The Central 1 Credit Union has joined in the chorus of predictions for declines in prices for BC housing.
http://ca.news.yahoo.com/s/cbc/081023/canada/vancouver_bc_housing_recession_3
The Credit Union reported, "Since a high in March 2008, B.C.'s residential house prices have fallen 12 per cent, and will fall another 13 per cent in 2009, bringing the provincial median to $310,000."
Our pricing models are near dead-on with the Credit Union. We have been predicting the 25% price drop since May and we believe that prices will bottom out somewhat around a 30% drop from the peak.
We, like the Credit Union, also project a possible deeper drop in prices in 2009 in the event that the economic conditions deteriorate more than expected. The Credit Union suggests that 2009 might well see a 25% decline in price. We agree that type of decline is possible, although a worst case scenario.
Thursday, October 23, 2008
Reorganization at Intrawest
As posted here earlier in the week, Intrawest, owner of Whistler, Blackcomb and Panorama in the West, Blue Mountain in Ontario and Tremblant in Quebec is attempting to re-negotiate about $1.7 billion in bank debt.
We are of the opinion that Intrawest will be successful. However, to close the transaction, Intrawest will have to make certain commitments and abide by loan covenants (rules) that will put downward pressure on real estate prices in those markets in which Intrawest operates.
Intrawest will be paying considerably more in interest payments, which will curtail its ability to invest in new infrastructure for resorts. A reduction in infrastructure investment will limit growth.
Intrawest will also likely be required to reduce its debt by disposing of unsold condo inventory, and surplus land. It is very difficult to measure the amount of unsold inventory at each resort as a % of total product since Intrawest does not make this information public. The same measurement problem exists with the land bank Intrawest holds. However, we have completed site inspections at three Intrawest resorts - Tremblant, Blue Mountain and Whistler and are able to report that Intrawest has a seemingly vast inventory of both condos and land, particularly at its Tremblant resort. A fire sale of condos and land would likely result in at least a 10% immediate reduction in prices, and a reduction in rental income for existing investors.
We are of the opinion that Intrawest will be successful. However, to close the transaction, Intrawest will have to make certain commitments and abide by loan covenants (rules) that will put downward pressure on real estate prices in those markets in which Intrawest operates.
Intrawest will be paying considerably more in interest payments, which will curtail its ability to invest in new infrastructure for resorts. A reduction in infrastructure investment will limit growth.
Intrawest will also likely be required to reduce its debt by disposing of unsold condo inventory, and surplus land. It is very difficult to measure the amount of unsold inventory at each resort as a % of total product since Intrawest does not make this information public. The same measurement problem exists with the land bank Intrawest holds. However, we have completed site inspections at three Intrawest resorts - Tremblant, Blue Mountain and Whistler and are able to report that Intrawest has a seemingly vast inventory of both condos and land, particularly at its Tremblant resort. A fire sale of condos and land would likely result in at least a 10% immediate reduction in prices, and a reduction in rental income for existing investors.
Wednesday, October 22, 2008
The Scoreboard Can't Keep Pace
Have you ever watched a baseball game in Fenway Park, Boston?
If yes, you know that Fenway has an old time scoreboard, where someone has to physically change the score, the status of the inning etc. A few years back, I watched the Yankees and the Red Sox in a slugfest. Run after run scored, wild pitchs were common, home runs left the ballpark faster than new hip-hop songs on the Billboard 100. And the one guy trying to update the scoreboard, well..., he just could not keep up.
That is what is happening to the West Coast real estate market right now. Before investors and other stakeholders had time to digest the news that Intrawest is 48 hours from receivership and Fortress may not be able to finance the Olympic Village, came a further barrage of negative news.
The Ritz Carlton, developed by Holborn, stopped construction and the sub contractor vacated the premises.
Full story:
http://www.cbc.ca/canada/british-columbia/story/2008/10/21/bc-ritz-carlton.html
Simon Lim of Holborn claims that construction was halted due to the need for design changes. But only about 50% of excavation was complete. And regardless of what they design will be, full excavation is required. Holborn announced that its other project, The Hills, at Nanimo & Kingsway, is on hold.
And news crews barely had time to file reports before they were told that work on the downtown Hilton is also suspended. A second Hilton project is also on hiatus.
In fact, so many projects have ground to a halt, or are now in receivership that we cannot report them all. So we are including a link to an interactive map that CBC has put up. We thank CBC for their work. This map is not complete as it includes only the marquee projects, mostly in central Vancouver.
http://www.cbc.ca/bc/features/construction/
If yes, you know that Fenway has an old time scoreboard, where someone has to physically change the score, the status of the inning etc. A few years back, I watched the Yankees and the Red Sox in a slugfest. Run after run scored, wild pitchs were common, home runs left the ballpark faster than new hip-hop songs on the Billboard 100. And the one guy trying to update the scoreboard, well..., he just could not keep up.
