Small Market Madness

I’m astounded at the frequency with which I see absolute fantasy in proposed commercial projects. The discussion involves the development of a luxury mid-rise building in a tertiary market.

Where these smaller tertiary markets have an advantage, is that they have less infrastructure at the municipal level. They won’t have a multi-billion dollar subway system to build and maintain. They don’t have a massive social assistance program. The extent of their utilities is much more contained and therefore the impact fees charged to developers are much lower. So that has the effect of lowering the land cost. Generally speaking, the land cost will be lower compared with the competitive environment of the big city.

This past week I looked at a project that has taken investor capital from some pretty savvy people. Yet somehow in a matter of about 3 minutes I was able to spot the flaws in the investment thesis by this so-called developer.

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