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/
Wednesday, October 22, 2008
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.
Monday, September 15, 2008
Vancouver Real Estate Board's Poor Disclosure
For the second consecutive month, the Vancouver Real Estate Board released different sales figures locally, then it reported to the Canadian Real Estate Board.
In August 2008, the Vancouver Real Estate board reported locally that average prices in its market area were up only about 2% year-over-year.
However, the same board reported to the national association that prices were down 5% year-over-year to $557,114.
When reporting locally the Vancouver Board has been consistently over-reporting sales prices for going on six months. The over-reporting appears to be an attempt to make the collapse of the local market not appear as bad as it is. It is an effort to inflate prices and does not make for efficient markets. Proper reporting is necessary for sellers to correctly price product, for sellers to make informed offers and to assist other market participants such as banks.
The Vancouver real estate market is in a tailspin. It is not a correction nor a return to normal levels. It is a bear market with prices falling daily.
For the second consecutive month, the Vancouver Real Estate Board released different sales figures locally, then it reported to the Canadian Real Estate Board.
In August 2008, the Vancouver Real Estate board reported locally that average prices in its market area were up only about 2% year-over-year.
However, the same board reported to the national association that prices were down 5% year-over-year to $557,114.
When reporting locally the Vancouver Board has been consistently over-reporting sales prices for going on six months. The over-reporting appears to be an attempt to make the collapse of the local market not appear as bad as it is. It is an effort to inflate prices and does not make for efficient markets. Proper reporting is necessary for sellers to correctly price product, for sellers to make informed offers and to assist other market participants such as banks.
The Vancouver real estate market is in a tailspin. It is not a correction nor a return to normal levels. It is a bear market with prices falling daily.
Wednesday, September 3, 2008
Collapse Deepens and Accelerates
The Real Estate Board of Greater Vancouver (REBGV) reported today that residential property sales in Greater Vancouver totalled 1,568 in August 2008, a decline of 53.7% from the 3,384 sales in August 2007, and a 47.7% reduction from the 2,998 sales recorded in August 2006.
REBGV uses so many different standards to measure average prices that, month-to-month and even year-to-year, comparisons are difficult. However for the past three to five months, prices in virtually ever category are down about 4-12%. For instance, a single-family, detached house selling for $921,000 some five months ago is now selling for $808,000, a drop of 12%. And, on a year-to-year basis, real prices are down about 1% overall, but some categories have fallen near 10%, particularly in suburban areas.
Once September's numbers are in, we are projecting the first year-over-year decline in nominal residential property prices in Vancouver since 2001.
With respect to sales levels, a year-over-year decline of 50% is even greater than what we projected. Sales are now so low that it would take almost a year to sell just the properties listed for sale in August.
REBGV uses so many different standards to measure average prices that, month-to-month and even year-to-year, comparisons are difficult. However for the past three to five months, prices in virtually ever category are down about 4-12%. For instance, a single-family, detached house selling for $921,000 some five months ago is now selling for $808,000, a drop of 12%. And, on a year-to-year basis, real prices are down about 1% overall, but some categories have fallen near 10%, particularly in suburban areas.
Once September's numbers are in, we are projecting the first year-over-year decline in nominal residential property prices in Vancouver since 2001.
With respect to sales levels, a year-over-year decline of 50% is even greater than what we projected. Sales are now so low that it would take almost a year to sell just the properties listed for sale in August.
Monday, September 1, 2008
Ominous News for Vancouver Real Estate
The Brilla is a strata development on West 4th Ave at Alma in Vancouver. The project was pre-sold in 2006 and was completed soon after. The project appears to have been planed as a 30-unit development, but was scaled back to 22 units.
The developer is the Toyu Group out of Richmond. Toyu is privately owned and does not appear to issue financial or other reports.
Brilla appears to have been placed in receivership, or the equivalent, with at least 6 units unsold. This development is in a prime location with excellent quality. For this type of development to fail to sell out is highly unusual, or it used to be, in Vancouver. Of the remaining units, 1-bedrooms are listing for $419,000 which, we understand, is about 10% less than what the developer was offering them for sale last fall. The developer prices were firm, the offer prices are soft.
We do not know if Brilla's status reflects any risk with the developer Toyu Group. Based on our experience, we recommend any buyers who have contracts with other Toyu under-construction projects to assume their contracts and any downpayments are at risk.
Toyu is not the only condo/strata project unable to sell units in Vancouver. In the same neighborhood, construction has stopped at the Viridian project under the direction of Larc Developments. Again, Larc is privately owned and public disclosure is non-existent. We believe that Viridian will be placed into receivership, or the equivalent, shortly. Contracts and downpayments for Viridian product is at risk.
There is yet another strata development that has been completed that may shortly be placed in receivership in the same neighborhood. Again, it is a small project with near 30% of its inventory unsold a year after completion.
There are three stages in a declining market, each one creating more risk and indicating a sharper downward trend than the previous. The first stage is a growing resale inventory with reduced sales & prices. Stage one started in Vancouver in early spring of this year. Recent buyers who lose the ability to make their mortgage payments and speculators start taking financial hits. The second stage of a declining market are developments being placed in receivership. That stage started in the past two weeks. Builders, contractors and late-to-the cycle or even medium term buyers start taking hits. Speculators cash out, some at a loss. The third stage are owners and buyers walking away from contracts and giving up downpayments/deposits/negative equity in order to protect their total financial wealth. Stage three becomes most public as a result of power-of-sale signs, and large holes in the ground with "To be Completed" signs with dates two years ago. Once the third stage commences, the bottom of the market can usually be predicted to level off with a trough of a 25-35% decline from the top. In stage three everyone takes a haircut, except the lawyers and the restructuring experts.
We recommend than buyers of not yet completed construction projects in Vancouver consider ways to protect their deposits and downpayments which may now be at risk.
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