Vancouver House (1400 Howe St) | 151.5m | 52Fl | Completed - Page 97

whatnext · #**1921** Posted **Jun 20, 2019, 12:03 AM**

Quote:

Originally Posted by Hmoob

The investors add value by assuming the risk to finance the project. Developers like Westbank could take on that risk themselves (assuming they're financially able) but they generally choose offload it. Do you think Westbank or any developer would (or should be required to) sell a $700k unit in 2019 for $400k because that was the prevailing market rates when they started the project in 2017? What if the market went the other direction during the course of construction? There's an entire industry built around pricing/valuing risk. It's called insurance.

If Westbank is so sure investors will buy, they should have no problem making the leap to assume end-users will buy direct as well. As should the developers' banks.

However the points you and other's raise is how flawed our system that relies on private development firms is. Publicly held companies would have no problem raising the money, and exist in most other countries. Why are saddled with private owners relying on offshore money to build housing?

Changing City · #**1922** Posted **Jun 20, 2019, 4:53 AM**

Quote:

Originally Posted by whatnext

If Westbank is so sure investors will buy, they should have no problem making the leap to assume end-users will buy direct as well. As should the developers' banks.

However the points you and other's raise is how flawed our system that relies on private development firms is. Publicly held companies would have no problem raising the money, and exist in most other countries. Why are saddled with private owners relying on offshore money to build housing?

It's an interesting question why there doesn't appear to be a single publicly held development company operating in Greater Vancouver. They're all family or privately owned, or pension fund based. My understanding, based on the notices you see on construction sites, was that, with a very few exceptions, it's Canadian funds that finance construction of housing.

Depending on the project, there may be overseas investors buying some of the units, but when Frances Bula was researching the topic back in 2012 it was local investors buying condos to rent out. There seem to be quite a few forum members who own investment properties, although I suspect the profile of people who buy to flip (and hope to make a significant profit) and those who buy to rent and sell later, are probably somewhat different.

Obviously the rules have changed - now the flippers who can't sell have to face either a big annual tax bill, or try to sell at a lower price than they were hoping to achieve (possibly a lot lower if there are multiple units on the market), or become reluctant landlords.

Hmoob · #**1923** Posted **Jun 20, 2019, 3:38 PM**

Quote:

Originally Posted by whatnext

If Westbank is so sure investors will buy, they should have no problem making the leap to assume end-users will buy direct as well. As should the developers' banks.

However the points you and other's raise is how flawed our system that relies on private development firms is. Publicly held companies would have no problem raising the money, and exist in most other countries. Why are saddled with private owners relying on offshore money to build housing?

There's a big difference between having a successful sales and marketing group and being able to predict the direction the market will move over the years it takes to complete a project. Most major Vancouver developers choose do offload the risk associated with that market projection. Hypothetically developers could ask a bank or other entity to underwrite their projects. Current industry practice suggests that private (often foreign) investors offer the most attractive terms.

Regarding publicly owned development firms, who benefits from a Vancouver developer going public?

Individual investors already have a number of accessible options to gain exposure to the Vancouver real estate market. There's no evidence to suggest that investors would line up to take an ownership stake in a development company itself.

The development firms don't have incentive either. Companies generally go public as a way for initial investors to cash out, or to raise larger amounts of funding than can be secured by bank loans, etc. Going public is an expensive and complicated process and subjects a company to significant compliance and regulatory overhead. There's currently enough cheap money available that nobody needs to go there.

Separately, even a publicly owned developer would need to address the risk associated with real estate market projection. Currently investors buying individual units offer the best value to the developer in assuming the risk of the project. A public firm would held to account by its shareholders to use the most profitable, i.e. same, approach.

whatnext · #**1924** Posted **Jun 20, 2019, 4:53 PM**

Quote:

Originally Posted by Hmoob

There's a big difference between having a successful sales and marketing group and being able to predict the direction the market will move over the years it takes to complete a project. Most major Vancouver developers choose do offload the risk associated with that market projection. Hypothetically developers could ask a bank or other entity to underwrite their projects. Current industry practice suggests that private (often foreign) investors offer the most attractive terms.

Regarding publicly owned development firms, who benefits from a Vancouver developer going public?

Individual investors already have a number of accessible options to gain exposure to the Vancouver real estate market. There's no evidence to suggest that investors would line up to take an ownership stake in a development company itself.

The development firms don't have incentive either. Companies generally go public as a way for initial investors to cash out, or to raise larger amounts of funding than can be secured by bank loans, etc. Going public is an expensive and complicated process and subjects a company to significant compliance and regulatory overhead. There's currently enough cheap money available that nobody needs to go there.

