Olympic Village & Southeast False Creek Updates Discussion

[johnjimbc]

Well, in all the wasted ink and reporting on this, that is one figure no one has even bothered to determine. In fact I've only heard one news report that even casually acknowledged the amount is unclear.

It is just so much easier to scream the phrases "nearly $1 Billion dollars" and "on the hook" than to actually provide any analysis.

Of course, the new mayor hasn't done any better so they may just be following his lead.

Given that half the units haven't even been marketed yet, and over half of those currently being marketed are under contract and my own assessment of the real estate market (I do have some background upon which to assess), I would say we're talking about a project that will be marketable even if the downturn continues. The unknown variable is the length of time for marketing successful sales and associated carrying costs for units that don't immediately close. I will go on record at saying I expect the final amount will be astoundingly low (if there is any deficit at all), a mere fraction of the $885 million figure being flippantly tossed about.

If I were marketing this project, I would be thrilled to be able to present the remaining units just after the end of the Olympics themselves (which is the first they could transfer and become occupied anyway), with the neighborhood completed in top-notch condition. Imagine the new landscaping in bloom in the spring of 2010, the waterfront open and accessible (finally) to the neighborhood, streetcar line to Granville Island, as well as new grocers and retailers and community building opening up within the neighborhood itself. Development marketers dream of that situation, as most of the time they are trampling over mounds of dirt explaining how nice the green space will be when its finished, stumbling to produce the artist concept sketch as the potential buyers nervously peer at the heaps of dirt and gravel surrounding them.

On another aspect of this topic, I actually have to give the Vancouver Sun some credit for their editorial this morning. At least they openly questioned why the interest rate would go up if the lender intends on carrying no risk on the project loan anymore.

[flight_from_kamakura]

mr. x.

in a nutshell, the story is that the city guaranteed to backstop the project. so when fortress got into real trouble sometime in early september, they just stopped advancing the money to millenium. once that happened, millenium went to the city to get the financing that fortress wasn't providing. that was the entire secret loan thing. now, it looks like it's going to continue, with the city potentially funding a significant portion of the remainer of the project. what's that going to cost? well, according to reuters:

The cost of building the 1,100-unit village is now estimated at C$875 million, up from the previous budget of C$750 million. So far, Fortress has lent C$317 million to the village's developer and the city has lent it C$100 million, leaving another C$458 million to cover.

that $458 million is not what the city will have to cover, that's what remains to be covered by everyone (sales, millenium, city, etc). the number tossed around at council was a hair less than $300 million, on a total project cost closer to a billion dollars (which must include some overruns and debt servicing). now, given that the city doesn't have that much money sitting around, that means that the cov needs to borrow some money from someone. here the province is the obvious candidate (the feds are unlikely to put up anything for this), but the city has decided to ask the province to instead alter the vancouver charter in order to allow the city to do some emergency borrowing through the mfa.

now, some forumers seem to think that this is an ndp plot, hatched by jeff meggs, to embarrass the government and the npa, and that everything is actually just fine. what we know for sure is that the money needs to come together and that some immediate action needs to be taken.

the x-factor in all of it is the question of how solvent millenium is, and how much they can pull out of their properties and investments to put to this.

anyway, this is just the development side of the issue. there are also a host of issues surrounding the saleability of these units in their current form, etc.

[WarrenC12]

Originally Posted by johnjimbc

On another aspect of this topic, I actually have to give the Vancouver Sun some credit for their editorial this morning. At least they openly questioned why the interest rate would go up if the lender intends on carrying no risk on the project loan anymore.

In short because they have the city and/or province bent over a barrel. They know 2 facts absolutely: 1) the money is there and 2) the show must go on.

I agree with you that the final tally will be pretty small in the end, if it is even negative.

I read some figures not long ago that showed how many rich US families made the majority of their money picking up cheap assets during the great depression. Not that I think for a second that the COV should get into the development business, it has been proven time and again that those with the ability to buy during the bottom of any market are the ones that profit the most when the market picks up again.

If we assume that Millenium is essentially bankrupt, the COV is taking over a half-built, half-sold project for a dollar. I believe initial estimates were in the range of $750m to build, $1b in sales. Now we are around $850m to build, Perhaps $850m in sales. How much of this $850 was already spent by Millenium? Furthermore, Millenium put up other real estate holdings in their agreement with the City. Now the City takes possession of those, correct? What is their current market value?

