Vancouver Condo Auctions
Over the past 2 weeks, at least two condo developers have put condo developments for sale under auction.
The problem with auction type sales is the absence of full disclosure. Now 10 days after one auction has taken place, the problem is that the developer will not disclose the status of the auction. All we know is that far less than 50% of the units to be sold, under a so-called Dutch Auction method, were sold, for prices 25-40% less than list price.
We seldom recommend buying using the auction process because it is so difficult to know the details of each sale. For instance if the developer sells a condo under auction that was never pre-sold, the buyer has 10 days to back out of the contract. But if the developer sells a condo that he has taken back from a buyer, then it is a resale and the buyer can't back out. In addition, when units are auctioned, they are often "made-up" meaning that high end appliances, electronics etc are placed in the unit, but when the transaction closes, regular appliances show up. Often the auction contract will simply state "stove, fridge, washer/dryer" making it impossible to get recourse.
We are very focused on proper disclosure in contracts. And of proper disclosure of market conditions. In one Vancouver development, the developer is bragging that he is still getting sales despite not lowering prices. What was not disclosed is that for every unit now being sold, he is now throwing in a $70,000 2009 Mercedes SUV!
Friday, January 23, 2009
Saturday, January 10, 2009
Athletes Village Profile
On November 9th, 2008, we made recommendations to pass on condo purchases at the Vancouver Olympic Athlete's Village.
http://canadapacificrealestate.blogspot.com/2008/11/impact-of-athletes-village-on-market.html
Today, one local newspaper ran a headline that the City of Vancouver might be on the hook for $1billion in backstops to the athlete's village. The headline is very deceiving. If the city does have to provide $1 billion in credit back-up to the village, it would realize or end up owning the entire project, which would likely be worth somewhere between $600 million to $750 million. The city would have to sell off the assets to recover cash, and there would be a shortfall which might creep up to $400 million. And there would likely be some sort of work-out take place in which an additional building becomes not-for-profit housing, and another building becomes a condo-hotel.
In the meantime, there are virtually no reported sales at the village construction site. We did do a site visit this week. Our only concern is the absence of infrastructure improvement in the area: no school capacity increases, an absence of parking, no additional policing plans etc.
We continue to recommend passing on the project.
http://canadapacificrealestate.blogspot.com/2008/11/impact-of-athletes-village-on-market.html
Today, one local newspaper ran a headline that the City of Vancouver might be on the hook for $1billion in backstops to the athlete's village. The headline is very deceiving. If the city does have to provide $1 billion in credit back-up to the village, it would realize or end up owning the entire project, which would likely be worth somewhere between $600 million to $750 million. The city would have to sell off the assets to recover cash, and there would be a shortfall which might creep up to $400 million. And there would likely be some sort of work-out take place in which an additional building becomes not-for-profit housing, and another building becomes a condo-hotel.
In the meantime, there are virtually no reported sales at the village construction site. We did do a site visit this week. Our only concern is the absence of infrastructure improvement in the area: no school capacity increases, an absence of parking, no additional policing plans etc.
We continue to recommend passing on the project.
Tuesday, January 6, 2009
Collateral Damage
Once investors start to walk away from their real estate investments, developers start to mitigate losses by cancelling projects.
Unfortunately, because of public/private joint infrastructure initiatives, when developers cancel or restructure projects, public infrastructure can be impacted. Its called collateral damage.
Richmond's huge Sun Tech City project and the proposed Capstan Way Canada Line station are now in jeopardy as Richmond council prepares to vote on whether to shelve the 16-tower development. These 16 towers were supposed to provide housing for 4,000 people, community centers and additional social housing.
A city staff report says the developers, Pinnacle International and Concord Pacific, have not lived up to their end of a deal in which they would help finance the additional Canada Line Station.
If investors have made investment decisions based on proposed improvements to local infrastructure paid for by new developments they need to check for changes to the developments and possible fallout.
Unfortunately, because of public/private joint infrastructure initiatives, when developers cancel or restructure projects, public infrastructure can be impacted. Its called collateral damage.
Richmond's huge Sun Tech City project and the proposed Capstan Way Canada Line station are now in jeopardy as Richmond council prepares to vote on whether to shelve the 16-tower development. These 16 towers were supposed to provide housing for 4,000 people, community centers and additional social housing.
A city staff report says the developers, Pinnacle International and Concord Pacific, have not lived up to their end of a deal in which they would help finance the additional Canada Line Station.
If investors have made investment decisions based on proposed improvements to local infrastructure paid for by new developments they need to check for changes to the developments and possible fallout.
Saturday, December 20, 2008
Cross Canada Check Up
The Canadian real estate market is in a slump from coast to coast.
The average price of a home is down about 10% year-over-year from $310M to $282M.
Sales are down about 12%.
However, the results are not equal across the country. Seven out of ten provinces have actually had price increases year-over-year, Saskactewan, Manitoba, Quebec and the Atlantic provinces. Prices are only down in B.C., Alberta and Ontario.
