PavCo tests the waters, would use proceeds to help pay for stadium upgrade

Bruce Constantineau
Sun

BC Place operator PavCo is testing the city’s recession-challenged market to see if anyone wants to develop land next to the stadium and help pay for the venue’s $365-million upgrade.

PavCo has issued a request for expressions of interest in developing the first of two potential building sites near the stadium — an area bounded by Pacific Boulevard, the stadium and Terry Fox Way.

Potential developers have until March 27 to express their interest in building residential and commercial projects on the property, known as development site 10A.

A request for expressions of interest in developing site 10C — bounded by the stadium, Pacific and the Georgia viaduct — could come later this year.

PavCo hopes to recover more than $100 million through the sale and lease of the sites, which could accommodate a total of 1.4 million square feet of residential and commercial space.

PavCo chair David Podmore said the Crown corporation won’t proceed if there is not enough interest now. But he noted several parties have already expressed an interest.

“We want to test the level of interest now to see if there are some interesting proposals out there that would allow us to move forward,” Podmore said in an interview, noting that actual development would still be several years away.

If enough potential developers express an interest, PavCo would select a short list of candidates and issue a formal request for proposals by April 20. It could then select a preferred proponent by June 30, when it would know how much money it would make.

PavCo is currently spending more than $100 million on interior improvements and seismic upgrades to BC Place before it is used for the 2010 Olympic opening ceremonies next year.

After the Olympics, PavCo plans to install a retractable roof for completion by the spring of 2011.

The BC Place upgrades were crucial to the Vancouver Whitecaps’ successful bid for a new franchise to begin play in Major League Soccer in 2011. The soccer club has agreed to play in the renovated stadium for at least five years.

© Copyright (c) The Vancouver Sun

Derrick Penner
Sun

Spending on residential construction in British Columbia in January fell to its lowest level in a single month in at least four years, figures released Friday by Statistics Canada show.

The federal agency reported that builders spent $337.4 million in inflation-adjusted dollars building new homes in January, down 16 per cent from December and down 24 per cent from the same month a year ago.

The previous recent low, in figures that go back to 2005, came in January 2005, when builders poured an inflation-adjusted $353 million into residential construction.

“When you’re comparing last year’s numbers with whatever is going on this year in anything construction-related, it’s obviously going to be down,” said Peter Simpson, CEO of the Greater Vancouver Home Builders’ Association.

Simpson said it follows from a simple equation that sees housing sales decline first, which results in fewer housing starts, which spills over into job losses in the residential construction sector.

“There’s no doubt [slowing construction activity] has impacted us,” Simpson said. “We’re going from significant levels of employment to a reduced number, obviously.”

The decline in construction investment also follows from reductions in housing starts and building-permit applications.

January’s decline in construction activity was not as dramatic as the decline in housing starts. In January, Canada Mortgage and Housing Corp. counted 925 starts in B.C.’s urban centres, a 60-per-cent drop from January a year ago.

The total value of residential building permits taken out in January, which measures future intentions, however, was $191 million, down 70 per cent from the same month a year ago.

Simpson said builders are starting to become proactive about reducing their costs and encouraging subcontractors and suppliers to do the same in order to win the business that is out there.

“The pain is being felt by everybody so the solution has to be with everybody,” Simpson said.

© Copyright (c) The Vancouver Sun

Walking away from contract can lead to a costly lawsuit

Derrick Penner
Sun

When British Columbia‘s real estate cycle was on the upswing, many condominium buyers reaped the rewards of buying so-called pre-sale condominiums which, in many cases, were worth more on closing than the agreed purchase price.

Now the cycle is on the downside and a growing number of buyers are finding themselves compelled to honour contracts they signed to complete purchases of units that have fallen in value. They have few options to get out of deals even if they don’t qualify for a higher mortgage.

Pre-sales can be “a win-win transaction” for both buyers and sellers, in the words of an advice pamphlet produced and distributed by the Urban Development Institute and the B.C. Real Estate Association.

They allow buyers to pick homes they want to live in, and give developers certainty about their ability to sell and finance projects they are taking the risk to build.

If buyers try to walk away after signing a deal, they can be sued by developers, and risk losing not only the deposits they paid to secure units, but the difference between the current, lower market price, and the price they agreed to pay the developer in their contracts.

“What the biggest risk [in pre-sales] is,” said Kenneth Pazder, a Vancouver real estate lawyer, “[that] what you essentially are doing is, you’re playing a futures market in real estate.”

Buyers put down a deposit, usually about 15 per cent, and trust that the price they agree to pay reflects the home’s value on completion of its construction when they have to take ownership.

“How sophisticated is the average [buyer] to do that?” Pazder asked.

At least six different developers are suing some 74 different buyers for not completing the purchase of homes they’d signed contracts to buy. Pazder is in discussions with a number of buyers who want to counter-sue developers.

