Financing a purchase in Canada still easier than in the U.S., expert says

John Morrissy
Sun

Canada‘s commercial real estate sector faces “very trying times” that will send owners into creditor protection as the market corrects from overblown valuations during the last cycle, PricewaterhouseCoopers warned in a report Monday.

“We’re very pessimistic, and we think there are going to be big issues in the Canadian real estate market,” Holly Allen, managing director for PwC’s real estate practice in Canada, said in an interview.

“We think there are going to be foreclosures and default situations on some of the buildings.”

Allen said Alberta is particularly vulnerable, due to an oversupply of product and weak demand driven by tumbling prices for natural gas, which constitutes a significant portion of the province’s energy industry. Further pressuring the industry as a whole has been the collapse of the commercial mortgage-backed securities.

“The credit crisis and ensuing recession have dragged commercial real estate markets into very trying times, marked by value losses, rising foreclosures, and reduced property revenues,” Frank Magliocco, leader of PwC’s real estate practice in Canada, said in the report.

“Owners need to … immediately identify what options are available to overcome inevitable refinancing hurdles,” said Magliocco. “In some cases, a formal restructuring process, equity injection or other non-traditional strategy may be beneficial.”

The report identified hotel and leisure properties, and suburban office and industrial space as pockets of weakness. It also said properties in secondary markets and small- to medium-size strip malls are at greater risk than properties in large urban centres or iconic mall space.

Without putting a number on it, PwC said “a large cohort” of commercial real estate renters are facing “significant financial or operational challenges.”

Yet at the same time, the cost of capital has gone up, while access to that capital has diminished, Allen said. In the past, lenders would be willing to finance up to 85 per cent of the property’s value. Now they will finance 60 to 65 per cent of a property’s value, forcing borrowers seeking refinancing to make up the difference. And they’re charging a higher interest rate to do so.

Still, the situation in Canada is nowhere near as desperate as in the U.S., where shoddy lending practices have created a “huge problem,” said Earl Sweet, managing director for economic research for BMO Capital Markets.

It is now almost impossible for property owners south of the border to secure new financing once existing financing matures, Sweet said.

In many cases, that means being forced to sell properties at below-market values and has led to a 40-per-cent collapse in prices since the market’s peak in mid-2007.

Canada, however, doesn’t have the history of lax lending practices that put the froth into the U.S. market and later helped bring it down. As well, the sector’s past two decades have been marked by extremely cautious investing since the debt-ridden bust the Reichmann family’s Olympia & York in the early 1990s.

“I wouldn’t agree that it’s a dire situation,” Sweet said. “Will there be a default? Will there be a foreclosure? Sure, there are going to be some. There always are.”But is there going to be a massive flood of them like in the U.S.? No.”

© Copyright (c) The Vancouver Sun

Jean Swanson
Sun

How many of you know that the B.C. government has a $250 -million Housing Endowment Fund sitting in a bank collecting a measly $10 million or so a year in interest? And did you know that the government is refusing to spend this money (except for the interest) on housing for homeless people? How many of you know that it would cost the province about $33 million a year less to provide housing and supports for homeless people than to leave them on the streets? If you don’t know all this, you can be forgiven. But the government can’t. It funded the Simon Fraser study that tells them this fact.

My lawyer friend tells me that the provincial government could easily pass an act converting the Housing Endowment Fund to cash. That cash could build about 1,250 units of housing outright or provide a down payment on enough housing to make a serious dent in homelessness. If the government built this housing, jobs would be created to help with the recession. Vulnerable and sick people could have stable, even nice lives. Businesses and residents who don’t like homeless people in their areas would be happy. And taxpayers would save money. To me this seems like a win, win, win, win.

So my question is: What is stopping the province from using the Housing Endowment Fund to build housing for homeless people now?

I know what they’ll say. First, they’ll say, “We’ve bought hundreds of hotel rooms.” But those hotel rooms, while better than nothing, were mostly full when they were purchased. They are not additional housing. And they are still one tiny room with a shared bathroom down the hall and no private kitchen.

