Winnipeg Construction VIII

[esquire]

Originally Posted by Simplicity

I hate to admit this if this is in fact Michael Mark, but he's right. The costs of conversion are just simply too high to justify the return right now.

Add to that the nonsense of dealing with the heritage department that watches your every move and all of the budget uncertainty of undertaking the renovation of a building that just keeps revealing deficiencies with every new day, I have no idea how this stock of buildings ever becomes anything other than vacant relics of time long past...

Back in the late 90s/early 00s with the various heritage redevelopment incentives that came into effect around that time, heritage renovations were really the only significant source of "new construction" in Winnipeg. Several old unused/underused office buildings and warehouses were given new life... the Crocus Building, the warehouse at Market and Rorie, the old Free Press building, the Paris Building, the INAC office building on Hargrave and several others were redeveloped in a fairly short timeframe.

For a while there, next to nothing brand new was being built at all... it was all heritage renovations. What has changed since then that redeveloping more heritage buildings is no longer feasible?

[Simplicity]

Originally Posted by esquire

Back in the late 90s/early 00s with the various heritage redevelopment incentives that came into effect around that time, heritage renovations were really the only significant source of "new construction" in Winnipeg. Several old unused/underused office buildings and warehouses were given new life... the Crocus Building, the warehouse at Market and Rorie, the old Free Press building, the Paris Building, the INAC office building on Hargrave and several others were redeveloped in a fairly short timeframe.

For a while there, next to nothing brand new was being built at all... it was all heritage renovations. What has changed since then that redeveloping more heritage buildings is no longer feasible?

Absolutely everything has changed. The cost of construction is triple what it was in the nineties. Those properties were also being traded at either zero cost or just slightly north. Now, whoever is sitting on them is thinking of them as their retirement. Buildings that sold for $100K in the nineties are now being listed at $1-$3MM, even though they aren't worth that with another 20 years of dereliction under their belts. You aren't witnessing some conspiracy, there just isn't any market for that stuff. The few renovations that have been done have been done using lots of government money, and those days are over because the city wasn't getting any return on its investment. They were projecting significant value upticks on the basis of cash flow that never materialized and the property taxes weren't increasing enough to justify the investments. It turns out, people still aren't willing to pay the lease and sales rates required to justify the millions it takes to renovate these buildings.

In this city it seems that people constantly need to be reminded that witnessing construction doesn't necessitate a worthwhile usage of resources. The heritage tax credit program is now on an extremely selective basis because the city was continuously being fleeced on their investments. The same thing has happened with the DRGP. Those buildings are all standing, but they're financial disasters all of them.

The only thing the 90s told us about development was that if the government underwrites the risk, you will assuredly find somebody who is willing to take fees, renovate buildings, and thank the government later.

[drew]

Originally Posted by Simplicity

I hate to admit this if this is in fact Michael Mark, but he's right. The costs of conversion are just simply too high to justify the return right now.

Add to that the nonsense of dealing with the heritage department that watches your every move and all of the budget uncertainty of undertaking the renovation of a building that just keeps revealing deficiencies with every new day, I have no idea how this stock of buildings ever becomes anything other than vacant relics of time long past...

It depends on the building, what it is being converted to, etc. etc. There is no way to say how much an individual 100 year old block will cost to redevelop, as there are way too many variables at play.

What these buildings do require is an owner who "gives a damn". There will be hidden problems and cost over runs (although that it the same as any new project too).

Delinquent building owners like the one who owns the St. Charles should not be allowed to purchase these types of buildings (although the current values of these blocks has increased enough to effectively chase these guys away as of late). They are not willing to spend the money on improvements or quality consultants to get the job done right.

The fact these buildings can suffer so much neglect and yet remain viable enough to be redeveloped is all there needs to be said regarding the quality of this vintage of building stock. The typical stuff being built today wouldn't last more than a couple years of abandonment.

[esquire]

Interesting explanation. There are still many 100 year old+ heritage buildings in and around downtown that have never been thoroughly overhauled... given that the short-lived boom in heritage building renovation has fizzled out, I wonder how long it will be before we start seeing more attempts at demolishing heritage buildings? It could well be that the Coronation (Shanghai) and the St. Charles are just the start...

[drew]

Originally Posted by esquire

Interesting explanation. There are still many 100 year old+ heritage buildings in and around downtown that have never been thoroughly overhauled... given that the short-lived boom in heritage building renovation has fizzled out, I wonder how long it will be before we start seeing more attempts at demolishing heritage buildings? It could well be that the Coronation (Shanghai) and the St. Charles are just the start...

location location location.

