My unfair lady

I took the Skytrain to work today.  Along the way, my iPod cued up a rather unsatisfying track by Lily Allen.  The song, called “No Fair,” concerns Ms. Allen’s bedroom misfortunes with her nice-guy boyfriend. (Or should I say ex-boyfriend?)

A song in a playlist might seem uneventful but the train happened to be passing the Olympic Village site.  The big misfortune.   Talk about no fair.

Miro Cernetig recently had a sit-down with the mayor to chat about the first 90 days on the job.  Being 90 days, this is the end of Gregor’s warranty period.  Miro touches on Millennium Watergate and the potential cost to taxpayers.  The mayor’s advisers privately forecast losses in the $200-300 million range. This isn’t good news but at least it’s realistic news.  Two months ago, wet dreams of a “market rebound” had the politicos contemplating profits.

In other news, Quatchi remains uncooperative with the investigation into Peter Ladner’s stolen memo.

Photo credit: Smith

What about Bob?

Will taxpayers be on the hook for Bob Rennie’s Millennium Water marketing fees?

For all the chatter about secret memos, sustainable design and hedge fund financing, nobody’s talking much about Rennie. His absence from the Olympic Village discussion is odd. Rennie is the the project marketer. Every sale goes through his company.

Now that the city is funding the development, it’s unclear if Rennie’s estimated $50,000-per-unit payday will apply to future sales. From what I can tell, there’s no reason to believe it won’t. Despite the bailout, Millennium is expected to remain on the books as the developer in order to preserve existing pre-sales.

To date, Rennie has pre-sold 265 “lower-value” units. The big mystery is the remaining 472. One can only imagine the public furor if the condo king collects fees when the units sell at a loss.

Don’t count on a market rebound

Monday’s Olympic Village city council meeting felt like a case of over-promise and under-deliver.  I’m probably let down by my own hype.  I hoped for new revelations.  Maybe some fisticuffs.  There was none of it.  A handful of councillors gave debate despite being in agreement on the motion.

The best line of the afternoon came from David Cadman.  He was going on about the completion guarantee when he said something about “the marble and German fridges” having been ordered.  It hit me in the gut.  All sorts of shiny lifestyle crap — literally thousands of appliances, countertops, faucets, chrome-this and stainless steel-that — all of it shipping, taxpayer-paid, to the fiasco at False Creek.

I’m increasingly worried about the expectation of a “bounce back” in the Vancouver real estate market.  As VHB writes at Housing Analysis, many people who are supposedly well informed aren’t getting the memo about the real estate decline.  At council, we had Mayor Gregor Robertson touch on the possibility of a market “rebound” in 2010.  Suzanne Anton told reporters the Olympic Village could turn a profit.

There’s little challenge from the press on these assumptions.  In fact, Global’s Keith Baldry in his news report said “when the market goes up” as if it’s a given.  In another story, reporter Ron Bencze said “timing may be on the city’s side” because the economy is “expected” to go up.  (I turned off the TV when Helmut Pastrick showed up.)

I remind our city officials to be cautious.  No Olympic Village plan should rely on achieving high selling prices.  It must be understood that the prices at the peak of the market do not reflect the baseline of the market’s “true” value — they are the indicators of speculative excess.  In a declining market, the predictable direction of housing prices is toward historical norms in line with rents and local incomes.

Photo credit: Steph Lim

Fact: To lose money, bet on a loser

I spent most of the evening writing a different post with all sorts of goodies about what happened at the Olympic Village meeting at City Hall.  Forget all that, I’ll post it later because Gary Mason’s dropped a cluster bomb.

Citing an unnamed source, Mason reports that city council has known for years that things have been not so good with the Olympic Village.  In 2007, city staff confirmed that the developer, Millennium, was in “anticipatory default” — meaning the company wasn’t expected to live up to its commitments.  But rather than get out of the deal and steer clear of trouble, the city stayed in and upped the ante with a loan guarantee and a completion guarantee.  Why?  Read it and weep:

According to a source, council decided to press ahead with Millennium as developer despite revelations it was in anticipatory default, because halting the project at that point and finding another firm to take over would imperil deadline obligations the city had with the Vancouver Organizing Committee for the 2010 Games.

[The Globe and Mail, "Minutes of 2007 meeting show council knew athletes village was already in trouble," January 13, 2009]

Mason’s column also sheds light on the “resignation” of Estelle Lo, the city’s former CFO.   Mason says Ms. Lo “did not want to resign but was forced to by [then-city manager Judy Rogers], who found the CFO’s constant questioning of the village financing a drag on the process.”

It’s not just Vancouver, it’s Gary Mason’s Vancouver.

