Pressure mounts on Vancouver city council to come clean on deal

Christina Montgomery and Damian Inwood
Province

Vision Vancouver mayoral hopeful Gregor Robertson Thursday called for an emergency council session to allow public debate on reports the city will loan $100 million to developers of the troubled Olympic Village.

He also challenged Coun. Peter Ladner, mayoral candidate for the Non-Partisan Association, to spill what he knows about the deal, apparently made at an in-camera meeting on Oct. 14.

Ladner is chairman of the city’s finance committee.

Robertson, who stepped down as an NDP MLA to run for mayor, is not a councillor and is not privy to what goes on at the in-camera sessions.

Councillors are sworn to keep the proceedings confidential.

On Oct. 16, two days after the in-camera session, Vision Vancouver Coun. Tim Stevenson tabled a motion asking that “any decision requiring the city to commit funding to the southeast False Creek development be made in public.”

Mayor Sam Sullivan ruled the motion out of order.

He did not return calls Thursday.

Robertson said Thursday — and the party’s councillors confirmed it — that none of them have told him what went on in-camera.

Robertson said it was only when the story broke in the press Thursday that he learned the city had apparently agreed to loan $100 million to Millennium Development.

He said he was also alarmed to read that Estelle Lo, the city’s chief financial officer, had resigned after voicing concerns about the city’s financial role in the project.

Lo did not return calls.

Media reports said variously that she was on vacation in Hong Kong or had resigned while on vacation.

City manager Judy Rogers, who would have received the resignation, did not return e-mails.

Rogers is on the board of directors of the Olympic organizing committee and would be intimately familiar with any deal on the project.

The city’s communications office issued a statement saying the public would be informed “when appropriate.”

It also said there had been no changes to its “financial and schedule risks” on the project.

City officials at a hastily called press conference refused to answer questions related to the loan, its implications for city finances, or about Lo.

Ladner said news of the apparent resignation caught him by surprise, since he had spoken with Lo Wednesday and the subject did not come up.

Premier Gordon Campbell said he couldn’t comment on particulars of the city’s arrangements but said he knew “the city wants to be sure the project goes through and the affordable housing gets completed.”

MLA Harry Bains, the NDP’s Olympic critic, criticized Campbell for not dipping into B.C.’s surplus to help with cost overruns.

“Why are Vancouver taxpayers being asked to pay $100 million?” Bains asked.

“Campbell has called this B.C.’s Games and Canada‘s Games. It shows sheer arrogance on the part of the premier.”

Dan Doyle, Vancouver 2010’s boss of construction, said he’s “entirely confident” the village will be handed over as planned in 2009.

He would not comment on the city’s loan. The risk to the city would arise when it comes time to sell the units.

If real estate prices are lower — and prices are dropping — sales may not raise enough money to satisfy the loans.

Shahram Malek, a director of Millennium Development Corp., said the taxpayer-backed loan is safe.

“The Olympic village is a private development and the taxpayers are not exposed in any sense whatsoever,” Malek told Global News.

“And any loans that are on the project are our obligations to pay.”

Asked what would happen if the company went bankrupt, he said: “That’s a good question. That’s a point I should make that loans on the project are fully secured. So there is security fully backing the loans.

“So in the unlikely event, and I know everyone has to look at a doomsday scenario, in the unlikely event anything happened to our company or any other company, there is more than sufficient security to back those loans up. Again, there would be no exposure to anyone in such a scenario.”

Financial problems with the project surfaced months ago, as economic conditions dipped globally and developers began to have trouble securing loans.

In early October, city councillors were told at an in-camera briefing that the project was $60 million — six per cent — over budget.

Michael Flanigan, the city’s director of real estate services, said the amount was being covered by Millennium Development, the project’s developer, and that the city was not concerned about the project’s viability.

He also said the city’s $190-million financial guarantee to Fortress Investment Group, which provided the $750-million loan to Millennium, was not in danger of being exercised.

Concerns arose when U.S.-based Fortress had a $1.7-billion loan of its own come due. It eventually made a last-minute deal to cover the money.

© The Vancouver Province 2008

DEVELOPMENT: Proposal announced despite financial woes

GLENDA LUYMES
Province

Planning for a billion-dollar development in Surrey’s centre is underway despite the global credit crunch.

Berezan Management Ltd. says it will spend $1.6 billion to construct five towers on four hectares of land near the King George SkyTrain station over the next 10 to 15 years.

One of the buildings is proposed to be 70 storeys high, which would make it one of B.C.’s tallest buildings.

“We are very excited about this project,” said company president Ralph Berezan. “Despite the current level of economic uncertainty, we are confident in the long-term potential of Surrey’s city centre.”