Then they’ll say, “We’re building housing on 14 sites in Vancouver.” True, 12 of these sites have been bragged about since 2007. But shovels have only gone into the ground at two. Housing for the homeless is not as great a priority as Olympic venues are. One of the projects that has finally begun is at 1005 Station St. in the Downtown Eastside. The province cancelled that one back in 2001 and has now revived it. And, at least six of the 14 sites don’t even have committed funding.

Then the province might say it can’t build the needed housing because it is in a financial crunch because of the recession. But I would think that would give them an extra reason to save the $33 million a year that could be saved by building the housing, especially if they use the HEF, which is just sitting there.

If the 14 sites are built in Vancouver, that will be about 1,400 units of housing. About 8,000 to 15,500 people with illness and addictions are living on the streets or in shelters throughout the province.

Jean Swanson is a community activist in Vancouver.

© Copyright (c) The Vancouver Sun

They’re out to show smaller is better

LENA SIN
Province

Live smaller, greener and more fabulously.

For business partners Bryn Davidson and Mat Turner, that’s not just some hokey mantra, but an actual way of living that they hope to spread through Lanefab, their new laneway housing company.

“As a general rule, people are able to live in a lot less space than they think they can. So what we’d like to do is provide elegant, small-space dwellings — and that comes from living in one, not a theoretical point of view,” says Davidson.

Indeed, both Davidson and Turner understand what it means to live in small spaces.

Davidson and his wife live in a 360-square-foot East Vancouver condo while Turner and his wife have downgraded from a 3,000-sq.-ft. church conversion home in Fort Langley to a 700-sq.-ft. condo in Vancouver.

Both say smaller is better and are now applying their real-world experience to building small yet efficient laneway houses.

The laneway phenomenon has already been tried in cities such as Toronto and Maple Ridge, but has only recently hit Vancouver with city council unanimously approving the bylaw on July 28.

The new bylaw allows garages of single-family residences to be replaced by free-standing suites, or so-called “garden cottages.”

Properties with a minimum width of 33 feet are eligible to build a 500-square-foot home, while larger properties can have a maximum 750-square-foot laneway house.

Turner, a builder and carpenter by trade, and Davidson, who has degrees in engineering and architecture, teamed up a year ago to start Lanefab in anticipation of this shift to small-scale living aimed at keeping families together and increasing the city’s rental stock.

Lanefab is now offering prefabricated, custom homes that vary in size from 450 sq. ft. to 750 sq. ft.

The “prefab” part refers to the walls and roof, which are made of structural insulated panels (SIPS) and constructed off-site. Everything else is built on site and clients have the option of customizing homes or choosing between several models, complete with appliances.

Davidson modelled the Lanefab designs on his own micro condo.

“We thought at first this was ridiculous, we could never live in it — but then we saw the price was for under $200,000,” laughs Davidson. “So we went home and I drew up some designs and started thinking this could work.”

To save space, the couple installed a projector in the ceiling and a pull-down movie screen. And instead of a murphy bed, Davidson designed a raised “pod” bed with a clearance of four feet between the mattress and ceiling and ample storage underneath – a style that’s reproduced in some Lanefab models.

Lanefab kitchens are also modelled on Davidson’s own, which has quartz countertops and stock kitchen cabinets that were finished with baltic birch wood faces.

While space maximization was key to Davidson’s designs, both he and Turner also share a passion for green living without sacrificing affordability. The use of triple-glazed windows and structural insulated panels, which provides three times the insulation compared to regular walls, means heating and cooling costs are kept low. Lanefab homes also feature green roofs and rainwater capture for landscaping.

“We have a lot of built-in efficiencies and that’s how we’re able to keep costs down,” says Turner. “I wanted this to be available to a wide range of people.”

The company can also help homeowners upgrade efficiencies in their existing home to offset

the construction and usage of

the laneway house.

Smaller homes in the 500-sq.-ft. range cost between $90,000 to $115,000 while larger homes in the 750 sq.-ft. range cost between $110,000 to $140,000. Homeowners will also have to pay a site cost of $20,000 to $25,000, to cover costs such as demolition.

So far, there are only a small number of Lower Mainland companies specializing in laneway housing.