Photo credit: Eyesplash Mikul

The marble and fridges have been ordered

“We would expect while demand is certainly much lower today than it was a year ago, over time those units will sell and most of that money should be recouped.” –Cameron Muir, Chief Economist, B.C. Real Estate Association

“Regrettably, the marble and the German fridges and all that kind of stuff has already been ordered.” –Councillor David Cadman, COPE

As I write, CTV News is on the tube.  Something tells me this is gonna be good. Here’s my transcript, written in real time:

Bill Good opens.  Gregor Robertson is asking for authority to borrow $458-million for the Olympic Village.  Gordon Campbell confirms he’s talking with the city.  Stephen Harper wants none of it, drops an f-bomb with his eyes.  Reporter Shannon Paterson is knocking on Peter Ladner’s door.  Then Sam Sullivan’s door.  Historical footage of Bob Rennie pitching Millennium Water.  Tsur Somerville grins, has no hope for a return to the market peak in the near term.  Ex-mayor Philip Owen is sure prices “will be back” in three years.  An industry flak admits prices are down 15 per cent from the peak.

Is this not one of the most dizzying condo/ real estate/ boondoggle news days Vancouver has ever seen?!

The hard news of today — that is, the stuff we didn’t learn on Friday — is that City Hall is asking the province for the authority to borrow the money needed to complete the Olympic Village.  By law, the city can’t borrow huge sums without permission of the electorate.  Unless the province gives the city the power to assume the debt, the city is stuck with the ability to do nothing.  Meanwhile, the city is bound to their completion guarantee with Fortress.

Some are saying City Hall should walk away.  More than 60 per cent of respondents to a Vancouver Sun online poll support this thinking.  Though it’s a lovely measure of voter outrage, it sidesteps the reality that the city must complete Millennium Water.  This is the deal the city made when it signed the completion guarantee.  It sucks but we’re stuck.  Whatever we do, we owe the money.  Better to the build the buildings than do nothing.

Time to hit the video feed of today’s special city council meeting.  I’m prepared for torture.  Wish me luck.

Photo credit: Tris Hussey

Billion dollar baby

If you happen to have the afternoon off, you can do no better than check out the hottest ticket in town at Vancouver City Hall.  “Billion Dollar Baby” might not be a movie (yet) but the based-on-a-true-story part is now playing.  At 2:00 pm today, Mayor Gregor “Disclosure” Robertson is hosting a special city council meeting about the fiasco at the Olympic Village.  It’s expected the meeting will go into “rescue plan” options, though it’s unclear how much detail will be provided.  Regrettably, I won’t be on-site to provide reports but I intend to scrape together an update by the end of the night.

A few things before I go: Over at the G&M, columnist Gary Mason is calling for an inquiry into the grand debacle.  For Gary, the stakes are high because it’s not just Vancouver, it’s Gary Mason’s Vancouver.  (Media people will get this joke.)  Meanwhile, Miro Cernetig, the Sun reporter with an inside man on West 12th, is hinting at disturbing new details.  According to Miro’s secret source, project financier Fortress Investment Group is entitled to “huge” penalty payments if the city attempts to refinance.  So if by some miracle the province or the feds choose to lend us money at a better interest rate, Fortress may be in line for a $100-million bonus.  My apologies to those who just read that and threw up.

My apologies, too, to those who never wanted to see Larry Campbell’s mug atop Hilary Swank’s bod.  I admit that isn’t for everyone.  Sorry for any inconvenience.

Photo credit: Condohype/Tris Hussey/Mike Tippett

Live the taxpayer lifestyle

It’s been less than 36 hours since the confirmation of Millennium Watergate.  Up until Mats Sundin scored his first goal, the Big Owe was the only talk of the town.  The weekend’s most lively conversation has been at the State of Vancouver blog. Michael Geller and VHB were among the all-star contributors, along with someone named LP who pins the village-pillage on an elaborate Gregor Robertson conspiracy.  (In my Westender interview, I blamed Quatchi, the Olympic mascot.)

Politics or not, the city remains legally obligated to build a development that nobody wants, based on a design spec too expensive to sell, for a price of $875-million. To play down the doom and gloom, some are reminding us not to forget that, eventually, the condos will be built and the units will be sold. The end-of-the-day taxpayer loss, pending no more unforeseen disasters, will be less  than $875-million.  The Globe and Mail estimates a $300-million write-off.  VHB, the blogger who proved Rennie wrong, predicts $500-million.

I’m not one for predictions but I’ll say that Millennium Water, if completed, will sell for more than $0 a square foot. So as long as one unit is sold we won’t lose all the money. Still, we will lose and it will hurt. The city is obligated to build and the money it will take is money we don’t have. The cash will be borrowed with interest accruing from day one.

The city’s exposure may be moderated over the long term as it pursues the developer’s assets, and I have no doubt the city will do everything to take Millennium to the cleaners. But this is all very far down the road. It’s not like Penny Ballem and Ritchie Bros. are en route to Peter Malek’s house to “kick some assets.” Even if they did, let’s not pretend they’d find $875-million hidden in an eco-friendly panic room.

