hop on and you hop off kind of thing, right? It's just a touch point for people along their

[00:09:52] investment journey, right? Everyone starts with the, with the duplex and then builds a portfolio and

[00:09:57] then they get into maybe development, but they realize that, okay, you know, if I'm developing

[00:10:01] eight units, I may as well be developing 80 because the profits are way bigger. I'm already

[00:10:06] doing all the work. And I think that's where the problem has been. So, you know, I got a lot of

[00:10:10] respected admiration for you being able to be like, no, I'm not doing the big, big developer stuff.

[00:10:15] I'm, I'm going to do the big stuff, but parceled out with, you know, all these different units and,

[00:10:21] and really provide a housing type that, that the country desperately needs. And, you know,

[00:10:25] from the financing standpoint, that's also the same thing, right? Like this whole, like,

[00:10:29] let's say two to 10, two to 20 million Mark really gets overlooked by a lot of the, a lot of the

[00:10:35] lenders and a lot of the brokers in the community across the country, because again, it's the same

[00:10:39] amount of work for less money. So love, love to see it.

[00:10:45] I would say until it isn't, I guess, right? Like that's when, that's where you're,

[00:10:49] and I think that that's where you're, maybe we can start with, with some of the things that

[00:10:52] you've been doing with middle, but like that, that, that gap, like the, the effort required to

[00:10:59] zone four versus 400 units in the policy environment should be different. Right. And, and this is

[00:11:04] something that I think you're working to change with a lot of municipalities. So can you, can you

[00:11:07] tell me a little bit about that? Yeah. Maybe I'll just quickly touch on what Nick said though,

[00:11:12] because I think there, there is some importance here. One of my mentors, one of my favorite developers

[00:11:17] in the city of Calgary, they own Battistella developments and Paul is the son. So second

[00:11:23] generation developer, his family was like an Italian family who was like a bricklayer. They built

[00:11:29] an infill back in like this eighties, I think. And they won the governor general award for building

[00:11:34] a side-by-side duplex. They went on to build like the most coveted middle housing project in

[00:11:39] Connaught Gardens that everyone should go look at. Cause it was like, I'm talking years ahead of its time,

[00:11:44] cottage cluster courtyard with secondary suites and absolutely like, you know, broke that part

[00:11:50] of the city at the time. Cause everyone was so frustrated. And now it's all high rises,

[00:11:53] but I had Paul on the, all on the podcast. And what he said to me was like, if it wasn't for

[00:11:58] that housing form, he doesn't know if his family would have ever gone on to do what they've done.

[00:12:04] And just for context, like Paul's family has built over a thousand residential units now,

[00:12:09] all within established neighborhoods, all mixed use multifamily. And the vast majority of those

[00:12:13] are owned by other Calgarians. And so one of the things I talk about is like,

[00:12:18] we keep talking about the housing crisis and no one wants to take the time to plant seeds.

[00:12:24] And so for me, that's where middle came in. Daniel was like, I want to plant seeds and build roots.

[00:12:29] I know you don't get to see the fruit of the loins all the time. Everyone wants to eat the apples

[00:12:32] before we even have the tree. And so for me, it's like, I know that we've learned a ton in middle.

[00:12:37] I know that in order to solve the housing crisis, yes, we need trades, but more than anything,

[00:12:41] we need entrepreneurs and we need developers. And so when I looked at the ecosystem, I said,

[00:12:46] who out there is teaching people how to do what we've done? And there isn't a lot. And I know how

[00:12:51] costly those mistakes are. Just last week, we had a client that wanted to buy a site who didn't

[00:12:57] actually do a stormwater management look at, like with a civil, which literally is a five-minute

[00:13:02] conversation. I got an email back in less than 10 minutes saying, hey, there's no storm on that

[00:13:06] site. It's going to be about $2,000 per meter to upgrade the storm, 50 meters, like a huge project

[00:13:12] killer. And so these are the type of things that I think we're helping on the ground level that are

[00:13:17] becoming impactful. We've built an education curriculum. We have a mentorship program.

[00:13:21] But I would say like, we're also trying to solve these problems top down. Like you just said,

[00:13:27] Daniel, like four units shouldn't be the same as 400. They shouldn't pay the same DCC fees.

