Real Estate

Toronto Downtown Core Condos, Rental Drop, September and Beyond

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  • May 17th, 2020 9:15 pm
[OP]
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Jan 27, 2018
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Toronto Downtown Core Condos, Rental Drop, September and Beyond

TLDR: Rent is dropping in Toronto, if students don't return in September, we may be in for a bigger rental drop (and consequently drag condo prices down).


Here is a list of rental observations I've made in the Toronto Downtown Core, I randomly pick a few buildings I know, and then I look at the latest May 2020 leases on MLS w/ a rental history:

  • 200 Bloor St W, C4715261, May 2020 $2280/mo, May 2019 $2500/mo, April 2017 $2000/mo
  • 1080 Bay St, C4714533, May 2020 $2850/mo, June 2018 $2800/mo
  • 12 York St, C4736915, May 2020 $3400/mo, May 2016 $3050/mo
  • 55 Bremner Blvd, C4750326, May 2020 $2200/mo, May 2019, $2400/mo, Dec 2015 $1850/mo
  • 21 Carlton St, C4727885, May 2020 $2000/mo, Oct 2017 $1950/mo
  • 763 Bay St, C4746665, May 2020 $2200/mo, July 2018 $2550/mo

I don't claim this is an unbiased sample, and I encourage readers to collect/post more data, and this is a small sample size. However based on my interpretation of the data, rent is down close to 2017-2018 level. My observation is that studios/1bedrooms have kept more of their rent and closer to 2018 level, while larger units (2bedrooms) are closer to 2017 level. If we make the assumption that there should be strong relationship between market rent price and the market purchase price, condo prices in the Toronto DT core should be closer to 2017-2018 level, and wiping out the condo appreciation gains the last 2-3 yrs.

It's very interesting on what will happen in August/September. Between University of Toronto St George Campus (62k students), Ryerson (47k students), George Brown College (26k students), OCAD (6k students), total: 141k students. Let us assume 1/2 needs market housing (1/2 live at home, or originally in residence) and 2 students per condo. You are talking about potentially 35k rental supply units coming to the market in September that we have not seen or priced in yet.

Here is my thesis: many leases will expire in August (e.g., almost all student leases follow the school calendar), and a flood of units will appear on the market towards end of summer. It's very like UToronto/Ryerson/George Brown will be online-only (e.g., UBC/McGill/Montreal have all announced teaching will mostly be online), and this will be a huge shock to the rental market that we have not priced in yet (we've only had 2 months of COVID, and all these students are still under lease till end of summer). There is a probably an unknown % of renters who are not currently paying rent (and who cannot be evicted), these units have also not appeared on the market (until eviction rules are normalized). There is also an unknown % of renters who will simply move back to their parents house if COVID drags out longer or as soon as leases expire (e.g., a lot of Gen X/Y/Z move out to live downtown when they had a job in the core). It's very likely the 2020 rental season is wiped out. There could be an additional 30-40% drop in rental prices, and a large drop in condo price (back to 2017 level) in DT Toronto if students don't return in the fall. Owners who bought early (e.g., 2016) will be able to weather the storm, but whoever bought late in the game (2017+) will most likely be cash-flow negative, and whoever is over-leveraged will be forced to sell. While credit is cheap (e.g., low A-lender interest rates), tightening of credit is also true (e.g., banks are more strict on lending, B-lender rates going up) which may limit investor demand, especially for cash-flow negative units.
Last edited by deepzerg on May 15th, 2020 2:37 pm, edited 3 times in total.
27 replies
Sr. Member
Jan 5, 2020
743 posts
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deepzerg wrote: TLDR: Rent is dropping in Toronto, if students don't return in September, we may be in for a bigger rental drop (and consequently drag condo prices down).


Here is a list of rental observations I've made in the Toronto Downtown Core, I randomly pick a few buildings I know, and then I look at the latest May 2020 leases on MLS w/ a rental history:

  • 200 Bloor St W, C4715261, May 2020 $2280/mo, May 2019 $2500/mo, April 2017 $2000/mo
  • 1080 Bay St, C4714533, May 2020 $2850/mo, June 2018 $2800/mo
  • 12 York St, C4736915, May 2020 $3400/mo, May 2016 $3050/mo
  • 55 Bremner Blvd, C4750326, May 2020 $2200/mo, May 2019, $2400/mo, Dec 2015 $1850/mo
  • 21 Carlton St, C4727885, May 2020 $2000/mo, Oct 2017 $1950/mo
  • 763 Bay St, C4746665, May 2020 $2200/mo, July 2018 $2550/mo

I don't claim this is an unbiased sample, and I encourage readers to collect/post more data, and this is a small sample size. However based on my interpretation of the data, rent is down close to 2017-2018 level. My observation is that studios/1bedrooms have kept more of their rent and closer to 2018 level, while larger units (2bedrooms) are closer to 2017 level. If we make the assumption that there should be strong relationship between market rent price and the market purchase price, condo prices in the Toronto DT core should be closer to 2017-2018 level, and wiping out the condo appreciation gains the last 2-3 yrs.