That is what is happening to the West Coast real estate market right now. Before investors and other stakeholders had time to digest the news that Intrawest is 48 hours from receivership and Fortress may not be able to finance the Olympic Village, came a further barrage of negative news.
The Ritz Carlton, developed by Holborn, stopped construction and the sub contractor vacated the premises.
Full story:
http://www.cbc.ca/canada/british-columbia/story/2008/10/21/bc-ritz-carlton.html
Simon Lim of Holborn claims that construction was halted due to the need for design changes. But only about 50% of excavation was complete. And regardless of what they design will be, full excavation is required. Holborn announced that its other project, The Hills, at Nanimo & Kingsway, is on hold.
And news crews barely had time to file reports before they were told that work on the downtown Hilton is also suspended. A second Hilton project is also on hiatus.
In fact, so many projects have ground to a halt, or are now in receivership that we cannot report them all. So we are including a link to an interactive map that CBC has put up. We thank CBC for their work. This map is not complete as it includes only the marquee projects, mostly in central Vancouver.
http://www.cbc.ca/bc/features/construction/
Monday, October 20, 2008
Could the Mighty Casey Strike Out?
The British Columbia real estate market has faced an onslaught of bad news this past six months.
But nothing prepared people in BC for the ominous development with the jewel in the crown that was disclosed today.
Intrawest, the developer and operator behind Whistler, Blackcomb and Panarama, is on the verge of receivership.
Intrawest has a massive debt maturing on Thursday. Fortress, the investment management company, that is the parent of Intrawest, can no longer guarantee the debt. So an attempt is being made to renegotiate the debt with all the banks involved.
The problem is that Intrawest's debt is trading at only 70 cents on the dollar in the debt trading market, so the market does not see Intrawest continuing in its current form. The company will be restructured. It has good assets. But, the new lenders are not likely to allow Intrawest to invest in the operations of its resorts the way it has over the past 20 years. In several Intrawest resorts, there are hundreds of unsold condominiums. We can say, with almost virtual certainty, that this inventory will be sold off, quickly, to raise much needed cash, but at big discounts from today's list prices. We saw this happen a few years back in New Jersey where Intrawest discounted their entire inventory by 25% to sell product.
The restructuring of Intrawest is THE body slam to BC real estate that will cripple it, from both an operational and reputational respect. The body slam is part of the 1-2 count on the way to 3 count. It has not yet been reported broadly, but Fortress plays a key role in the 2010 Olympics. Fortress is financing the $1 billion Olympic Village. And Fortress itself is also in serious financial trouble. Its share value has dropped 80% to just over $5.00. And it holds other real estate investments, not just Intrawest, just require massive restructuring including a large portfolio of real estate in Germany.
With the exception of principal residences, or investment properties that have little debt, we are on the verge of recommending an-accross-the-board sell for all real estate on the Canadian Pacific Coast.
But nothing prepared people in BC for the ominous development with the jewel in the crown that was disclosed today.
Intrawest, the developer and operator behind Whistler, Blackcomb and Panarama, is on the verge of receivership.
Intrawest has a massive debt maturing on Thursday. Fortress, the investment management company, that is the parent of Intrawest, can no longer guarantee the debt. So an attempt is being made to renegotiate the debt with all the banks involved.
The problem is that Intrawest's debt is trading at only 70 cents on the dollar in the debt trading market, so the market does not see Intrawest continuing in its current form. The company will be restructured. It has good assets. But, the new lenders are not likely to allow Intrawest to invest in the operations of its resorts the way it has over the past 20 years. In several Intrawest resorts, there are hundreds of unsold condominiums. We can say, with almost virtual certainty, that this inventory will be sold off, quickly, to raise much needed cash, but at big discounts from today's list prices. We saw this happen a few years back in New Jersey where Intrawest discounted their entire inventory by 25% to sell product.
The restructuring of Intrawest is THE body slam to BC real estate that will cripple it, from both an operational and reputational respect. The body slam is part of the 1-2 count on the way to 3 count. It has not yet been reported broadly, but Fortress plays a key role in the 2010 Olympics. Fortress is financing the $1 billion Olympic Village. And Fortress itself is also in serious financial trouble. Its share value has dropped 80% to just over $5.00. And it holds other real estate investments, not just Intrawest, just require massive restructuring including a large portfolio of real estate in Germany.
With the exception of principal residences, or investment properties that have little debt, we are on the verge of recommending an-accross-the-board sell for all real estate on the Canadian Pacific Coast.