[00:13:32] They should have a way to move through the system quicker. And so planning departments in general,

[00:13:37] just don't have the infrastructure because no one was applying for these things at the scale they

[00:13:41] are now. I can even tell you building codes didn't know how to deal with like a suite and a secondary

[00:13:47] unit and a laneway. Like I did a project in Calgary, first one ever, believe it or not,

[00:13:54] which is crazy because it's not huge, but it's a semi-detached. It's got secondary suites.

[00:13:58] It's got laneways on the back. Okay. The fire, the fire, like the building codes, people were like,

[00:14:04] well, you need to go and put up a sheer wall and make sure you sprinkle over the whole back and

[00:14:09] do all these things that have never been done before. But, and the proximity from the laneway

[00:14:16] home to my actual home was significantly larger than some of our more dense projects. And so

[00:14:21] I guess what I'm saying is like, I was able to show them physically through the experience of what

[00:14:26] we've done that that's not required of what we're building is actually more safer than what you've

[00:14:30] been allowing to be built in other environments. And so luckily they came out to my site. I had 12

[00:14:35] safety codes officers. I had the director of the department in my backyard kind of showing them like,

[00:14:40] look, like this is a proximity. And so I would say to you, like, not only are we advocating for

[00:14:46] change on the top end, not only are we educating, but I'm also still here with people. Cause I think

[00:14:51] that's so important is like, you got to lead by example, not just through voice. So like,

[00:14:56] I appreciate all the folks who, you know, are gurus and telling people what to do, but like,

[00:15:00] just know that if I'm telling you, or if I'm giving you advice, it's because I'm here and we're here

[00:15:05] cutting our teeth and trying to find ways to make it simpler for the entire ecosystem to prosper.

[00:15:11] On that note about making it simpler, I think, Nick, do you want to like chat a little bit about that

[00:15:18] market need piece? Cause I think it's something we think about a lot. Like we're really in touch with

[00:15:21] that. We hear our audience constantly saying like, these are the things missing, but it feels like

[00:15:27] policymakers aren't listening or they just, they haven't heard. And finally, I think you're probably

[00:15:31] the one person who has like the mainline access there. So what do you, I don't know, Nick,

[00:15:36] do you have anything you want to add there? I do. And I also just want to commend you Al for,

[00:15:40] for, you know, you put your money where your mouth is. Right. And I think in,

[00:15:44] in today's environment, today's social media world that we live in, it's very easy for,

[00:15:50] for people to, you know, kind of red herring people into, Hey, look at, look what I know,

[00:15:55] but have you done it? And, and you're a man that has, that has, that has done it. And that's a,

[00:16:00] that's a principle that Dan and I abide by too, whether it's on the podcast here, you know,

[00:16:04] that's why we have you on here because you are one of the, the, the loudest and most impressive

[00:16:09] voices for, for this in the, in the country. So, you know, for our listeners that a lot of them,

[00:16:17] a lot of them are, are, you know, taking that, that kind of climbing the investor property ladder

[00:16:23] where, you know, they start with that, the duplex or the single family and put the basement suite in

[00:16:28] or whatever it may be. And as they work their way up a lot, I've heard this more so in the last year

[00:16:34] than, than ever before about the interest in, in doing some of the things that you're talking about.

[00:16:39] So let's talk about what an investor needs to become a developer of small cap housing. Like

[00:16:47] what does the market need? I mean, we, let's talk about things like debt levels, you know,

[00:16:53] experience levels, covenant, walk me through the requirements, the prerequisites to, to,

[00:16:59] to get involved with, with the type of construction and development you're doing now.

[00:17:03] Yeah. So, you know, I'm, I'm lucky to be able to like text Dan and ask him questions because we

[00:17:08] don't have much of an East coast presence. So I usually like rely on Dan, Nick, and even you to

[00:17:12] tell me why things are, are not penciling in certain markets, but I can tell you the prairies as a whole

[00:17:18] and secondary tertiary markets in general have this enormous opportunity because of where the land

[00:17:24] basis costs are, where the rent levels are. And we all know this like CMHC MLI select program

[00:17:29] has become this like incredible tool that folks are using in order to build more purpose-built

[00:17:35] rental housing. And it's funny, Dan, I saw your clip where you're like, no one should be getting

[00:17:38] 90% load to cause the money to die. And I was like, I totally appreciate that in certain,

[00:17:45] in certain.