Berezan currently has an option to purchase the property, but construction is not planned for any time soon.

It could take more than two years to get the necessary building permits — by which time finance for the project may be easier to secure.

The proposals include a 70-storey office and residential building, a 55storey hotel and three residential towers. They would sit on a shopping mall with movie theatres and gardens.

The announcement comes despite the fact that two other projects near King George Highway have recently run into financial difficulties.

Jung Development Inc.’s Infinity project had to seek court protection from creditors in October after its main financier, American investment bank Lehman Brothers, collapsed.

Jung’s Sky Towers project was also put on hold after it failed to secure financing within the one-year limit.

Plans for Surrey city centre took a further hit when the second phase of the Quattro development went up in flames last month.

But in a recent interview, Surrey mayor Dianne Watts remained optimistic. “There is certainly confidence in terms of our city centre and the vision of where we want to go with it,” she said.

Economist sees light at the end of the tunnel, but no good news for B.C.

Gordon Hamilton
Sun

A U.S. economist said Monday the U.S. housing bust may be “closer to the end than the beginning.”

Forest economist Henry Spelter reported in a research bulletin that nationwide home valuations have sunk to the point that houses are almost affordable again for buyers, signalling that the bottom may be approaching in the current housing cycle.

Spelter, an economist with the U.S. Forest Service’s Forest Products Laboratory, said the relationship between income and housing prices is only one metric in determining how far along the downward curve housing has fallen, but that it is a significant sign.

“Restoring the normal relationship of price to income is necessary but not sufficient to revive real estate,” he said. “Credit still needs to flow freely again, incomes need to keep pace and general economic conditions need to stabilize but … we appear to be much closer to the end than the beginning.”

But for the B.C. lumber industry, having the bottom in sight doesn’t mean a turnaround is on the way.

Keta Kosman, publisher of Madison‘s Lumber Reporter, said she expects the U.S. housing industry to bounce along the bottom for several years and when it does recover, there are no guarantees.

“The old B.C. business model of pumping out two-by-fours to the U.S. market is essentially over,” she said. “There’s not really going to be any turnaround in the traditional sense for us.”

Spelter drew his conclusions by analysing the relationship between new house prices and incomes. He used the period from 1983 to 2001 as his base.

By 2006, average new home prices had risen to $313,000 US, 32 per cent above the 1983-2001 base of $257,000 US. But by September, prices were down to $275,000 US, only seven per cent above parity.

Median U.S. housing prices were at $218,000 US in September, less than two per cent from the 1983-2001 base of $214,000 US, Spelter said.

“On a national level, we are closing in fast on sustainable and reasonable home valuations,” he said.

Lumber prices have not responded to signs of a bottom forming in U.S. housing. Spelter’s preliminary estimates show that B.C. Interior sawmill margins are down 14 per cent for the month of October despite the drop in the Canadian dollar. Lumber prices have fallen almost as fast as the dollar, he said. All but $5 US of a currency gain of $35 US per thousand board feet of lumber shipped has been erased by lumber’s drop, he said.

Dimension lumber is currently selling for $189 US, down from $226 a year ago.

© The Vancouver Sun 2008

 

Low consumer confidence blamed as price decline continued in October

Derrick Penner
Sun

The decline of the Lower Mainland’s real estate market continued in October, with the fall in prices erasing any equity gains homeowners saw in the first part of 2008, the region’s real estate boards reported Monday.

Battered consumer confidence, despite B.C.’s better-than-average economic performance, kept buyers on the sidelines, with the Greater Vancouver region recording less than half the number of Multiple-Listing-Service sales and the Fraser Valley experiencing an almost 50-per-cent decline from October 2007 sales levels.

“It’s not like the market has disappeared and people aren’t buying,” Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said in an interview.

However, sales have dropped sharply, in part because buyers are starting to wait out the decline in prices, he added.

“When markets are falling, people are always a little hesitant to lead [and make a purchase] because no one wants to say, ‘Gee, I paid too much,’ “ Somerville said.

“And that overlaps with what’s happening in the general economy, both here and globally, that’s not going to give people the confidence to make major purchases right now.”

In the Real Estate Board of Greater Vancouver’s region, the decline in sales and still-high inventory levels has seen the so-called benchmark price of a Greater Vancouver single-family home drop to $695,962 in October, a 9.8-per-cent descent from May. The benchmark, which reflects a typical property in that class, now rests 4.7-per-cent below the October 2007 benchmark price.

Greater Vancouver saw MLS sales of 1,364 units in October compared with 3,028 in the same month a year ago.