I really think the media did a great job reporting on the Coalition government issue, fairly representing all sides and all possibilities. On this issue they have totally dropped the ball and gone for the National Enquirer/Fox News sensationalism.

[phesto]

Regarding salability, the market for pre-sale condos is essentially dead at the moment, so if you had to aggressively market all of the remaining units today, regardless of whether they are waterfront/ more desirable units you’d be looking at a substantial discount over what was originally projected. This is what the media has focused on rather than assessing the prospects for marketing over the next 12-24 months which I agree will yield at the very least a reasonable rate of sales given the location, amenities, etc. and what is likely to be a recovering market late 2009, early 2010. And as has been mentioned, the likelihood of completions on existing sales is much greater than say, comparable 2006-2007 sales for suburban condo projects with smaller deposits which may encounter some issues.

It makes for better headlines to suggest the sky is falling, and nobody is going on record to suggest that the market will improve substantially prior to Feb.2010; just as nobody went on record back a few years ago to question publicly if the prices and sales levels that were being projected by Millenium were sustainable over the course of the project’s completion (at least not COV council).

[osirisboy]

ok so I havent had time to read all the posts so hopefully I am not repeating stuff, if I am I apologize.

Why cant the city try and make money off this project? get rid of all the social housing and sell it as market housing at around $400sqft. If they did that the city shouldnt be loosing any money.

also, I really hate how the media is blowing this up as us poor tax payers being forced to pay 875 millions dollars. its called a 🞵🞵🞵🞵🞵🞵 loan and we get hopefully all of it back through the sale of condos. And these loser anti-Olympics people turning this into an "i told you the olympics were a bad idea" saying this is a good example of typical cost overruns, are retarded. If it wasnt for this massive world economic recession this would not have happened.
people just need to always be complaining. get over it.

anyway, thats my rant.

[zivan56]

I think the short buildings and high priced apartments are what make it difficult to sell. Had they planned to build 3 condo towers it would have been quite easy to sell them. But it will not cost as much as the loan for sure, it has to be sold eventually.

[achu]

Originally Posted by osirisboy

ok so I havent had time to read all the posts so hopefully I am not repeating stuff, if I am I apologize.

Why cant the city try and make money off this project? get rid of all the social housing and sell it as market housing at around $400sqft. If they did that the city shouldnt be loosing any money.

also, I really hate how the media is blowing this up as us poor tax payers being forced to pay 875 millions dollars. its called a 🞵🞵🞵🞵🞵🞵 loan and we get hopefully all of it back through the sale of condos. And these loser anti-Olympics people turning this into an "i told you the olympics were a bad idea" saying this is a good example of typical cost overruns, are retarded. If it wasnt for this massive world economic recession this would not have happened.
people just need to always be complaining. get over it.

anyway, thats my rant.

We have a Vision council that had pushed for 33% market, 33% middle income, 33% market. There is no way they will take out the social housing component. Are we on the hook for $875mil? probably not that much, because this is a LOAN, and there is a product out there to sell back to the market. Here is how I would break it down:

Millennium:
~$200mil land, $750mil construction loan = $950mil cost. Assume 15-20% profit = ~$140=190mil, let's use $175mil for arguement's sake. Revenues = $1.1 billion from sales of condos AT THEIR CURRENT MARKETED PRICES.

The current $125mil cost overrun has whittled their profit to $50mil.
Let's assume that Fortress will not continue to lend the remaining $450mil, we pay a penalty and renegotiate with the province or whomever for a lower interest rate of say 4% (vs Fortress' 8%). Let's assume the reduced interest cost and penalty totals $50mil. We are now down to break even status, where Revenue (at current prices assuming all condos are sold) equals cost (with nothing in the future).

Let's assume Millennium cannot sell the units at their current prices and decide to hold onto the units until the market recovers. The city will now have to cover carrying costs. The media made such a big deal that it would cost $50mil a year for 2009 and 2010, HOWEVER THIS MAY NOT BE TRUE. The condos do not have to be market ready until Sept 2010 therefore all carrying costs SHOULD be assumed until that point.