It's very interesting on what will happen in August/September.

Here is my thesis: many leases will expire in August (e.g., almost all student leases follow the school calendar), and a flood of units will appear on the market towards end of summer. It's very like UToronto/Ryerson/George Brown will be online-only (e.g., UBC/McGill/Montreal have all announced teaching will mostly be online), and this will be a huge shock to the rental market that we have not priced in yet (we've only had 2 months of COVID, and all these students are still under lease till end of summer). There is a probably an unknown % of renters who are not currently paying rent (and who cannot be evicted), these units have also not appeared on the market (until eviction rules are normalized). There is also an unknown % of renters who will simply move back to their parents house if COVID drags out longer or as soon as leases expire (e.g., a lot of Gen X/Y/Z move out to live downtown when they had a job in the core). There could be an additional 20-30% drop in rental prices, and a large drop in condo price (back to 2017 level) in DT Toronto if students don't return in the fall. Owners who bought early (e.g., 2016) will be able to weather the storm, but whoever bought late in the game (2017+) will most likely be cash-flow negative, and whoever is over-leveraged will be forced to sell. While credit is cheap (e.g., low A-lender interest rates), tightening of credit is also true (e.g., banks are more strict on lending, B-lender rates going up) which may limit investor demand, especially for cash-flow negative units.
Lower rents certainly puts pressure on condo prices; however, it doesnt necessarily mean that there will be noticeable drops on prices.

There are several big cities around that world with astronomical real estate prices that dont have high rents to support them, but prices are still high. Detached houses in Toronto are much cheaper to rent compared to buying them, but they are still expensive.

I personally think that Toronto condo prices will always remain at a level that is cash flow negative based on current market prices with 20% down.
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Oct 31, 2019
420 posts
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deepzerg wrote: TLDR: Rent is dropping in Toronto, if students don't return in September, we may be in for a bigger rental drop (and consequently drag condo prices down).


Here is a list of rental observations I've made in the Toronto Downtown Core, I randomly pick a few buildings I know, and then I look at the latest May 2020 leases on MLS w/ a rental history:

  • 200 Bloor St W, C4715261, May 2020 $2280/mo, May 2019 $2500/mo, April 2017 $2000/mo
  • 1080 Bay St, C4714533, May 2020 $2850/mo, June 2018 $2800/mo
  • 12 York St, C4736915, May 2020 $3400/mo, May 2016 $3050/mo
  • 55 Bremner Blvd, C4750326, May 2020 $2200/mo, May 2019, $2400/mo, Dec 2015 $1850/mo
  • 21 Carlton St, C4727885, May 2020 $2000/mo, Oct 2017 $1950/mo
  • 763 Bay St, C4746665, May 2020 $2200/mo, July 2018 $2550/mo

I don't claim this is an unbiased sample, and I encourage readers to collect/post more data, and this is a small sample size. However based on my interpretation of the data, rent is down close to 2017-2018 level. My observation is that studios/1bedrooms have kept more of their rent and closer to 2018 level, while larger units (2bedrooms) are closer to 2017 level. If we make the assumption that there should be strong relationship between market rent price and the market purchase price, condo prices in the Toronto DT core should be closer to 2017-2018 level, and wiping out the condo appreciation gains the last 2-3 yrs.

It's very interesting on what will happen in August/September.

Here is my thesis: many leases will expire in August (e.g., almost all student leases follow the school calendar), and a flood of units will appear on the market towards end of summer. It's very like UToronto/Ryerson/George Brown will be online-only (e.g., UBC/McGill/Montreal have all announced teaching will mostly be online), and this will be a huge shock to the rental market that we have not priced in yet (we've only had 2 months of COVID, and all these students are still under lease till end of summer). There is a probably an unknown % of renters who are not currently paying rent (and who cannot be evicted), these units have also not appeared on the market (until eviction rules are normalized). There could be an additional 20-30% drop in rental prices, and a large drop in condo price (back to 2017 level) in DT Toronto if students don't return in the fall. Owners who bought early (e.g., 2016) will be able to weather the storm, but whoever bought late in the game (2017+) will most likely be cash-flow negative, and whoever is over-leveraged will be forced to sell. While credit is cheap (e.g., low A-lender interest rates), tightening of credit is also true (e.g., banks are more strict on lending, B-lender rates going up).
I've been following rentals closely, and in downtown Toronto based on same-unit historical rentals we're at or below peak 2018 levels.