I think the hope was that the development of buildings in more prime areas would encourage the more fringe areas, but perhaps this hasn't yet happened.

The one thing the St. Charles has going for it is location. There is absolutely no reason its value and location cannot justify its redevelopment. The current owner needs to be removed from the equation first though.

I have personally been involved in three heritage exchange building conversions from the preliminary stages right through the certification. One residential, and two multi-use, all within the last 5 years.

[Riverman]

The St. Charles to me appears to be a good candidate for restoration as does the Peck building. It just seems so unlikely that the cost is justified for a private venture. I think they should be preserved until they are viable.

Others, like 242-246 Princess, should be demolished before they fall down on their own.

[Simplicity]

Originally Posted by drew

location location location.

I think the hope was that the development of buildings in more prime areas would encourage the more fringe areas, but perhaps this hasn't yet happened.

The one thing the St. Charles has going for it is location. There is absolutely no reason its value and location cannot justify its redevelopment. The current owner needs to be removed from the equation first though.

I have personally been involved in three heritage exchange building conversions from the preliminary stages right through the certification. One residential, and two multi-use, all within the last 5 years.

This is overly simplistic. The point you're throwing aside is the viability component. Just because somebody does something doesn't make it a good idea. Unless you can understand the finance and economics underlying the investment - which most people can't - then suggesting location has anything to do with it is a red herring. The St. Charles block simply cannot be redeveloped at a rate that is conducive to making the investment. Otherwise it would be done. An 'owner who cares' is just a mealy-mouthed statement that disregards *how* somebody would do this. Unless you have an extremely deep-pocketed investor who doesn't care about return and is prepared to throw his own (endless) supply of cash at it, it won't be financeable. The bank isn't going to underwrite millions of dollars worth of improvements if the return doesn't justify the risk, so they just won't take it. Further to that, formulating a contract on these buildings on a stipulated price or guaranteed maximum upset basis doesn't happen unless the contractor pads the bid significantly rendering it even more unfeasible. That means you're stuck going either hourly or cost-plus on an open-ended liability the bank won't come anywhere near. You might be right about the location being pretty good (certainly not great), but the location's upside is mitigated by the constraints presented by the building.

Then it comes down to what you'd actually be able to get out of the building. If you're talking high-end loft-style condos, there are plenty of those - for rent. There's no pent up demand for $500/sq ft condos in the West Exchange and that's precisely what you'd be looking at. And to show that this isn't just a flippant remark, the Fairchild Lofts, The Edge, and the Penthouse buildings are all examples of buildings that were renovated with the intent to sell only to ultimately be leased. In the case of the Penthouse building, the developers actually went back to the few buyers and repurchased the units in order to save on the condo conversion. There's also no demand for $30/square ft annual commercial leases. Class A commercial space in Winnipeg tops out just over $20/sq ft with the average closer to $17/sq ft. That doesn't justify the millions required to renovate the building while offering no parking.

Just because we have the physical capacity to do things doesn't make them good ideas. Yes, Winnipeg has a beautiful and envious stock of 100 year old heritage buildings, but no, Winnipeg doesn't have a real estate market that supports the conversion of these projects without a significant amount of government money, the likes of which has more or less run dry.

Ken Zaifman may be the opposite of a heritage proponent, but he's not stupid and he doesn't discriminate. If he could make a reasonable return renovating the building, he would have many years ago. It isn't like he's going to turn around and build something at a 10% return. He'll be lucky to get 5% on a new build with demolition and the costs he's absorbed over the past 10 years so the argument that he's only looking to get greedy with an outsized return is just simply not true nor supportable by any fact.

[drew]

^ I still stand behind my "owner who cares" statement. Yes, it does come down to dollars and cents, but the owner is also a large factor. How much effort they are willing to put forth, what they are willing to spend, and how they are willing to go about doing things. You can chose to ignore that factor, but in my experience, it is a factor.

IMO this owner is a large reason as to why and why not this block has not been developed. Remove him, and things can go forward - or at least an attempt can be made.

As for the Penthouse - yes it converted to rentals, however that particular owner is still looking to do further developments in the Exchange.

