MORTGAGES I Interest-only loans won’t lead to economic chaos, mortgage head says

Sun

OTTAWA — The Canadian market is not about to be flooded with high-risk, cash-poor homeowners, a government official insists.

Karen Kinsley, the Canada Mortgage and Housing Corp.’s president and chief executive officer, spoke with Bank of Canada Governor David Dodge Thursday to convince him a new CMHC insurance program will not lead to economic chaos.

Dodge questioned a CMHC program earlier in the day that allows homeowners to have an interest-only mortgage insured with no down payment.

Kinsley said there’s a misconception that homeowners opting for this type of loan can qualify based on their ability to meet their monthly interest payments only. Kinsley said the CMHC program assesses a homeowners’ ability to meet both its principal and interest payments.

“This program doesn’t change the qualifying criteria,” Kinsley said. “They’ve got to be able to pay the principal and the interest.”

Dodge raised the possibility of spiralling inflation Thursday when asked about the interest-only loan insurance program. Some economists believe that supporting these loans allows homeowners into the market that would not otherwise be able to afford a home.

By spending money on homes and consumer goods rather than a down-payment, some economists suggest the surging demand in the housing market for contractors, supplies and labour will cause dangerous inflation.

“You could make an argument for [inflation],” said Fred Ketchen, director of equities trading at ScotiaMcLeod.

Ketchen said having money in the housing market that would otherwise be put to down-payments could artificially drive up consumer demand in the industry, which would drive up prices.

Kinsley said the CMHC insurance program is not the same as insurance programs offered elsewhere in the world. In some countries, homeowners can receive mortgage insurance based on their ability to make monthly interest payments. The CMHC qualifying process, Kinsley said, is more rigorous.

The CMHC is a Crown corporation that aims to make home ownership attainable to more Canadians.

In this week’s Monetary Policy update, the Bank of Canada suggested the slowdown in the U.S. housing market poses a threat to Canadian exporters. Interest-free loans are popular in the U.S., which raised similar inflation fears among U.S. Federal Reserve officials.

© The Vancouver Sun 2006

 

DEVELOPMENT I Downtown office space is hard to find because it’s more profitable to build residential

Derrick Penner
Sun

The Evergreen building at 1285 West Pender St. is turning out to be an island of enterprise within the oasis of Vancouver’s so-called “resort city.”

Once slated for possible conversion to condominiums by previous owner John Laxton, the Evergreen is being resurrected by its new owner as office space: 81,000 square feet of empty rooms downtown, where the office vacancy rate is plummeting and spaces even half the size are scarce.

Potential tenants are circling.

“We’ve lost so much to residential [development] it has been unbelievable,” said Shawna Rogowski, a research associate in office leasing at the commercial realtor Colliers International. “So now, to gain something back, it’s great.”

By the City of Vancouver’s calculations, residential construction downtown has outpaced office construction since 1981. During the 2001-2005 period, downtown saw almost 12 million square feet of apartment towers built, compared with about five million square feet of office and retail buildings.

The Evergreen’s available office space won’t actually be back in circulation for another year as its new manager, Bentall Real Estate Services LP, refurbishes the interior of the unique Arthur Erickson-designed building.

However, by just being available as ‘Class A’ office space, the Evergreen caused a fractional uptick in Colliers International’s calculation of downtown Vancouver’s Class A office vacancy for the second quarter of 2006.

Representing just a blip in one class, it does nothing to halt the squeeze on city office space.

Colliers estimated downtown’s overall vacancy was at 4.7 per cent in the second quarter, down from 5.4 per cent in the first quarter.

Commercial realtor CB Richard Ellis estimated downtown’s vacancy slightly higher at 6.5 per cent, but their report’s author, senior research analyst Chris Clibbon, wrote that he expects the rate to continue to decline.

“With minimal new supply on the horizon, landlords find themselves in an enviable position,” Clibbon wrote. Companies, he predicted, will continue to move “back office” work to less-expensive suburban locations.

However, Vancouver’s Broadway corridor has an even lower office vacancy rate, at four per cent, according to the CBRE report. And rising rents in the district are inducing “sticker shock” among some potential tenants.

That pushes companies out even further. Burnaby has more availability, with 7.6 per cent vacancy, according to the CBRE report. Richmond’s availability, in a relative sense, is higher at 15.6 per cent, although its 3.2 million square feet of total office space is dwarfed by the 22 million square feet in downtown Vancouver.

In Surrey, the overall office vacancy rate is 18 per cent. In New Westminster it is 23.5 per cent.

Tony Astles, senior vice-president of Bentall Real Estate Services, said that for downtown Vancouver, any relief to the constraint in supply is still a long way off.

“[Vancouver is] not as tight as the Calgary market, but [office availability] has been on a steady decline for several years. At the same time, there has been an increasing amount of demand,” Astles said.

