Prices aren’t the only thing falling

Owners at a Concord Pacific downtown condo are commencing legal action after concrete was discovered falling off balconies, Condohype has learned.

A routine maintenance survey at The Aquarius (1199 Marinaside Crescent, Vancouver) detected the spalling of concrete from balconies on the 01 elevation posing a serious risk to pedestrians.  The issue was so urgent the strata council ordered emergency repairs to prevent liability and possible harm to the public.

The value of the emergency repairs is estimated at $140,000.  An additional $71,000 will be spent to investigate if similar  problems exist on other balconies in the complex.

In a presentation to condo owners, strata council vice-president Michael Alexander explained that “during original construction, the reinforcing steel bars had been placed too close to the edge and some had rusted from water infiltrating the surrounding concrete, causing pieces of the concrete edge to loosen or fall off.”

On January 13, owners passed a resolution to fund building defect proceedings against developer Concord Pacific and all other relevant parties.  The law firm Lesperance Mendes is representing the owners.  The case hinges on proving the spalling is the result of “a structural defect attributable to faulty design, workmanship or materials provided by any party involved in the construction of the project.”

The Aquarius is one of Yaletown’s elite waterfront condos.  Completed in 1999, the development sits at the foot of Davie Street atop a Starbucks, the Urban Fare grocery store and the Provence restaurant.  In 2000, the condo gained notoriety when former Vancouver Canucks forward Donald Brashear was charged with assault following an incident in the Aquarius fitness room.

Photo credit: Payton Chung

Spectrum of vandalism

Concord Pacific’s four-tower Spectrum has been called everything from future slums to condo of the year.  Sandwiched between the Dunsmuir and Georgia viaducts, with a Costco store built underneath, Spectrum is a condo experience unlike any other in Vancouver.

I’ve often wondered who lives in these slim pinnacles of urban domination.  I did some digging and obtained a copy of a private memo sent to residents of Spectrum tower 3.  Be advised, you may find this criminally ridiculous:

TO: All Owners/Residents of Spectrum 3, BCS2577
FROM: [XXXX XXXX], Property Manager
DATE: Thursday, May 8th, 2008

During the month of April 2008, there have been incidents of items being thrown from ‘Spectrum-3’ balconies causing damage to Costco’s glass roof top, the repairs of which are likely to run into thousands of dollars.  The management of Costco has expressed their anguish and concern to us.  While they have handed this matter over to the police for investigation … the security guard has confirmed having witnessed residents living between 5th and 8th floors throwing projectiles such as beer bottles and frozen paint gun pellets.

We would like to remind residents, particularly the ones overlooking Costco to refrain from such acts and realize the repercussions of their irresponsible behaviour that may follow.  Throwing off objects like this is very dangerous and may even prove fatal to the pedestrians below.

Let us be a community of responsible citizens and be considerate to our surroundings.

Thank you for your cooperation in this matter.

Yours truly,

RANCHO MANAGEMENT SERVICES (B.C.) LTD.

My source tells me the situation has improved since memo went around.  Before it did, things were really bad.  Beyond the bottles and pellets, at least one full-size shopping cart had been “hurled” onto the glass rooftop.

Over the weekend, I examined the rooftop and found no visible signs of damage.  I guess this means things are improving.  As a reward for my investigative efforts, I went down to Costco and bought myself a jumbo hot dog.  I ate it without concern or anguish.  It was delicious.

Red menace will ‘destroy us’ says developer

On the same weekend Peter Simpson writes about the need for industries to adapt to modern times, bigshot developer Robert J. Macdonald rants about “Marxists, Leninists, Trotskyites, Maoists and Castroites” as the cause of the real estate collapse.

In a speech straight out of the McCarthy era, Rob Macdonald told the crowd at the Urban Development Institute’s annual luncheon that the future of B.C. real estate hinges on not electing the NDP in May:

These people destroyed our industry. And they would destroy us again in a heartbeat. This history is worth remembering, because now we have a lovely Carole James leading the NDP, who is the new smiling, shiny puppet of the left-wing ideologues. And so my friends, we are fast approaching a fork in the road on May 12th. Where either a continued bright future, or a return to the dark times is a possibility.

[Source: The Tyee, “Fear the NDP, not this ‘recession for sissies’: Rob Macdonald,” January 23, 2009]

Remarks like these earned grand applause from the audience of real estate business folk. The role of inflated prices and over-supply was seldom mentioned. Well, that’s not entirely true — Bob Rennie told The Province that “supply” favours price increases by the end of 2009.

Meanwhile, newly built condos across the city sit empty, more units are coming to completion, and rents undershoot ownership costs by about 50 per cent. Incredibly, this scenario doesn’t faze Polygon’s Michael Audain. He blames the correction on “consumer confidence” as if it’s some kind of mental disorder.  Apparently if people were more confident, there’d be demand for cash-flow negative properties.