Davidson and Turner have five clients and another 20 pending and say they hope what sets them apart is their own experience in compact living and their combined experience of designing and building in a sustainable way.

“We can go from first meeting design to construction faster,” says Davidson, whose also an environmental consultant. “And with way more sustainable building styles and techniques,” adds Turner.

The facts

What: Lanefab, prefabricated custom laneway houses.

Construction: Lanefab

Sizes: Studios from 450 sq. ft., to two-bedroom homes at 750 sq. ft.

Prices: From $90,000 to $140,000 plus $20,000 or more site costs.

Open: An open house and tour of Bryn Davidson’s condo, on which his Lanefab designs are modelled, will be held today and Aug. 23, from

3 to 6 p.m. at Suite 105, 2142 Carolina St. (at 5th Avenue), Vancouver.

More info: www.lanefab.com

© Copyright (c) The Province

 

Six positive months put B.C. on much healthier footing

Province

July housing sales across Canada were the best on record for the month — and Vancouver was no exception, the B.C. Real Estate Association says.

Six consecutive months of rising home sales and falling inventories have restored equilibrium to the provincial housing market, the association said.

That’s the first equilibrium B.C. has enjoyed since April 2008, the association said.

“Record home sales in Metro Vancouver and Victoria propelled the province into balanced conditions last month,” BCREA chief economist Cameron Muir said. “While conditions in many interior markets are getting much better, their reliance on the struggling resource sector and a recent spate of forest fires have contributed

to a more gradual space of improvement.”

In Greater Vancouver, 4,197 units changed hands over the Multiple Listing Service last month, up 89.5 per cent from July 2008. The year-over-year price in the Vancouver area climbed 1.5 per cent.

The Fraser valley saw a 63.2-per-cent increase in unit sales last month. Prices eased 1.6 per cent.

In Victoria, unit sales climbed 49.5 per cent from July 2008.

Nationally, the Canadian Real Estate Association said there were 50,270 units sold over the multiple listing service last month, up 18.2 per cent from a year ago.

It marked the first time sales topped 50,000 in July.

“The difference in the resale housing market now, compared to the beginning of the year, is night and day and nowhere is this more evident than in the west,” CREA president Dale Ripplinger said. “Homebuyers recognize that interest rates and prices have bottomed out, and are taking advantage of excellent affordability before prices and interest rates move higher.”

A five-year fixed-rate mortgage, the most popular product among consumers, is still available for under four per cent at some financial institutions.

Variable rate mortgages, tied to prime, remain in the three per cent range and are not expected to rise until June.

The central bank has said it won’t change its lending rate until then — but it’s not an ironclad promise.

The low rates seem to have worked and have the housing market even hotter than it was in 2007, a record year. July sales in 2009 were 3.9 per cent above the previous July high set in 2007.

It has been a stunning reversal for a real-estate market that had almost ground to a halt over the winter. MLS sales on a seasonally adjusted basis have risen for six straight months and are up 61.2 per cent off the decade-low set in January.

Sales are only off 1.4 per cent from the May 2007 peak.

© Copyright (c) The Province

Rezoning changes and the new Canada Line are helping to boost density, particularly in the area where Broadway and Cambie meet

Derrick Penner
Sun

While urban planning around the Canada Line in Richmond is largely complete, in Vancouver much of the planning is just getting underway.

Vancouver city officials have begun the process that will result in rezoning for the high-density development that TransLink wants to see along the line.

However, Jane Bird, CEO of Canada Line Rapid Transit Inc. (CLCO), said developers have already offered a positive response to the new piece of transportation infrastructure, particularly with developments at Broadway and Cambie near city hall.

That location has turned into an intensive mixed-use zone with large-format retail stores at the base and live-work condominium residences on top.

The Crossroads development, on the northwest corner, houses a Whole Foods supermarket and a London Drugs beneath office space and several storeys of condominiums.

Across the street and up the block, The Rise includes a Home Depot and a Save-on-Foods near a Best Buy store and a Canadian Tire.

“Clearly, again, this is an opportunity to add density to some [of the development] that we see there already,” Bird said.

