VANCOUVER — It was March 27, 2006. The Vancouver real-estate market was still in a frenzy, high-rise developments were selling out in days at skyrocketing prices, and Bob Rennie, the city’s undisputed condo king, was on top of the world.
He decided to let an otherwise lacklustre housing workshop in on a little secret. Within days, Mr. Rennie confided, the city-owned, downtown waterfront land earmarked for the Olympic village would be sold for a price so high it would send shockwaves through the entire development community.
Sure enough, 10 days later, Vancouver City Council made its fateful decision to award the blue-ribbon Olympic village contract to a reputable but mid-sized development company with shallow pockets, anxious to show it could play with the big boys. The price paid by Millennium Development Corp. for the 2.6 hectares of prime property, destined for luxury condos, rental units and social housing once the 2010 Games were over, was a staggering $193-million. That was believed to be the highest sum per square foot ever paid for land in Canada.
Left in the dust were experienced, well-heeled developers Concord Pacific and the Wall Financial Corp., which bid around $170-million and $150-million, respectively.
As if that were not enough, city staff assured council that the bid was guaranteed and unconditional, with no risk to the city, and Millennium’s financing plan was independent of pre-sales or market conditions.
It all seemed too good to be true. And much of it was.
The exorbitant purchase price subsequently set in motion a chain of events that has the troubled project on life support, the developer seemingly out of cash, and the city of Vancouver facing the largest financial loss in its history. It also casts the first serious cloud over the previously trouble-free 2010 Winter Olympics.
As the one-year countdown to the biggest event in the city’s history approaches, the Games now have their own fiscal calamity, just like those that bedevilled so many other host Olympic cities.
The story of the rapid downfall of what was on paper a marvellous development is fraught with circumstances beyond anyone’s control. But it is also dependent on a number of decisions that eventually tumbled into one another to bring the project to its current grim state.
Think of a salami, local developer and planner Michael Geller said this week: “You keep slicing and slicing and slicing, and at the end all you have is the string. The problems just kept slowly adding up.”
But the key turning point came right at the beginning, when council, perhaps understandably, proved unable to resist the lure of $193-million.
Mr. Geller was one of those at the time who was stunned by the price, calling it a phenomenal amount of money. He worried it was simply too high. “Little did I realize how right I was,” he said.
It shouldn’t have required hindsight to see it, he said. “If they paid attention, people could have known at the time by looking at the other bids. Both Concord and Wall wanted to do this project. They spent a lot of money putting their bids together.” Yet their final offers were far below the Millennium proposal, Mr. Geller noted.
After its intoxicating offer was accepted, matters became even tougher for Millennium. Council insisted on some rental housing and gold-plated environmental standards. The project also took longer than expected to go through a number of bureaucratic hoops before construction could begin.
That left Millennium with an exceedingly tight, Olympic-imposed deadline to complete a massive, complex project at the same time as costs were soaring in the overheated construction industry.
These factors, combined with the city’s decision to retain title of the land until the project was finished, scared off Canadian banks from financing the development. With little money of its own, Millennium was forced south of the border into the high-interest clutches of Fortress Investment Group.
As construction chugged along and the project began to go over budget, Millennium started to get into financial difficulty. By June of 2007, council was sufficiently alarmed to make its now-controversial, in-camera agreement to guarantee completion of the development, situated on a desirable site of former industrial wasteland on a southeast swath of False Creek. That effectively left the city on the hook for everything.
Even then, matters might still have remained stable. But suddenly, the booming real-estate market, on which all assessments were based, began to tank, deeper and more quickly than anyone could have foreseen.
THE MARKET COLLAPSES
Just 15 months ago, North Vancouver realtor Austin Gangur spent five sleepless days and nights, lining up with dozens of other hopefuls for a crack at the first batch of the project’s luxury condos to go on sale. The hoopla was palpable.
“Everyone was talking about it. Everyone was excited,” Mr. Gangur recalled. “We were out there for days on end. The weather was cold and rainy, but the mood was great.”
No one saw what was coming. “Everyone thought that in three years [when the condos would be ready for occupancy], prices would be up. Absolutely. We knew there might be a dip, but nothing like this,” Mr. Gangur said. “I just can’t believe the change. It’s devastating.”
Despite that initial enthusiasm, the first phase of condos did not sell out. A planned second marketing last spring was cancelled. When the hundreds of remaining condos will finally be sold and at what prices is the billion-dollar question.
By last fall, the developers were in the soup. Fortress had stopped lending them money, construction bills could only be met with an extraordinary $100-million advance from the city, and today, an emergency session of the legislature is being convened to provide Vancouver with the power to borrow hundreds of millions of dollars to prevent the project from going belly up.
“Sorry about the cliché, but it’s been a perfect storm for [Millennium],” said Al Poettcker, president of the Urban Development Institute. “Not only did they pay a very aggressive price for the land, there were all those other things they agreed to take on in a very difficult construction environment.
“This is a very, very large project, and it had to rely on a robust sales market. Start adding everything up, coupled with the tight deadline and price of the land, and you can see it was a challenge for them from Day One.”
GLIMMERS OF HOPE
And yet, there remains the project itself, which, when finished, will likely be as spectacular as advertised. Once its use by an estimated 2,800 Olympic athletes, coaches and officials is over, there will be, within months, an impressive, 1,100-unit residential development, spread over seven city blocks, with great views from the last available patch of prime waterfront land in Vancouver.
Senator Larry Campbell, a former mayor of Vancouver, bought early and doesn’t regret it a bit. “I love the location. You can walk to almost everything. I bought two small apartments, one for rental, because I wanted to live there. At the end of the day, that’s what it is. A place to live.”
Eventually, all units will sell, and each sale will go toward reducing the city’s costs. The project might actually break even, though most observers expect the city to suffer a loss of at least $50-million to $100-million.
As for Vancouver’s bewildered taxpayers, buffeted about by a daily dose of gloomy headlines, they can only rue the day their elected officials chose big bucks over caution. Yesterday morning, a thick bank of fog swept in, smothering the Olympic village site and muffling, for a time, the buzz of construction. It seemed appropriate.
The Source: Global and Mail