The painful truth is that we need the money now and the money will have to be borrowed.  Unless higher levels of government intervene, or Warren Buffett swoops in to be greedy where others are fearful, the debt falls on the shoulders of the people of Vancouver.

The mourning after

Here we are, the day after learning of our city’s $875-million condo speculation catastrophe.  I had a tough sleep last night, and it wasn’t because I made the mistake of going to The Roxy to drown my sorrows.  (OK, maybe it was part of it.)  The Olympic Village predicament has far-reaching effects on our city. However this ends up, it will amount to significant monetary losses which in turn impacts all the services, programs and infrastructure we use and enjoy.

The political consequences are the least of our concerns. The political blame game is not irrelevant but it is a distraction from more important questions. How does Vancouver deal with this? What’s the best solution? How do we ensure the response does not repeat the mistakes of the past?

To that last point, I hope our leaders can understand the corrupting influence of real-estate hype. When I look at how the Millennium Water/Olympic Village deal is structured — culminating with the city’s disastrous commitment to provide a completion guarantee — it has all the indicators of decision-making driven by real-estate hype. Many city managers and elected officials, like much of the real-estate obsessed public, got caught up in the exuberance of our own self-appreciation. We bought condos to no end because we believed we couldn’t lose. Real estate only goes up, the world wants to live here, it’s a gamble NOT to buy…

I love Vancouver and I hate that we’re having such a hard time growing up. I’ve always believed Vancouver is on the edge of incredible potential. But the city is so young, seemingly stuck in perpetual adolescence. Will we ever think past the latest fad? I hope one day we come to understand who we are, and leave the culture of condo hype behind us.

Photo credit: John Bollwitt

Be afraid, be very afraid

UPDATE 4:30 PM: OLYMPIC VILLAGE TAB MAY HIT $875-MILLION

According to the Vancouver Sun, the financier of the Millennium Water condo project is looking for as much as $875-million in loan guarantees:

The Wall Street financial firm is saying it will continue to lend the money to build the Olympic Village — on the condition Vancouverites absorb most of the future risk. The money will be loaned until 2010, as promised, under contract, if the city guarantees repayment of the loans to Fortress.

[The Vancouver Sun, "Taxpayers beware of millions more in Olympic Athletes' Village loans," January 8, 2008]

The situation is a total mess, even if we have yet to learn all the details. What we know is troubling enough: taxpayers are locked in a deal based on real estate speculation. The viability of the Olympic Village depends on market demand for luxury condos. If the market fails, the debt falls to the public.

In this scenario, the city would take ownership of the condos to sell, almost certainly at a serious loss.  If that pill’s too hard to swallow, the city could choose to speculate on a market bounce.  The price tag on the interest payments of waiting it out?  A world-class $1-million a week.

Bob Rennie once said you don’t have to buy to be a speculator. He was right.

Photo credit: Alistair Howard

Olympic Village deal demands disclosure

It’s rare for Vancouver Mayor Sam Sullivan to issue a press release of importance. In the newsrooms, he’s known as “Spam” Sullivan because of his fondness for non-news. Late today, the Mayor issued an open letter about the Olympic Village scandal. The story became a major issue last Friday. It made the covers of all the local newspapers. It’s worth pointing out readers of Condohype knew about it on October 8 when I picked up on a report by Gary Mason.

The challenge with the scandal is that there’s very little we actually know. (Is it a loan? Is the city exposed? Did Oprah buy the penthouse?) As of now, all details are hidden from the public. The Mayor’s letter tries to clear the air by stating his confidence in city staff and the overall planning and management of the Olympic Village project. After four paragraphs of hype, the Mayor makes the following statement:

City Councillors and staff are legally bound to keep all property transactions confidential. That is the law. Taxpayers are not well served by politicizing these sensitive discussions or conducting negotiations by headline. As Mayor, you have my word that the moment our legal team and negotiators signal that this information can legally be released, it will be without any delay.

By saying he’s committed to disclosure even though he believes taxpayers “are not well served” by the release of information, Mayor Sullivan is telling you he doesn’t care about the public interest.

Is it not within the Mayor’s ability to encourage the parties to prioritize disclosure of information? Has the Mayor even set a timeline for the details to be released? What leverage does the developer have to assert secrecy over the information? While the specifics of the negotiation may be confidential, nothing prevents the city and the developer from agreeing to share some information. Furthermore, if the city is the only entity coming forward to provide a loan, how can the developer have any power to object to disclosure as a condition of the deal?

If taxpayers are to trust that city managers are acting in our best interest, we must be able to know about the decisions being made. Without disclosure, there can be no confidence.