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

Hip deep in the deep dip

In the ongoing struggle to curb negative speculation, a new word is taking hold as the preferred term of the real estate intelligentsia. I’m talking about dip.  As in Vancouver housing prices are expected to “dip” until 2010.

The press seized on the dip in October. Our first big taste of dip came on October 24 with the Sun headline “Housing may dip until 2010.” In November, another headline: “Bank adds to opinions on shallow housing dip.” Yesterday, this one: “Metro Vancouver to see deepest property-price dip nationally.”

For perspective, the dip is 14.8 per cent deep, which amounts to $84,000 in lost value for the benchmark home. This is a correction, not a crash, says Royal LePage.

Whatever this is, a dip this isn’t. Correction, crash, whatever. But to say it’s a dip is to imply it’s temporary, that the highest prices constitute the baseline. This thinking is backwards. Let’s talk about dips when prices return to historical norms.

Photo credit: Seabamirum

The grace of being unknown

Quiet times in condo land. At Westcoast Homes, the section once known as the seven extra pounds of the Weekend Sun is down to three pages, one being a full-page promo for Polygon.

There’s an article on Yaletown’s Grace, which is closer to a real luxury condo than the “melamine luxury” sold in most showrooms across the city. It fits that Grace has no sales centre and the developer, James Schouw, isn’t a media darling. The Sun calls Schouw a “Westcoast Homes unknown” — a gentle way of saying he doesn’t buy ads. (Don’t worry, James, you’re in good company: I’m also a Westcoast Homes unknown.)

Downtowners probably know Grace as “that place” on the corner of Drake and Richards. Its look isn’t for everybody but I like that it’s not the cheap cladding and glass of the Concord Pacific philosophy. What do you think? You’ll find pictures at Architecture Wanted.

BTW, if you want to see me fail at being funny in 140 characters or less, you can follow me on Twitter. Be warned, it could be bad.  There was a time when Crystal Pepsi seemed like a good idea.

Condohype, Miss 604 in Westender

What happens when esteemed bloggers Miss 604 and Condohype are asked to comment on city politics? The answer is a full-fledged Q&A in the mainstream media! Read all about it in this week’s tabloid issue of Westender.

My predictions include jabs at realtors, Quatchi, and condos named after former city planners.

And yes, they really did say esteemed. But no, the blog wasn’t directly mentioned on the cover. I added that to the scan because Britney’s eyes were creeping me out.

Vancouver’s best real estate quotes

Congratulations, we’ve made it to the end of the biggest real estate rollercoaster year of the decade. In Metro Vancouver, real estate prices, after an astonishing seven-year run, finally hit the breaking point. The market is now seven months into a vicious downturn. The experts said it couldn’t happen, that the fundamentals were too strong, that this time it was different. In 2008, the market gave its answer…with a vengeance.

It would be wrong to end 2008 without some kind of recap of the year that was. Last night, I cracked a few beers and went over my files. I quickly realized that the best way to capture the irrational exuberance was to quote it. With lots of material and no scientific method, I let the booze and my sense of humour guide me.

And so here it is, my list of the year’s best quotes in Vancouver real estate:

10.) “We’re really bulletproof for our lifetimes and beyond.” –Realtor Alan Skinner, on the strength of North Vancouver’s housing market, August 15.

9.) “I’m not moving if I have to get arrested, do a hunger strike, or phone CTV news.” –Re/Max agent Holly Wood, on demanding her sales commission cheque from developer Holborn, October 29.

8.) “You’re talking about $100-million dollars. I’m not saying what’s going on.” –Mayoral candidate Peter Ladner, in response to questions about the secret Olympic Village loan, November 7.

7.) “It’s a private site, I own it. It’s a private enterprise. I don’t think I have an obligation to disclose what my private business plans are to you.” –Developer Simon Lim, on the halt of construction at the Ritz-Carlton Vancouver, October 29.

6.) “We’re at a time when everybody is looking for fundamentals and nobody has better fundamentals than downtown, for the investor or the homeowner.” –Bob Rennie, Rennie Marketing Systems, October 3.

5.) “The realtor who sold it to us phoned us up and told us the unit was on fire. We were happy. We thought we’re going to be able to get out. It cost me $308,000. In two years is it going to be worth $200,000? A $150,000?” –Claus Sandhack, Surrey Quattro Condo Buyer, October 20.

4.) “If you’re holding off because ‘Why should I buy now if it’s going to drop 20 per cent next year?’ I think that’s a bit of a gamble. A person’s well within their right to do that, obviously, but just bear in mind the general view is there will still be a price increase this year and another next year.” –Helmut Pastrick, Economist, Credit Union Central of B.C., May 11.

3.) “There is no indication, at this point, of any kind of substantial decline in prices.” –Cameron Muir, Economist, B.C. Real Estate Association, July 11.

2.) “I do not accept this conclusion, not at all.” –Prime Minister Stephen Harper, on Merrill Lynch’s forecast of a Canadian real estate meltdown, September 24.

1.) “The Lower Mainland doesn’t appear likely to become a less expensive place to buy a home anytime soon.” –The Vancouver Sun, Editorial, April 19.