Wednesday, October 15, 2008
The First Nail in the Coffin
The massive Infinity Condominium project in Surrey is now in receivership. Construction was halted in August. On October 8, the receiver padlocked the doors.
Hundreds of buyers, maybe as many as 500 are impacted. The project was supposed to be three or more towers, however only one has been built.
The developer is from South Korea and is facing financing problems at both the individual project level as well as at the holding company level.
Buyers who have placed deposits have their deposits protected, but only the value of the deposit not the promise of a condominium. So someone who placed a $40,000 deposit on a $250,000 condo, has their deposit protected BUT, some people placed deposits as much as 2 1/2 years ago, and the $250,000 condo now costs $400,000, so they could have their deposit returned but no longer afford to be able to buy anything.
The same developer is responsible for the Sky project, also in Surrey. We already know that financing for the Sky project has been pulled, and we predict Sky to go into receivership in a few days.
These two projects were pre-sold 2 or more years ago. There are many more projects pre-sold much more recently, many of these will also be restructured, and with these projects people will be best advised to walk away from their deposits, rather than wait 4-5 years to get potential completion of a condo they purchased for $500,000 but is only worth $250,000.
BTW, the Canadian Real Estate Board (CREB), based in Ottawa, reported yesterday that Greater Vancouver housing sales were down 43.2% in September from a year earlier, while the average sale price dropped 8% to $535,598 over the last year.
The massive Infinity Condominium project in Surrey is now in receivership. Construction was halted in August. On October 8, the receiver padlocked the doors.
Hundreds of buyers, maybe as many as 500 are impacted. The project was supposed to be three or more towers, however only one has been built.
The developer is from South Korea and is facing financing problems at both the individual project level as well as at the holding company level.
Buyers who have placed deposits have their deposits protected, but only the value of the deposit not the promise of a condominium. So someone who placed a $40,000 deposit on a $250,000 condo, has their deposit protected BUT, some people placed deposits as much as 2 1/2 years ago, and the $250,000 condo now costs $400,000, so they could have their deposit returned but no longer afford to be able to buy anything.
The same developer is responsible for the Sky project, also in Surrey. We already know that financing for the Sky project has been pulled, and we predict Sky to go into receivership in a few days.
These two projects were pre-sold 2 or more years ago. There are many more projects pre-sold much more recently, many of these will also be restructured, and with these projects people will be best advised to walk away from their deposits, rather than wait 4-5 years to get potential completion of a condo they purchased for $500,000 but is only worth $250,000.
BTW, the Canadian Real Estate Board (CREB), based in Ottawa, reported yesterday that Greater Vancouver housing sales were down 43.2% in September from a year earlier, while the average sale price dropped 8% to $535,598 over the last year.
Saturday, October 4, 2008
Cash is King and Other Noteable Quotes
Like Dr. Priscepionka, one of my university professors, would say, "the graph is almost impossible to read, but what it shows is really important."So, if you want to better read the graph, click on it. At least our graphs use colours, not like the good doctor's combination of white, grey and black.
What the graph shows are the declines in real estate prices across several major North American markets. A good place to be is near the top and to the far right. The two worst places to be are, at the bottom of the chart since that means your city has experienced the greatest price drops or, to the furthest left of the chart since that means your city is falling faster than those cities to the right.
Which city is that with the fastest falling prices in North America. Oh-oh, that's Vancouver. Yep, the same city that, in the spring of 2008, some experts claimed would experience a 5-9% price increase this year. Now we don't like to say, "we told you so." BUT. We forecast the drop in price. And like Yogi Berra said, "you can look it up." Just scroll down a few blog postings. But even we didn't think the drop would be so far, so quick. But we continue to predict a bottom 25-30% from the top.
There is another quote that we know, "all statistics can be made to lie, and all....." We hope you remember the quote. So lets see what the Real Estate Board of Greater Vancouver (REBGV) says about prices. Again, if you scroll down you will see why I get so annoyed with the way the REBGV reports prices. The REBGV is reporting that prices are down about 6% from their peak, for what the board calls a "benchmark" detached property, whatever that means. What we do know is that the same benchmark property (we think its the same benchmark property) was about $920M earlier this year, then dropped to $808M, and is now $726M. Perhaps the board can't do basic math or maybe there is an eyesight problem. To paraphrase from Gene Hackman to Nathan Lane in The Birdcage "then you need glasses because that is definitely a boy." A drop of about $200M from $920M is a darn sight more than 6%. Actually Hackman also says something about "a darn sight" in the Birdcage.
So as Mr. Rogers might say, "what do we do next boys and girls?" Well, we hoard all our cash. Because cash is king. I don't remember who said that. And we don't go into the water until its safe again.
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