[00:17:47] Actually, it is interesting because the fall, I said to our editor, I was like, you gotta,

[00:17:51] you gotta put the full one there. And I, and that's why I said, watch to the end. Cause I thought

[00:17:54] that it, it did have the full clip, but I was like, I would, I, I don't think anybody should,

[00:17:59] but if we're going to do it, I would rather it be four units service or sorry. Yeah. Four

[00:18:04] income servicing these loans. Like I would rather the government, everyone's like, oh, government

[00:18:07] shouldn't be in, in ensuring fourplexes. I would rather they ensure a fourplex than a first time

[00:18:12] home buyer. Who's not, you know, 20 X levered on one or two incomes.

[00:18:16] Yeah. So we're, we're aligned. And that, that's really what I was going to say, Nick is like

[00:18:20] the game changer here has been like an opportunity for the federal government, for municipal governments,

[00:18:26] for provincial governments to say, if we should incentivize anybody to build more units, who

[00:18:32] should it be? Should it be large private REITs? And I'm not saying it shouldn't, but I'm just

[00:18:37] telling you that like, we need those guys to produce units. If they're running into barriers

[00:18:41] and they're not producing units and supply, that's a challenge. What I'm saying is an enormous

[00:18:45] opportunity is to fund the listeners in your program who want to become entrepreneurs, who

[00:18:51] want to actually make a difference in housing, who want to figure out how to pursue this,

[00:18:55] but also to existing homeowners who have owned these homes for a long time and need to care

[00:19:00] to understand how do they weigh this process? What is the risk they need to take? Like you

[00:19:05] can imagine telling like, you know, someone in their sixties and seventies, like, Hey, let

[00:19:09] us tear down your home so we can go out and put eight units and you can become a landlord.

[00:19:13] Like it's, it's not easy. And I think everyone's like, Oh yeah, it's going to be so simple.

[00:19:17] Like nothing in life is simple. If it was like, it wouldn't be real. And so we have to make

[00:19:22] sure that everyone understands like there's a process here. It takes time. It takes a lot

[00:19:26] of work. And so I would tell you the vast majority of the clients that we're helping today in

[00:19:30] our development forum group. So folks join our forum group. We have 10 of them. They're working

[00:19:35] on about 150 units. All these folks are first timers or have never actually have built,

[00:19:40] like have built single family, but have never built middle housing. And we're helping them

[00:19:43] through this journey right now. They're between Calgary and Edmonton. And so, you know, we're

[00:19:47] working with them on their performance. We're working through their storm servicing. And so

[00:19:51] the general rule of thumb, Nick is, you know, 25% net worth of your loan value, 10% liquidity

[00:19:57] is what CMHC is looking for, for you to get approved for MLI select. That is becoming more and more

[00:20:04] challenging with some of the rules that are changing. And you guys know this, and we're part of the

[00:20:09] housing supply challenge. And so, so much of the work that we're talking to CMHC is about is like,

[00:20:14] we need to find ways to allow for homeowners to participate in this change. If you want to see

[00:20:21] gentle density occur and have the homeowner be part of that change, we need more financial

[00:20:26] mechanisms that are benefiting them and also benefiting the industry so they can come together at this

[00:20:31] small scale to execute on this. And so some of the gaps are like, you have to have development

[00:20:36] expertise in order to actually access the loan. But you can kind of shore those up by having, you know,

[00:20:41] the right contractor that's done it before the right architect team. And so there's ways in which

[00:20:46] you can do it if you can meet the liquidity and net worth requirements. And so really what we've been

[00:20:53] exploring in the middle is like, what are the constraints and what are the levers and financing

[00:20:57] continues to be a lever that continues to be challenging for folks. And lenders generally don't want to play in

[00:21:04] the two to 10 to $20 million space, 20, maybe so, but let's call it two to 10. They just, it's the same