[Simplicity]

Originally Posted by esquire

Interesting explanation. There are still many 100 year old+ heritage buildings in and around downtown that have never been thoroughly overhauled... given that the short-lived boom in heritage building renovation has fizzled out, I wonder how long it will be before we start seeing more attempts at demolishing heritage buildings? It could well be that the Coronation (Shanghai) and the St. Charles are just the start...

They are only the start. The residual land value is worth more with the building off of it than on it so that's all you need to know right now. If the city continues to stand in the way of its own natural evolution because of some misplaced reverence for its past, it'll do so at its own peril. Some of these buildings are going to have to be sacrificed for the greater good. If it turns out that people *are* interested in spending $425/sq ft in newly constructed building on old heritage sites, then maybe you have your market for renovation eventually. But we already know with certainty they aren't prepared to do that in a heritage building on a large enough scale to call it a thriving market...

[biguc]

Originally Posted by Simplicity

Ken Zaifman may be the opposite of a heritage proponent, but he's not stupid and he doesn't discriminate. If he could make a reasonable return renovating the building, he would have many years ago. It isn't like he's going to turn around and build something at a 10% return. He'll be lucky to get 5% on a new build with demolition and the costs he's absorbed over the past 10 years so the argument that he's only looking to get greedy with an outsized return is just simply not true nor supportable by any fact.

I think it's worth pointing out that Zaifman also isn't a developer. I think you give him too much credit.


And he's been trying to turn that corner into a parking lot since day one.

[Simplicity]

Originally Posted by biguc

I think it's worth pointing out that Zaifman also isn't a developer. I think you give him too much credit.


And he's been trying to turn that corner into a parking lot since day one.

Ken Zaifman is a very experienced real estate investor. I don't care for the guy, but that's beside the point. He's not some dim-witted schmuck who is in too deep. He's an extremely successful guy with the ability to pay the right consultants where needed, but this idea that an 'experienced' developer is somehow going to spin gold from a derelict heritage building is nonsense. This isn't brain surgery. The costs to remediate outstrip the returns. No amount of experience is going to force consultants and contractors to charge less than the going rate for what's necessary to renovate the space into something worthwhile...

[Simplicity]

Originally Posted by drew

^ I still stand behind my "owner who cares" statement. Yes, it does come down to dollars and cents, but the owner is also a large factor. How much effort they are willing to put forth, what they are willing to spend, and how they are willing to go about doing things. You can chose to ignore that factor, but in my experience, it is a factor.

IMO this owner is a large reason as to why and why not this block has not been developed. Remove him, and things can go forward - or at least an attempt can be made.

As for the Penthouse - yes it converted to rentals, however that particular owner is still looking to do further developments in the Exchange.

Further developments with other people's money are a dime a dozen. Everybody likes fees when somebody else is stuck with the investment. REITs buy buildings at a 4.25% return regardless of leverage but that doesn't make it a good idea. When you're the REIT *manager*, though, and you're paid a percentage of assets under management, *everything* looks like a good investment. There are no such thing as 'owners who care'. That statement is devoid of meaning in any capacity. Every time somebody flushes millions of dollars down the heritage toilet, every other building gets an improper value reset and that only contributes to longer term dereliction because that's just how markets work.

What you're suggesting people do is charitable work on behalf of the city by destroying millions of dollars in value in order to salvage a relic from a hundred years ago, as if private investors owe everybody for the right to handle a huge headache...

[trueviking]

When you buy a heritage building, particularly in a national historic site, you do have a responsibility to the people who live in this city that is beyond monetary return. If you are not prepared for that, don't buy it.

Those 'relics of the past' are an asset that must be leveraged for the benefit of the city's future. That includes economic growth and development opportunity. Your comments are myopic. In Vancouver they force developers to protect views to their mountains. In Toronto they force all developers to build green roofs. Every city has development rules for the betterment of the whole. In winnipeg we have rules about heritage buildings. If money is all you care about you should at least see them as an opportunity to be a catalyst. It isn't a coincidence that the exchange is the fastest growing part of downtown. Like it or not, people are attracted to them. But even if you don't see the big picture. Rules are rules. Just because zaifman was stupid enough to buy a building without a feasible business plan, doesn't mean he then gets the right to year it down.

