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Chapter Twenty Seven
I had studied the Commercial side of the Real Estate business, I found there was much more money to be made selling Shopping Centers and Apartment Buildings. This is the type of selling I wanted to get into. My first venture into the commercial side of the business, while at Morton-Ho I had made one good sale of a Strip Mall which gave me close to $10,000.00 commission. In 1980 this was good money.
I met with Johnson and told him of my plans, of course he wanted me to stay, not to manage but as a salesman only if I wanted, however, that would not have suited me. I had found Johnson a good and industrious partner whom I believed would be good for Johnson. I really wanted to do my own thing, and be completely independent, so this new partner settled in to do my job.
I wanted to be completely on my own, I did not want to work at someone else’s office. I began my new Real Estate Company as Morton Realty. I found a two-roomed office at 73 Water Street in Gastown, which suited me to a tee.
I however, found Commercial Real Estate at that time difficult to sell, if a salesperson could find a piece of Commercial property showing about a five per cent return, it would sell immediately, however, there were so very few around. So, I needed to find some other way of generating business.
I had a bit of good luck, I was very fortunate to meet a Realtor who had relations in Toronto. Those relations had sent him some listings of buildings on that market. I just needed one look at these listings to make me realize, the land of opportunity was in Ontario.
During my short time in the Commercial business I realized a good salesman had to build up a good clientele, I immediately took the listings for the High Rise Apartments to my first choice of clients, I knew I could work with. They were Sonny and Dave. I went fully armed with my calculations and with some good ideas. These ideas, I explained at length.
Most of the listings showed large mortgages at very low interest rates, however, in order to take advantage of these low rates it would mean a huge down-payment. By doing this, in turn, the return for dollar invested, would in due course give a very low return. My idea was to get the owner of the properties to carry a big second mortgage at the same rate as the first, therefore making the return something in the region of 15%. At first glance, it seemed anyone in their right mind would not do this, but my thinking was, all things are not always equal. I must have done a very good job in explaining my ideas, for both Sonny and Dave accepted what I had to say.
Now began a very exciting time in my Real Estate career. The three of us, Sonny, Dave and myself flew into Toronto that very Saturday. We met the listing Broker. His name was Terry, fortunately he was available to show us around, for none of us had ever been to Toronto. On the Sunday morning, we inspected three buildings which altogether totaled 1364 apartment units. These buildings were in rough shape, but if we could buy them at the price and terms I had figured out, the buildings would give a fantastic return.
As the buildings were high rises, and of course built in concrete, the cost of building them would be somewhere in the region of $30,000.00 per apartment. The offer I made, was for just about $7,000.00 a unit, which really sounded ridiculous, however, it was worth a try. Terry had told me, the owner of the buildings also owned a Hardware Chain Stores, which was not exactly thriving. With this knowledge, we felt confident that we had a chance of having our offer accepted.
I had the offer signed by Sonny and Dave, and asked them for one hundred thousand dollars as a deposit. I asked for this deposit, as I wanted to impress the vendor with the fact my people were serious, and had the funds to buy what he offered.
Terry and I went to see the vendor on the Monday morning, and we presented the offer for the buildings. As soon as I met the Vendor I was aware he had a cash flow problem he really needed to sell the buildings.
It was just a feeling I had, by the manner he greeted Terry and I.
It was my job to impress upon him, that, he had in his hand a genuine offer, which, as it was without subjects, and with a deposit of one hundred thousand dollars, it was a genuine enforceable contract. However, should he, the vendor, alter this offer in the slightest way, the offer would be null and void. The Vendor looked at that offer for about a half an hour.
He continually made points, as to why he should not sign it. He became very insulted that we should make such an offer. All I did was to repeat that he held in his hand a genuine enforceable contract. Eventually, after quite a long time, he signed the offer. We then had to agree on a commission to be paid to Terry and me. This was not easy, for the commission we wanted, was for one hundred and fifty thousand dollars.
The transaction was completed within a few days and I was paid handsomely. I was now on my way, life was becoming beautiful. I had just made $75,000.00 and it did not have to go into any partnership.
We returned to Vancouver with the rights to 1364 apartment units, all the negotiations had been put together in as little as three days.
Sonny and Dave were very happy how it had all worked out, and were ready to buy more if I could get them at the same sort of deal. We all realized it would have to be a Vendor who was as anxious to sell as the last Vendor had been.
So therefore, after Sonny and Dave had bought these apartment buildings, the next thing was to find more. I went back to Toronto, and met up with Terry once again, for he knew the area, and he knew many other realtors who could help us. We found that most listings were of the open kind, so no realtor had exclusive rights. This meant Terry and I could approach the Vendors and deal with them direct.
