More private capital being
used than borrowed
If you thought playing the stock market was tough, consider the plight of the condominium developer.
ED KAISER, THE JOURNALDevelopers say projects like this one at Century Park, south on 111th Street, are going ahead.
In Edmonton compared to a year ago, condo resales are down, average resale prices are down, multiple-unit starts have plunged and a wave of condos under construction is poised to hit the market.
The last few weeks have seen condo projects in Calgary, Kelowna and Canmore grind to a halt.
But developers behind some of Edmonton’s most high-profile projects insist it’s business as usual.
“We’re building those first two phases,” said George Schluessel, CEO of Procura Real Estate Services.
In 2006, Edmonton’s hot real estate market lured buyers to line up overnight for a chance to pay up to $791,000 for a luxury condo at the company’s planned Century Park in-fill development at the old Heritage Mall site near 111th Street and 23rd Avenue, where the city plans to build a light rail transit station.
Two years later, Schluessel said not one of the buyers has walked away from their deposits.
“It’s partly because they’re under construction and the LRT is underway. I think the people that did buy here bought for quality of project and location.
“When markets get tighter, the bestlocated projects manage to hang on to their purchasers and the projects that are a little more questionable in a strong market are the first ones to suffer in a downturn.” The first project will open next spring. “I think the fundamentals in Alberta haven’t changed. I think we’re better off than the rest of the world so we haven’t noticed even in our Calgary projects any cancellation of deals.”
The company arranged financing long ago so a credit crunch hasn’t affected Procura’s projects, he said.
David Kent, one of the owners of the 1,750-unit Strathearn Heights development at 95th Avenue and 87th Street, said recently it’s going ahead, after getting city council approval in late February.
That’s not to say things are easy for developers. Greg Christenson, president of Christenson Developments, said it’s tougher to get financial backing these days.
“Fewer lenders are participating in financing new projects,” he said. “Increasingly, it’s more private capital, where you might have been dealing with six- or seven-per-cent interest rates six months ago, now you’re dealing with 83⁄ or nine per cent.” Add fees, and developers may face loan costs of up to 12 per cent, Christenson said.
He believes lenders will return to the market soon. “But when you’re in the middle of a development cycle of 24 months or 36 months, you need to be able to count on the ability to mortgage or refinance, so it creates a period of instability for developers and builders.”
Christenson said his company is more cautious about taking on new projects.
James Rea of the Chipman Development Corp. said his company is proceeding with its $500-million Chipman affordable housing project that will service the Alberta heartland — a petrochemical industrial area 45 minutes northeast of Edmonton — over the next 15 to 20 years.
“We’re not going to let up at all,” he said “We’ll continue to move forward with our plans.”
Rea said the downturn in the economy will likely curb demand, but it will force people to look for more cost-effective housing alternatives.
He said there’s also “pent-up demand” for more seniors housing in the area.
Rea said the project is tied to the longterm viability of the oilsands and linked to the proposed construction of several upgraders in the area. Despite the expected scaling back of oilsands developments, the future is bright, he said.
“We believe this is a temporary downspike in the economy. We will recover. The world’s thirst for hydrocarbons isn’t changing. We’re in there for the long haul. If everything goes according to plans, we would like to start turning dirt in the spring.”
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