Developers are required to file disclosure statements that outline their projects’ details and pass them on to prospective buyers.

Pazder’s advice for buyers considering pre-sale purchases is to seek legal advice to understand the contracts they are signing and the disclosure statements they are agreeing to accept.

The B.C. Real Estate Development and Marketing Act (REDMA) allows developers to sell real estate before it is built, and sets out the conditions developers have to meet in doing so.

One of the conditions is that buyers have a seven-day right-of-recision period — the ability to cancel the contract — if they change their minds. Pazder advises clients to use that period to get a legal opinion on the contract, and to bail out if that opinion is negative.

It will cost a buyer $300 or $400 for the service, Pazder said, but he reckons it is worth the fee to understand the potential risks a buyer is assuming in signing the contract.

“Sometimes people feel that they know the price, [the purchase] is going to close in two years, and that’s good enough,” Pazder said. “Then the problem is when, like now, things go sideways.”

Pazder said one of the most common questions he gets these days is how buyers can get out of their contracts.

Often, Pazder said, the buyers’ problem is that they can no longer secure a mortgage to complete the purchase at the price agreed to in the contract. Their bank or lender can lend them funds based only on their unit’s current, and lower, market price.

Pazder said contracts often contain language that allow a developer to seek damages greater than the deposit, if the amount the developer has to cut the price of a unit to sell it in the current market exceeds the value of that deposit when a buyer walks away from the contract.

Pazder added that in the current market, pre-sale buyers will want to try to limit that clause: “You want [the clause] to say, ‘If I don’t complete the purchase, this deposit is forfeited as liquidated damages as the sole remedy of the developer.’ “

He added that buyers will also want to look at firmer language around the completion dates for construction of the units and clauses allowing the developer to make changes in finishings or unit layouts that also give them an out.

The Urban Development Institute and B.C. Real Estate Association pamphlet includes a checklist of items that are required to be in a disclosure statement.

© Copyright (c) The Vancouver Sun

Don Cayo
Sun

The bad news is that city hall’s portion of residential tax bills in Vancouver will likely go up eight per cent this year.

Worse, a plan put forward by city staff — almost certain to be the blueprint for what council decides next week — says spending would be a good deal higher if not for one-shot cuts. In other words, next year these cost-saving measures won’t be an option.

And — worst of all, though only for some city taxpayers — if you own one of the pricey properties that got a tax reprieve this year thanks to the provincial government’s tinkering with assessments, brace yourself for a double whammy in 2010. Because, while it’s the owners of less desirable properties who get stuck with extra costs this year, next year it’s your turn.

The residential tax increase will be about double the business tax increase. It’s so high for two reasons, one easily defensible, the other not so much.

The biggest factor, responsible for about three-quarters of the increase, is spending. To be fair, the current council did inherit a lot of this extra cost, particularly the sharply higher wages mandated by collective agreements signed by the previous council. But the two main cost-cutting options — a hiring freeze (with many exemptions) and the axing of a couple of programs favoured only by the NPA before it was voted out — still leave the spending total 5.74 per cent higher than the year before. An extra 0.09 per cent for new programs inches it up to 5.83 per cent.

The rest of the increase will come from an oft-promised shift of one per cent of total tax burden from business to residential. With each group paying roughly half the total, this means a two-per-cent saving for businesses and two per cent extra for residents. Unwelcome as this is, it’s hard to argue that it isn’t fair. Vancouver businesses have long been paying for far more than they consume in municipal services and a far larger share than businesses pay in other cities.

The spending increase of 5.83 per cent recommended in the report is down from a 6.29 per cent forecast in February. But the cost-cutting exercise conducted between then and now also had to contend with an unprecedented drop in revenue projections because development activity has declined so sharply.

Thus, to pare the tax increase by half a per cent and to make up for the declining revenue, staff had to find about $16.2 million in new revenue or spending cuts.

They found $1.3 million by proposing substantial hikes in parking fees, plus $1 million by shifting some costs from the operating budget to other accounts like capital and the Property Endowment Fund. And low fuel prices allow the pain-free saving of an extra $500,000.

The rest is from the hiring freeze, non-renewal of contracts and, of course, axing pet NPA projects like Downtown Ambassadors and Project Civil City.

The trouble is, you can’t put off hiring and contract work indefinitely if you are not also prepared to cut or dramatically downsize some activities. So if this spending is resumed in 2010, you can bet taxes will take off.

In fact, the report estimates spending will soar 4.7 to 8.5 per cent next year without any new undertakings. (And the residential tax burden will rise about two per cent more than that if, as promised, the business-to-residential shift is continued.)

What will make the picture much muddier is the second-year fallout from the B.C. government’s decision to meddle with property assessments this year.

