Regarding “Home-Sales Commissions Under Fire” (U.S. News, Sept. 21): Big Tech has trained us to expect near-zero transaction costs or at least have them hidden from view. It’s therefore no surprise that transparent fees or commissions associated with seldom-purchased, big-ticket items such as real estate seem antiquated.
But the current discussion ignores the benefits paid for by these transaction costs. The Multiple Listing Service (MLS) marketplace of residential-real-estate listings and historic data is unique to the U.S….
A woman looks at real-estate listings at an office in Brooklyn, N.Y.
Photo: brendan mcdermid/Reuters
Regarding “Home-Sales Commissions Under Fire” (U.S. News, Sept. 21): Big Tech has trained us to expect near-zero transaction costs or at least have them hidden from view. It’s therefore no surprise that transparent fees or commissions associated with seldom-purchased, big-ticket items such as real estate seem antiquated.
But the current discussion ignores the benefits paid for by these transaction costs. The Multiple Listing Service (MLS) marketplace of residential-real-estate listings and historic data is unique to the U.S. and Canada. Agents enter billions of data points for millions of residential properties by the rules and regulations of the National Association of Realtors and state and local affiliates. This effort is largely self-organized and creates an incredible richness of transparency of data. Agents work mostly on commission and lack benefits such as healthcare, retirement or paid leave.
This transparency extends to the process of how properties are listed and the unique arrangement of offering cooperation and a sharing of commission to any agent in the marketplace who has an interested buyer. Imagine a car salesman sharing a commission with any other salesman in his region who brings in a buyer and negotiates the car’s sales price.
The current discussion ignores the benefits this system has for consumers, including freedom of agency and the relentless and fierce competition among agents for those consumers in every market of the U.S. The buyer-agent commission is a prerequisite for competitive cooperation and listing properties on MLS. Should it become a thing of the past, we will see the demise of the current MLS system: realtor-organized data collection, cooperation and transparency, as executed by hundreds of thousands of realtors on a daily basis.
Digital twin platform Matterport has agreed to be acquired by one of its customers, Costar, in a cash-and-stock deal of $5.50 per share that gives it an enterprise valuation of about $1.6 billion. Matterport’s tech helps companies create digital replicas of physical spaces.
Costar’s offer represents a premium of a whopping 212% over Matterport’s last closing share price before the deal was announced on April 22.
The deal looks like a fortunate turn of events for Matterport, whose shares had been trading below the $5 mark since August 2022 as the company struggled to meet investors’ expectations for subscriber growth amid a sluggish real estate market and a wider macroeconomic slowdown. Matterport’s stock was trading below $2 per share before the transaction was disclosed.
The company has been trying to improve its profitability over the past year, too, according to its 2023 financial statements. However, investors haven’t been happy with the company, whose shares have been struggling since it went public via a SPAC deal in 2021, which Bloomberg reported valued Matterport at around $2.9 billion.
Matterport’s shares were trading at $4.76 before the bell on Tuesday — slightly below the $5.50 deal price, which indicates investors may be wary of the deal getting blocked by regulators, or they may be hedging their bets to account for a possible decline in Costar’s stock, since the deal has a share-based component, too. Costar’s shares, however, are up slightly since the announcement, indicating that its investors are happy with the potential benefits of the deal.
Digital twin technology has applications in construction tech and insurtech, but demand from real estate players is particularly salient, as the pandemic accelerated the switch from in-person viewings to virtual tours, both for commercial and for residential properties.
Early-mover advantage aside, the company’s later decisions likely played an equally important role as the market evolved. It diversified into helping clients create virtual tours even with smartphones. And the addition of AI with its in-house solution, Cortex, added more differentiation to its offering, leveraging its data to generate 3D digital twins supporting additional labels such as property dimensions.