[00:21:10] thing. Why would they go through this mortgage application process to deal with someone who's

[00:21:14] never done it before versus a vet who has a 50 to $100 million loan? They're all just so much more

[00:21:20] attracted to those loans. And so we almost need a bit of a cultural shift when it comes to why this

[00:21:26] form is important, who is willing to help us invest in this form. And I would just say,

[00:21:31] we're starting to see that traction take place. Like we have a, we have a partnership on MOU with

[00:21:37] Vancity in British Columbia, who's really eager to support small loans because they have a mandate,

[00:21:43] they have a social component, they're a credit union, like that's part of who they are and their ethos.

[00:21:48] And so excited to explore what that looks like is we bring homeowner four that have taken the course

[00:21:53] that we're supporting, that we've kind of helped underwrite the development side to get access to

[00:21:58] actually debt or capacity loans to actually proceed and move forward.

[00:22:02] Yeah. I know Dan's got some stuff on the financing, which I think is a huge piece to this,

[00:22:08] obviously, but I had a couple, I just wanted to touch on a couple of things. One, it's great to

[00:22:12] hear that you're, you know, that the team element there is something that you're bringing together,

[00:22:16] right? Because I think that's where a lot of these people, these first timers,

[00:22:19] not only are like, they're not going to be able to do without the, without that contractor or

[00:22:24] that property manager expertise, that type of stuff. Right. So, you know, we've seen a lot

[00:22:29] of that as well. One other funny thing is, you know, I guess it's a lot of education and,

[00:22:35] and a bit of a sales pitch as well, right? You're not just knocking on, you know,

[00:22:39] Nona's door saying, Hey, you've lived here for 50 years. Let me tear your house down

[00:22:42] and build eight units and you can be a landlord. Like, you know, so just like with everything in,

[00:22:48] in emerging markets and emerging new tech and everything like that, there, there's a bit of a

[00:22:53] sales pitch, right? So, and not even just sales, but, but education and really kind of showing the

[00:22:59] value on, on the flip side. Last question from, from me, Al is, can you, can you kind of go through

[00:23:06] and just provide some examples of the necessary people and, and pieces to that puzzle of the

[00:23:14] missing middle power team, right? You said, okay, you know, covenant being net worth and liquidity,

[00:23:20] that would be kind of the first puzzle piece. You're not even building the puzzle. You're not

[00:23:24] even buying it without that. Talk to me about the other players that you need, that you can bring

[00:23:28] in and absorb into that team to make something like this happen.

[00:23:31] Yeah. So maybe I'll just quickly touch on, on the Nona piece, because that is a huge thing that

[00:23:35] people think is not possible. And I think, I think we got to answer that question. And so like,

[00:23:39] we've had the opportunity to work with one of the largest modular manufacturers

[00:23:43] in the country and help them kind of develop a skew, which they can produce in their factories

[00:23:49] within two days. They could have it out to site within a week and they're doing it. They're doing

[00:23:54] it, Nick. Like we're going to see their first project in Calgary here. It's 32 units. The beauty

[00:23:59] of this project is like the entire, like, so think about an eight unit corner. If you have a standard

[00:24:05] lot in Alberta, 50 by one 20, 6,000 square feet, typically lane loaded. They're doing four

[00:24:12] at grade fully accessible units. And then four townhomes, like kind of the Montreal stacked on

[00:24:18] top. Why I love this is because like, okay, well now Nona just has to really like pack up her things,

[00:24:24] store her things. And then she can actually come back, live in the place she's grown up her entire

[00:24:29] life and not have to vacate that community to a senior's facility or age out of place too soon.

[00:24:34] And so I really believe this opportunity is real. It's getting closer and closer every day.