If Millennium is something of a "developer" their numbers should consider this. It is ONLY after this month that carrying costs should be applicable. The public may not know this until the numbers are out there. If I start hearing that they will reduce the prices, or if 2010 goes by and the product isn't sold out.... then 2011... or 2012, then we are in trouble. Considering that it takes YEARS for the market to recover, we probably won't see these units sold for a long time.

We should have Sam Sullivan and the NPA's head on a stick.

[jlousa]

Lets try the math another way, expected sales were to be $1.1Billion, project costs are now expected to be $875Million. So lets pretend prices fail to rebound by 2010. Heck lets even drop the prices 20% because we're desperate and we want out of the development business. Those sales at reduced prices will still cover all construction costs leaving the city out the $193Million it sold the land for. Still sounds like a big deal doesn't it. Well lets step back, that land was never worth $193Million, the market value was only $100Million hence why no other bid was even in the ballpark. So in reality we have the city losing the land or about ~$100Million but nothing out of pocket just a loss of an asset in the PEF. Still sounds pretty bad doesn't it. Well lets step back again. Even then they would own the social housing units and all the retail units at Millenium Water and then there is also the other properties throughout the city that Millennium put up as collateral. So there you have it. Doesn't sound quite that scary does it? Sure it 🞵🞵🞵🞵🞵 that the city has become a financier and it will eliminate their ability to borrow for another project in the meantime, but at the end of the day this is more about politics then anything now.

[Stingray2004]

Originally Posted by jlousa

that land was never worth $193Million, the market value was only $100Million hence why no other bid was even in the ballpark.

Agreed on that. Now something that I'm unclear of... Does the land comprise:

1. Just the site upon which the Olympic Village is situate; or

2. Additional surrounding acreage that Millenium was to utilize for future residential development;?

[mr.x]

If I remember correctly, the city stalled quite a bit on the project. Construction was to begin a year earlier, meaning we may have missed this mess if it weren't for all that posturing on how the Village should be designed and who should build/design it.

[johnjimbc]

Thanks jlousa,

I am a relative newbie to Vancouver, and I can still see through this. I guess all those years living in DC (NOT in government, I might add) still exposed me to the political game since I can smell this one a mile away from City Hall.

I actually don't have a problem with Gregor in general and would like to applaud him approaching the Provincial government. From what I've read and gathered, it appears to me he and Gordon already have some type of gentleman's agreement (and if so, so much for transparency . . . wouldn't that make all the press conferences in the past week just theatre?). Gordon was as big a proponent of the Olympics as anyone so here's hoping he is true to his word now.

What I do have a problem with is how Gregor continues to try to score political points over this instead of just stepping up and doing what he should do as mayor. He is the biggest reason this is being reported as such a calamity. He himself has tossed about the $875 million figure, acting as if it is all lost money. Why exactly do we need a press conference with him pointing out the "exact moment" he feels the city "failed"? Shouldn't the message really be that a major financier has failed to meet their obligations? That is the real story here. No project gets built without financing, and when the lender stops providing funds for a major project midstream, the government would have to step in. That is true no matter what the basic agreements might (or might not) read. Fortress may well be on the brink of bankruptcy for all we know (sure sounds like it from the way they've acted). I just think Gregor is acting out a political script instead of leading. Yes, I expect that of politicians, but I still idealistically expect more - that on occasion they will simply do the jobs for which they campaigned so hard.

Perhaps he should go walk around there since he doesn't seem to act as if an actual physical presence exists. A blighted post-industrial landscape is in process of being transformed into a functioning (and revenue-producing) part of the city in under than 2 years. How else exactly would that have happened without spending some resources? Isn't there a certain irony to the fact that the federal government is about to release a budget jam packed with capital improvement projects across Canada, yet Vancouver has one underway right now employing a major part of the construction workforce just as its needed? Yes, it wasn't planned, but if you're going to argue that investment is needed how can you turn around and complain about a project that is mostly paying for itself instead of just creating a deficit to "make work."

