Complexity Is Where the Price Is
The buildings I buy come with hair. These notes are where I write down what it costs.
I buy and operate buildings in BC, mostly ones with hair on them: old permits, hazardous materials, title that needs work, vacancy a lender won’t finance. Most buyers pass on that, or pay someone else to make it go away. I think that’s where the price is.
The logic is plain. A clean, leased building gets bid by everyone who can borrow, so the price already reflects the easy part. A building with a notice on title, half its space empty or a tenant using the space illegally has a much smaller buyer pool. Lenders won’t size a loan off income that isn’t there yet, some buyers can’t get financing at all, and the vendor usually knows it.
Hazardous materials are the one people misread. Plenty of older buildings have asbestos in the drywall joint compound, and it’s a non-issue until you need to open a wall to renovate. Then it becomes an abatement scope, a clearance and a schedule.
The smaller buyer pool only helps if the hair is priced correctly. Underprice it and the discount was never a discount. So most of the work happens before firming up. I pull the municipality’s building file and read what’s registered on title and why. If the building is old enough to have asbestos (in BC, roughly anything built before 1990), I don’t wait on a full hazmat survey in diligence. I price a heavy abatement scope in up front, and put a number on how long the permit will take. Then a buffer on top, because something always comes in over the estimate.
What I’ve had to learn is what each of those actually costs, and most of that is construction. What does the landlord’s work (LLW) cost to deliver a space, and what does it do to the rent and to how fast a tenant signs? That tells me whether the work is accretive, and if it isn’t, at what rent or cost it would be.
The rest comes from the trades doing the work and the specialty subconsultants behind them: certified mould remediation, a licensed asbestos abatement contractor, a hygienist supervising remediation and signing off on clearance. Each of them prices their own scope, and the hand-offs between them are mine to price as the sponsor. A model doesn’t teach any of it.
I started in institutional private equity, which is where I learned to underwrite. The buildings since have taught me that hair has to be priced in up front, and not just the cost to remediate and stabilize. The carrying cost while you do it belongs in the number too. One permit sat in review for about half a year. Drywall waited on a hygienist’s clearance letter. Vacancy, taxes and interest ran the whole time.
So the Friction Index is the working notebook. Each note comes from something I’ve seen firsthand or heard from people doing the work: an abatement scope, a code question, a lease negotiation, a lender’s view on a building. Names and addresses come out. Numbers are rounded and labelled when they’re illustrative.
Some notes will cover what went right. More will cover what I didn’t know and what I’d price differently next time.
The three notes already up cover rents, CMHC financing and small-bay vacancy. Notes from the buildings themselves come next.