With those markets where sales and prices are down the most, statistics are not uniform across the province. In Ontario prices are up in Ottawa despite being down in Toronto and Hamilton. In Alberta, prices are only off slightly in Edmonton but are down sharply in Calgary.
However, the BC market is a story unto itself. Sales are off 70%, by far the greatest decline in the country, and prices are down 12% across the board, in all markets.
Despite Canada having such a small population and not having the dominant one city profile that say England, with London, or France, with Paris, exhibits, Canada is experiencing another one of those sharp regional housing price fluctuations it has faced in the past. For instance, someone who sold the average house in Vancouver last December for $577M, and purchased in Ottawa for $271M, would today be ahead by $100M in just 12 months. But someone who sold in Winnipeg for $179M and bought in Victoria would have fallen behind by $80M. Those are huge regional swings, especially because they are in after-tax dollars.
Housing is always a local issue, national numbers are really only soft indicators and can't be used to predict much. Looking at the national numbers however, does led to some questions of price stability in Alberta and B.C. given the drop in oil prices and that B.C. still has lots of room for price to fall further.
The Canadian real estate market is in a slump from coast to coast.
The average price of a home is down about 10% year-over-year from $310M to $282M.
Sales are down about 12%.
However, the results are not equal across the country. Seven out of ten provinces have actually had price increases year-over-year, Saskactewan, Manitoba, Quebec and the Atlantic provinces. Prices are only down in B.C., Alberta and Ontario.
With those markets where sales and prices are down the most, statistics are not uniform across the province. In Ontario prices are up in Ottawa despite being down in Toronto and Hamilton. In Alberta, prices are only off slightly in Edmonton but are down sharply in Calgary.
However, the BC market is a story unto itself. Sales are off 70%, by far the greatest decline in the country, and prices are down 12% across the board, in all markets.
Despite Canada having such a small population and not having the dominant one city profile that say England, with London, or France, with Paris, exhibits, Canada is experiencing another one of those sharp regional housing price fluctuations it has faced in the past. For instance, someone who sold the average house in Vancouver last December for $577M, and purchased in Ottawa for $271M, would today be ahead by $100M in just 12 months. But someone who sold in Winnipeg for $179M and bought in Victoria would have fallen behind by $80M. Those are huge regional swings, especially because they are in after-tax dollars.
Housing is always a local issue, national numbers are really only soft indicators and can't be used to predict much. Looking at the national numbers however, does led to some questions of price stability in Alberta and B.C. given the drop in oil prices and that B.C. still has lots of room for price to fall further.
Tuesday, December 16, 2008
The Final Stage Has Begun
On September 1, 2008, we reported that the West Coast market was primed for the final stage of a real estate collapse. That stage occurs when buyers start walking away from sales contracts, foregoing the deposits they made.
That stage is now well underway. In fact, so many buyers are now walking away from sales contracts, that some developments are going into receivership. The H&H condo in Yaletown has been placed in receivership for a number of reasons, including the fact that at least 15 buyers have walked away from their deposits and sales contracts.
A condo development that goes into receivership with a portfolio of buyers walking away from deposits can be a very long term work out, taking from 2-4 years. A market with buyers walking away from sales contracts can take anywhere from 4-10 years to recover. In the meantime prices are certain to drop by 25-35%, sometimes 40% in the case of cookie-cutter type condos in suburban locations.
There are legitimate business reasons to walk away from sales contracts. Developers can sue to recover damages and there are very simple ways for both buyers and developers to mitigate losses. Developers will try to enforce sales contracts, however if the developer is late delivering the product, the buyer cannot meet the financial requirements of closing, or the buyer has no assets in the legal jurisdiction, it is very difficult for the developer to get and enforce judgement in their favour.
Walking away from a deposit is something that depends on an individual's unique profile, the sales contract and the status of the development. We do not recommend that someone simply walk away from a deposit because market prices have changed, however there are times where an individual buyer is best to walk away from a deposit if the completion of the project is in question.
On September 1, 2008, we reported that the West Coast market was primed for the final stage of a real estate collapse. That stage occurs when buyers start walking away from sales contracts, foregoing the deposits they made.
That stage is now well underway. In fact, so many buyers are now walking away from sales contracts, that some developments are going into receivership. The H&H condo in Yaletown has been placed in receivership for a number of reasons, including the fact that at least 15 buyers have walked away from their deposits and sales contracts.
A condo development that goes into receivership with a portfolio of buyers walking away from deposits can be a very long term work out, taking from 2-4 years. A market with buyers walking away from sales contracts can take anywhere from 4-10 years to recover. In the meantime prices are certain to drop by 25-35%, sometimes 40% in the case of cookie-cutter type condos in suburban locations.
