Great-West Life\u2019s real estate division had wanted to purchase the site on Robson Street in downtown Vancouver for some time, so when they heard that it had gone into foreclosure, they didn\u2019t hesitate to act. They officially purchased the site at 1555 Robson St. earlier this year.<\/p>\n
The site had been owned by a numbered company that was operated by Vivagrand Developments, sold through a court-ordered sale as part of foreclosure proceedings. Vivagrand had obtained approval to develop a 28-storey condo tower at 1555 Robson St., but GWL will be submitting a new plan for a rental tower. Vivagrand, which is now known as Align Properties, had also defaulted on loan payments at another West End site, a four-storey apartment building at 1485 Davie St. Align Properties is the North American arm of China\u2019s Xiangli Group.<\/p>\n
\u201cWe had been tracking Robson for a long time.\u201d says Geoff Heu, GWL Realty Advisors vice-president, development for Western Canada, who has plans to now build 400 rental units over two towers on the sites, with 40,000 square feet of retail. It\u2019s near another GWL project, the completed Chronicle rental building, with 128 units. The recent purchase is part of GWL\u2019s expansion plan along Robson Street.<\/p>\n
\u201cThe bigger established developers are just fine,\u201d says Mr. Heu. \u201cThey are well-capitalized, and they have a brand to protect. The less experienced and newer developers, that\u2019s where we are seeing problems.\u201d<\/p>\n
Foreclosures continue to emerge in an interest rate environment that is too challenging for companies that are inexperienced or unfamiliar with Vancouver\u2019s typically lengthy development process. It\u2019s brought to light the many players in the market who are eager to make an easy profit but weren\u2019t prepared for the down cycles of the market. Some are more interested in properties as investments rather than land to build on, so they merely become holding properties. The increase in interest rate hit small investors hard.<\/p>\n
Some manage to take their projects through rezonings and even to the development permit application stage before they run into trouble. Often, these projects, sometimes vacant land or assemblies involving single-family homes have insufficient income to cover the carrying costs.<\/p>\n
Industry experts are seeing an unprecedented number of foreclosures among the lesser-known and generally smaller developers \u2013 and they don\u2019t see any reason for the trend to curb any time soon.<\/p>\n
Colliers\u2019 vice-president Buck Hart and senior associate Jennifer Darling have been dealing with a lot of foreclosure sales in recent months. They have three foreclosure listings in Richmond, BC, \u201cready to go,\u201d and two of them are properties that had started construction.<\/p>\n
\u201cIn \u201893, \u201897, 2008 and 2018, they were the peaks of the cycles, and following each one of those, there was a downturn, as there is now,\u201d says Mr. Hart. \u201cAnd there are more foreclosures in the market now than there have been following any one of those peaks.<\/p>\n
Ms. Darling said the \u201cproforma\u201d \u2013 or initial cost and income projections \u2013 for many projects have been severely distorted and she doesn\u2019t see the foreclosure trend abating.<\/p>\n
\u201cEven if interest rates do start to come down later this year, which we are expecting, a small change is not going to necessarily solve the problems that some of these proformas are going to experience,\u201d says Ms. Darling. \u201cSo, I don\u2019t think we\u2019re suddenly going to see foreclosures and receiverships dry up in the next six months. I would expect that that runway will be longer.\u201d<\/p>\n
Early this year, Haro-Thurlow Street Project\u2019s plans for a 55-storey tower at 1045 Haro St. went into receivership, and there were several others before that. But the first sign of trouble was last year\u2019s announcement that larger developer Coromandel Properties had filed for creditor protection, with $700- million in debts. Mr. Buck calls it a \u201cclassic example.\u201d<\/p>\n
\u201cThere\u2019s a company that had over a dozen sites and built some [projects], but a lot of them never really got even started in the development process. They were just holding a position of good land. They\u2019ve got some great land. But when things turned around and, you know, if you\u2019re carrying a dozen sites with no cash flow, it doesn\u2019t take long \u2013 when rates go up, when they quadruple in a year you get into trouble, which is, I think, the basis of a lot of the problems we\u2019re seeing today.\u201d<\/p>\n
Mr. Buck says that the investors started changing the scene going back several decades.<\/p>\n
\u201cI started in 1985 and we had just come out of the dreaded early \u201880s. And some people would tell you there are some similarities between what we\u2019re feeling now and that period.<\/p>\n
\u201cBy 1997, we saw a lot of offshore buyers coming to town, buying land and paying prices that a lot of the locals thought were just unsustainable. And we saw locals going to Toronto or going to the States, Seattle, and down in the desert to Arizona and into Dallas, and building. And there\u2019s a lot of Vancouver developers that are very active in the States, and some of them will tell you that the reason they went there was because they didn\u2019t want to compete with these groups that were buying in Vancouver for other than pro forma driven reasons.\u201d<\/p>\n
A pro forma analysis determines how a property will perform over the long-term, including income and expenses. Experienced, established developers often have portfolios that contain income-producing properties such as rental properties to get them through downturns. The ones running into trouble don\u2019t have that buffer.<\/p>\n
\u201cA lot of the more established local developers will have income-producing portfolios in addition to development sites, which certainly helps when interest rates and other factors change in the market,\u201d says Ms. Darling.<\/p>\n
Tom Huang, co-owner of Tera Development, said some of the smaller developers will have second or third mortgages, and sometimes a private lender will just take over the property and hold it until the market picks up again.<\/p>\n
\u201cDevelopment companies, they come and go, like a lot of the small businesses,\u201d says Mr. Huang. \u201cA lot of what we jokingly call \u2018the flippers,\u2019 they will create a company called \u2018so and so development\u2019 to make it sound a little more legit. But do they really do development? Not really. \u201cThey buy, they wait, they flip, but they don\u2019t really do anything development related.\u201d<\/p>\n
The ones who do go through a rezoning often build to maximize the square footage, to make the property more valuable. That can mean odd spaces, such as corridors that are useless to the resident, instead of efficient use of space and perhaps less square footage, he says.<\/p>\n
\u201cFor a developer that really wants to really build something for people to live in, the approach we go through with a rezoning is quite different from someone who has the intention to just flip it to get the maximum resale value of a piece of land,\u201d says Mr. Huang.<\/p>\n
The downturn has meant condo developers have pivoted to rental projects, which are helped along with government financing. Jacky Chan is a Vancouver developer and marketer who just returned from Asia, where he met with large developers, fund managers and government, to help bring money for rental housing into Canada, where the demand for rental is stronger than other countries.<\/p>\n
Mr. Chan says his company\u2019s lawyer is dealing with 10 foreclosures right now and that\u2019s not even her specialty. He cites the \u201cdouble whammy\u201d of the higher interest rate combined with China\u2019s foundering housing market as having a direct impact on Vancouver.<\/p>\n
\u201cDuring a massive crash like this, nobody is able to cover for anyone else \u2013 they are all cash strapped. It\u2019s a domino effect,\u201d he says of the Chinese housing market.<\/p>\n
\u201cThe second thing is people talk about less experienced developers or less capitalized developers. And yes, there is some truth to that, but a lot of these developers have done a lot, maybe in Asia or globally. ….. So, they are not technically inexperienced, but it\u2019s the unfamiliarity of how the bureaucratic system and policies work in the development cycle and industry in Canada that adds to the burden of these developers.\u201d<\/p>\n