I keep hoping the theatrics will eventually die down, and that Gregor and his new gang will start working on their actual agenda (whatever it may be). The Olympics are one year away, and he will only be harming the city's reputation if he continues to play the blame game he is reveling in now. Vancouver is not perfect - nor is any city - but frankly I think the Olympics ought to (still) be a point of pride. The train has left the station so the arguments "for an against" the Olympics are just stupid at this point. In Feb 2010, the world WILL be watching. From what I have seen, it remains a great opportunity to enhance the reputation of the city. Moreover, it will leave many lasting infrastructure projects throughout the area - the Olympic village being just one. The entire metro area ought to be proud of that accomplishment instead of just hurling vindictive accusations and pointing fingers of "blame."

That's my soapbox diatribe for the day. Cheers everyone, no matter how you feel about the current situation.

[SpongeG]

from the sun


The Olympic Village under construction.Photograph by: Ian Lindsay, Vancouver Sun

[jlousa]

The following link is the council decision to chose Millennium. It's less then 10min and worth watching. Note it was approved unanimously by all councilors including 5 vision/cope not just the NPA.

http://cityofvan-as1.insinc.com/ibc/mp/md/open/c/317/1198/200604041345wv150en,010

Here is the actual document that they voted on. Note the guarantees and no risk to the city. That's why I think this has become all politics, the city did do it's best and was looking out for the taxpayers. The rest is history and now we should be working at making the best of the situation instead of posturing.

http://vancouver.ca/ctyclerk/cclerk/20060404/documents/a4.pdf

[mezzanine]

For a dissenting opinion, I am pissed off that this had to happen in the crunch time. I agree that we shouldn't lose our heads over this, and this is not the end of the world, but it looks like the prior NPA administration are a bunch of yokels that fell off the cabbage truck. A fuss should be raised, and I would want payback on this. Unfortunately many people may and will use this for posturing, and there will be blowback on the BC liberals, who did not agree to a crappy deal on the athelete's village, but it is unavoidable.

It looks like some efforts for due dilligence on the deal was also stymied. I would expect this type of financial gong-show from glen clark -era NDP, not the NPA.

If the village suffered from handicaps (city retains ownership of the land) and 'scope-creep' (LEED standards, large rental/social housing committment) then this should have been accounted for with negotiations.

And for those with some background - why did the city, with such a high-profile project with a strict deadline and standards, go with millenium (aside from them paying top dollar?). why did they not go with a large developer with rich experience, like concord?

[achu]

Originally Posted by jlousa

Lets try the math another way, expected sales were to be $1.1Billion, project costs are now expected to be $875Million. So lets pretend prices fail to rebound by 2010. Heck lets even drop the prices 20% because we're desperate and we want out of the development business. Those sales at reduced prices will still cover all construction costs leaving the city out the $193Million it sold the land for. Still sounds like a big deal doesn't it. Well lets step back, that land was never worth $193Million, the market value was only $100Million hence why no other bid was even in the ballpark. So in reality we have the city losing the land or about ~$100Million but nothing out of pocket just a loss of an asset in the PEF. Still sounds pretty bad doesn't it. Well lets step back again. Even then they would own the social housing units and all the retail units at Millenium Water and then there is also the other properties throughout the city that Millennium put up as collateral. So there you have it. Doesn't sound quite that scary does it? Sure it 🞵🞵🞵🞵🞵 that the city has become a financier and it will eliminate their ability to borrow for another project in the meantime, but at the end of the day this is more about politics then anything now.

Wonderful insight as always jlousa.
I like your point with Millennium putting up their portfolio as collateral, however why am I not seeing ANYTHING in the media about this point? From your postings I'm sure this is true, but let's see it brought out to the public.

BTW, as for the city holding up the work in choosing the design, etc, if anybody has worked in the construction industry, you'll know the biggest hold ups are the stupid architects and bureaucrats taking FOREVER to make a decision on anything. As the developer, this is completely Millennium's fault, they should know that to build 9 buildings in 2 years is a recipe for disaster. Take a look at the construction right now.... rippled windows, curved curtain walls being shipped in from Korea, Arthur Erickson's two signature buildings on the waterfront with NO windows installed says it all: when you're building something nobody has ever done before, its always gonna take a little longer.

