Memories of the recession that virtually paralyzed the new-condo industry 18 months ago now seem dim. Developers have swung back to full steam ahead - with a vengeance.
RealNet Canada Inc. says that from mid-April to the end of May, about 18 high-rise projects have launched or will probably launch in the Greater Toronto Area and they will cover the spectrum from starter suites for first-time buyers to luxury digs for Woofies (well off older folk).
But if you look closely, you will see that the way new condos are being marketed is undergoing a sea change.
In the past, splashy launch weekends were crucial to the success of projects. The developer created a multimedia campaign, often spending hundreds of thousands of dollars in advertising to create the necessary sizzle for the event. The goal was to sell at least a third of the suites on that weekend - and, if possible, a whole lot more. Those sales were important because the faster that 65 to 80 per cent of the units were sold, the faster builders could get shovels into the ground.
With high-rise condos, time is money. The longer a building takes to sell, the higher the interest costs developers have to pay on money borrowed to finance the early stages of the process. In addition, more marketing money is spent in an effort to reach that 65-to-80-per-cent point.
The result is that those extra expenses have to either be absorbed from the developer's profits or passed on to buyers through higher prices.
Late last year, the development community took a close look at how they sold condos.
Was there a better way to do it cheaper and faster? Were there ways to cut costs and thereby maintain profit margins while keeping a cap on rising prices, which were already reaching levels that might exclude a good chunk of the potential market?
Developers came up with the soft launch. Today, what is happening with increasing frequency is that instead of having a blowout launch weekend, developers will first hold private events for agents, brokers, the tradespeople who will work on the building and a select group of their friends and associates.
There will be food; there will be booze; there will be speeches and the assembled company will be able to be the first to make offers on the suitest. Then with a healthy chunk of suites already sold, developers will follow with a scaled-down launch event aimed at the general public.
"It is really a sign that the industry is becoming more professional and more efficient in making use of limited financial resources," says Barry Lyon of N. Barry Lyon Consulting Ltd. "When a full-page newspaper ad can cost $20,000 or more, they had to find a way to make better use of marketing budgets.
"And it wasn't just for their own benefit," he adds. "Toronto has always had a stable condo market with reasonable year-to-year increases in price. They wanted to keep it that way."
One of the things that make soft launches so effective is that most developers have a long list of people who previously expressed an interest in one of their other projects but did not buy there, says Jimmy Malloy, an agent with Chestnut Park Real Estate Ltd. who is recognized in the industry as a whiz at selling higher-priced homes.
"They can then target those people directly. A mail-out is a lot cheaper than a big print media ad," he says.
Mr. Malloy says most investors, new Canadians and high-end buyers work through agents. Investors and new Canadians are crucial to the success of many projects these days. He points out that in many new projects, investors are responsible for up to 50 per cent of sales.
"My view is that new Canadians probably account for about a third of condo sales; without them, the market would just not be as strong as it is today," Mr. Lyon says. "And in my experience new Canadian buyers almost always work through their own agent."
Another factor driving the success of soft launches is that feeling of being an insider, Mr. Malloy says. "People always want to feel that ... they are first in line for new things," he says. "That sense of exclusivity is a big plus with soft launches. If you are invited, you get the pick of the best suites and the best prices."
Soft launches do indeed seem to be working, Mr. Lyon says.
"In the past, projects used to average maybe five to seven sales a month over the life of a sales campaign. Now, the average is more like 10 to 20," he says. "That is largely because of those up-front sales from soft launches."
The end result is that projects get off the ground faster, developers save money, buyers get better prices and the frustration with delay after delay in move-in dates starts to disappear.