The following is a modified version of an email I sent this morning to a number of people in the media who are writing about the Olympic Village, as well as a few city staff. Rather than send copies to everyone affected, I have decided to post a slightly modified version of my notes below:
As we all analyse how we got into the current situation, and how we get out of it, here are a few matters that I think need to be checked out with real estate experts as you write future articles and the city prepares further fiscal analyses related to the Olympic Village Project:
1. Is the Mayor correct in saying it's naive to bring more units onto the market, in response to the suggestion that the social and rental housing units be sold?
2. What is the average cost of the condominium units, in terms of dollars per square foot, and what is the likely rent? On this basis, is there a business case for renting these units out, as Raymond Louie is quoted as saying? Would the city ever recover its costs and land payment? (as an aside, my understanding is the average price is in the range of $1100 to $1300, or more. The rent is not likely to be more than $2.50 a foot, given the larger unit sizes. On this basis, the numbers will not work, especially when adding in the future repair and renovation costs, etc.unless there is a significant increase in market values. Furthermore....
3. This is a minor consideration, but if the units are retained by the city and rented out, just how much property tax money would be lost over 10 years? Was this factored into the business case? (my guess, and this is just a guess, the annual property taxes are in the order of $7,000 per unit x 450 units x an annual increase x ten years....that's probably $40 million right there!)
4. How much does the decision on the future of the Social Housing units affect the overall revenue projections. For instance, in addition to saving subsidy costs, and recovering costs and possibly a small profit, are the condominiums worth less if the social housing units remain as social housing? If so, how much less?
I would like to think that the UDI members who initially advised the city could provide some assistance in addressing these questions.
5. In addition, how significant is the 'obligation' to the International Olympic Committee? Should this reallybe a factor in the city's decision on how best to proceed?
While some like to blame previous councils for the current situation, the following are some of the factors that I think are responsible for where we are now:
- The initial decision to offer the site to one developer. It was too many units for any one firm to build and market in an effective way.
- Millennium's initial bid, at a time of rising prices, was too high for the land. As a result, they started off very badly. The high price also led to their decision to build very high end units
- The law department's insistance that the city not transfer title until the project was completed. Unfortunately, Millennium and its lawyers did not fully understand the ramifications of this, until they tried to arrange financing;
- Millennium's choice of architects. Merrick and Erickson were both talented firms, but the wrong choice for this project; Their designs were very inefficient, not truly respecting market realities and very expensive to achieve. At one point, Millennium wanted to use other architects but wasn't allowed to do so. GBL, the architects for the social housing are an experienced firm; but they saw this as a chance to design the most impressive social housing in the world, and they tried to. That too was a mistake;
- The extensive and confused community direction, and the Planning Department's interference in the planning process. Directors of Planning and other city staff have often talked about how much they influenced the design of the overall plan, the streetscapes and buildings
- The decision to make this the greenest project in the world, and a LEED Platinum award winner; None of us really know just how much this added to the cost...but as I have often told Frances Bula, it's not 5 or even 10%...it's more.
- Poor project management by Millennium who had a very small staff, and had never undertaken such a large project. The company has created some very beautiful and successful projects, but was completely over its head on this one;
- Poor project management by some city staff, especially related to the Social Housing in terms of the initial program, unit sizes, building efficiency, specifications. In part, this might have been due to all the other projects they were having to deal with. There was also an absence of involvement by the Province, who normally are involved. BC Housing let the city make mistakes on its own. This was a very unusual situation;
- A difficult bidding climate. The project was put out to bid at a time of rising costs. ITC is an excellent contractor and Metro Can was also very experienced. I have never worked with them so cannot comment further But as I noted in Frances Bula's Vancouer Magazine article, Millennium has had past difficulties in its dealings with contractors since they often participate in certain aspects of the construction themselves. This impacted the initial bids, and the subsequent cost of change orders, etc;
- The world global crisis. Most of us never expected the dramatic events that happened. For instance, while I didn't know much about Fortress, I never expected them to get into such serious trouble, and I admit to saying as much in a CTV interview in fall 2008;
- The city staff's recommendation to Council that the city guarantee the loan to Fortress in order to ensure that the project was completed on time. While some would say the city had no choice given the need to complete by an imovable deadline, there were other options that could have been implemented at the time. It is unfortunate that the city councillors were either not presented, or did not appear to understand the full legal and financial ramifications of this decision.
- The timetable related to the project, and deadline to complete. It is interesting that one major developer recently told me he didn't bid since he was concerned when Larry Campbell was Mayor that it was taking too long to get the project started.
The alternative, for me is problematic due to the cost of subsidizing the units, even the market rental units. As noted above, I do not believe Vision councillors are correct in believing these units are not being 'subsidized'. They are being subsidized, when you cnsider the amount of equity the city will have to put in, with little or no return. When you add in the lost revenues on the land, the 'subsidy' is even greater.
One of the concerns I have with retaining the social housing as social housing, is that both the Mayor and the Portland Hotel Society have spoken about the need to house the homeless. The PHS has only been involved with housing the hard-to-house... the drug addicted and those with mental illness. Even if that's not who the city wants or expects to move in, this is now the public perception. The stated desire by one councillor to fill the units up quickly could exacerbate the problem.
My other concern is that the income and social disparity between the potential social housing residents and the residents of the market units is too great. We had the same potential problem at Bayshore and addressed it by relocating some of the social housing to another site, with support by politicians on the right and the left. The current proposal will not only reduce the value of the condominium units, it could result in a less than desirable community.
In terms of selling the market units, I think there are advantages and disadvantages to a number of options. Again, those lenders who have been in similar situations are in a position to offer better insights. However, from my limited experience with similar situations, the solution is not always as obvious as some lay people might assume.
One day this will be a very attractive and lively community. However a lot of wise decisions need to be made in the coming months, in order for this to happen. I hope these remarks are helpful in explaining my concerns and viewpoints and resolving the outstanding challenges.