Originally Posted by mezzanine

And for those with some background - why did the city, with such a high-profile project with a strict deadline and standards, go with millenium (aside from them paying top dollar?). why did they not go with a large developer with rich experience, like concord?

greed. fortunately pigs get slaughtered...... however the NPA got voted out, Sullivan's gone, the last city manager got fired and all we're left is Suzanne Anton telling us we're gonna have a nice shiny neighborhood at the end of the games yay!

[raggedy13]

Originally Posted by SpongeG

from the sun


The Olympic Village under construction.Photograph by: Ian Lindsay, Vancouver Sun

Thanks for posting that pic, SpongeG. I believe that closest building in the pic is Erickson's community centre, which will be the "mess hall" during the Olympics, yes?

[Vancity]

I don't know if this article was posted yet, but I came across it at the Province this morning. Looks like a mess.

Vancouver credit rating in jeopardy


Olympic Village problems could affect other loans

By Christina Montgomery and John Bermingham, The Province, January 14, 2009 9:10 AMComments (13)

Billboard promoting Vancouver's 2010 Olympic development on the south shore of False Creek seemingly ignores financial controversies engulfing city council.

Billboard promoting Vancouver's 2010 Olympic development on the south shore of False Creek seemingly ignores financial controversies engulfing city council.
Photograph by: Gerry Kahrmann, The Province, The Province

The City of Vancouver faces a drop in its favourable credit rating if it's forced to borrow heavily to shore up the Olympic Village project, according to international ratings agency Standard and Poor's.

A lower credit rating means the city would face higher interest charges (possibly a quarter of one per cent) on all new borrowing, not simply on Olympic-related loans.

The agency said yesterday that it has placed Vancouver's current AA+ rating on "credit watch negative" as the city contemplates it may need to step in to finance the Olympic Village's remaining construction.

Steven Ogilvie, director of public-finance ratings for Standard and Poor's Toronto office, said the concern is that, if the city cannot seal a financing deal with Fortress Investment Group, the Wall Street lender backing the project, it might have to borrow a big piece of the $850 million for which it is responsible.

The city's loan could be as much as $458 million, Mayor Gregor Robertson confirmed this week.

When Fortress in September stopped advancing loan payments to Millennium, the project's developer, the city began covering costs.

The city is still negotiating with Fortress to get money flowing again, and is in talks with the province and Games officials, but it isn't clear if any money will be freed up, the agency said. A final decision on a credit-rating change is not expected until full disclosure of the city's financial position and risk.

Meanwhile, NDP Leader Carole James wants Premier Gordon Campbell to level with taxpayers about the final bill for the 2010 Olympics.

"It's time the B.C. government came clean about the true costs of the Olympics," James told The Province yesterday. "We are certainly talking billions."

James figures the cost of the Games could be between $3 billion and $5 billion, not the $600 million that the B.C. government insists is the final Olympic tab.

James also wants B.C. Auditor-General John Doyle to do a full costing of the Games. And she's asked Doyle to investigate the finances of the Olympic Village project.

Doyle has asked the government to tell the public about the full cost of the "Olympic footprint," the third successive auditor-general to do so.

"This government has tried to keep the information away from the public," said James.

"It's clear the taxpayers are on the hook for Olympic debt they didn't tell us about."

The B.C. government was holding an all-day cabinet meeting in Vancouver yesterday, and Campbell was unavailable for comment.

[email protected]

[email protected]
© Copyright (c) The Province

[cornholio]

turned on the morning news and their headline before break was "Vancouvers credit rating takes a hit", as if it happened and were fact.

I just had to shake my head.

Really what has happened to the media, I swear it wasnt this bad before. Someone has to step up and enforce some rules regarding reporting, and who cares if they get less viewer ship...these are news services and they should fukin report unbiased and factual news...i think im actually going to vouch not to EVER watch Global or read another Canwest paper again, though not like I will make a difference or get my local news from any other source.

[jlousa]

I cancelled my sun subscription about 5years ago and have no intention of renewing it until things change, which is unlikely. I am guilty of still reading their website but I do avoid their news on tv.

The globe and mail is a much better paper but I've noticed they aren't as good as they used to be either. So all we can do is read as many sources as we can, heck I even browse the Tyee on occassion. Best to know your enemy.

[LeftCoaster]

All I read is the Economist. If I ever need local news I just come here.