We found quite a few listings, all of which seemed to suit our purpose. Terry and I then visited the vendors with the idea of finding out their situation as to their desire to sell. We found of course, some wanted far too much for their buildings, and were really just trying what the market would bear, these we dropped quickly as they were a waste of time. Talking of time, we had to move fast, as word was out already that there was big time buyers in town.
We did find a company with 1700 units, this company was Olympic York. These people really wanting to get out of the Real Estate market, and head in a different direction. Their trouble was they did not have a very good management team looking after the renters, so the buildings were run down and they were losing lots of money.
Terry and I had already found an excellent Management Company to look after Sonny and Dave’s buildings. The team had transformed the buildings we had already purchased. In a very short time they had taken buildings that had been dumps, and increased their value. It was assumed that given time, they would bring them up to very much better standards.
When I returned to Vancouver and showed the details of the Olympic York’s buildings to Sonny and Dave they were more than interested. They would however, need to sell one of the original buildings, this was needed in order to raise the cash to make an offer for the 1700 units held by Olympic.
The very first person in Vancouver I showed the figures to, for one of the buildings owned by Sonny and Dave was interested. He immediately agreed to travel to Toronto to inspect that building. Once he got there, it was a simple matter of arranging with the management company to show the new figures, and give the Purchaser confidence that not only should he buy, but, they should remain as the management company, and the buildings would then be well looked after.
Everything made sense to the Purchaser, so he bought that one building, allowing Sonny and Dave to make an offer on the 1700 units belonging to Olympic York. Of course Sonny and Dave made a good profit after such a short time, and I made a good commission for the sale.
The purchase of the Olympic’s units was not made as easy as the previous one, that situation certainly couldn’t happen twice. The General Manager for the Vendor was not too smart, or he was being crafty, for the deal we presented to him was turned down as ridiculous, and would not listen to our explanation, in order that to keep an offer in good standing, it was not to be altered. He altered it. We had to work in a different way. We knew, the powers that be in Olympic York, were pressuring the Manager to sell these buildings, so we left him with no word from Terry or I for two days. That time is all it took before he was back to us, with a very attractive counter offer, one that now started to make a little sense.
We knew Sonny and Dave would accept the counter, however, we also knew this was not the bottom line for Olympic York. Sonny and Dave’s never had wanted to keep any of these units in Toronto. The whole idea, was that we would sell the units after the management company had cleaned them up. They made them look much better, which of course increased their value.
We therefore countered Olympic’s counter, and made the terms much better. The offer now read, less money down; and now they were to carry a very large second mortgage with easy terms.
After a short while, going backwards and forwards to Olympic, to our surprise the offer was accepted. We eventually purchased the whole 1700 units at our terms. The commission we earned was something I never thought possible. We insisted Olympic pay Terry and I a percentage of the whole deal. I was now earning money previously thought was only earned by Film Stars.
We bought and sold units in Toronto for the next few months, word got around about the deals we were putting together. Investors in Vancouver, who I had never heard of, were calling me asking details of Real Estate in Toronto. Realtors in Vancouver were starving, for there was nothing in real estate locally, giving anything like a return. In Toronto I could show a 12% return on investment after management expenses.
With these returns, it was not too difficult to sell what we had to offer.
Every unit that Sonny and Dave purchased, I resold to other Investors from Vancouver. As you can imagine I was making money beyond my dreams, and both Sonny and Dave were very happy with the job I was doing.
Later, I learned of a large portfolio held by First City Financial Group a Vancouver Group. One building, consisted of a Shopping Center of about 100,000 square feet, also 80,000 square feet of office building plus 1300 one bedroom units. A truly huge complex. In the package, there were a further 440 apartment units downtown Toronto plus another building with 110 units.
First City had been asking Fifty Three Million Dollars for the whole lot. They of course would have liked to get cash to mortgage. No-one had that type of money, for the cash needed would have been in the range of $40,000,000.00. First City had been trying to sell the project for well over 18 months, and at those terms they were asking, there had been no takers.
I went to see Brent, the son of the C.E.O of First City to sound him out as to what sort of terms they would truly looking at. I found, that the company at that time was in need of money. They had been trying to sell the project longer than the 18 months previously thought, with no luck at all. One of the reasons they had no action on the properties, was simply they had a poor management company. There were so many vacancies in each and every building, in fact of the 80,000 square feet of office space, only 10,000 had been leased.
I was now, I believe, a sharp negotiator. I had put together some most amazing deals, which were really unbelievable. Sonny and Dave were amazed what I had got for them. They let me negotiate completely on my own, and at my own speed.
I put a deal on paper for Sonny and Dave and had them sign, I then went back to Brent, and presented it to him. To make the deal make sense, and also to give us and our Management Company enough time to reorganize the whole project, I was asking them to carry a huge second mortgage at zero per cent.
