Market Recap – Real Estate, Cannabis, Cryptography – Jan 2018

Market Recap – Real Estate, Cannabis, Cryptography – Jan 2018
January 30, 2018 CAPSTER
In Report

2018 has already been moving extremely fast and it’s hard to believe the month of January is already coming to an end. As part of my resolution, I’ll be switching gears to not only cover the RE market but various asset classes as well and try to approach them from an objective, non-partisan view. I’ll have to cram it all into one post as I’ve been extremely busy and will mostly likely get into a pace of providing one recap a month.

This month has seen a continuation of developments happening in the entertainment district with 357 King West, Theatre District, while King Blue, Peter & Adelaide and Nobu Residences had pretty much sold out in Q4 of last year. Also, if you’ve been keeping up with Amazon earlier this year announcing Toronto as one of the 20 cities that made the cut as a potential location to the next Amazon HQ, it feels like we made it to the playoffs which is a pretty much deal considering we did not offer bags of cash as part of our proposal but rather valuable talent at a more than reasonable market price in the tech sector. If we daydream for a second that Amazon does choose Toronto, the Sidewalk Labs initiative by the waterfront next to East Harbour could not only be the future HQ of Google but Amazon as well to complement the rapid mixed use development. But the downtown core isn’t the only area seeing tremendous growth as the Era project at Yonge & Hwy 7 released last week and will be part of the central transportation hub of Richmond Hill. Downtown Markham had a number of projects with Markham Square, Gallery Square, York Condos and the Signature Collection had been in extreme demand for assignments. We are starting to see more leases rather than sales as rent in the DT core continues to go up as some 1br units are going for over $2000 / mth and as high as $2500 / mth. Freeholds are still trying to get back into the green but if you bought back in January of 2017 and crunched the numbers down to December, you should still be up about 14% as a whole. Prices leading to spring of this year will continue to consolidate in the same range as owners who held during the last 6+ months will try for a better return after March. Buyers on the other hand who had tasted the negotiation leverage in the previous 6 months will want that same market to continue. It will be interesting to see how it plays out with the B-20 mortgage guideline in effect which further displaces agreements between both sides.

The legalization of marijuana will come into effect this July and there will certainly be ramifications in current leases that were not prepared for this issue. Tenants will want to exercise this right while Landlords will want to forbid it. Not to mention unit owners that want to get into the cannabis craze think they can go gangbusters in a legal grow-op while the residents next door could be extremely sensitive to it. The Cannabis Act allows anyone to essentially have a “mini” grow-op and they draw the line of up to 4 plants. But who is say someone doesn’t sneak a plant or 2 in addition to their roster? From 4 to 5 to 7 to 10. Who’s going to know? You won’t. Not until someone files a complaint. New contracts will definitely have clauses in there and due to the extremely low vacancy rate, future tenants will need to agree with the terms in the lease agreements. It will be a sticky situation between owners, landlords and tenants. Suddenly, freeholds are starting to be more appealing again, if you partially cover the price tag. Apart from the issues, we’ll be seeing a lot of adoption as the Provincial government has mentioned online distribution across the province by July of this year, about 40 cannabis stores to open around the same time and double that by a year later to about 150 stores by 2020. I wouldn’t be surprised if potting soil shoots through the roof.

Now, the elephant in the room. Rather unregulated elephant that had been trampling on all other asset classes like a raging bull last December. Yes, we’re talking about the crypto market. In an average stock market portfolio, a 30% annual gain is considered pretty good. In the crypto market, 30% is subpar as rallies of certain technologies have gone higher than 3000% in just Dec 2017 alone. But December was really the influx of speculators who haven’t really understood the underlying technology or didn’t do the proper research at all. So when you hear that the latest craze is Bitconnect or Tron or whatever promises you quick riches to financial freedom, it’s actually to financial ruin. The crypto market is not immune to scams and the irrational behaviour of human nature. In fact, it’s even worse than the stock market because it’s unregulated and when you see people investing in a Ponzi coin where the creator explicitly said it’s just ponzi satire to mock the artificially inflated market, it shows there’s no boundary to greed and stupidity. The volatility is unprecedented and usually investors are blinded to just the upside. It has gotten to the point where the U.S. Commodity Futures Trading Commission issued subpoenas on Dec. 6, 2017 to Tether and Bitfinex as they are the same entity allegedly doing unscrupulous printing. It goes back to when Wells Fargo sent an embargo to cut off ties with them back in April 2017 and fast forward to this month, Friedman LLP also severed ties so any potential audit is now in limbo pending the CFTC which people joke that Tether and co finally get an audit for free. Many people invested in crypto are still unaware of the situation or they are but unaware of the artificial inflation created and think their holdings are still fine as long as they don’t hold the magic Tether (USDT). There has been correlations with the printing, issuing and purchasing above market price to keep BTC from tanking below $10k in these last few weeks. There is no doubt a use for Tether as a stablecoin and regulatory shelter but unfortunately the lack of transparency and the nature of interoperability is a two-way street. BTC has been the original trading pair for all altcoins and because of this, all other coins have also been artificially inflated. Add that to ICO pump & dump scams, hack on NEM tokens which are currently 10th in market cap, spoofs on twitter for quick grabs, forks of Bitcoin exhausting the words in the dictionary and we have what I call a situation no different than Lord of the Flies. The sentiment in the crypto market is growing uncertain of the potential meltdown as I currently write this and some who has seen the writing on the wall weeks ago have already made their consolidations to exits into fiat as it all funnels to their respective exchanges subject to changes in cooperation with their banks, liquidity and withdrawal requests. Depending on how the events unfold, regulations and whether exchanges can stave off being insolvent, we may enter a multi year bear market which will be a grueling ice age for those who have invested more than their means into an unintended life altering event. But don’t confuse speculation with practical usage as the technology does not disappear despite a growing debacle. In fact, the Canadian Government has been embracing blockchain technology and specifically creating a site on the Ethereum platform to show details of government grants in a transparent manner. We also see OMERS taking a small step of $50M to back the blockchain venture known as Ethereum Capital. Bitcoin and other crypto technologies as we know will survive a mass exodus and or imminent crackdown but it will be awhile until the dust settles and a phoenix rises from the ashes to lead this new paradigm.

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