[00:24:40] And the friction that it would really occur is more of a cultural habitual friction, right? Like,

[00:24:47] and I think when we speak to Nona, we're actually speaking to her kids, her grandkids and her

[00:24:52] neighbors and people she loves that want to be in that community. And that message is resonating now. It's

[00:24:57] like, as soon as you talk about someone's grandbaby or their babies, they're much more emotionally

[00:25:02] connected about where those folks are going to live. And, you know, Nick and I, you and I were

[00:25:06] talking, both gone into golf recently. It was so funny. I was at one of the inner city courses here

[00:25:10] playing and I was like sitting next to this elderly couple. And they were so frustrated about how they

[00:25:15] have to drive 45 minutes to their kids' house, like out in the suburbs, but they don't recognize

[00:25:21] like that. If I said, but Hey, do you realize that's because you're only allowed to build a single

[00:25:26] family home in your neighborhood and you're the one opposing it? Like maybe it's hard for people to see

[00:25:31] that. And so part of our work is like just making those connections and making sure people understand

[00:25:36] all of these things are tied together. And they're very emotional. You're talking about people's homes

[00:25:41] where they've lived communities, they've lived on in a certain way and you're asking them to change

[00:25:45] that. And so I have a ton of empathy for, for everyone. I know everyone's like, Oh, you must hate

[00:25:49] Nibis or no, it's like, I actually love hearing people's stories. I think they all are important and

[00:25:55] they all kind of help us get to where we need to be eventually. Um, and now, now what I'm hearing

[00:26:01] is, what I'm hearing is, is known as our, an official part of the power team now, which

[00:26:05] is absolutely critical and we cannot undermine them and shoot them aside and think that change

[00:26:13] is happening anyways. And they need to get on board. We won't solve a problem if we do that.

[00:26:18] When you talk about the power team, most people don't know, but like you guys know this,

[00:26:22] like, I'm not an expert in finance and construction and architecture and urban planning. Like, I don't

[00:26:28] know all those things, man. Like I, I know enough to be dangerous in each one of those, but I, as a

[00:26:35] developer my entire life, what I prided myself on is trying to put better people, smarter people than

[00:26:40] me in the room and, and very pointy people and experts in each place. And so when folks are like,

[00:26:46] Oh, development is like too complicated or it's too risky, or you're, you're, you're selling a false

[00:26:51] set of tools. It's like, no, like all we do as developers is put together people and we dissect

[00:26:56] information. And so I just think it's important that most people know that like being a developer

[00:27:01] isn't a superpower. You need to rely on experts. You need to bring those people together. The vast

[00:27:06] majority of the time for smaller companies and smaller startups, those experts are always consultants

[00:27:11] and they're always on the external. Like how many developers do you know that have an architect

[00:27:15] on staff? Like not going to happen. How many do you know that have legal on staff, like accounting

[00:27:20] on staff, small firms just don't have that capacity. And so our job is to really bring those

[00:27:25] experts, bring those voices and share. Like, I think people are so afraid to share in the ecosystem.

[00:27:32] Dan and I were talking about this middle housing makes up a fraction of the housing spectrum. Like,

[00:27:37] let's be honest, right? Nick, like Dan and I talked about the parallels of craft brewing.

[00:27:41] Like you remember when craft brewery started, like buddy had a cool recipe, would swing over to buddy's

[00:27:46] garage and then help him figure out a recipe that worked for them. Like that is what we need to build

[00:27:50] for middle housing to actually take off. And when you think about how much of the beer market does

[00:27:55] craft brewery make up, it's still like sub 25%. So it's not like you and I are competitors. It's like,

[00:28:00] no, we're never going to be competitors because we'll never be able to build enough of this supply.

[00:28:05] So let's share and actually lift each other up. And that's what I would say is like,

[00:28:10] in order for us to see this solution scale across the country, that's what it will require.

[00:28:16] We can't go out and buy, you know, 10,000 homes at once. It's not how middle housing or gentle

[00:28:21] density works. Change happens incrementally over time as you acquire, you know, one site and someone

[00:28:26] else does. And so, you know, as we start to like wade through the data, have a really good understanding

[00:28:31] of how many single family homes are there in Edmonton, in Calgary, in Regina, in, you know,

[00:28:37] Kelowna that would apply, we get a better understanding of like, what is the actual

[00:28:42] absorption rate that we would see based on the current economic climate?