“The Crossroads development is a good example of a mixed use, dense, esthetically pleasing building near transit.” Vancouver planning director Brent Toderian said those developments were exciting for the city because they took what has typically been a suburban amenity — low-rise big-box stores — and brought them into an urban setting in a way that isn’t car-dependent.

“I call this area of Broadway and Cambie the first truly urban power centre in North America,” Toderian said.

He said the new development added to what was already B.C.’s second-biggest concentration of urban job space outside downtown Vancouver.

However, for the rest of the Canada Line corridor within Vancouver, the story remains somewhat of a patchwork with planning underway only for some spots, one of them the 28-acre Oakridge Centre mall site.

Vancouver city council adopted a new policy statement for Oakridge in 2007 that contemplates a considerable increase in residential density, raising it to a maximum potential 1.2 million square feet, from about 150,000 square feet established in a previous policy statement.

Now the city has kicked off an accelerated planning exercise for the remainder of the line, which it hopes to wrap up by the end of next year with a comprehensive policy statement and urban design to guide development along the entire corridor.

“Often you have planning for land use, and you wait with bated breath for the infrastructure to come,” Toderian said. “In this case, we’re fortunate to have the infrastructure about to open, and a great opportunity to do very progressive land use planning and urban design along that corridor.” Initially, Toderian said, the city intended to do the planning work station by station, which would have taken up to eight years.

“If we had done it on the six-to-eight-year timeframe, we would have been significantly far behind,” Toderian said. “But I think we’ve got an opportunity to go from being behind a bit to, compared with other progressive North American cities, being out in front.” However, the development community, while appreciative of the city’s newly accelerated planning timeline, sees some lost opportunities because the planning didn’t begin when the Canada Line was first approved.

“We wish they had done so sooner,” Jeff Fisher, deputy executive director at the Urban Development Institute (UDI) said in an interview.

“It is at least going ahead. The key thing is they have to plan those areas.” The UDI’s advice for Vancouver is to develop as many dense mixed-use communities as it can along the corridor to help maximize the Canada Line’s ridership and increase payback for the overall system.

However, in a city that is starved for development land, a clear policy for density along the Canada Line could have gone a long way toward encouraging developers to begin assembling land, which will be a considerable task in neighbourhoods that are predominantly single-family housing, according to Neil Chrystal, president of Polygon Homes.

Chrystal said that to date, Burnaby and New Westminster have done a better job of accepting and accommodating density around their stations on the SkyTrain system.

He said that might be due to the fact that sites around stations in those communities were more suited to such development.

“My frustration when I look at the City of Vancouver, particularly the Cambie corridor, is that there has been a long time to plan density along this line [yet] everyone’s still talking about it,” Chrystal said, “and there’s no plan in place.” Chrystal said the development community’s advice has been for the city to take some risks and approve some blanket densities so developers can proceed.

If such decisions had been made sooner, Chrystal said, some development proposals might have already come forward.

Regardless, Metro residents can expect substantial changes in development along the Canada Line, and they will probably happen within the next five years, according to Lawrence Frank, the Bombardier chair in sustainable transportation at the University of B.C.‘s School for Community and Regional Planning.

Frank, who is studying land uses along the Canada Line with some of his students as part of the city’s planning process, said even Main Street, the next major corridor to the east, is being affected by its proximity to the Canada Line.

“I expect to see significant changes,” Frank said.

“And not just at the station areas, but all along the length of the corridor.”

© Copyright (c) The Vancouver Sun

 

Growth is key to transit success and to reducing carbon footprint

Kelly Sinoski
Sun

As the Canada Line starts snaking its way through downtown Vancouver and over to Richmond, plans are afoot to build up the areas around the rapid transit stations.

Architect Peter Busby, of Busby Perkins and Will, said both Vancouver and Richmond must create more jobs and residences around the stations to encourage more people to live, work and shop in the areas, use transit and reduce the carbon footprint.

But while Richmond has already rezoned and redeveloped property along the Canada Line, Vancouver has just started studying what it would like to see along the Cambie corridor, much of which is still zoned single-family residential.

Busby said it’s “remarkable” that Vancouver hasn’t already decided how to develop the area.

