Derrick Penner
Sun

Declining construction costs have piqued the interest of potential apartment developers, but have not yet pushed many into taking on new projects in Metro Vancouver, according to David Goodman of Macdonald Commercial Real Estate Services.

Statistics Canada, in its latest measure of the cost of building new apartment projects, calculated a 4.7-per-cent decline in Metro Vancouver from the third to the fourth fourth quarter of 2008.

That was the second largest quarterly drop in apartment construction costs among six major metro markets that Statistics Canada tracks.

Edmonton experienced the deepest decline at 6.1 per cent, and Ottawa/Gatineau the biggest increase at 0.9 per cent.

Nationally, Statistics Canada’s composite index of apartment construction costs declined 2.8 per cent from the third to the fourth quarter of 2008.

However, builders in Metro Vancouver started work on only 729 apartment units in 2008, Robyn Adamache, a market analyst with Canada Mortgage and Housing Corp. said, which was less than four per cent of regional housing starts.

In 2007, Adamache said Metro builders started work on just 482 apartment units.

Goodman, publisher of the apartment-market-watching Goodman report, said the decline in construction prices “is getting [developers] thinking about” building rentals.

“Construction costs have come off, land prices have dropped,” Goodman said, but with all the costs added up and developers aiming for monthly market rents of $1.75 to $2.75 per square foot, he said “the numbers scarcely work.”

Goodman said more could be done to encourage apartment construction — from municipal councils giving developers breaks on development costs to the federal government forgoing GST on rental construction.

© Copyright (c) The Vancouver Sun

 

Move reduces taxpayer risk, gives Vancouver control of project, mayor says

Jeff Lee
Sun

In a move it says will inject stability into the troubled Olympic Athletes’ Village development, the City of Vancouver on Wednesday bought out Fortress Investment Group’s high-interest loan to Millennium Developments.

The decision removes one major obstacle to getting the 1,100-unit village finished in time for the Vancouver 2010 Winter Olympics.

It gives the city access to substantially lower borrowing costs, which Mayor Gregor Robertson said has already saved taxpayers $90 million in interest.

But it also keeps taxpayers on the hook for about $700 million in loans Fortress and the city gave to Millennium, as well as money needed to finish the project.

At 10 a.m., the city paid Fortress the $319.4 million it was owed on the project, including a $4-million interest penalty fee.

The penalty was negotiated down from an initial $56 million as New York-based Fortress, which was hammered by the world financial crisis, decided to accept the city’s lower offer.

An hour later, city manager Penny Ballem briefed city council on the impact of the decision, saying the city is now in control of the project. “Basically, at this time we have now bought out Fortress,” she said.

In return, Fortress relinquished all rights to the project, giving the city control and eliminating a politically problematic “completion guarantee.”

The city is still obliged to deliver the Olympic Village in time for the 2010 Games. But it is now out from under another guarantee given to Fortress by the previous city administration, which required it to deliver market-ready units to Fortress by a certain date.

Robertson said the buyout has unhooked the city from terms with Fortress that had exposed taxpayers to extreme risk.

“We have gone from an agreement that clearly was not in the best interests of taxpayers to an agreement that puts Vancouver taxpayers first,” he said.

“The city was already bearing the full risk of the project with the completion guarantee to Fortress. This way we have control of the project going forward and we can steer it to more positive outcomes that benefit taxpayers.”

The deal was crafted after the Bank of Montreal, the city’s bank since 1886, provided a low-interest line of credit based on the city’s good credit rating. Vancouver used some of that money and also temporarily borrowed funds from the city’s working capital to pay off Fortress.

The city said it now intends to consolidate all of the financing into a single $700-million loan. It will issue a request for proposals for banks within a week. It still needs about $428 million to finish the project. Ballem said the city will negotiate a new interest rate with Millennium within weeks.

But there was little appetite among politicians to pass those savings on to Millennium. Coun. David Cadman said he didn’t think taxpayers should take all the risk with the loans and then pass on the savings to Millennium. Neither Ballem and Robertson could say what kind of rates the city will give the developer.

Millennium is currently paying 9.5 per cent on the Fortress loan, and 9.0 per cent on the $134 million in “protective advances” the city has given it since last fall.

The city has already received one offer from a bank, but will now seek competitive bids from others. Robertson and city finance director Ken Bayne said the refinancing won’t directly affect taxpayers because the project is essentially self-financing.