My reasoning, there were large vacant areas in the Shopping Center, nearly all of the 80,000 square feet of Office space was vacant, and also many of the one bedroom units were vacant too. Truly, on the face of it the project did not give any return. First City had done a lousy job, and had neglected the whole project. First City made a point of not wanting to sell the down town apartments for they were making them money. I told them, we would not purchase anything without the ones that gave a cash flow. It just made no sense any other way. We needed those units in order to cover our expenses and Mortgage payments.
Our plan was to sell the buildings downtown for a good profit, using the money to give us time to put the rest in order. The sale of apartments would give cash flow and allow us to use our very good management company to fill up the Shopping Centre, Office and Apartments at The Crossroads. This was the name given to the big project. All our plans were in order if would they sell us the property to us at our terms. We were prepared to put up a deposit of $500,000.00 non-refundable, then complete the deal within the next three months.
The negotiations went on for days, First City were really under pressure at that time to unload the project. We had decided we would not alter our offer, we needed that second mortgage at zero per cent to make the whole thing work.
First City had a reputation of being one of the hardest bargainers in Vancouver, no-one got the better of them. The negotiations went on and on, eventually, very much to our surprise, they signed our offer. I had got them to carry a huge second mortgage for 5 years at zero per cent; this type of mortgage was unknown at the time, but I did it. Sonny and Dave just didn’t believe it had all happened. We had pulled off one of the biggest deals in years. The total package was sold for $42,500,000.00. Wow.
Sonny and Dave still had other buildings in Toronto, which we were trying to sell, therefore their money was all tied up. They needed to go to the bank to borrow the down payment to purchase of First City’s portfolio. The bank had no trouble approving everything they needed. They now had an excellent cash flow from the buildings they already owned.
During this time we were blessed by the arrival of our first Grandchild. Lyn had married Todd Antifaev and had our little Tera. Like all Grandparents we fell in love all over again. We had great plans at this time, more about that later.
At that time, to borrow money from the bank, the rate was high, at about twelve per cent. The project, even at that rate still made sense, the bank had no hesitation of giving their approval. We therefore made the deposit of $500,000.00 which, had to be non refundable. Amazingly, within days after making that deposit, the bottom dropped out of the economy of Canada. Little did we know that the bank rate would, within a month, go to an unbelievable rate of 22%. This was an unknown; rates had never reached these proportions ever before. The whole Country was going nuts.
When the Bank increased it’s rate to this point, the bank had no alternative but to withdraw it’s approval for the loan. This left Sonny and Dave with half a million dollars at risk due to the non refundable clause in the contract with First City.
Here we were with one of the biggest property deals in Canada. Forty Two Million Five Hundred Thousand Dollars was the accepted offer, and now we were to lose it all. Without the bank loan we could not complete the transaction. By not completing the contract we would lose our Five Hundred Thousand dollars deposit. Now, it was up to me to see what I could do to save this money. I had been on a good run for a long time, I had to try do something, if I didn’t, $500,000.00 would be a lot of money to lose.
There was only one way to save everything, and that was, I had to resell the project. Just about all the Investors I had taken and sold properties to in Toronto had known of this property, as it had been on the market for over eighteen months. There was one thing, however, they did not know; and that was the terms I had put together in order to for us to purchase the property. The terms had altered the whole scenario around this venture, it now, at last made sense. In order to complete, an Investor had to have his own money, for borrowing from the bank at the rate of 22% destroyed the feasibility of this venture.
One of the benefits we had, was our Management Company. I had discussed the whole project with them; they were excited about the whole venture, one of the reasons, the “Go”, the underground rail was to put a station below the Shopping Center. This would no doubt make the offices and Shopping space much easier to lease. This was a lucky break and benefit we had to offer any new purchaser, this huge benefit had not been there previously.
I approached many Investors with our portfolio, but, it was now time for them to keep away from Real Estate. I was fortunate to hear of a company who had just set up in Vancouver, they had just arrived from South Africa with a lot of money. This company I will call the Chateau Group. I had been given to understand they were pretty wealthy, this proved correct. I presented the whole venture to them, not letting them know that my people were not in a position to complete, for, of course, they would have just sat back and picked the project up for less money than I was asking.
I took the Chateau people to Toronto and met Bert of the Management Company. Bert impressed the hell out of these people, for he discussed all his plans he had made to put the project in good standing. It was not difficult to do the figures should one have to build these projects, it would easily cost something in the region of seventy million dollars.
Sonny and Dave left everything to Bert and I for they were out of ideas to how to handle our problem. The only way out of this situation was for me to sell the project.
I asked Fifty Million Dollars for the whole thing with Chateau paying us Seven and a half Million cash, and they taking over our agreement. I didn’t expect to get that amount, but I had to get across to them that we were not desperate to sell.