I’ve been away from work for the last five weeks but, as I wrote before my departure, this move shifted a big chunk of this year’s tax burden from properties whose value was still rising to those whose value had stalled or was falling. It did this by setting the basis for 2009 tax bills on the lower of the last two assessments. Thus, those who would have had bills based on higher property values got a big break, and the extra tax they should have paid got dumped on those whose property values didn’t change or declined.

E-mail from readers during my absence made it clear that BC Assessments’ appeal process not only refused to consider the fairness of this, it also refused to hear appeals in cases where the second assessment was much higher than the first. It doesn’t matter if the second assessment is justified by market conditions, homeowners were told, your tax bills will be based on the earlier, lower assessment.

But this leaves those high assessments still on the books, and they’ll be the benchmark on which the next round of assessments is based. So if the assessed value of your property is already too high, you can expect this error to be included — if not compounded — in next year’s assessment.

Combined with the forecast big increase in spending, your tax bill’s headed through the roof.

© Copyright (c) The Vancouver Sun

First quarter of 2009 sees decline in B.C. resource sector, Olympic capital spending dwindles

Derrick Penner
Sun

With British Columbia‘s resource sector in decline and capital spending related to the 2010 Olympics dwindling, Metro Vancouver’s office vacancy rate began to rise in the first quarter of this year, a major commercial realtor reported Thursday.

CB Richard Ellis Canada, in its latest office report, calculated that office vacancies across Metro Vancouver rose to 7.3 per cent in the first quarter of 2009 from six per cent at the same point in 2008.

Downtown Vancouver‘s notoriously tight vacancy rate, which approached rates of 2.3 per cent in the third quarter of 2008, has crept up to 4.2 per cent.

However, CB Richard Ellis senior analyst Nicholas Westlake, in an interview, said the amount of additional office space downtown tenants hold, but are willing to turn over into subleases is the more important statistic.

Westlake said downtown’s 4.2-per-cent vacancy comprises 427,000 square feet of vacant offices. However, tenants are actively marketing another almost 400,000 square feet of space they could give up on short notice to subleases, which brings overall downtown office availability closer to 6.5 per cent.

“The big thing here right now is there is a big discrepancy between what the vacancy rate is and what the availability rate is,” Westlake said. “The availability rate is the telling story on where the market is at right now.”

The space available for sublease represents companies that are downsizing, or firms that leased more space than they needed — in anticipation they would expand — during Vancouver‘s boom period, when office vacancies were shrinking.

Now, the need to expand is no longer pressing. Companies ranging from forestry firms to mining companies and tech firms, such as Electronic Arts, have downsized and made office space available downtown.

“Historically, we haven’t calculated [an availability rate],” Westlake said. “It’s only [a significant statistic] in a recessionary period.”

Nationally, CB Richard Ellis reported that challenging economic conditions in manufacturing, retail and resource sectors piled on top of constraints on credit to push businesses out of an increasing amount of office and commercial spaces.

CB Richard Ellis said commercial vacancies in the urban and suburban markets it measures across the country rose to 7.5 per cent in the first quarter of 2009 from six per cent a year ago.

A year ago in the first quarter, commercial tenants absorbed 2.6 million square feet of new space.

This year, commercial tenants turned just over two million square feet of commercial space back into the market.

“The residual effects of the Canadian economic downturn continued to impact the first quarter commercial real estate market conditions,” John O’Bryan, CB Richard Ellis’s vice-chairman, said in a press release, which is “a trend we expect to continue for the balance of 2009 — while more news regarding the slowing Canadian economy continues to surface.”

© Copyright (c) The Vancouver Sun

Developers slash prices for some condo buyers while suing others who try to back out of deals

Derrick Penner
Sun

The number of developers suing pre-sale condo buyers for attempting to back out of their contracts is mounting in the fallout from British Columbia‘s slumping real estate market.

At least six developers have filed a total of 74 lawsuits in B.C. Supreme Court in Vancouver against buyers, claiming they breached contracts by not completing purchases of condominium units. Often, the units are worth less than the original contract price.

Among the companies is Amacon, which announced Tuesday it is slashing prices for both pre-sale and future buyers at The Beasley, an upscale downtown Vancouver development.

Amacon senior vice-president Bob Cabral said The Beasley is an entirely different case than the Morgan Heights project in south Surrey, where the company is suing 16 pre-sale purchasers trying to back out of their contracts.

Because construction of the 33-storey tower at Smithe and Homer hasn’t yet begun, he said, the builder can take advantage of falling construction costs. Other developers in Metro Vancouver also have discounted their prices.

Cabral said Amacon “viewed [reducing prices], rather than as an obligation, as an opportunity to pass on savings.”

The lawsuits are a sign of the tensions that arise when soaring real estate markets suddenly drop, Tsur Somerville, director of urban economics and real estate at the Sauder School of Business at the University of B.C., said in an interview.

