A Conversation With Cornerstone Marketing

I sat down with Johnson Cheng and Shab Rajabzadeh, the two co-founders of Cornerstone Marketing Realty. Their team has helped sellout some of Toronto’s flagship developments, including multiple projects from both Menkes and CentreCourt.

[Tim] What distinguishes Cornerstone Marketing from the crowd?

Shab: As a company, we are very hands-on. When we speak with clients and developers they are often surprised to hear that we are on site working with the team on the marketing and selling. They assume that we would hire additional staff or third-parties. We believe that by being on site, collaborating with our team and in the middle of everything we can better help our clients, and ultimately market and sell product in the most effective and timely manner. It’s part of our DNA; If you don’t do it, you won’t learn it. If you don’t do it, you can’t teach it. If you don’t do it, you can’t grow with it.

Johnson: Being on the sales floor every day helps us have real conversations with brokers and buyers, so we can understand their mentality. This allows us to feed the information into product design and help direct our conversations with clients. We do not rely on third parties, as we look within our own staff/talent pool and the different layers and hierarchies, to gather and return project insights to clients.

You guys have a unique sales process and structure, in my opinion. It’s a wonderful blend of utilizing proven systems while treating each project as its own thing. I like it. You’re agile, but at the same time strongly rooted in your own approach to selling units.

Shab: Yeah, that’s something we spend a lot of time on. This is part of our pillars and foundation as a company. Culture, process, feedback. Take Southside for example. The Wilson and Allen road neighbourhood has been one that hasn’t really had much attention until we took a different approach to help elevate the neighbourhood, through our team strategy building sessions. We were switching sales programs and wanted everyone’s insight into pricing and strategy. Person A says one thing, Person B another. In the end, we come out with four ideas, only two of which I had considered before. It doesn’t matter whether all four were correct, it’s really about being proactive and diligent in exploring sales programs in detail and to consider as many educated takes as possible.

Johnson: Every project has to be measured by its own merits. When we started this company we looked around and saw a lot of things that were simply wrong or could be improved. There was a lot of cookie cutting. A lot of templates. A lot of reused strategies and dated playbooks, whereby it’s simply a matter of taking an older way of doing things and putting the project’s paint and brand on it. We look at the project as it stands on its own, and we try to look at it and say “what should be done?” We identify critical success factors and look towards what’s necessary to accomplish them. Sometimes that means going back to a past sales program and using successful elements of it. Many times we approach it from scratch and really try to localize the program, meaning it’s specific to the geographical location of the building and where it fits into the market.

How do you guys decide how many of what type of units go into a building?

Johnson: It starts with the client’s constraints. Every site has GFA constraints, they have height constraints, they have line of sight constraints, number of unit constraints, below-grade constraints. All these things are parts of what makes a project. We identify all the constraints, then identify what their objectives are. Some clients want to maximize revenue, independent of the time it takes to sell. Other clients may place a larger emphasis on timelines and selling quicker. After identifying the objectives, we look at what kind of products would be absorbed within a given time frame and revenue goal.

How has unit composition changed over the past 12–24 months, specifically with larger units? Is the perception that people want larger units real, or simply a misnomer?

Shab: We typically have a 10% requirement for three beds in the city, so naturally we have to create those. When you look at the resale market, the big product, those larger two bedroom and up units, are moving fast. They’re achieving single-family home price points you would have seen in the suburbs three years ago.

Johnson: We look at pricing gaps often, specifically the single-detached pricing gap, $1.1M average, and how it relates to the $440,000+ average condo price, which has crept up from the $350,000’s. It’s this pricing gap that is driving the market. What we analyze and see happening is because of the high price of single detached homes, people are looking to single detached homes but instead moving into the larger, 2 bedrooms plus condominium units. This is not to say the demand for smaller units has decreased. In reality, what’s happening is we are seeing buyers moving downwards from detached to larger condominium units, while a large segment of buyers continue to fill the smaller units.

Glad you touched on smaller units. I don’t have the numbers in front of me, but it seems the smaller units are getting bigger while larger units are trending smaller.

Johnson: The primary reason for this, as it pertains to smaller units, is really rooted in financing. If you look at New York for example, there are no minimum requirements on unit size in order to obtain financing from banks. That’s not the case in Toronto. Typically banks are five years behind the market, meaning they need five years of data to be comfortable financing smaller units. Factor in the idea that a typical sales cycle may last upwards of five years, we’re really looking at this ten-year disconnect. Back in 2007, studios were not picking up and the market was focusing on the 500 square foot one bedrooms. The studios and micro-units sold in 2007 and completed in 2012, factor in how banks want to see five years of market data, this brings us to 2017. Only now are banks really able to see the popularity and stability associated with smaller, investor-driven units. Due to their uncertainty and resistance internally, banks historically say no to financing studios, or if they were to finance, buyers are asked for 60% LTV.

How involved are you in the layout process?

Shab: Johnson literally sketches every layout, and different variations of them, by hand.

Johnson: Every developer relies on the architect to draw. I’ll start by saying we have some great architects in Toronto, some of the best in the world. They do phenomenal work. The challenge is there are times where there’s a disconnect between builder and architect. Architects do a wonderful job with exteriors and common interior spaces, but without specific direction from builders, they may not necessarily design the best layouts. That’s where we at Cornerstone act as the bridge between builder and architect, while providing actionable insight into layout design.

Pricing 300 units in a single project poses its own challenges. What goes into pricing a building?

Johnson: When we’re doing floorplan design we’re also thinking about pricing. This is to ensure there is a continuum. In the end, when you build a good product it tends to lend itself to easy and obvious pricing. We’re confident there is never an issue of over-pricing or under-pricing inventory, because we have already planned for that in the product design.

Should a pre-construction unit be priced at the same level as existing resale units, or should they be priced above or below current market value?

Johnson: This is great debate amongst builders. The general feeling is this: let’s say I have a pre-construction project at Yonge-College and resale units are selling at $XYZ per square foot. We’re seeing 9.8% year-to-year appreciation throughout the GTA, with even higher rates in the Toronto core. If a project takes three years until completion you’re looking at 30% growth. Why then should we be pricing ourselves substantially below market value on delivery? The short answer is we charge above current market value and aim for a middle ground between where pricing is today and where pricing will be on completion. Aside from the financial growth attached to a unit, we also allow buyers more flexibility and less financial commitments than a comparable resale property. In pre-con, buyers are afforded to only pay 15% deposit within one year, while being able to retain 100% of a unit’s growth up and until Final Closing.

How important are realtors and how important are your relationships with realtors?

Shab: They are very important in this market. They are the biggest part of the transaction. In the past, a lot of developers and independent companies have tried to cut out realtors and they’ve been proven wrong. As time progresses we’re all learning that buyers need proper consultation and one of the advantages buyers have is that they can work with a realtor who has no obligation to the builder themselves.

Johnson: Agents are very involved. They have the market information and they have relationships with individual projects. They are better suited to help a particular buyer than we are as they are more involved in that person’s buying process. That said, we do care about the quality of realtors we work with and think we do a great job of matching product with our realtor network to ensure everyone benefits, from buyers to realtors to builders to us.

Renderings. How important are they to the sales people actually responsible for selling thousands of units every year?

Shab: The Grid Condos rendering you guys created is my favourite, and we’re very happy with the one you just finished for our upcoming townhome project. Some builders go different ways on renderings and their importance, but for me, give me a great rendering and I want it to sell. I don’t want to sell without it. My words cannot illustrate, so it’s impossible to convey the essence of a building without that strong visual. You guys at ADhoc are really the ones helping people see and understand the future of what we in real estate are creating.

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