“At this time there is no direct connection between the financing arrangement we have here and property tax increases,” Robertson said. “This is all financed through our capital finance fund and our property endowment fund.”

He could not say what projects would be delayed because the city had diverted funds from its capital programs.

Shahram Malek, one of the owners of Millennium, said he was pleased with the buyout arrangement. “We’ve got this behind us now,” he said. “It’s a win-win for everybody.”

Hank Jasper, Millennium’s project manager, said he anticipated no problem getting the project finished in time for the Games.

“I’m confident the project is on schedule and will be delivered on schedule,” he said. “It’s been a bit frustrating that some people have used words like fiasco to describe this development, but the fact is, morale is high and people know they’re building something special.”

Ballem said much of the development is on time for completion for the 2010 Winter Games, but some buildings are behind schedule.

The developer and its construction contractors are hiring more workers to speed up work, she said.

“Wow, what a roller coaster,” said Coun. Kerry Jang, who questioned how the city found itself being both a lender and a property developer.

Coun. Raymond Louie severely criticized past city staff decisions, saying he thought they didn’t adequately warn council of the risk of the development when they agreed to underwrite the Fortress loan to Millennium.

He said he was also concerned Millennium would put units into a “fire sale” to generate cash, and he wanted the the city’s investments protected.

© Copyright (c) The Vancouver Sun

Vancouver cuts interest costs by paying off loan with line of credit

Christina Montgomery
Province

The City of Vancouver has bought out Fortress Investment Group and taken over financing of the $1-billion Olympic Village.

City manager Penny Ballem said yesterday that it cost the city about $319 million to buy out Fortress, the New York-based lender for the False Creek condo project that will house athletes during the 2010 Games and then be sold off.

Fortress had agree to finance up to $750 million in loans on the project — a total the city has now agreed to lend project developer Millennium Developments.

As part of the new financing deal, the city has arranged a $400-million line of credit with the Bank of Montreal at 3.25 per cent interest.

In using that money to pay off Fortress’s 11-per-cent loan, the city is saving $90 million in interest costs, Ballem said.

The city was also able to negotiate a $4-million buy-out fee with Fortress, down from the $56-million the lender had initially demanded.

The city is legally required to hand Olympic organizers a complete Village in November for their use until the Games end.

The city will eventually find other money to finance the rest of the project using a combination of funds from its capital account and loans to be tendered shortly at what are likely to be competitive rates.

In October, after delays in the project and a collapse in international financing, Fortress stopped advancing its periodic loan installments to Millennium.

Because tight Olympic deadlines meant construction must continue, the city began advancing Millennium money itself — about $133 million to date.

Millennium now owes the city about $633 million, according to city business manager Ken Bayne.

The city retains ownership of the land during construction and would own the land and buildings if Millennium fails to finish.

The city hopes the units can be rented or sold to recoup the loan.

Work on the multi-parcel project is largely on schedule, Ballem told council.

The deadline is “tight” on parts of the project and extra workers have been hired and “trade acceleration” bonuses — all paid by the developer — have been instituted. The new community centre on site will open on time.

Mayor Gregor Robertson said he was pleased to have good news on the Village “for the first time since taking office 10 weeks ago.”

But several councillors focused on how the loan had been handled. Vision Coun. Geoff Meggs said the public should have been told in 2007 that the completion guarantee left the city on the hook for Fortress loan.

© Copyright (c) The Province

 

Millions could get help, but is foreclosure plan fair?

Stephanie Armour
USA Today

The Obama administration’s $75 billion housing rescue plan promises to help millions of financially struggling homeowners keep their homes, but it may be too little and too late for millions of others.

More than 3 million owners have lost their homes during the past three years, and almost 5 million more could follow this year through 2011, according to Moody’s Economy.com.

Obama’s plan calls for measures that will allow up to 9 million homeowners to reduce their mortgage payments through government-backed refinancing arrangements. Just how that will work isn’t clear. The administration said that on March 4 it will provide more details on the plan and when it will go into effect.

Until then, homeowners in trouble — many of whom have adjustable-rate loans with rising payments and little chance of refinancing because of falling property values — are being urged to check with their lenders to see whether they might benefit.

The Obama plan reaches out to those at risk of default, rather than just those already facing foreclosure, and it offers mortgage servicers — the firms that collect payments — financial incentives to modify loans. In addition, the Treasury Department said Wednesday it will commit up to $200 billion more to mortgage giants Fannie Mae and Freddie Mac to try to keep mortgage rates low. It pledged $200 billion — $100 billion apiece — to them last fall when the government took them over.