[biguc]

Originally Posted by Simplicity

Ken Zaifman is a very experienced real estate investor. I don't care for the guy, but that's beside the point. He's not some dim-witted schmuck who is in too deep. He's an extremely successful guy with the ability to pay the right consultants where needed, but this idea that an 'experienced' developer is somehow going to spin gold from a derelict heritage building is nonsense. This isn't brain surgery. The costs to remediate outstrip the returns. No amount of experience is going to force consultants and contractors to charge less than the going rate for what's necessary to renovate the space into something worthwhile...

When his legal defence is that he is a dim-witted schmuck, I really have to wonder.


Not that I believe that, though. He's playing the most transparent long-con this town has ever consistently fallen for. Just a few years ago he wanted to tear down the Albert business block to make parking for his boutique hotel (a stupid idea, if I've ever seen one). But now that that building was kind enough to burn itself down, he somehow can't make his original plan work and needs to tear down the St. Charles too. That's how you replace a pesky liability with a nice, lucrative surface parking lot.


The fact that he's refused to sell the property puts another wrinkle in this story. He may genuinely believe he cannot profitably convert the building. You seem to agree. But if other people have offered to buy the building, it stands to reason they disagree.

A hotel has to be cheaper to convert to residential than a warehouse or office building would be, no? What do you know about the costs of the Avenue conversion, or Place Louis Riel, even?

[ediger]

While driving to the Jets game tonight, passing all the construction sites made me hope that someone takes an aerial photo of downtown with all the cranes in action.

also, regarding the St. Charles, it's a pipe dream as it would be costly, but I'd like to see the stretch of Albert from there to the Royal Albert turned into some sort of local music mecca. Venues, rehearsal spaces/recording studios, short term apartments for touring artists who might only be in town for part of the year, that sort of thing. Winnipeg has an incredible music scene and it would be nice to see more done to support it. Throwing some pianos into the skywalks for Juno week doesn't really cut it. We'll never be a New York or Vancouver when it comes to tourism, but we can do a better job of appealing to specific types of tourists. What does a place like Austin, Texas have going for it that Winnipeg doesn't? Not too much really, but thousands of people visit Austin every year for various festivals or just to spend a week catching some shows at the bars.

[Jeff]

rive gauche condos on tache in st. boniface is underway. forest of piles of various height litter the site

[Simplicity]

Originally Posted by trueviking

When you buy a heritage building, particularly in a national historic site, you do have a responsibility to the people who live in this city that is beyond monetary return. If you are not prepared for that, don't buy it.

Those 'relics of the past' are an asset that must be leveraged for the benefit of the city's future. That includes economic growth and development opportunity. Your comments are myopic. In Vancouver they force developers to protect views to their mountains. In Toronto they force all developers to build green roofs. Every city has development rules for the betterment of the whole. In winnipeg we have rules about heritage buildings. If money is all you care about you should at least see them as an opportunity to be a catalyst. It isn't a coincidence that the exchange is the fastest growing part of downtown. Like it or not, people are attracted to them. But even if you don't see the big picture. Rules are rules. Just because zaifman was stupid enough to buy a building without a feasible business plan, doesn't mean he then gets the right to year it down.

Why do people feel like comparing Winnipeg with Toronto and Vancouver are appropriate things to be doing?

Vancouver real estate creeps into $700/sq ft. Toronto sells pre-sale condo units at $630/sq ft. That's because people want to live there. Toronto is one of the most dynamic economies in the world and Vancouver is amongst the most beautiful cities. Can we all just understand the differences once and for all? These are world class cities. Winnipeg is a mess of a city from top to bottom. Our highest value real estate exists on a cul-de-sac somewhere in what used to be a farmers field two years prior, our infrastructure is falling apart due to mismanagement even with some of the highest taxes in the country, we're almost literally shut-into our homes for 6 months of the year, and the *best* thing about the city is that you only have to drive an hour to get out of it! We're a have-not city in a have-not province in the middle of a flood plain that vacillates between arctic tundra and sweaty bog depending on the season and our most notable geographic feature is a prairie sunset you can watch for almost nine hours straight. What exactly are these comparisons based in?

I'm obviously kidding in some respects and I'll reiterate that I don't care for the man, but let's not get too ahead of ourselves. Ken Zaifman bought that relic for a song. In the interim, people have been convinced there's value there he's either not seeing or refusing to acknowledge. There is not. If Ken Zaifman turned around and sold the building tomorrow, he would make money. Quite a bit of it. That value increase would be based upon an incorrect market value generated by hype and poor intrinsic valuation. And then the building would sit for *another* ten years while the next greater fool uncovered all the things he already knew, which is that the building can't be feasibly restored.