Bentall is managing the Evergreen building on behalf of the British Columbia Investment Management Corp., manager of the province’s public-sector pension funds.

Bentall, on behalf of another pension-fund client, is also in the process of completing one of the last purpose-built office towers to be built in the city, the 33-storey Bentall 5 on Burrard St.

Astles said the company used a “vertical phasing process” as a way of reducing the long timeframe for bringing a building to market.

The building’s second phase will bring 238,000 square feet onto the market, however Colliers’ Rogowski said much of that space has already been leased. Astles doesn’t believe Vancouver will see another purpose-built office tower until 2010 or 2011.

That is largely because condominium towers have offered landowners greater profits.

As a result, some old office buildings, such as the old B.C. Electric Building at Burrard and Nelson, were converted into condominiums, or saw office development mixed in with large components of residential construction, such as the Shaw Tower at Coal Harbour and the Hudson on Granville at Dunsmuir.

“Any site competes for use, and if you want to acquire a site, you have to be planning the highest and best use,” he added. If residential development offers investors a higher return, the best use winds up being condominiums.

In a broad sense, Astles added that no one disputes the benefits Vancouver has earned from building a strong downtown population. The city is a more vibrant place.

“Should we have saved some [land] for offices? Looking back with a bit of hindsight, maybe it would have been a good idea,” Astles said. “Looking forward, we’d better find ways to facilitate office development.”

Michael Gordon, senior planner for major downtown development for Vancouver, noted that there had been significant office development in the city. The Shaw Tower, with 278,400 square feet of commercial space, has more offices than condominiums.

Gordon said that of the almost five million square feet of non-residential construction downtown since 2000, almost 1.9 million has been office space.

The next significant downtown office on record with the city will be in the Jameson House building being developed at 830 West Hastings St., which will include 86,000 square feet of working space.

Gordon said the city is trying to make sure it provides for future office development, which is one of the reasons it has launched what it is calling a Metropolitan Core Jobs and Economic Review.

While opportunities to build offices downtown are limited, Gordon said, they do exist on Port of Vancouver lands along the Burrard Inlet waterfront, as well as to the east of Seymour St. The city’s goal is to make sure there are enough sites to last 25 to 30 years.

He hinted that the city has also been approached by developers interested in building new office space downtown.

“I would expect that in the next year or so, we would be entertaining a major development application,” Gordon said. “We’ll see a major new office building go into downtown.”

© The Vancouver Sun 2006

 

But that’s after he sells Shangri-La units

Malcolm Parry
Sun

Bob Rennie, the condo-sales whirlwind, and developer Ian Gillespie will spend today interviewing candidates to sell units in the Shangri-La project.

That’s not our 60-floor Shangri-La, which is already rising above ground at Georgia and Thurlow Street. It’s the 68-floor successor Westbank Projects principal Gillespie and frequent partner Ben Yeung’s city-based Peterson Investment Group will build at University and Adelaide Street in Toronto.

Rennie will hurry home from Hogtown to attend to several projects here.

They include Gillespie and Yeung’s the Estates at Fairmont Pacific Rim, a 173-unit, downtown-waterfront condominium complex in which buyers are paying $2,100 per square foot for what Rennie calls “the front-row seats.”

By that, he means the “full-on, water-facing” units, one of which Rennie has sold to himself. He and partner Carey Fouks will occupy it after vacating their austerely chic concrete-and-glass pad near Granville Island.

As for his other sales activities, Rennie told Wall Financial Corp. head Peter Wall this week: “Basically, I’m employed until the Olympics.”

For Wall and nephew Bruno, he’s selling downtown’s “most affordable” opposite to the flossy Fairmont complex. It’s a 112-unit former rental property at 1010 Howe St. the Walls are converting to $299,000 condos, plus eight higher-priced penthouses.

“Peter knows he can never duplicate this,” Rennie said of 1010 Howe. “But he’s going to try when he launches the Capitol this fall.”

That’s a 350-unit condo complex on the old Capitol Six movie-theatre site, where condo prices should begin around $300,000.

Rennie is also selling Wall Centre Richmond’s 285 condo units. That’s a $175-million, two-tower complex at No. 3 Road and Sea Island Way, which will include a Westin hotel.

After that, in spring 2007, there’ll be 350 or more units to offer in a $200-million, four-building complex the Walls will build on False Creek south.

Rennie will literally work both sides of the street when that project launches. He’ll also sell the 800 units when Peter and Shahram Malek’s Millennium Group begins its $500-million-range Olympic Village project in the fall of next year. That’s the 2.5-hectare site for which the Maleks paid $193 million.

Meanwhile, Rennie is on to the 140-unit second phase of Millennium’s One Madison Avenue at Lougheed Highway and Dawson in Burnaby, where prices average $475,000. And, with prices 21/2 times higher, he’s wrapping up his smallest project — the Maleks’ 79-unit Water’s Edge complex on West Vancouver’s old Park Royal Hotel site.