[00:28:46] Yeah. I think one of the things that we've chatted about, like you mentioned on the,

[00:28:51] I think you understand the other components of a good team better than I do, which would be sort

[00:28:56] of like your planner, your architect, et cetera. But one of the pieces that you mentioned was like,

[00:29:01] you know, finance having like almost like an in-house CFO or, you know, like you'll get to

[00:29:06] these bigger companies where they have these institutional structures. They're representing

[00:29:10] institutional capital in a lot of cases, you know, large funds or family offices or whatever it is.

[00:29:15] And missing middle doesn't really have the ability to do that. Like Nick and I have always said,

[00:29:23] there's this area that's forming where deals are too big for the small guys and they're too

[00:29:28] small for the big guys. And so the capital market has a missing middle as well. And something that you

[00:29:34] and I have talked about a lot and trying to build a solution. And this problem has only been

[00:29:38] exacerbated by the recent changes to CMHC's MLI Select, where basically the broker channel has been

[00:29:44] erased and the brokers were the ones doing the underwriting for a lot of these smaller deals.

[00:29:48] And CMHC was ambitiously funding smaller deals. Like everybody knew sub 5 million, you know,

[00:29:54] your processing time was a lot faster than these large deals. There's risk that that environment

[00:29:59] could change and kind of go away. And we already know that the wait times for CMHC MLI Select on the

[00:30:05] construction side were a bit of a prohibitor. Where do you think the finance world can create something

[00:30:11] to make middle more possible? Like where are the necessary... And understanding that like

[00:30:19] your large banks aren't going to play in that space because it's not meaningful enough

[00:30:25] market size, I guess, like TAM, the total addressable market, the projects on an one-by-one basis aren't

[00:30:30] big enough, I would say. Yeah.

[00:30:33] What are your thoughts there? Man, so you're kind of like, if I had to,

[00:30:37] if you said, I'll pick the top three constraints that you think are the issue, obviously we have to

[00:30:41] have the right policy, the right economics in place to make these things viable. The second thing is we

[00:30:47] need to have transparency. We need to have capacity. We need to have knowledge of the sector.

[00:30:52] But the third thing that we continue to struggle with is like, where is the capital markets to

[00:30:56] support us once we're actually gone through those first two? And Dan, you and I have talked about

[00:31:01] this at length. Like I've been doing this my entire career and you still don't understand how

[00:31:07] hard it is to acquire a land, a piece of land, like a land loan. And like, I know, I know like whether or

[00:31:14] not a site works like the back of my hand, I can tell you with certainty with our team and the tools

[00:31:18] that we build. And even for someone like me, it's difficult to get a land loan. We often have to go

[00:31:23] and defer back to the mezzanine because a lot of folks don't want to fund land and you're too small

[00:31:28] and you don't have the portfolio size. And so the biggest challenge right now is even getting a land

[00:31:33] loan is incredibly difficult. And so I think like you've said it, there's a middle market that is

[00:31:38] not being serviced and a lot of people don't see it. They also just like, it's the same, it's the

[00:31:42] same issue. It's like, why would I go through the waiting of trying to understand whether or not

[00:31:47] a land loan makes sense here when I could go do other, you know, mezzloans or do renos with people

[00:31:52] that I've done before. And so I think land loans are absolutely critical component of this. But I think

[00:31:58] as you've just talked about and alluded to, I don't think CMHC quite understands that they've really

[00:32:04] compressed small loans even further with the recent policy change that has basically eliminated

[00:32:09] the brokerage market because big banks don't want to do, first of all, they didn't even want to do it.

[00:32:15] We had clients then that had a CMHC COI in hand for a $3 million loan. And it took them like almost

[00:32:21] more than almost six months to place the loan that their COI almost lapsed because no lender wanted

[00:32:27] to take it. That's a CMHC insured loan that couldn't get placed. And so, you know,

[00:32:34] you kind of, I told you I disagreed with the 90% thing, but what I am, what I am a big believer in is

[00:32:40] we have to find a way to keep the market moving forward without public sector, you know, money

[00:32:45] incentives. We got to create a viable business option. And so I think there's this emerging market

[00:32:51] that will, that is finding ways to actually allow for construction to take place and can fund