Separately, even a publicly owned developer would need to address the risk associated with real estate market projection. Currently investors buying individual units offer the best value to the developer in assuming the risk of the project. A public firm would held to account by its shareholders to use the most profitable, i.e. same, approach.

So Joe Blow in Shanghai or Sydney is better at predicting the Vancouver market than Westbank, with all its resources?

The problem remains the original unit was priced at $400k and its ultimately delivered to the market for $700k. To me this is the strongest argument to bar foreign buyers. At least the inflated price would have a closer relationship to local incomes if local buyers had to arrange all financing to purchase units.

Hmoob · #**1925** Posted **Jun 20, 2019, 5:07 PM**

Quote:

Originally Posted by whatnext

So Joe Blow in Shanghai or Sydney is better at predicting the Vancouver market than Westbank, with all its resources?

The problem remains the original unit was priced at $400k and its ultimately delivered to the market for $700k. To me this is the strongest argument to bar foreign buyers. At least the inflated price would have a closer relationship to local incomes if local buyers had to arrange all financing to purchase units.

"Joe Blow in Shanghai" isn't better at predicting the market than Westbank. Westbank isn't even really trying to predict the market. Joe's more risk tolerant than, well, anyone else. If you bar him from investment, the final delivery to market is still at $700k. The difference is that the original unit then needs to be priced at $375k, because any other investor/underwriter would attribute greater value to the assumed risk.

Take a look at Changing City's comment in the Vancouver real estate bubble thread. You may soon be happy about the proportion of foreign investors who assumed the risk to underwrite our housing development industry. Better they go bust for poor forecasting than good Canadians, either privately or through publicly held development companies, right?

whatnext · #**1926** Posted **Jun 20, 2019, 5:35 PM**

Quote:

Originally Posted by Hmoob

"Joe Blow in Shanghai" isn't better at predicting the market than Westbank. Westbank isn't even really trying to predict the market. Joe's more risk tolerant than, well, anyone else. If you bar him from investment, the final delivery to market is still at $700k. The difference is that the original unit then needs to be priced at $375k, because any other investor/underwriter would attribute greater value to the assumed risk.

Take a look at Changing City's comment in the Vancouver real estate bubble thread. You may soon be happy about the proportion of foreign investors who assumed the risk to underwrite our housing development industry. Better they go bust for poor forecasting than good Canadians, either privately or through publicly held development companies, right?

It's unlikely a public company would "go bust" in this situation. Westbank priced the original units at a level they knew they would make a good return on after all costs. Even assuming prices fell back down to that level (unlikely) they would still come out ahead. The article Changing City posted about pre-sale buyers walking away from deposits describs a situation that wouldn't happen if a publicly owned firm was responsible for completed units coming to market.

At the end of the day it is odd that such a capital intensive industry relies on a Private Owner model in Vancouver. One could argue that it is because it s a local industry, but develoeprs like Onni, Bosa, Concord etc are active in other markets in North America.

Changing City · #**1927** Posted **Jun 20, 2019, 6:12 PM**

Quote:

Originally Posted by whatnext

It's unlikely a public company would "go bust" in this situation. Westbank priced the original units at a level they knew they would make a good return on after all costs. Even assuming prices fell back down to that level (unlikely) they would still come out ahead. The article Changing City posted about pre-sale buyers walking away from deposits describs a situation that wouldn't happen if a publicly owned firm was responsible for completed units coming to market.

At the end of the day it is odd that such a capital intensive industry relies on a Private Owner model in Vancouver. One could argue that it is because it s a local industry, but develoeprs like Onni, Bosa, Concord etc are active in other markets in North America.

Onni, Bosa and Concord (and several other Vancouver developers) all started here, and exported their successful development model to other markets. What would be their advantage in going public?

Buyers finding that a unit is worth less than they agreed to pay, or that interest rates are higher a few years after they agreed to buy a unit, wouldn't care whether it was a publicly quoted developer, or a private business. They owe more than they can borrow, so they're screwed. Some of them might have bought Vancouver House units, for all we know.

The only person responsible for a unit pre-selling at $400k, then re-selling at $700k is the buyer who pays $700k. It's not the flipper's fault if there are people willing to inflate house prices. Now that prices aren't going up, and may even be falling slightly, this situation won't arise for a while.

If the 'investor' looking to flip the property only had the deposit, and not the funds to cover the purchase, that might be a concern, but I understood developers have been requiring higher initial payments, especially from overseas buyers, so they shouldn't be too badly affected. The people who will be most adversely affected will be those who paid $700k only to find their apartment is actually only worth $600k. But as the small print says, "past performance is not indicative of future results". Some buyers are finding that out the hard way.