Matterport’s leadership changed over the years. Its current CEO, former eBay chief product officer RJ Pittman, took the reins in 2018 — but its fundraising trajectory was fairly smooth. Over its first decade, it raised successive rounds of funding for a total of $409 million, followed by its public debut in 2021.
“Costar Group and Matterport have nearly identical mission statements of digitizing the world’s real estate,” Costar’s founder and CEO, Andy Florance, said in a statement.
CoStar, which has a market cap of $34.84 billion, is a real estate heavyweight that operates marketplaces such as Apartments.com, Homes.com and LoopNet (for commercial real estate). This gives it direct insights into the value that Matterport can add for its end users.
In March 2024, Costar wrote in a press release, “there were over 7.4 million views of Matterport 3D Tours on Apartments.com, with consumers spending 20% more time viewing an apartment listing when Matterports were available.” The company now plans to incorporate Matterport’s virtual tours (“Matterports”) on Homes.com.
Taking to the stage at a real estate event shortly after the announcement, Florance reportedly said that allowing home buyers to view properties with their own furniture, for instance, will allow agents to provide more value and promote their brands.
It will be worth tracking what happens to Matterport’s activities beyond real estate, such as its partnership with Facebook to help researchers train robots in virtual environments.
Valuations for Canada’s office real estate have taken longer to adjust than properties in other advanced economies.Jeff McIntosh/The Canadian Press
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As the U.S. economy has pulled meaningfully ahead of Canada’s, so too has its private commercial real estate sector, which is adjusting more positively to the post-pandemic reality.
That’s particularly evident in both countries’ privately held office property markets. While the U.S.’s is well down the path of transforming, demolishing or otherwise ridding itself of empty office space, Canada’s has practically frozen in place following a wave of markdowns in 2023. That has made valuation assessments next to impossible.
“There’s a big dichotomy, and the Canadian market so far has not corrected,” says Victor Kuntzevitsky, portfolio manager with Stonehaven Private Counsel at Wellington-Altus Private Counsel Inc. in Aurora, Ont., which holds private real estate assets in credit and equity vehicles in both Canada and the U.S.
It’s no secret that last year was a difficult period for owners of Canadian private real estate, with many pension fund managers losing money as high interest rates drove up borrowing costs, inflation increased operating costs and vacancy rates remained high or even climbed.
The Caisse de dépôt et placement du Québec saw its real estate portfolio decline 6.2 per cent in 2023. The Ontario Teachers’ Pension Plan experienced a 5.9-per-cent loss in its real estate book, while markdowns on commercial properties owned by the Ontario Municipal Employees Retirement System (OMERS) resulted in its real estate portfolio dropping by 7.2 per cent.
However, there are pockets of strength investors can look to, says Colin Lynch, managing director and head of alternative investments at TD Asset Management Inc. These include multi-family residential and open-air retail centres, as well as industrial properties, which have been steady performers following strong gains through the pandemic.
It’s a view that dovetails with other analyses of the Canadian market. BMO Global Asset Management’s latest commercial property outlook notes that the industrial and multi-family segments remain strong due to high investor demand and tight supply.
“Office remains the asset class of the greatest near-term concern and focus,” the BMO GAM report states, estimating “a timeline for a return to ‘normal’ of a least five years.”
Mr. Lynch says while that timeframe could be accurate, private real estate investors need to evaluate opportunities on a city-by-city basis.
“Every city is very different. In fact, the smaller the city, the better the office property market has generally performed because commute times are much better, so in-office presence is much higher,” he says.
He points to cities such as Winnipeg, Regina and Saskatoon, where commute times can be 10 minutes and office workers are in four days a week on average.
However, there’s also room for more bad news, with some property owners struggling to refinance expensive debt in a higher-for-longer rate environment that could force firesales for lower-quality buildings.
The U.S. and other advanced real estate markets, such as the U.K., are “quarters ahead” of where the Canadian office market is in terms of valuation adjustments, Mr. Lynch says. A major reason is much of Canada’s commercial office real estate is owned by a relatively small group of large investment funds.