Many heralded the plan Wednesday but also raised questions about how successful it will be. On Capitol Hill, some Republicans — amplifying criticisms by homeowners who didn’t buy more expensive houses than they could afford and have paid their mortgages on time — challenged the fairness of an expensive bailout.

House Republican Leader John Boehner, R-Ohio, and Republican Whip Eric Cantor, R-Va., sent the president a letter asking, “What will your plan do for the over 90% of homeowners who are playing and paying by the rules?”

Economists had a more measured reaction. “This is a nice mix of policy steps that will have a mitigating impact on foreclosures,” says Mark Zandi of Moody’s Economy.com. “It won’t stem foreclosures, but it will mitigate the increase.”

Establishing a standard loan-modification process that applies to most mortgage servicers will help spur refinancing and modifications while providing legal coverage to ward off lawsuits by investors, Zandi says.

Reducing foreclosures and stemming the historic decline in housing prices are crucial to repairing the overall economy.

Falling home prices have hurt banks and other financial firms, leaving them less able to lend. States and localities have taken a hit in the form of declining tax revenue and blighted neighborhoods. The housing free fall has plagued home builders as foreclosed homes have gone back on the market, swelling an already huge inventory.

Prospective homeowners have found it increasingly difficult to get credit as asset prices fell and worried bankers tightened loan standards. Some buyers, on a bet that prices will fall even further, have decided to postpone buying a house, thereby lengthening and deepening the crisis.

In a speech Wednesday, Cleveland Fed President Sandra Pianalto noted that housing starts have plunged by more than 60% since peaking in 2006, with builders now holding a huge, 14-month inventory. “Stabilizing housing prices will help stem foreclosures, bolster bank balance sheets, restore consumer confidence and shore up consumer spending,” she said.

The new efforts come atop a recent Fed initiative to buy mortgage-backed securities, which Fed Chairman Ben Bernanke said Wednesday had pushed mortgage rates down by nearly a full percentage point. But the coordinated efforts have their limits.

“The Fed and the Treasury will do all they can to drive mortgage rates lower,” says Richard Schlanger, portfolio manager for the Pioneer mutual funds. But banks continue to tighten their lending standards, which means that mortgages at low rates still could be tough to get. Furthermore, few banks will want a portfolio full of mortgages yielding 4.5% if they think rates will rise later, Schlanger says.

Homeowners who were financially conservative and can meet their monthly mortgage payments have a stake in the housing plan’s success. Americans have lost as much as $13 trillion in wealth as stock and home prices have plunged, says Nariman Behravesh, chief economist of IHS Global Insight. Because household spending is related to household wealth, declining home and stock prices have contributed to a staggering fall in consumer spending. “The wealth effect is humongous,” he says.

Those who will be directly helped by the Obama plan include homeowners on the cusp of foreclosure, those making monthly payments but struggling to do so and those at risk of falling behind. They include people such as Rodney Rose, who is fighting so hard to make his mortgage payments he’s put off payments on credit cards and other debts.

The Bowie, Md., resident has watched the value of his home fall from about $425,000 to $319,000, and he’s worried about how to pay his mortgage once his adjustable-rate loan moves to a higher rate.

“I’m struggling. I had to stop paying my student loans,” says Rose, a father of two and who works in the housing industry. “But with this plan, I’m hopeful.”

A question of fairness?

Other homeowners aren’t as pleased. They worry that the plan amounts to a handout to homeowners who stretched to afford more than they could, and that it isn’t fair to mortgage holders who make payments on time.

Ted Hellier, 53, a carpenter in South Portland, Maine, says he pays three mortgages on time every month and has never had a late payment in 20 years. For him, the Obama plan raises a question of fairness.

“People like me deserve to have a chance to lower our mortgage payments,” says Hellier. “I am tired of handouts. Other people can renegotiate loans to 4% and other (favorable terms). I have a 14- and an 11-year-old, and their grandkids are going to pay for this nonsense.”

And others fear the plan won’t do enough to slow foreclosures already underway. For a large number of homeowners already on the brink of default, the Obama administration’s housing rescue plan may not help.

“There are a lot of carrots in the plan, and it will help, but it’s not the silver bullet,” Zandi says. “We will still see foreclosures.”