“When you invest $2 billion in infrastructure like that, you have to get something for it,” he said. “It’s the responsibility of cities to take those stations and upzone them for use of the public.”

Busby noted most people are comfortable walking only 400 metres to catch a bus or train. By developing mixed-used density within that radius, which amounts to about six to eight blocks, cities could see another 1,000 people living there and 2,000 working there, as well as increased grocery stores and retail.

He points to the Millennium and Expo lines, which have transformed areas around the Metrotown, Gilmore, Brentwood, Joyce Street and Edmonds stations.

“There are so many reasons why you want to do that,” he said. “The carbon footprint goes down, you use less fuel and there’s more [transit] ridership.

“If it’s convenient, more people will use it — and we need riders to pay the fares to pay for it.”

TransLink is responsible for any ridership shortfalls on the Canada Line after it opens this week. It is predicting it will see 100,000 people per day on the line — but not until 2013, meaning it will have to subsidize the line until then.

In his study on ecodensity, Busby noted Metro Vancouver must densify if it’s to accommodate another million people within the next 30 years and still curtail greenhouse gas emissions.

He predicts that within 25 years, Vancouver will be as dense as Zurich and in 50 years, as dense as London. In downtown Vancouver, for instance, many people don’t even have cars, preferring to bike, walk, take transit or use co-op vehicles.

As a result, downtown residents create about 1.5 tonnes of greenhouse gases per year per person, while emissions are four times that for those who live in the suburbs and rely on their cars.

© Copyright (c) The Vancouver Sun

Low mortgage rates coupled with lower prices encourage consumers to buy

Marke Andrews
Sun

Record sales volumes in Metro Vancouver and Victoria helped lift B.C.’s real estate market in July, the B.C. Real Estate Association reported Friday.

Nationally, markets experienced record sales for the month, posting their biggest year-over-year increase in two years.

With lower prices and near record low mortgage rates, B.C. buyers rushed to scoop up 10,051 homes through the Multiple Listing Service in July, the association said, lifting the month’s results 53 per cent over the same month a year ago.

“Record home sales in Metro Vancouver and Victoria propelled the province into balanced conditions [between buyers and sellers] last month,” association chief economist Cameron Muir said. But conditions are not equal everywhere, he cautioned, adding that Interior markets have been interrupted by forest fires.

And while monthly sales volumes have been slowly increasing this year, the 46,380 homes sold through MLS during the first seven months of 2009 is still down six per cent from the same period a year earlier. The dollar value of those cumulative sales, at $21 billion, is 10 per cent less than in 2008.

In an interview, Muir attributed the sales gains to lower mortgage rates and lower prices compared to a year ago, and a feeling among consumers that prices and rates may go up, making this a good time to buy.

“In the fall and winter months, we saw demand fall off sharply as a result of the global financial crisis. First-time buyers were largely absent from the market,” said Muir. “In the spring leading into the summer, we’ve seen an increase in sales as a result of households seeing an end of the recession in sight. Mortgage rates went up in late May and June, and that was a tremendous signal for prospective buyers who had locked in with pre-approved mortgages.”

Nationally, the Canadian Real Estate Association reported Friday that realtors sold 50,270 units last month. That’s an 18.2-per-cent jump from a year ago. It also marked the first time sales had topped 50,000 in July.

“The difference in the resale housing market now, compared to the beginning of the year, is night and day, and nowhere is this more evident than in the west,” said Dale Ripplinger, president of CREA. “Homebuyers recognize that interest rates and prices have bottomed out.”

A five-year fixed-rate mortgage, the most popular product among consumers, is still available for under four per cent at some financial institutions. Variable-rate mortgages, tied to prime, remain in the three-per-cent range and are not expected to rise until June.

The low rates seem to have worked and have the housing market even hotter than it was in 2007, a record year. July sales in 2009 were 3.9 per cent above the previous July high set in 2007. It has been a stunning reversal for a real estate market that had almost ground to a halt over the winter. MLS sales on a seasonally adjusted basis have risen for six straight months, and are up 61.2 per cent off the decade-low set in January. Sales are only off 1.4 per cent from the peak in May, 2007.

© Copyright (c) The Vancouver Sun