Single-family home sales across the region dropped to 493 units in October from 1,368 in October 2007. Condominium sales were also down substantially to 493 units from 1,133 in the same month a year ago.

Dave Watt, the Greater Vancouver board’s president, said sales are not keeping pace with B.C.’s current economic conditions with low unemployment and stable interest rates.

“That’s a direct result of a loss of consumer confidence in the overall market,” Watt said.

In the Fraser Valley, the detached house price hit $513,892 in October, down 6.5 per cent from May and 0.6 per cent below the average price of October 2007. MLS sales of 768 in the valley were 48 per cent below sales levels of the same month a year ago.

Kelvin Neufeld, president of the Fraser Valley board, said price declines are putting more properties within the financial reach of more consumers.

“In some areas of the Fraser Valley, the number of days on the market has doubled in the past year, putting more pressure on sellers to lower their asking prices,” Neufeld added.

Somerville said the factor that was different in October was a slight decrease in inventory. People are deciding not to list properties, or taking listings off the market.

In the Fraser Valley, new listings were down 11 per cent from the same month a year ago at 2,794 units. And total listings of 11,715, while still 42-per-cent higher than October 2007, represented a decline from September.

In Greater Vancouver, the total inventory of active listings, at 19,257, was down three per cent from September. New listings, however, increased a slight one per cent from the same month a year ago at 4,867 units.

That, Somerville added, combined with lower levels of new building taking place this year “are part of an overall supply response that will be necessary for the market to stabilize.”

© The Vancouver Sun 2008

 

Affordable housing is a creation of the supply of developable land that matches demand

BOB RANSFORD
Sun

There are a few lessons to be learned from our wild ride on this last steep upward swing in housing market cycles in Metro Vancouver.

After more than a seven- year climb, it’s obvious the market has reached its peak and is now descending.

Things crested a little quicker than most expected, thanks to the hysteria and fear that reverberated through world financial markets after the U. S. credit crunch a few weeks ago. Quite apart from this dramatic turn of events, we knew the peak was in sight and the wave was about to crest. It was inevitable, if for no other reason than the employment growth that had fuelled local demand for housing had to slow as major pre- Olympic employment generating construction projects are nearing completion. It has now happened.

However, the downward trend in both demand and prices doesn’t appear to be nearly as steep as the climb we’ve experienced these past few years. In fact, it looks like we’re headed to a more normalized market. I believe we will see a softening over the next few months and a gentle downward dip. The good news is that it looks like that dip will end up smoothing out the peaks and valleys of a market where demand has for too long outpaced supply.

Supply and demand are the key words in any lesson that we can learn from where our local housing market has been and where it is headed. To avoid boom- and- bust cycles that are characterized by wild swings in prices, we need to look at how we can better supply the market.

Many are tempted to rejoice in a return to a market in equilibrium where first- time buyers might again be able to afford to enter the new home market. Others, like the author of a recent letter to the editor in this newspaper, see silver lining in the slower pace of growth that will accompany a slowing market.

Yes, rejoice we should that over the short term, prices will come down because demand is quickly lagging. But let’s also look longer term and figure out how we can supply a diversity of housing types at prices that are affordable to all segments of the market over time. People will continue to migrate to Metro Vancouver. Our population will continue to age and housing choices will change, with older age groups looking for alternatives to their large single- family homes.

The land supply is limited in our geographically constrained metropolitan region. These are the inevitable constraints on future housing supply — most of which we can’t control. They are what will continue to put pressure on prices, regardless of whether or not we are in a market driven by local economic fundamentals or more macro world economic pressures.

The key to a more stable long- term cycle in the housing market is adequate supply over time.

Stopping growth won’t accomplish this. That’s why celebrating the slowdown in development and construction that results from our current lag in demand is just as dangerous as celebrating the unearned paper profits that many measured as we rode this last steep climb in prices.

As the hysteria of our latest over the top ride begins to calm, it is time to look at how we can continue to supply housing in Metro Vancouver at a pace that matches demand so that we don’t see wild price swings again.

One way of better matching supply to changing demand is shortening the time it takes for builders to bring product to the market. Right now, there is a three- to four- year lag time between deciding to build a housing development and actually completing the project.

These lag times make it difficult to respond quickly enough to consumer demand when it exists and avoid shortages that push up prices. To accomplish this, the often cumbersome land use and development approval processes that are mired in unpredictable discretionary bureaucratic decision- making and reactionary politics need to be reformed.

We also need more comprehensive planning on a regional scale to provide predictability and to target those areas where future growth can occur.

These and other reforms will allow for a more orderly market, smoothing out the peaks and valleys of what will always be a cyclical housing market.