Hmoob · #**1928** Posted **Jun 20, 2019, 6:17 PM**

Quote:

Originally Posted by whatnext

It's unlikely a public company would "go bust" in this situation. Westbank priced the original units at a level they knew they would make a good return on after all costs. Even assuming prices fell back down to that level (unlikely) they would still come out ahead. The article Changing City posted about pre-sale buyers walking away from deposits describs a situation that wouldn't happen if a publicly owned firm was responsible for completed units coming to market.

At the end of the day it is odd that such a capital intensive industry relies on a Private Owner model in Vancouver. One could argue that it is because it s a local industry, but develoeprs like Onni, Bosa, Concord etc are active in other markets in North America.

One could also argue that the rapid rate of change in Metro Vancouver has made it difficult to forecast housing prices using established methodologies thereby confounding institutional underwriters, while simultaneously causing a spike in prices that appeals to small investors hoping to repeat past performance.

With regards to pre-sale buyers walking away, those are underwriters getting burned by a falling market. When the market falls, the underwriters get burned. That's how it works. If not foreign investors, then who?

Vin · #**1929** Posted **Jun 20, 2019, 6:27 PM**

Quote:

Originally Posted by whatnext

You ignore the fact the investor does nothing but drive up the price, while adding nothing to the value. IE if Westbank offers the unit to investors in 2017 at $400k, and that investor flips it in 2019 at $700k to an end user, the end user "lost out" to the tune of $300k. If there is enough demand for flippers, there's enough demand to for the original offering at the pre-sale price.

Their investments feed families, provide jobs, and enable a backwater city like Vancouver to have nicer buildings. Foreign money is essentially brought into this country, and at inflated prices foreigners are paying, that also means Canada has a net gain in global revenue flowing our way. There are cons when it comes to affordability, but there are certainly a lot of pros too. This city just needs to find a good balance on the approach. Simply banning all foreign property investments can be detrimental to us.

Changing City · #**1930** Posted **Jun 20, 2019, 6:50 PM**

The same arguments played out in the fall of 2018 in the UK. "The prime minister also said there was evidence that investment by foreign buyers had pushed property prices up to a level that had taken many out of reach for local buyers." The U.K. government announced plans to introduce an additional tax (initially of 3%, but now 1%) on foreign buyers of British property. The initial effect didn't seem to affect house prices, (which have flatlined for eight months, said to be due to Brexit and economic concerns) but it did immediately knock the share price of publicly traded home builders.

whatnext · #**1931** Posted **Jun 20, 2019, 7:15 PM**

Quote:

Originally Posted by Vin

Their investments feed families, provide jobs, and enable a backwater city like Vancouver to have nicer buildings. Foreign money is essentially brought into this country, and at inflated prices foreigners are paying, that also means Canada has a net gain in global revenue flowing our way. There are cons when it comes to affordability, but there are certainly a lot of pros too. This city just needs to find a good balance on the approach. Simply banning all foreign property investments can be detrimental to us.

I don't care how "nice" the buildings are, ultimately that's part of the problem. To borrow a term from the VAG discussion, starchitects dropping "bird shit architecture" around the city just drives up costs. If land is so scarce in Vancouver why are we assigning swathes of it for contorted designs that merely play to the architect's and offshore buyer's ego? Housing is a human need, not a piece of art. One can certainly see why the backlash against globalizaion continues to grow.

Spr0ckets · #**1932** Posted **Jun 20, 2019, 7:27 PM**

Quote:

Originally Posted by whatnext

I don't care how "nice" the buildings are, ultimately that's part of the problem. To borrow a term from the VAG discussion, starchitects dropping "bird shit architecture" around the city just drives up costs. If land is so scarce in Vancouver why are we assigning swathes of it for contorted designs that merely play to the architect's and offshore buyer's ego? Housing is a human need, not a piece of art. One can certainly see why the backlash against globalizaion continues to grow.

How, exactly?

It's not like anyone was going to be able to put up an affordable housing complex on the same land where Vancouver House now stands - offering the same square footage of housing - and that it's existence is therefore or somehow exacerbating the affordability and housing crisis in the city.

You're always going to have high-end housing and buildings because you're always going to have rich people living in the city who can afford them.

It's almost like arguing that, all these Lamborghinis and Ferraris being driven around the city are making it harder for the working man to be able to afford to buy a regular sedan.

officedweller · #**1933** Posted **Jun 21, 2019, 12:19 AM**

Arguably, the starchitect factor helped drive what was an undesirable site - next to bridge / overshadowed by bridge into a desirable site.
The corresponding site 601 Beach was originally slated for social housing (and Concord sued the City for selling it). The under the bridge sites are often used for social housing - but then the sites got "Granville Gateway" status.