But condo prices? Still crushing 2019 price levels by a country mile.

-A 2br/2ba/1parking unit in Sackville sold yesterday for $790k, up 11% vs the same unit on the floor below last year (C4728810)
-A 1+1/2ba/0 parking unit on St. Joseph St. sold yesterday for $790k, up 7% from the same unit sold in Aug last year which was 13 floors higher than the one sold yesterday (C4754381). Add $2k per floor and we're at about an 11% change.

Can any real estate agents comment on what exactly is going on here? In the past I've been able to state that Toronto's robust economy and lava-hot rental market justified the rising prices......but right now? Lol. The fundamentals have completely disconnected from prices.

The only explanation that I can think of is that no one wants to sell unless they absolutely have to; and so far nobody has had to do that (so supply hasn't really adjusted) - whereas the rental market is likely much more reactive to economic conditions. But I think that's a weak explanation because the high prices imply that buyers are still willing and able to pay through the nose.
[OP]
Jr. Member
Jan 27, 2018
151 posts
88 upvotes
Newuserid wrote: Lower rents certainly puts pressure on condo prices; however, it doesnt necessarily mean that there will be noticeable drops on prices.

There are several big cities around that world with astronomical real estate prices that dont have high rents to support them, but prices are still high. Detached houses in Toronto are much cheaper to rent compared to buying them, but they are still expensive.

I personally think that Toronto condo prices will always remain at a level that is cash flow negative based on current market prices with 20% down.
It is true, there exists many markets (e.g., in Asia) where yields are negative, yet real estate prices hold.

It is also true that detached housing have terrible yields, however that market is more predominantly driven by principal homeowners as opposed to investors.

I personally believe an investor looking at a Downtown Toronto condo Today is mainly looking to bet on leveraged capital appreciation, the underlying business model of rental yield is a much harder sell. e.g., rents are dropping and will probably continue to drop, however carrying costs are rising (e.g., is maintenance fees almost always outpace inflation, taxes are probably going to go up as well, as our government needs money, we may see large increases in both property tax rate, property transfer taxes, capital taxes).
[OP]
Jr. Member
Jan 27, 2018
151 posts
88 upvotes
VanByTheRiver wrote: I've been following rentals closely, and in downtown Toronto based on same-unit historical rentals we're at or below peak 2018 levels.

But condo prices? Still crushing 2019 price levels by a country mile.

-A 2br/2ba/1parking unit in Sackville sold yesterday for $790k, up 11% vs the same unit on the floor below last year (C4728810)
-A 1+1/2ba/0 parking unit on St. Joseph St. sold yesterday for $790k, up 7% from the same unit sold in Aug last year which was 13 floors higher than the one sold yesterday (C4754381). Add $2k per floor and we're at about an 11% change.

Can any real estate agents comment on what exactly is going on here? In the past I've been able to state that Toronto's robust economy and lava-hot rental market justified the rising prices......but right now? Lol. The fundamentals have completely disconnected from prices.

The only explanation that I can think of is that no one wants to sell unless they absolutely have to; and so far nobody has had to do that (so supply hasn't really adjusted) - whereas the rental market is likely much more reactive to economic conditions. But I think that's a weak explanation because the high prices imply that buyers are still willing and able to pay through the nose.
I think in general condo transactions in May 2020 have gone back to 2019 level, but not 2018 level. I think there are two possibilities of buy-side demand for principled homeowners:
1) move up, you sell a place and you buy a place.
2) buying is still cheaper than renting, if you are able to access cheap loans.

in both cases, as a principled homeowner, you're more capable of eating the variance of real-estate swings.

I think the argument for an investor to buy-and-rent business model is much tougher sell, you are heavily betting on the leveraged capital gains into the future. Especially if you lock into a lease agreement w/ our no-eviction + rent-protection policies.

