Kyle Favell on MoneyTalks
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I don't think it's a secret to anyone who listens to this show is I'm proud of the fact that we are well on top of this challenge when you announce new immigration targets in 2020 in October, and there's no planning behind it. I know Michael Levy and I was just talking on and on about that, but it's such a serious issue.

I think I wrote this this week that I don't think people appreciate the societal fallout from not having sufficient housing. And we know we don't. That's why I was kind of interested to talk about a new model that's out there. We're going to talk with Kyle Favell, who's the director of capital markets in North America Home Finance. Kyle, appreciate you taking time.

Yeah, thanks for having me, Mike. Looking forward to chatting. Now, this is a great model, something that's been tried in Singapore, but you're bringing it to Canada and already bringing it to Canada. But I just give the sort of overview here is that you're talking to investors because, of course, capital invested is necessary if we're going to have new project, new housing. So you're addressing that issue. The other side is, my goodness, the number of people, and this is shrinking, unfortunately, but

they just can't get the down payment together. Maybe they can make the monthly payments, but they can't get it. So it's really interesting. The model that you're putting forward here kind of addresses both those issues. And maybe you could describe it better than I just did, but I'm just describing that's the challenge. And I think Canadians appreciate this as a problem.

Sure, yeah, absolutely. It's one of the most topical things right now. It's hard to turn on your TV nowadays or take a look at your phone and not see housing as one of the main priorities for Canadians right now. So with that in mind, we were sort of looking at different ways that we can help contribute to a solution for the Canadian housing market right now, which

in our opinion, is the primary concern for capital markets within Canada. So we tried to or we did adapt the Singaporean model, which saw them achieve over 92% homeownership, which is a pretty wide gap between where we are in Canada

So their approach was a bit more hands-on than our government is ever likely to get. So we really had to spend a lot of time looking into how we can best adapt it for the Canadian market. And part of what we put a lot of emphasis on when doing that was

developing a structure that was, as you just mentioned, an attractive investment opportunity as well. Because like you said, without being able to attract sufficient amounts of capital, especially within real estate, it's extremely difficult to actually add additional supplies. So in terms of our model, we have sort of two segments, the first being our residential development opportunity.

So we work with some industry experts, some of the best development teams that are out there on residential developments with the focus on a more affordable price point. So for

For some of our studio units on some of our projects, we have price points as low as $300,000. So a far cry from sort of what's been out there. And it's a materially undersupplied market segment. So if you look at the amount of supply or housing inventory in those price ranges, there's not a lot. You have a lot of people chasing not a lot of doors per se.

So the key is, and of course, I can be an investor on that side of the coin, you know, the sort of let's develop those units. As you say, yes, there's a huge scarcity in lower end in terms of expenses, you know, a huge scarcity. And, you know, population's growing, you're choosing your areas, et cetera, like any developer does.

So you've got that side. So I can invest in that side. Let me just give you a couple of quick questions. And I know I don't want to put you on the spot and sort of, you know, these aren't guarantees, but what kind of rate of investment return are we talking? And then I'll move to someone who wants to get in the housing market as an, you know, as a, as an owner there, but let's just, just a quick nutshell on that.

Sure. So our residential offerings are all done through OM. So our target return is sort of the lifecycle of the development. So from getting the development permits, construction financing, all the way through to the completion of the development, along with selling out of the unit. So we typically target a 55% return over that span, which is typically, it'll vary a bit by project, but around a 36-month timeline.

Right. Okay. And now I'm going to go to the other side and it's kind of like, you know, so as I say, the stats are clear. Yes, it's getting less affordable for sure. But there are a lot of people out there who can't do the down payment, for example, but they could do the monthlies, you know, and all the, all that comes and we're well aware of all the expenses that are added on. You know, I mean, I, I pay insurance, I pay property taxes, you know, that, so it'd be, so you're allowing a gateway into ownership for those people.

And so I want you just to, I mean, that's a great interest to a lot of people, a lot of younger people. So maybe explain that a little bit.

Yeah, absolutely. As myself, as a millennial, I've seen firsthand how difficult it has been, even for my friends who have successful careers and then have a high disposable amount of income to save up the necessary amount of capital for a down payment. Just because between their current rent payments and life expenses, obviously the cost of living right now is higher than it has been in recent years. So it's become a larger significant challenge for people

younger people to save up enough for a down payment and even older generations as well. So we really wanted to develop a product or a strategy that could act as a bridge between traditional renting and traditional homeownership. And I'm sure there's a bunch of people yelling at me right now saying, well, what about rent to own? But rent to own was a bit of a flawed model. So we looked at that and we looked at it and we wanted to improve upon it. So what we actually ended up doing was

In exchange for typically around a 1% down payment, we are sharing 20% of the growth or increase in value on the unit with our tenants. So they're able to participate in the growth of the real estate market, which

for a lot of people right now kind of feels like it's getting away from them, right? Like you feel like these prices are only going up if I don't get in now and lock in or take the rates that are available to me today, I'm gonna miss the boat and it's only gonna get more difficult unless my income significantly increases, right?