Winnipeg has it's limitations. This isn't a new thing. If we were such a desirable city, people with resources would be flocking in and the economics for restoration would naturally fall into line. Instead, we have the same people who push for more investment and a greater focus on downtown being the same people virtually ensuring that the downtown never goes anywhere because of some extremely myopic vision that the city can absolutely only rebuild itself as long as it looked nearly the same as it did in 1908. This is all completely ass-backwards.

[drew]

^ that's it, just get it all out now.

Feel better?

At least your post makes it clear where your bias regarding Winnipeg is, and your posts in general.

[Simplicity]

Originally Posted by biguc

When his legal defence is that he is a dim-witted schmuck, I really have to wonder.


Not that I believe that, though. He's playing the most transparent long-con this town has ever consistently fallen for. Just a few years ago he wanted to tear down the Albert business block to make parking for his boutique hotel (a stupid idea, if I've ever seen one). But now that that building was kind enough to burn itself down, he somehow can't make his original plan work and needs to tear down the St. Charles too. That's how you replace a pesky liability with a nice, lucrative surface parking lot.


The fact that he's refused to sell the property puts another wrinkle in this story. He may genuinely believe he cannot profitably convert the building. You seem to agree. But if other people have offered to buy the building, it stands to reason they disagree.

A hotel has to be cheaper to convert to residential than a warehouse or office building would be, no? What do you know about the costs of the Avenue conversion, or Place Louis Riel, even?

He isn't trying to convert it into a surface parking lot. The city has specific by-laws against that and he isn't stupid. He wants to redevelop the site.

I don't know the first thing about the Place Louis Riel. You'd have to speak to True-Viking about that, but he was just last week mentioning that he'd never heard of something as low as a $150/sq ft build cost, so I'm guessing it's *HIGH*.

The Avenue building was given to the developer for free. They managed to squeeze 60 units out of $8.5MM which is nice when the City underwrites about $3MM of that cost. That means if you add another $30K per unit in land costs the rest of the city pays, you're looking at building apartment buildings at about $172/ sq ft which is to say you *aren't* building anything unless somebody is prepared to pay you somewhere around $1800/mth for a two bedroom and $1600/mth for a one. And just to bring that into focus a little more, the average Winnipeg 2-bedroom rent is just slightly above *half* of the above mentioned 2-bedroom rent and the average one bedroom rent is actually *below* half of the one above. That's why the Hofers needed significant subsidy.

It's also worth noting that these heritage buildings have changed hands with relative frequency over the past ten years. That's because people didn't know what they were getting themselves into. If somebody bought the St. Charles block and claimed they were going to profitably restore it, my first thought wouldn't be that we had an experienced person ready to undertake what nobody else could, it would be that they were obviously in over their head if they were making that sort of statement...

[esquire]

Originally Posted by Simplicity

Winnipeg has it's limitations. This isn't a new thing. If we were such a desirable city, people with resources would be flocking in and the economics for restoration would naturally fall into line. Instead, we have the same people who push for more investment and a greater focus on downtown being the same people virtually ensuring that the downtown never goes anywhere because of some extremely myopic vision that the city can absolutely only rebuild itself as long as it looked nearly the same as it did in 1908. This is all completely ass-backwards.

What if the City gets outfoxed in the end (not an unlikely prospect) and Zaifman ends up demolishing the St. Charles? Then what? Is he going to redevelop the property or simply open up downtown Winnipeg's latest and greatest surface parking lot? My money would have to be on the latter scenario... how many times has something been demolished with promises of some grand redevelopment that never materializes? You could probably list dozens of sites in that category.

I don't see how that new surface lot is a better outcome for the City than the preservation of the St. Charles, even if it takes a longer time to get there than we'd like. What is the upside to removing heritage restrictions and letting people do whatever they want with old buildings?

Besides, why doesn't Zaifman stick with plan A of turning the St. Charles into a boutique hotel? Winnipeg has high room rates and several hotels have already been either newly built (take your pick) or totally gutted/renovated (Holiday Inn on Ellice, Econo Lodges on Notre Dame and Dakota). Between the combination of the happy coincidence (as biguc pointed out) of getting a parking lot next door which was supposedly the only missing piece of the puzzle before, Winnipeg's high room rates and the heritage credits available to a project like this, why can't Zaifman make a hotel work in the same way that so many other new hotels around town appear to be able to?