Amacon said it is cutting prices in The Beasley by 22 per cent, about $100,000 to $250,000 and more per unit, based on reductions in construction costs, for both pre-sale buyers who signed higher-priced contracts last spring and bidders for 70 to 80 unsold units it will release to the public in early April.

In the case of Morgan Heights, Cabral said, only a small minority of buyers walked away from units that were complete and Amacon had already paid out all of its construction costs, which were incurred at the top of the market

Ross King, president of CONform Construction Ltd., Amacon’s form-work contractor for The Beasley, estimated his company could contribute about one-third of the cost savings per unit, given that concrete work is the biggest cost and his wage and material costs are substantially lower.

King said the construction sector has slowed so much he has laid off about 250 workers, about half his workforce. “The reason I wanted to do The Beasley was to keep the rest of my workforce busy,” King said. “That’s my job, right?”

Amacon had already pre-sold two-thirds of The Beasley’s units at higher prices last spring. Cabral said the price reduction avoids potentially messy legal problems that could arise if the remaining units were sold for less money.

Buyers who try to walk away from their contracts run the risk of losing the deposits they put down; but Somerville said developers also run the risk of losing all their profits if they allow buyers to abandon their contracts.

Somerville said calculating how much risk the company would face from The Beasley’s buyers walking away from contracts if they didn’t reduce prices likely factored into Amacon’s decision.

Somerville said a developer’s choices are to take buyers to court to enforce the contracts they originally signed. But even if the company wins, it still will be dealing with angry customers.

Developers, he added, also do not want to end up holding large numbers of unsold units. Faced with the alternatives, Amacon has decided “the smart business decision” is to reduce prices, Somerville said.

Other developers that have cut prices include the Onni Group of Companies, which is suing 44 pre-sale buyers for walking away from units in a handful of projects. It attracted headlines in January for its so-called liquidation sale of some 375 completed units at prices 25 per cent to 40 per cent off original contract prices.

Earlier this month, Morningstar Homes Ltd. said it was able to cut $100,000 off the construction costs of its new single-family homes, which it would pass directly to buyers.

© Copyright (c) The Vancouver Sun

USA Today

WASHINGTON (AP) — Mortgage applications jumped last week, as low interest rates fueled refinancing activity.

The Mortgage Bankers Association said Wednesday its weekly application index climbed 21.2% for the week ended March 13. The index came in at 876.9, up from 723.4 a week earlier.

On an unadjusted basis, the index rose 20.7% compared with the previous week, the trade group said.

The average rate for traditional, 30-year fixed-rate mortgages dipped to 4.89% from 4.96% a week earlier, according to the MBA report.

About 72.9% of applications came from borrowers seeking to refinance home loans at lower rates, rather than purchase homes. The refinance rate was up from 67.9% in the prior week, the MBA said.

The trade group’s application index remains below its peak of 1,856.7, reached in May 2003 at the height of the housing boom. The survey provides a snapshot of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about half of all new residential mortgage loans made each week.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume.

Interest rates have plunged since the Federal Reserve said in November it would buy up to $500 billion in mortgage-backed securities in an effort to bolster the long-suffering housing market.

The average rate for 15-year fixed-rate mortgages slipped to 4.52% from 4.54% a week earlier, while the average rate for one-year adjustable-rate mortgages was fell to 6.20% from 6.21%.

Copyright 2009 The Associated Press. All rights reserved.

Lucia Mutikani
Province

WASHINGTON — U.S. housing starts and permits rebounded in February from record lows, rising for the first time in 10 months, according to data yesterday that gave a glimmer of hope for the recession-hit economy.

Analysts said while the data did not mark a change in trend for the depressed housing market, it hinted at some stability that could ease pressure on the economy going forward.

The U.S. Commerce Department said housing starts jumped 22.2 per cent to an annual rate of 583,000 units last month from 477,000 units in January. It was the biggest percentage rise since January 1990 and the first gain since April.

“Even if we get housing starts just sort of bouncing along the bottom for a while, at least that means they won’t be subtracting from GDP growth,” said Bill Cheney, economist at John Hancock Financial Services in Boston.

U.S. stocks climbed in choppy trade on the data, while the U.S. dollar rose against the yen.

The data came as the Federal Reserve’s policy-setting committee prepared to open a two-day meeting at which officials are expected to hold the benchmark interest rate in the current range of zero to 0.25 per cent.

New building permits, which give a sense of builders’ home construction plans, rose 3.0 per cent to 547,000 units last month from 531,000 units in January. Like the rise in starts, the increase was the first since April.

The bounce in both groundbreaking activity and future building plans comes in the wake of a severe slump that has helped push the financial sector into crisis.

Compared to a year ago, housing starts were down 47.3 per cent in February and permits were off 44.2 per cent.

With the housing market at the centre of the meltdown, some measure of stability in the sector is crucial to rescuing the economy.

© Copyright (c) The Province