I also theorize that purchase price might lag rental price, and rental price just have higher variance. We've only had 2 months of COVID, I think most investors are able to eat several months of zero-cash flow (it's only several thousand dollars of pain thus far). This is why September will be an interesting time, when a potential flood of rental units come out (e.g., assuming no class at the Universities/Colleges) and after several months of zero-cash flow pain, will some sellers finally give up or be forced to sell? Right now, nobody is forced to sell, it's only been two months, but give it a few more months, the over-leveraged folks will be forced to discount rent massively or forced to sell, and if the 2020 rental season is wiped out, then who knows?
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Sep 13, 2007
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toronto
VanByTheRiver wrote: I've been following rentals closely, and in downtown Toronto based on same-unit historical rentals we're at or below peak 2018 levels.

But condo prices? Still crushing 2019 price levels by a country mile.

-A 2br/2ba/1parking unit in Sackville sold yesterday for $790k, up 11% vs the same unit on the floor below last year (C4728810)
-A 1+1/2ba/0 parking unit on St. Joseph St. sold yesterday for $790k, up 7% from the same unit sold in Aug last year which was 13 floors higher than the one sold yesterday (C4754381). Add $2k per floor and we're at about an 11% change.

Can any real estate agents comment on what exactly is going on here? In the past I've been able to state that Toronto's robust economy and lava-hot rental market justified the rising prices......but right now? Lol. The fundamentals have completely disconnected from prices.

The only explanation that I can think of is that no one wants to sell unless they absolutely have to; and so far nobody has had to do that (so supply hasn't really adjusted) - whereas the rental market is likely much more reactive to economic conditions. But I think that's a weak explanation because the high prices imply that buyers are still willing and able to pay through the nose.
Just because I am a licensed realtor , I do not pretend know a whole lot more about these anomalies than someone else. I do however think that a couple of these examples do not give any indication of a "trend" one way or the other. Fall should bring some more clarity to the equation. Or not.
Deal Fanatic
Mar 27, 2004
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Rental rates have gone down, but it doesn't mean resale will go down. You cannot assume all resale purchases are for rental purposes.
it probably does not make sense right now to buy a resale for the purpose of renting out.
Also, just because lease rates have gone down, does not mean people are under water. I have a unit for lease right now in the downtown core, even if she took 200 less than ask price, its still clash flow pos by like 600. this is because they bought the unit like 6 years ago.
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Apr 14, 2006
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St Johns
It may go down temporarily and I hope Condo prices go down just so I can buy more.
People still live to live downtown and the population is not getting smaller, it’s just a temporary negative cloud.
Toronto condo prices are a bar again even compared to places like Mumbai or San Paulo.

I think the most concerning aspect is the quality of tenants, very poor at the moment.

Personally I rather leave a property closed for a year than rent to unqualified tenant.
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Oct 31, 2019
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oasis100 wrote: Rental rates have gone down, but it doesn't mean resale will go down. You cannot assume all resale purchases are for rental purposes.
it probably does not make sense right now to buy a resale for the purpose of renting out.
Also, just because lease rates have gone down, does not mean people are under water. I have a unit for lease right now in the downtown core, even if she took 200 less than ask price, its still clash flow pos by like 600. this is because they bought the unit like 6 years ago.
While this is true, a reduction in rental property purchasers implies a reduction in demand - which I'd expect to place downward pressure on prices.
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als98 wrote: Just because I am a licensed realtor , I do not pretend know a whole lot more about these anomalies than someone else. I do however think that a couple of these examples do not give any indication of a "trend" one way or the other. Fall should bring some more clarity to the equation. Or not.
Appreciate that perspective - I figured that there would be some agent posters here who were involved in recent bids or recent sales who could comment on how the intensity of bidding wars has changed and how the typical buyer/seller profile has changed (without giving away too much information)

I might be naive but I wouldn't expect high-price anomalies to occur because rising prices shouldn't occur unless bidding wars force the prices up - if my interpretation is wrong I'd love to know. I can't really see how else this could occur unless (1) the buyer is an idiot or (2) the buyer has a lot of cash to invest and can't be bothered to negotiate aggressively......I'd imagine that both cases are rare
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Sep 10, 2017
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Also students going back to school doesn’t necessarily mean people need places. Most classes are being done online now and some people might stay back home with their parents to save money if all classes are indeed online. I would be doing that if I was still a student.
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Jun 19, 2017
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The economy has clearly hit an inflection point, merely 2 months ago. If employment doesn't fully recover asap, I think you would have to be crazy to think condos prices are immune.

Whether it's a seller or balanced market right now, doesn't tell us anything about what the market will be in a year or two. Deferred mortgages and CERB are artificially picking up the slack right now, that and lower rents are buying a little bit of time before landlords are forced to sell. The dust hasn't settled yet.
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Oct 21, 2016
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tradinghumble wrote: It may go down temporarily and I hope Condo prices go down just so I can buy more.
People still live to live downtown and the population is not getting smaller, it’s just a temporary negative cloud.
Toronto condo prices are a bar again even compared to places like Mumbai or San Paulo.