“Peak to trough in the U.K., for example, declines were about 20 per cent,” he says, noting that Canada’s market hasn’t corrected to that extent, but it is catching up.
Mr. Kuntzevitsky says these private fund assets are valued based on activity.
“The U.S. market is deeper, there’s more activity within it compared to Canada,” he says. “The auditors I speak to who value these funds are saying, ‘Listen, if there’s no activity in the marketplace, we’re just making assumptions.’”
Nicolas Schulman, senior wealth advisor and portfolio manager with the Schulman Group Family Wealth Management at National Bank Financial Wealth Management in Montreal, holds private real estate funds for clients and says he’s preparing to evaluate new investments in the Canadian space later in 2024.
“We don’t think the recovery would take a full five-year window, but we do believe it’s going to take a bit more time. Our conviction is, we want to start looking at the sector toward the end of this year,” Mr. Schulman says.
Mr. Kuntzevitsky says he’s been allocating any excess cash to the U.S. market in both private and publicly listed vehicles.
“The opportunity here is that you redeem your open-ended private [real estate investment trusts (REITs) in Canada] and reallocate the money to the U.S., where the private market reflects [net asset values] based on recent activity, or you can invest in publicly listed REITs,” he says.
Still, Mr. Kuntzevitsky is watching developments closer to home for evidence the market is turning.
In February, the Canada Pension Plan Investment Board and Oxford Properties Group Inc. struck a deal to sell two downtown Vancouver office buildings for about $300-million to Germany’s Deka Group – about 14 per cent less than they were targeting.
“Hopefully, that will activate the market,” Mr. Kuntzevitsky says. “But so far, we haven’t seen that yet.”
Developer Madison Group has filed plans to increase the height of its planned two-tower condo complex at 50 Eglinton Ave. W., from previously approved heights of 33 and 35 storeys, respectively, to a significantly taller plan calling for 46- and 58-storey towers.
The dual skyscrapers will rise from a podium featuring restored facades of a heritage-designed Toronto Hydro substation building.
As of 2024, plans for high-rise development at this site have been evolving for over a dozen years, first as two separate projects before being folded into one. The height sought for this site has almost doubled in the years since first proposed, and it shouldn’t come as a huge surprise for anyone tracking development in this part of the city.
Early 2024 design for 50 Eglinton West before current height increase request.
Building on a 2023 approval for towers of 33 and 35 storeys, the developer filed an updated application at the start of 2024 seeking a slight height increase to 35 and 37 storeys.
Only a few months later, the latest update submitted with city planners this April reflects the changing landscape in the surrounding midtown area, where tower heights and density allotments have skyrocketed in recent years in advance of the Eglinton Crosstown LRT.
April 2024 vision for 50 Eglinton Avenue West.
The current design from Audax Architecture is a vertical extrusion of the previous plan that maintains all details, including stepbacks and material details.
That updated design introduced in January responds to an agreement that allows the developer to incorporate office space replacement required under the neighbourhood plan to a nearby development site at 90-110 Eglinton East.
According to a letter filed with the City, “As a result of the removal of the on-site office replacement, which altered the design and size of the podium, and to improve the heritage preservation approach to the former Toronto Hydro substation building… Madison engaged Audax Architecture and Turner Fleischer Architects to reimagine the architectural style and expression of the project.”
A total of 1,206 condominium units are proposed in the current version of the plan, with over 98 per cent of the total floor space allocated to residential space. Of that total, 553 units are planned for the shorter west tower, with 653 in the taller east tower.
A sizeable retail component of over 1,300 square metres would animate the base of the complex at Duplex and Eglinton.
The complex would be served by a three-level underground parking garage housing 216 spots for residents and visitors. Most residents would be expected to make use of the Eglinton Line 1 and future Line 5 stations across the street to the southeast for longer-haul commutes.