We negotiated for a couple of weeks, and somehow it came together; they would return our $500,000.00 and assume our agreement. They would pay us One million Five Hundred Thousand Dollars as a third mortgage at zero per cent. For us, this was a good deal, we were out of the big hole, and could at last breath again. Sonny and Dave were, I can assure you, grateful that this big weight had been lifted.
I had now sold the Crossways property; twice in a month, this was unbelievable. The project had been on the market for over 18 months and had not sold. Adding the two deals together, the total sale had been $88,000,000.00 (Eighty eight Million Dollars) of property sold in a month. I have to believe that record stands today.
On the first sale, First City to Sonny and Dave, my commission was $350,000.00, my commission on the sale from Sonny and Dave to Larco was $300,000.00, a total of $650,000.00. As Sonny and Dave did not receive the third mortgage for three years, I had to wait that amount of time for my $300,000.00. At that time, this was fine with me.
To give protection, that I would in fact receive my outstanding $300,000.00, I took as security a $300,000.00 portion of the said third mortgage. Little did I know, the Income Tax people considered that mortgage as earnings for that year. Work this out A $300,000.00 mortgage at zero per cent over three years is worth approximately $240,000.00, Revenue Canada taxed me at 60% on the $300,000.00, this would leave me earning only $60,000.00 for all my work. I did not pay the tax, as I intended to wait till the following year. Remember, everything was going at a such a tremendous pace, for such a long time, so, in my mind, everything in the garden appeared to be rosy.
During all this great time, I had been investing in my own right. I had bought twenty acres of land in South Surrey, and was building a beautiful house. The house consisted, a huge kitchen and dining room, recreation room with built in bar, billiards room, four bedrooms and other goodies. A total of 5600 square feet. We built a Swimming pool and hot tub. There was also a barn for twelve horses, with a riding ring and lots of pasture. The home was a mansion, and Mansion was the name given it by John and Lyn.
We had bought and sold a number of horses, mostly Arabians, during everything else that was going on. Lyn and Anita were showing these Arabians in the show ring with great success, it took a great amount of time and money. I guess they both would not have missed that time for the whole world. They had fun, they traveled south to the States and showed in all the local shows. All of this time, little Tera was taken along,
At times, it was me looking after her, sometimes Anita. There are many fond memories of the times we showed the horses..
I had done the same as Sonny and Dave, I had borrowed from the Bank to finance my purchase of the land and the construction of our house. I really went overboard with the construction, it should never have been as big as it turned out, we definitely got carried away with success, for when everything is going so fast we never thought it would end. The future looked so rosy, noone could have seen the fantastic drop in the value of real estate when the bank rate went to 22%. I have to say, which of course does not help, many smarter Investors than me went broke in 1981. In fact many that I speak to today still mention 1981, they still have not yet recovered.
I employed workmen to build the house; but it was truly a family effort, we were all involved, whether it was the hard work building or it was decorating or even installing the cedar roof, we all did something and we were proud of our home. We were all upset very much when the bank had to take it, for each of us had something of ourselves in that house.
During our time of living on 164th Street at the mansion, my mother paid us a visit from England. I am so happy I had the opportunity to show her the house we had built, Anita had the chance to know and love her, for she had never had the chance to get to know her during all our married life. If nothing else came from owning the mansion, mam had the chance to live in luxury at least once in her life. I know she loved being with her Son, her Daughter, Grandchildren John and Lyn plus her Great Grandchildren Tera and Joel. I’m happy to say she enjoyed every minute of her six weeks here in Canada.
I tried ever so hard to keep up the sales in Toronto; we did move our base to Ottawa, and purchased for Sonny and Dave a beautiful project. This project was about 1100 apartments which were in excellent condition, these were tip top. They were much different from those buildings in Toronto. They decided to keep the new buildings as they were now not in debt to the bank, they could relax and enjoy the money they had made over the last while.
It was different in my case, I owed a lot of money to the bank and now the Income tax people wanted their share. Unfortunately, paying 22% on my loan and now I owed about $350,000.00 to Revenue Canada I found myself in a mess which no matter how I figured it, there was no way in which to get out of it.
As I owed $350,000.00 to Revenue Canada, in my calculations, I would have to make $800,000.00 the following year to pay back the back taxes and $450,000.00 on the $800,000.00, which meant I would break even, even though I would have earned all that money. Therefore, I decided to go bankrupt to get rid of Revenue Canada. Unfortunately, this was the only way.
We had to give up our beautiful home, which we had worked so very hard to own; Income Tax and the bank rate had killed me. There was no way at that time to earn money; every type of Real Estate dried up. People were unable to invest, even if I could find them golden opportunities, there was no money around. There had never been times like this, and to-date, there has not been another time like those days.
It was at this time that Lyn had her second baby, Joel arrived and took control. Whereas Tera was a quiet baby, Joel was completely different, he demanded attention, and I suppose we spoilt him too.