I can see that being very attractive for the development side of things too because you've got your customer, if you know what I mean. You're going to build something you want to know, and that's why pre-sales are attractive also. But again, not everyone's got that kind of cash. In fact, very few actually have that kind of cash. But as you say, so it's a 1%.

you know, entry and you can get 20% of the profit, you know, and is there a timeframe by the way, if I, if I move in, am I looking at sort of a seven year, a seven year timeframe, something like that? Yeah. So what we've seen is around typically around year to seven or eight, depending on how much extra somebody wants to contribute towards their equity. So they can add above and beyond what their typical monthly payment is if they so choose.

So they can accelerate that timeline. But what we've seen so far is around year seven or eight, typically our tenants have saved up or built enough equity to afford a 10% down payment. So at that point they can go out and get a mortgage on another unit. They can work with us to potentially get one of our units or their current unit. And it really is more of a true alignment of interest in what is typically a very adversarial situation.

relationship between landlords and tenants. Right. So really just trying to align and create a mutual benefit, which is it's in both of our best interests for the property to appreciate value because they're also sharing. Well, the interest is, excuse me, the interests are very much aligned, you know, that, uh,

You know, people need access to get into that market and developer needs clients. And, you know, to me, it just sounds a lot like I get to own a home. And that's what I mean. Of course, I'm, as I said, responsible for insurance or, you know, the other expenses. But you want the participation. Many want the participation in the equity growth. I mean, we have a history of that. And this allows them to get that foot in the market in that way. So I'm sure you're going to get a lot of interest in this. And the other thing I should mention, you know, because I'm out –

you know, I spend a ton of time in Victoria. Well, Victoria out in Langford, you know, you're already doing something there. Yeah, absolutely. We have a new project. It's actually our, our current, our only, excuse me, our only current offering with allocation availability. We just wrapped up a couple of other offerings. So our new development on Glen Lake, which is about half an hour outside of Victoria is going to be one of the first high rise projects in Langford for

Typically right now, there's nothing over, I believe, six stories. So this is going to be a 24-story project. So really the first of its kind for the area. And also, again, addressing that lower price point market segment that exists there with a large student population as well. So we're really excited about that project. We're working with Avantra Developments.

who's based out in Victoria there. So they have a wealth of experience building over 50 high-rise towers, billions of dollars of real estate. So we have great trust in them, and they're also investing a significant amount of capital and subordinated equity on the offering.

Well, obviously we can't answer all the questions here. You've done a great job, by the way, of, of, but you're doing a seminar or webinar, excuse me, a webinar coming up on June 5th. And I think it's at six o'clock out in the Pacific Pacific daylight times on June 5th, a chance to get more details and more of this information. And we'll put that up on the website, you know, remind people, because I think, as I say, I think this is a fascinating concept and that's the,

you know, you look for a silver lining in some of the challenges with housing. And I mean, it is only, you know, it is a silver lining. There's huge problems. I mean, how horrendous not to be able to get affordable rent, you know, as an example. And, you know, we've seen students suffering all sorts, but the

The silver lining is it creates innovation, motivation for innovation. And that's why I find this so fascinating when I caught hold of this is what you were doing, that we just hope there's solutions like this out there because we've got to make a dent. When you start talking 3.9 million new units by the end of 2030, you know, 2030 or beginning of 231, come on, we need new stuff. Yeah, with housing starts right now around the 250.

40,000. It's it's the projections are something needs to be done. Right. So absolutely. That's going to come from an increase in capital, uh,

So obviously we've already seen different things that the government's trying to implement to reduce the red tape and development fees, stuff like that. Whether that actually comes to fruition is a different story, but the fact that the government's pulling in the same direction as residential real estate is always a positive. And it's innovative strategies like this that are going to help to assist in closing that gap that currently is pretty substantial, as you mentioned. Yeah.

Well, Kyle, really appreciate you taking time. You know, North America Home Finance is the company. And again, the webinar at June 5th, we'll put more information up on our social media, et cetera, to let people get a grip of that and take advantage of it. But I think you're going to spur an awful lot of questions. That's a good place to get them answered. Kyle, thanks for your help here. Yeah, thanks, Mike. I appreciate the time. Looking forward to hopefully having some of your listeners join us on the webinar.