Just ask Denise Parker. The financial rescue plan sounds like a promising way to help out troubled homeowners like herself.

But for her, the plan seems too late. The single mother of three can’t pay her adjustable-rate mortgage, whose monthly payments have jumped from $3,700 in 2005 to more than $4,000 today. She works two jobs to try to make enough money to get by, but she’s behind in house payments and has gotten a foreclosure letter saying her home will be up for auction Friday.

“What do I tell my kids?” Parker asks. “I don’t know where I’m going to go.”

Help for refinancers

A key element of the plan is refinancing help. Homeowners who took out loans owned or guaranteed by Fannie Mae or Freddie Mac will be able to refinance through those institutions, even if they owe more than their homes are worth.

Currently, homeowners who owe more than 80% of the value of their homes have difficulty refinancing. Nearly one in seven homeowners, or about 12 million, are “under water,” meaning their home’s value is less than the amount of their mortgage, according to Moody’s Economy.com. That’s nearly double the 6.6 million who were in that position at the end of 2007.

The plan also includes incentives to encourage mortgage servicers — who collect fees for refinanced and delinquent mortgages — to work with qualified borrowers to modify loans. Servicers will get $1,000 for each eligible modification they make, and another $1,000 a year for three years as long as the homeowner remains current on payments. Homeowners who stay in their properties and are current will get a monthly balance reduction to help reduce their loan principal. That will amount to up to $1,000 a year for five years.

Government funds would be used to avoid defaults. The plan includes an incentive of $500 to lenders and $1,500 to homeowners if loans are modified before mortgage holders fall behind.

Other parts of the plan aimed at stabilizing the housing market are particularly controversial.

The administration’s endorsement of a change in the bankruptcy law, which requires congressional approval, would give bankruptcy judges the power to lower the interest rate or extend the repayment period on home mortgages. More significant, it would allow them to reduce the principal amount owed to the home’s fair market value, says Sam Gerdano of the American Bankruptcy Institute.

Many modification programs in force now don’t do that. Instead, homeowners may be allowed to defer back payments, or get more time to pay their loans, but some default again.

Much of the financial services industry has opposed the change, arguing that a more lenient law could be used by homeowners to get rid of homes that have declined in value, even if they can afford their mortgage payments.

Under the current bankruptcy law, judges can modify a mortgage for a vacation home or a commercial building but not for a principal residence, says Henry Hildebrand, a Chapter 13 bankruptcy trustee in Nashville.

	HOW THE HOUSING CRISIS UNFOLDED

 

St. Paul’s staff urge premier to save the hospital

Jack Keating
Province

St. Paul’s Hospital will be “critically damaged” by the provincial government’s proposed options to “dismantle” it, says the hospital’s medical staff.

In a letter to Premier Gordon Campbell, staff raise serious concerns about the government’s intentions for the historic facility in downtown Vancouver.

Signed by the hospital’s staff executive, including president Dr. Dara Behroozi, the letter says the health ministry is contemplating changes that would “critically damage St. Paul’s Hospital’s key provincial programs and the hospital’s international reputation as a centre of research, teaching and care excellence.”

The letter obtained by The Province says staff “are united in our urgency and determination to ensure St. Paul’s Hospital is not dismantled.”

The executive “urgently requests” that the premier gives “assurance” that the hospital “will not be dismantled and its key provincial programs such as cardio-pulmonary and renal programs will not be moved to other organizations in whole or in part.”

The letter, dated Jan. 30, states that the hospital executive is ready to make the case that St. Paul’s “can best serve the needs of all British Columbians through strengthening the hospital’s programs, not by cutting them out and distributing them to other hospitals or health authorities.”

Health Minister George Abbott has received a copy of the letter, but neither he nor the premier have responded.

“I appreciate that members of the medical staff have concerns at St. Paul’s,” said Abbott, adding that it needs upgrades.

“Portions of it have been on that site now for over 100 years, so it is a facility which in the years ahead clearly will require either huge remediation, which may or may not be possible physically on that site, or replacement,” said Abbott.

He pointed out that the St. Paul’s Foundation has acquired property at Station and Prior Streets “so [moving] is a possibility as well.”

NDP health critic Adrian Dix said the Campbell government is trying to delay any decision on St. Paul’s until after the May 12 election.

“In 2002 the provincial government promised to upgrade St. Paul’s and they haven’t acted on it,” said Dix.

“And since then they’ve broken that promise.”

© Copyright (c) The Province