I think the most concerning aspect is the quality of tenants, very poor at the moment.

Personally I rather leave a property closed for a year than rent to unqualified tenant.
My only worry is after this pandemic corporations may shun expensive large office rentals downtown and allow for their employees to work and meet remotely . Office rental downtown is a huge expense and cost savings would be tremendous. In this case there is less incentive to rent or buy expensive downtown Toronto real estate .
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Feb 29, 2008
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tradinghumble wrote: It may go down temporarily and I hope Condo prices go down just so I can buy more.
People still live to live downtown and the population is not getting smaller, it’s just a temporary negative cloud.
Toronto condo prices are a bar again even compared to places like Mumbai or San Paulo.

I think the most concerning aspect is the quality of tenants, very poor at the moment.

Personally I rather leave a property closed for a year than rent to unqualified tenant.
Completely agree, especially the quality of tenants and leaving the place empty for the time being if possible, you will be stuck with that tenant at that low rent.

Rents will certainly increase.
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Shaun80 wrote: My only worry is after this pandemic corporations may shun expensive large office rentals downtown and allow for their employees to work and meet remotely . Office rental downtown is a huge expense and cost savings would be tremendous. In this case there is less incentive to rent or buy expensive downtown Toronto real estate .
I just don't see it. Not on a grand scale.
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Jun 20, 2015
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Shaun80 wrote: My only worry is after this pandemic corporations may shun expensive large office rentals downtown and allow for their employees to work and meet remotely . Office rental downtown is a huge expense and cost savings would be tremendous. In this case there is less incentive to rent or buy expensive downtown Toronto real estate .
The Google affiliate Sidewalk Labs has just done that by scrapping a controversial plan to develop a new multi-use neighbourhood dubbed “Quayside,” along Toronto’s eastern waterfront, citing the “unprecedented economic uncertainty” brought about by the COVID-19 pandemic. This may the canary in the coal mine.
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Shaun80 wrote: My only worry is after this pandemic corporations may shun expensive large office rentals downtown and allow for their employees to work and meet remotely . Office rental downtown is a huge expense and cost savings would be tremendous. In this case there is less incentive to rent or buy expensive downtown Toronto real estate .
Not going to happen so drastically, don't forget that Body Language is still a major factor in the business world. Point in case, think of a great salesman, would he/she be just as effective selling over video than in person? I'd bet in person. The world revolves around selling... something
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RFD11111 wrote: The Google affiliate Sidewalk Labs has just done that by scrapping a controversial plan to develop a new multi-use neighbourhood dubbed “Quayside,” along Toronto’s eastern waterfront, citing the “unprecedented economic uncertainty” brought about by the COVID-19 pandemic. This may the canary in the coal mine.
I don't know how much it had to do with COVID 19. Seemed like a good out for them. Just like many other companies have and will hit the eject button and blame it on COVID as an easy way out. The project was met with a lot of opposition.

https://www.thestar.com/opinion/letters ... -labs.html

"The uncertainties of the coronavirus may not have been as crushing to Sidewalk Labs as the fact that huge density is already being built in the east waterfront vicinity.
Even in normal times, if the competition is fierce, with other new development well ahead of it, a given development has to await its turn.
The latest predicted wait time, especially when affordable housing is a key component, may have simply been too long for Google on the Toronto Waterfront."
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Nov 13, 2013
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VanByTheRiver wrote: While this is true, a reduction in rental property purchasers implies a reduction in demand - which I'd expect to place downward pressure on prices.
Yes this is what logic would dictate but sentiment is a powerful short and even long term force. There is a lot of pent up demand and belief things will bounce back which puts a floor in prices.
On the other hand I think the carnage In the rental market is underestimated. Students, immigrants and new professionals moving to the city or out of the suburbs are all looking like they will fall off a cliff in 2020 and well into 2021. I hope these landlords are ready to be under water for awhile. I doubt many will panic sell they always have Heloc on primary residence and other sources of cash. We aren’t at the point in the Big Short where strippers have 5 properties with zero down.
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Jun 20, 2015
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JayLove06 wrote: I don't know how much it had to do with COVID 19. Seemed like a good out for them. Just like many other companies have and will hit the eject button and blame it on COVID as an easy way out.
Many other marginally profitable companies, including bars and restaurants, have and will hit the eject button from revenue reduction, and blame it on covid-19. The negative impact on commercial RE price could be real.

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