There are legitimate business reasons to walk away from sales contracts. Developers can sue to recover damages and there are very simple ways for both buyers and developers to mitigate losses. Developers will try to enforce sales contracts, however if the developer is late delivering the product, the buyer cannot meet the financial requirements of closing, or the buyer has no assets in the legal jurisdiction, it is very difficult for the developer to get and enforce judgement in their favour.
Walking away from a deposit is something that depends on an individual's unique profile, the sales contract and the status of the development. We do not recommend that someone simply walk away from a deposit because market prices have changed, however there are times where an individual buyer is best to walk away from a deposit if the completion of the project is in question.
Friday, December 5, 2008
Risks to Recreational Real Estate Purchases
The market for recreational real estate in Canada is at its slowest in a generation.
The four key markets for recreational real estate in Canada are the Laurentiens in Quebec, the Muskoka and Haliburton regions in Ontario, and the interior of British Columbia (including Whistler).
Two of those markets were impacted by very negative news this week.
The anchor of the Laurentians is arguable the resort of Mt. Tremblant which includes the towns of Mt. Tremblant and St. Jovite. The massive billion dollar Versant Soliel project at the Tremblant resort has a ground to a halt and is now several years behind schedule. It was to be followed by a north side project which is no longer on the drawing board. A slowdown at Mt. Tremblant would have devastating effects on the local economy and on real estate investments. Already there are literally thousands of recreational units available, several years of supply and prices are down 25-35% since peaking between 2003-2005.
In British Columbia, the crown jewels of Whistler, Blackcomb and Panarama were already having to contend with parent organization Intrawest being required to suspend investments in the resorts in order to pay higher interest charges on bank debt. Now comes news that Intrawest's parent Fortress Investment Group being close to bankruptcy, and this week suspended redemptions in its largest hedge fund. Fortress has seen its share price drop from about $20 to $1.76. We believe that Whistler, Blackcomb and Panarama are all excellent, stand alone operations, unfortunately they may to liquidate their real estate assets at fire sale prices in order to keep their parent companies afloat.
The four key markets for recreational real estate in Canada are the Laurentiens in Quebec, the Muskoka and Haliburton regions in Ontario, and the interior of British Columbia (including Whistler).
Two of those markets were impacted by very negative news this week.
The anchor of the Laurentians is arguable the resort of Mt. Tremblant which includes the towns of Mt. Tremblant and St. Jovite. The massive billion dollar Versant Soliel project at the Tremblant resort has a ground to a halt and is now several years behind schedule. It was to be followed by a north side project which is no longer on the drawing board. A slowdown at Mt. Tremblant would have devastating effects on the local economy and on real estate investments. Already there are literally thousands of recreational units available, several years of supply and prices are down 25-35% since peaking between 2003-2005.
In British Columbia, the crown jewels of Whistler, Blackcomb and Panarama were already having to contend with parent organization Intrawest being required to suspend investments in the resorts in order to pay higher interest charges on bank debt. Now comes news that Intrawest's parent Fortress Investment Group being close to bankruptcy, and this week suspended redemptions in its largest hedge fund. Fortress has seen its share price drop from about $20 to $1.76. We believe that Whistler, Blackcomb and Panarama are all excellent, stand alone operations, unfortunately they may to liquidate their real estate assets at fire sale prices in order to keep their parent companies afloat.
Tuesday, December 2, 2008
Where Were You When the Boat Tipped Over?
The people who depend on the real estate market in Vancouver will remember November, 2008 as the month that they threw in the towel, walked away, and started over.
Year-over-year sales dropped by 70%, the biggest drop in market history. In fact, sales levels are now below levels seen more than an entire generation ago, more than 24 years in the past. Many, many local neighborhoods simply have no sales to report.
Price declines are massive. The Greater Vancouver Real Estate Board (GVREB) reports that the "benchmark" price across all categories is now $495M, down from somewhere above $568M in May, 2008. This report is illusory, designed to create the impression that prices are down only about 12% since they peaked in May, 2008. However, prices actually peaked in March, 2008. And GVREB was not reporting "benchmark" prices for all categories in March, 2008, but was relying on, and reporting the "benchmark" price for single, detached homes.
As a result, a much better example of how much prices have fallen is to compare the "benchmark" price of a single detached property, which the GVREB reported was $921,000 in March, 2008, to today's "benchmark" for a detached property which GVREB reports as $666,525, a decline of 28% since the market peaked.
Sales levels are so low right now it is actually impossible to do a proper statistical analysis of the decline in price, by category and neighborhood, over what has now become an almost two year price drop. It is only possible to point to anecdote examples of product. For instance one condo we know that maxed out at about $480M is now listing for about $350M, a drop of 28%.
Sales are so slow that many sellers have simply let listings expire so that they do not have to keep their house in "best form" in case they might get a showing.
Earlier this year we predicted a price decline of 25%. That price decline has now been met and surpassed. We adjusted our prediction to 25-30% drop. We are now adjusting to 30-35% and believe that we are being conservative.
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