[00:32:57] construction, maybe at not, not 95, but maybe at 85, maybe at 80, maybe at 75. And then there could

[00:33:03] be a takeout mechanism, which then the government feels a lot better because they're taking out

[00:33:07] these loans. There's less risk. And even banks are like, well, the assets there. And so that to me is

[00:33:13] a very sizable, addressable market that I know, like there was a brokerage in the city that I had spoke

[00:33:19] to. They had 60 small loan, eight units or less applications that they were trying to get in the

[00:33:26] doors prior to September. And now that the policy's changed, they're basically advising all their clients,

[00:33:32] they need to look at conventional loans. And so the market will grow as policy and as the economics

[00:33:39] make sense. And I think there will be room for these to look at more of a conventional construction,

[00:33:44] particularly for those who had never done it before, if it continues to be challenging to get

[00:33:48] those folks into SteamHC. Yeah. I think one of the interesting pieces too, is that, you know,

[00:33:53] if the person already owns the home in a lot of cases, like a portion of that loan has been

[00:33:59] amortized and or they've seen some equity growth. And so, yeah, you might end up being like,

[00:34:04] you know, at a lower loan to value against construction costs or lower loan to cost against

[00:34:09] construction costs. But if you account for that equity, most people are probably capable of

[00:34:12] achieving that if that can be factored into the capital stack, which in traditional development,

[00:34:17] it would be right. You would get your land, you would entitle your land, you would borrow against the

[00:34:21] new value that you created on the entitled land. The part that I find most interesting about what

[00:34:25] you're describing is that the agility of missing middle creates this huge competitive advantage

[00:34:31] against more traditional, like large scale formats where developers can have a more, let's call it

[00:34:38] elastic demand. They can be less sensitive to higher interest rates because projects can be completed

[00:34:43] much quicker, right? Like if you can get a middle project done in a year where this, you know,

[00:34:49] comparable steel or concrete or large ground-based subdivision would be years and years to delivery

[00:34:57] that exposes, and we're seeing this now in Toronto, especially that exposes the project to a ton of

[00:35:02] market risk that eventually becomes the bank's problem, which is what we're learning right now.

[00:35:08] Whereas these, you reduce your market risk and you increase the ability and the willingness probably

[00:35:14] for the developer to pay a higher rate. I think it's a huge opportunity for a finance group

[00:35:18] to bring something to the market. I mean, it's something we've talked about like relatively

[00:35:22] seriously that we want to do. So we should have some subsequent discussions about that.

[00:35:26] Yeah. Like, I mean, if I like a call to any of your listeners out there, like we want to stand this

[00:35:32] thing up because we have a great understanding of the middle markets across the country. And so,

[00:35:38] you know, you can financial underwrite things to death. We know that like you could,

[00:35:42] you could be completely risk-inverse where you're not willing to lend on any deal,

[00:35:45] but I can tell you that the expertise that we bring in terms of like,

[00:35:49] who's your contractors? Is this developable? What does your budget look like? Like that's going

[00:35:53] to give lenders a lot more security because they're going to be looking at this from a different lens.

[00:35:57] It's almost like development underwriting essentially, right? Like we are now not just

[00:36:01] a quantity server reviewing costs. We're reviewing capacity and ability to deliver almost in like a

[00:36:07] venture studio model, right? Like you think about any of these tech startups that join these ventures

[00:36:11] and hope to kind of get funded or move through. That's essentially what we'd be talking about,

[00:36:15] Dan. And I think one thing I've always been interested in is like, I know how much money

[00:36:20] goes into these larger, you know, call them mid-rise to high-rise. Like you're talking hundreds of

[00:36:25] millions of dollars. So not a lot of diversity, but a lot of trust of capital into one building,

[00:36:31] right? Everything has to go well. You're holding a significant amount of debt. Although we're talking

[00:36:36] about what is administratively cumbersome at some points for some folks,

[00:36:40] because they're going to maybe fund 150 or 200 million over a bunch of different sites.