Cypherus · #**1934** Posted **Jun 21, 2019, 1:27 AM**

Quote:

Originally Posted by Hmoob

The investors add value by assuming the risk to finance the project. Developers like Westbank could take on that risk themselves (assuming they're financially able) but they generally choose offload it. Do you think Westbank or any developer would (or should be required to) sell a $700k unit in 2019 for $400k because that was the prevailing market rates when they started the project in 2017? What if the market went the other direction during the course of construction? There's an entire industry built around pricing/valuing risk. It's called insurance.

The issue with your premise is the presumption the unit is worth $700K regardless, and that it does not bode well for a developer to sell that unit for $400K back in 2017. Not true. The unit price was inflated to a 700K figure due to uncontrolled speculation from wealthy investors whose maximum willingness to pay for a unit was much higher than the local consumer. That willingness to pay more because you have more, increases demand for units and drives up the market. In other words, it is not locals that assigned the unit to be $700K - it was foreign funds flowing through non-resident purchasers or Permanent residents acting as nominees or for themselves who saw fit to acquire units at list price upon initial offering and driving up the market in concert with other speculators.

Spr0ckets · #**1935** Posted **Jun 21, 2019, 2:54 AM**

Quote:

Originally Posted by officedweller

Arguably, the starchitect factor helped drive what was an undesirable site - next to bridge / overshadowed by bridge into a desirable site.
The corresponding site 601 Beach was originally slated for social housing (and Concord sued the City for selling it). The under the bridge sites are often used for social housing - but then the sites got "Granville Gateway" status.

But isn't part of the proposed 601 Beach Tower project's podium going to include non-market or affordable housing component (if not all of it). And if so, then I still don't get how Vancouver House's presence affects or affected their buildability.

If anything the fact that Vancouver House got built and made the corresponding site more desirable, thus attracting a developer or buyer for the site who could help co-finance the non-market part in exchange for getting the market unit tower portion built.
Not to mention the fact that Vancouver House itself also has some non-market units as well.
And the developers - Westbank - are currently proposing two non-market projects for the West End (one of them purely and entirely rental I believe. Some information on it was posted on the UrbanYVR website today), with some units going to be rented at BELOW market rate, for affordability status.

I'm not arguing that developers like this are not evil.
But if doing projects like Vancouver House - even if with "starchitects" like Bjarke Ingels - enables them to do other non-market projects including affordable housing for the rental market (which, who can argue isn't helping the city's housing crunch), then how can it all be so bad?

That seems to me to be the opposite effect of what is being argued.

Hmoob · #**1936** Posted **Jun 21, 2019, 4:19 AM**

Quote:

Originally Posted by Cypherus

The issue with your premise is the presumption the unit is worth $700K regardless, and that it does not bode well for a developer to sell that unit for $400K back in 2017. Not true. The unit price was inflated to a 700K figure due to uncontrolled speculation from wealthy investors whose maximum willingness to pay for a unit was much higher than the local consumer. That willingness to pay more because you have more, increases demand for units and drives up the market. In other words, it is not locals that assigned the unit to be $700K - it was foreign funds flowing through non-resident purchasers or Permanent residents acting as nominees or for themselves who saw fit to acquire units at list price upon initial offering and driving up the market in concert with other speculators.

Fair enough, I simplified my explanaitions to make a point about the impact of preconstruction investment on the Vancouver housing market. You're right that foreign investors act to increase the prevailing market price of housing through purchase and speculation in the market. So do speculators that made their money in the Alberta oilfields, or the Vancouver tech industry, or any other source of initial investment funds. In effect, everyone who purchases a home in Metro Vancouver is a speculator, regardless of intent.

To suggest that foreign funds specifically drive up our housing prices (as many here do) ignores the reality that there are plenty of willing investors within Canada who gladly profit from our recent and current housing shortage and development boom. If we banned foreign ownership, would the wealthy/credit worthy of Canada also stop speculating in the Vancouver housing market?

It does appear that foreign investors, East Asian investors in particular, are more accepting of risk as they choose to invest in Vancouver housing and are thusly willing to outbid other speculators in the market. This would give them a competetive advantage in acquiring properties. However it also gives them greater exposure to any downside potential. Investors who act with a higher risk profile will see greater drops during market downturns. It's really up to each individual investor to determine what they're comfortable with and how they want to invest whatever funds they control.

If someone really just wants a place to live, renting is a prefectly acceptable alternative to buying a home. And while the price to purchase housing is dependant on rental rates, rents are not directly dependant on housing prices. In fact, higher housing prices encourage more development which ultimately acts to lower rents. (Again I've oversimplified and ignored a number of factors that limit the ability of the Vancouver housing market to efficiency respond to increased demand.)