On downtown Hastings Street, where he moved the Woodward’s redevelopment project’s 536 units in one day, Rennie is taking longer with Tom and Tony Pappajohn’s 132-unit Jameson House, where prices are breaking $1,000 a foot. He’s sold two-thirds of developer Andrew Grant’s Cambie-and-Broadway Crossroads project’s 88 units in two months. And for Riverport developer Brent Kerr, he’s handling another Richmond project — the 144-unit Waterstone Pier, which he said is “eight metres from the water” at Steveston Highway’s eastern end.

With all this, and his habitual purchase of condo units, you’d think Rennie might do some developing himself. “Then I’d lose all my friends,” he said jumping into the grey-green 2005 Bentley Continental coupe he used to call his “dinner car.”

Turns out, that’s on the block, too. A brown 2007 successor is due any day.

– – –

Simon Lim says he’s ready to replace a West Georgia Street eyesore with an Arthur Erickson-designed tower that may rival the architect’s iconic MacMillan-Bloedel building a block away at Thurlow Street.

City hall turned down Lim’s first proposal for the site, but acquiesced when Erickson penned a building that twists 45 degrees in the 600 feet between sidewalk and summit.

That feature reflects the project’s twisted history. The site still contains the gutted skeleton of the old Shell Oil building that was to have become the Newport City Country & Club until that Hong Kong-based project collapsed in 1995.

After the usual reworking, Erickson’s reputedly costly design went through its sixth and final revision — window mullions and structure — in late June, and is now a go, Lim said.

Although the Ritz-Carlton hotel chain should announce its participation in the project momentarily, Lim remains mum. Meanwhile, he has acquired the Bay Parkade and Salvation Army hostel buildings, and is “talking” with architect Richard Henriquez about triple-use development of the Seymour-and-Dunsmuir sites.

No word on a time frame. “I don’t want to put the city’s knickers in a knot, like Greg Kerfoot,” Lim said. He was referring to the Vancouver Whitecaps soccer team owner’s proposed $65-million, downtown-waterfront stadium, which caused considerable foofaraw before council gave it unanimous but conditional approval Tuesday.

As for Vancouver’s continuing building and property-values boom, Lim sees it long beyond the 2010 talisman date. Picking a lucky number for Chinese, he said: “We’re talking about the 2028 Olympics — and then the crash.”

– – –

Shelley Gillen’s leading-lady looks could have her acting in big-screen movies and small-screen series instead of finding money for them.

But the head of creative affairs at Corus Entertainment’s Movie Central pay-TV network will likely stick to that financing job.

Gillen and other Movie Central managers will allocate $23 million this year and $25 million in 2007 to support theatrical-release films and, increasingly, non-theatrical movies and original dramatic series.

Locals appreciate her saving them the cost of “a $5,000 cup coffee,” by which she means what it costs a West-Coast independent moviemaker to pitch his or her project in Toronto.

She also pushes hard for still-unknown moviemakers in whom she sees potential.

City-based Anagram Pictures found that out when she went to bat for Fido director Andrew Currie’s first movie, Mile Zero, and Trent Carlson’s subsequently feted The Delicate Art of Parking. So did Karl Besai for Johnny and later films. And she helped steer Angus Fraser’s Victoria-shot Terminal City into a widely lauded story divided into 10 one-hour segments.

As well as the appearance, she’s got the professional background to play numerous screen characters.

Gillen could be the hard-nosed reporter she was at the Toronto Sun, where she learned “you could always get stories about murder or bashing [late prime minister Pierre Elliott] Trudeau on page 2, opposite the Sunshine Girl.”

She could reprise her real-life role as a songwriter whose charted Ricky was about “a murdered hooker and a guy who recognized her as a girl he’d gone to school with.”

She could be the sculptor who studied at Michigan’s Interlochen Arts Academy. Or the equestrian gymkhana competitor who was rocketed off the back of pinto pony Orbit 40 times the day her dad brought that cranky little horse home.

“But I kept getting back on and getting back on and getting back on,” Gillen said. Not long later, she was soaring over high rails aboard a more compliant and considerably bigger white horse named Beauty.

She figures Canuck moviemakers and pay-TV operators like Movie Central can also aim high.

“We can rival [U.S. giant] HBO with world-class original programming in Canada,” Gillen said, claiming shows like Terminal City, ReGenesis and Slings and Arrows are heading in the direction of The Sopranos, Six Feet Under and other HBO blockbusters.

“The level of craft, the lighting, the performing is all feature-film quality [and] pay TV is where all the top writers will want to go” Gillen said. As pertinently, “Its viewership is so much bigger than for Canadian feature films, and pay TV allows feature filmmakers access to that viewership.”

© The Vancouver Sun 2006