Like any top ten list, this list is best looked at as a celebration and remembrance than a definitive ranking. I know I’ve skipped many brilliant, jaw-dropping quotes. Like how could I come up with a list with no reference to the Sun’s “15 Myths” article? And only one from Cameron Muir? Where’s Tsur Somerville? The omissions are endless.

The one thing I’m certain about is my number one pick. It is the ultimate indictment of the Vancouver Sun — a beautiful, succinct declaration of their allegiance to the condo hype ideology. Bob Rennie couldn’t have said it better himself.

It’s been a hell of a year, dear readers. I hope this blog has been as much fun for you as it has for me. Please take the opportunity share your thoughts in the comments. All the best for 2009.

Photo credit: Ecstaticist

Rethinking MPC Intelligence, Part Two

“Great deals out there” is a 1,006-word commentary written by Jennifer Podmore Russell, the head of a Vancouver real estate market research firm. The stated goal of the article is to provide “simple facts” related to the Vancouver real estate market so consumers will be able to “sort through the fact and the fiction in the months ahead.”

The commentary is built around three “truths” about the housing market. In short, these truths are:

1. Declining demand has led to purchase incentives;
2. Buyers have more time to research and reflect;
3. It’s impossible to predict the market bottom.

These truths aren’t controversial, though some may take exception to nuances like describing purchase incentives as “great deals” as the author does. While some may disagree on the greatness of “free” cars and improved finishings, it’s moot because of the larger, more urgent problems with the article.

The problems have to do with assertions put forward, without evidence or context, as facts. There are four assertions so unsubstantiated I dare to call them falsehoods. Quoted directly, they are:

1. We also have to realize that this is a very different decline than in the past;
2. As the financially motivated exit the market the aggressive pricing will settle;
3. Most of us will only be affected by this correction psychologically as it is human nature to monitor the value of our homes;
4. Perhaps the greatest advice one can receive is that there is never a bad time to start building equity into a home.

On the first point, Podmore Russell provides no evidence. The statement stands alone as its own paragraph. On what basis is this decline “very different” from other declines? Markets are a function of supply and demand. As demand decreases and supply increases, prices fall significantly. This is what is happening in Vancouver. How is this different?

The assertion that aggressive pricing will settle is also unsupported. Aside from the obvious question of what constitutes “aggressive pricing,” how can the author be sure prices won’t continue to fall? Again, it comes down to supply and demand.

More baffling is the assertion that the correction is mostly “psychological” with little external impact. By the industry’s own data, MLS residential sales in 2007 produced $1.3 billion in B.C. household income. This works out to around $13,000 in household income for every home sold, or one full-time job for every four sales. These figures were touted by the industry when times were good. Are they mythical now that the market is in decline?

The last point, on home equity, reads like something out of an Empire Strikes Back re-write penned by Bob Rennie. Rearrange the words and it’s Yoda. It’s extraordinary to think this is “the greatest advice one can receive” when the advice fails to mention risk tolerance, opportunity cost, price-to-rent ratios or the amortization period of the loan.

It’s one thing to get started on home equity when prices are in reasonable relation to local incomes, and you have a substantial downpayment. It’s quite another to buy at prices grossly inflated from historical norms, do so with little money down, and call it a successful step on the road to home equity. These are not irrelevant considerations, yet they are absent from the great advice.

But perhaps the final sentence is the most telling: “Chances like this only come around once each cycle.” The question I ask is whether a home purchase should be predicated on “chance” rather than a comprehensive assessment of the market and one’s situation. I prefer to leave chance at the casino.

To assert facts is to be able to substantiate them. Podmore Russell’s commentary fails the test. It purports to be factual when, in fact, its most important statements are speculative. Like the expert hype of the boom era, the commentary asserts its authority by virtue of the writer’s status as an industry official. Rather than separate fact from fiction, the article contributes to the noise.

Photo credit: Alfred Hermida

Rethinking MPC Intelligence, Part One

Yesterday, while taking the elevator to my condo, I chatted with a nice man who told me he was in the “import-export business.” Upon further conversation, he said he was a forklift operator. Moral of the story: Being vague can sound impressive. Personally, I admit to doing this all the time, especially when bumping into former partners. (Sarah, I’m involved in a number of key initiatives and things are going very well.)

To bring this back to real estate, MPC Intelligence is a “real estate market strategy consultancy.” This is a fancy-pants description for a company that basically sells expensive newsletters over email. The Vancouver-Lower Mainland subscription is $5,950. Subscribers get “unbiased, transparent” market information (their words) on everything from supply to absorption to project applications. Honey mustard not included.

There’s nothing wrong with publishing newsletters or running a forklift. (I’ve done both.) But how we describe things affects how we think about them. This is the place where hype is born.

Jennifer Podmore Russell is the managing partner of MPC. In her role, she often comments publicly on Vancouver real estate. In 2008, she bylined at least three commentaries in the Sun’s Westcoast Homes section. Her most recent column says today’s real estate market offers a better-than-ever opportunity for those wanting to buy in. I recommend you read it; I found it fascinating for what it says — and what it doesn’t say — about buying a home in Greater Vancouver.

On Tuesday, I’ll provide a full-scale deconstruction and analysis of the column. Stay tuned.

Photo credit: Shahzanrais