[00:36:45] You have to believe that that diversity and the level of default has to be lower and the risk

[00:36:51] profile should be better because yeah, one or two may not go as planned, but if we do our job,

[00:36:56] 98 of them are still going to go well. And so I can't help but feel like if I was going to be

[00:37:02] funding capital or the government's funding capital, we can ensure homeowners are well positioned,

[00:37:07] have the right amount of equity or investors or developers are doing this. They have the

[00:37:11] information, you know, what we talked about, they have the right policy. They know how they have

[00:37:15] the know-how and then we give them the money that they need to get it done. Like that's the triple

[00:37:20] threat right there. Yeah. A hundred percent. Couldn't agree more. Amazing. If somebody is interested in

[00:37:25] that, where would, uh, I guess they can contact us and I think we're going to, Oh yeah, we're all

[00:37:31] going to be doing a webinar together next month in November. I forgot where you guys said that. So

[00:37:34] what are we going to, what are maybe just quickly before we wrap up here, what are we going to go

[00:37:37] through in that? I think it's just going to be like a masterclass on, on middle housing, basically.

[00:37:42] The role of Nona's in, on the power team and Mike.

[00:37:46] Yeah. He's bringing his Nona. Actually, she's a panelist on the webinar.

[00:37:49] There we go now. We've got to bring Nona in that. That is that.

[00:37:53] And Al's just going to spend the whole time convincing her to build a fourplex on her head.

[00:37:58] The whole thing will be like, can we convince Nona to move forward?

[00:38:03] I think this should not be a free webinar. I would pay a lot of money for that. I love it.

[00:38:08] I love it. But no, in all seriousness, I think like try to get some experts,

[00:38:12] some groups that are leading the way in their own municipalities or jurisdictions across the

[00:38:16] country. And so there's a lot of groups working on middle housing, which I think is exciting.

[00:38:20] I think connecting those folks, taking learnings from them is kind of the goal, Dan. And so,

[00:38:25] yeah, let's get someone from the West, the East, and hopefully, you know, someone from the prairies,

[00:38:29] myself, and we'll lead that conversation and figure out how to make sure people feel more

[00:38:34] informed about the process and what comes next.

[00:38:36] Okay. Amazing. And yeah, if people want to reach out to you directly,

[00:38:40] if they want to get involved with middle school, talk about missing middle, where can they find you?

[00:38:44] Where's the best place?

[00:38:45] Yeah. So middle.co, mddl.co, it would be great. We have a community, so you can join the community.

[00:38:51] You can hit me up on a DM there. We have over 400 members. There's performance, like videos,

[00:38:57] live recordings, everything that we've done. We have a GIS tool now that we built for the city of

[00:39:01] Calgary, where type in your address, it'll tell you what you can do on your lot. So yeah,

[00:39:06] hit me up on the Circle community. And yeah, I'm on Twitter. I'm saying nonsense every now and then,

[00:39:11] but Twitter's X feels a little bit toxic, but I'm around.

[00:39:16] Definitely got pretty talk. You need a hazmat suit to be on that side.

[00:39:19] You do, yeah.

[00:39:21] Cal, yeah.

[00:39:22] Thanks so much.

[00:39:23] I want to thank you so much, Al, for blessing us with all your knowledge. A lot more to come

[00:39:28] from the three of us as a bit of a unit, as we said, upcoming webinars. So for all you listening

[00:39:32] to want to know more about missing middle housing and what Al is doing kind of in the prairie

[00:39:38] provinces, but working his way across the country, reach out to him, reach out to us and stay tuned

[00:39:43] for more content.

[00:39:45] Yeah. Super honored to be on your show. And again, like I said, big fans of the work you

[00:39:49] guys are doing and all the information you put out. So keep it going. Yeah. I really appreciate

[00:39:53] you both having me.

[00:39:54] Thanks, man.

[00:39:56] The Canadian Real Estate Investor Podcast is for entertainment purposes only, and it is not

[00:40:01] financial advice. Nick Hill is a mortgage agent with Premier Mortgage Center and a partner in the

[00:40:08] G&H Mortgage Group. License number 10317. Agent license M21004037. Daniel Foch is a real estate

[00:40:19] broker licensed with Rare Real Estate, a member of the Canadian Real Estate Association, the Toronto

[00:40:26] Real Estate Board and the Ontario Real Estate Association.