Bob Ransford
Sun
The City of Vancouver should guarantee condo prices for a quick post-Olympic sell-off of the Olympic Village development. That’s one idea being floated in the development community.
Experienced developers have already stepped forward and offered the City advice as the Olympic Village project races toward completion and the realities of bringing this one-of-a-kind condo project to market post-Olympics fast approach.
The city faces some formidable challenges. It is holding the bag for the entire development, guaranteeing on-time completion and arranging the project financing for a project where costs are now topping $1 billion when many are questioning whether $1 billion worth of new home product will exist upon completion.
The idea of a guarantee is one worth considering as the city looks for ways to use its unique position as the backer of the project to provide the kind of confidence in the new-home marketplace that could allow for a quick sell-out of the 850 market condo units after the Olympics are over.
The idea is that after the Olympics, the city would back the sale of all remaining condo units.
Buyers would be offered a three-year price guarantee backed by the city of Vancouver. The guarantee would be for 90 per cent of the sale price.
If the market deteriorates over the three-year period, an original owner would be entitled to compensation when their home is resold in an arm’s length transaction.
Basically, the city would be making a bold statement of confidence in Vancouver‘s medium-term housing market and in the success of this model project.
It is hard to estimate just how many of the 850 units will remain unsold given that pre-sales that occurred up until recently were based on prices sustained in a much higher market.
Offering a guarantee to future buyers would certainly have an impact on those who already agreed to pay higher prices.
Some contracts might be enforceable and others may disappear. In short, the guarantee program would be establishing a new market for all of the Olympic Village market condos.
What would the city be risking in offering such a guarantee?
Basically, it would be risking that prices might drop more than 10 per cent within three years. It may be a risk worth taking considering that with current market prices and the total cost of building the homes, it is going to be a stretch for the city to recoup what it invested in the project together with the $200 million in land value it promised taxpayers it would return to the city’s once lucrative property endowment fund.
What the guarantee promises is the kind of stabilization and a stimulation of buyer activity that come with the confidence that such a scheme offers. It promises to attract a small wave of buyers over a short period of time–just the kind of thing that will help mitigate the city’s carrying costs on the project and produce other important benefits.
One of those benefits is the opportunity to significantly kick-start the 80-acre Southeast False Creek neighbourhood that promises to be one of Vancouver‘s best and one of the world’s most innovative neighbourhoods. Imagine if nothing happens on the site for months or even years after the Olympics are over.
Sure, the city can always try to rent the vacant condo homes. Market rents for these prime waterfront units will not be cheap.
How many renters will the city be able to attract? To what extent will the cash flow from the rentals cover the city’s carrying costs and the opportunity costs of not recouping at least the land value?
There are other huge risks, though, in turning to the rental market as the short-term solution.
Once a large proportion of the homes are rented, the community is no longer a condominium community with new-home value.
Market value is immediately eroded once a condo unit goes on the market. Once an entire neighbourhood is rental it is perceived as a very different neighbourhood from a mixed-use neighbourhood. So, the renting option is a risky one.
Do nothing and leave the units vacant until the market returns is an even riskier proposition.
The neighbourhood would no longer be sustainable.
How would the mix of retail and community services survive if the condos sit empty?
What would such a lag mean for the entire area, of which half of the 80-acre area is owned by private developers waiting for the Olympic Village to come online as the heart of a new urban neighbourhood.
The fact that the city is so intimately involved in the project – far beyond the normal exposure of governments that sell land for development – could prove to be the saving grace for the city in overcoming the multiple challenges of rescuing the taxpayer investment in this project and creating a whole new model neighbourhood.
What do you think?
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Bob Ransford is a public affairs consultant with CounterPoint Communications Inc. He is a former real estate developer who specializes in urban land use issues. E-mail: [email protected]
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