The insanity must stop. This is hurting Vancouver. It is so hard to accept that real estate prices will eventually settle to historical norms? This isn’t bad for the development industry. Vancouver real estate will still be the most expensive in Canada.

Coffee’s for closers only

“Put. That coffee. Down. Coffee’s for closers only.” –Blake, in David Mamet’s Glengarry Glen Ross

If coffee’s for closers only, specuvestors better get used to tea.  Across Metro Vancouver, condo flippers are flipping builders the bird by refusing to complete on their pre-sales.  At least seven would-be buyers have pulled the chute at Surrey’s Morgan Heights, forcing the developer to sue.

In the boom years, condo assignments were the golden ticket.  Rising prices and high demand made reselling pre-sales a breeze.  All it took to buy pre-sale was a small deposit.  Often times buyers would take on pre-sales with no intention of buying the place.  By the time the condo was ready for move-in, their pre-sale contract would’ve been sold, at a profit, to someone else.

The game-changer for flipping is when prices decline.  This scenario requires the flipper to do the unthinkable — they actually have to buy their condo.  In a choice between closing the deal and walking away, many buyers are hitting the bricks.

Morgan Heights is just the beginning.  Expect 2009 to be the Year of the Pre-Sale Deadbeat.  And the best will come last:  Woodwards is scheduled to complete in December.  Lawyers, be ready.

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.

Nobody saw this coming?

In the early days of Condohype — which I’ve now renamed with a capital “c” as a sign of blogger puberty — every post was a dissection of a condo ad. In the marketing I found clues of a meltdown in the making.  I put it under the microscope to make it easier to see, and for the possibility of a few laughs.

The ads are more or less gone, a victim of a real estate market bust that “nobody saw coming.” Across the League of Extraordinary Economic Gentlemen — in the world of “experts,” sadly, it’s mostly men — almost all opined the market was headed for the heavens.

The experts were wrong. This we know. But the problem isn’t so much that they were wrong, but that they had no basis upon which to be right.  The chorus of opinion that prices would keep rising was informed by the chorus of opinion that prices would keep rising.  It was a feedback loop.

Today, the key message of the elite is that “no one” predicted the Vancouver real estate collapse.  Some quotes, all from the last seven days:

• “No one would have imagined the market would have changed as drastically as it did.” –Chris Evans, Executive Vice-President, Onni Group of Companies
• “No one was able to predict the unprecedented real estate market meltdown…” –Peter Ladner, Former NPA Mayoral Candidate
• “Everyone thought that in three years, prices would be up. Absolutely. We knew there might be a dip, but nothing like this.”  –Austin Gangur, North Vancouver Realtor

The quotes are laughable but also scary.  They remind us of how potent the hype ideology is.  It’s not for lack of prediction that we find ourselves in this mess; many sounded the alarm bells of the crash.  In 2005, the world’s leading real estate academic declared Vancouver “the most bubbly city in the world.”

So what is it?  The problem is psychological.  No matter how convincing the evidence, people will not waiver in their conviction.  They want to believe, maybe even need to believe, that their one “investment” condo is worth more than the GDP of Spain.   Real estate is Vancouver’s religion.  You do not question God.

What goes up must come down

I feel like I’m playing into the hand of the condo marketers but I’d be remiss not to bring up the “largest real estate liquidation event” in Vancouver’s history.  I put this in quotation marks because it’s impossible to verify.  It reminds me of when The Province’s dubbed itself “B.C.’s best-read newspaper.”  What the hell does that even mean?

Onni’s “three weeks after Boxing Day condo sale” is the latest extension of the real estate purchase incentive.  Instead of tossing in a Honda Fit or a discount pass to Chuck E. Cheese, Onni’s playing to consumer fears over falling prices by cutting them.  The press is reporting double-digit discounts.  But as UBC prof Tsur Somerville asks, “What if they were 20 per cent above the market and now they’re just gotten down to where the market was?”

It’s something to think about, as is the fact that Onni’s condo warehouse sale is the invention of Cameron McNeill from condo marketing über firm MAC Marketing Solutions.  Cam’s plan is to trim prices on 375 unsold units, take deposits now, and close deals on March 7.

There’s an old saying, I think it’s by Jimmy Pattison, about the earliest loss being the best loss.  Onni’s bet is they’ll beat the market to seize the best loss.  It’s the right move but they better price those units right.  (And have built them right, but that’s another matter.)  If the condo discounts are smoke and mirrors, buyers won’t eat them up.  And if they don’t, the market has one more sign that the bottom is far from being found.

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