Lots of media coverage today on the Olympic Village. There are two stories: one relates to a last minute Vancouver City Council decision last night to lease one of the three social housing/market rental housing projects to a soon to be created entity under the auspices of the Coop Housing Federation (CHF), and appoint another arm of the CHF as interim operators of the other two parcels.
The other story relates to the sale of the market condominiums. Frances Bula writes in the Globe and Mail that the city is refusing to approve the revised pricing schedule, prepared by Bob Rennie and Millennium, until Millennium posts more equity as security.
So what do these stories really mean?
First the social and rental housing. The 252 units cost $110 million excluding land. While I suggested it made sense to sell these units, and make a profit of between $25 and $68 million, (according to the city staff report), to be used to fund other social housing, rather than subsidize them to the tune of $64.1 million, in April Council voted to keep the units as affordable and rental housing. With assistance from BC Housing, the City issued a call for proposals to take over and manage these units. However, only three bids were received and all were rejected by the Province, which was being asked to guarantee the financing for the operators. As a result, six months after the Olympics, the units are all vacant.
The only organization to submit a bid for all three parcels was the Portland Hotel Society, a very capable organization which historically provides housing and services for the 'hard to house' in the Downtown Eastside. Jim Green and many others were advocating that this group be selected by the city to manage the units. I was concerned that if PHS was selected, it could have negative impacts on the value of the unsold condominium units.
Last night Council decided to enter into a lease with a new entity, to be created by the CHF for one of the three projects, rather than the PHS. However, the City also agreed to write down the cost of these units substantially, and to guarantee the financing. While CHF is a better choice than PHS, it seems a shame to be heavily subsidizing the cost of these units, three quarters of which will be 'rented' at market, when they could have been sold. While I am disappointed the units won't be sold, I do have confidence in the CHF to fill up and manage the project in a responsible manner. It will fill up and manage the units for up to two years until the city can find a permanent operator, most likely through another Call for Proposals.
The Condominium Units The bigger story is what is going to happen to the condominium units? Everyone agrees that the prices established by the developer and his marketing team, at levels sufficient to repay the city's loan, are too high for the marketplace. After six months, I'm told that less than 40 units have been sold. Bob Rennie wanted to put in place 'momentum pricing' in order to get sales started, on the expectation that prices could be raised over time. This was the right thing to do. However, since the city is now the lender, it had to approve any price reductions, and it won't. That's right, it won't since it wants assurance that any shortfalls will be covered by the developer....up front. Since the projected shortfall could be in the hundreds of millions, the city is looking for substantial 'security'....either cash or other properties.
However, while I do not know the developer's corporate and personal financial situation, it is unlikely that he can or will put up a lot more money or security at this stage. So, as Frances Bula notes, there's a stand-off. Meanwhile, Millennium is apparently obligated to make another $75 million payment in January.
My prediction? Given all the publicity surrounding the fact that the prices are too high, and the city's decision on the social and rental housing, I suspect that there will not be a lot of sales in the coming months (unless prices are reduced). As a result, the city will take back the project from the developer in the new year, and then what?
Well, I am told that City staff have had discussions with at least one other developer to see if he's interested in buying the project as a block. The problem with this is that the price could well be below the loan amount, and everyone will know just how much the City is losing. I therefore suspect that a more likely scenario is that the majority (or perhaps all) of the units will be rented out...yes, rented out. This way, no one will really know just how much we are losing since we can say that we'll make a big profit on their sale in ten years. And indeed, we might. But my analysis suggests that the monthly losses (since the rents may cover only a third to half of the costs), and the loss of property taxes, etc. will cost the city hundreds of millions for the next ten years.
Will this affect our taxes? Only indirectly, since all the money will likely come out of the Property Endowment Fund..it will likely affect our credit rating, but the losses won't come out of operating budgets. But considering that the city was hoping to get another $173 million from the developer to cover the costs of the shoreline works, parks, community centre, daycare, plaza, etc....the reductions in the Property Endowment Fund will be very, very significant.
A final comment. One of the main financial objections by city staff to my proposal to sell the social/rental housing was that this might compromise the sale of the market units. The mayor also questioned whether there was a market for these units. Meanwhile, Peter Wall has just sold 280 units at prices comparable to what I was proposing for these units...(yes I know these are pre-sales, but....) and at the end of the day, there is a good chance the market units will not be sold! Another irony.