What's really happening in B.C.'s development world?
It seems like there's a story a day out there these days about construction coming to a halt on this or that condo project, leaving the average person here wondering if the Vancouver world as we know it is coming to an end. It's hard to sort out, too, because there are a lot of things happening at once.
Construction costs were crazy, and no one could sustain the continued increases. There's a huge world credit slowdown going on. And housing prices are falling in general.
On top of that, developers are reluctant to talk and the anxious are quick to pounce on any signs of a project slowing down or having trouble. So people are having are hard time sorting out which projects are really in trouble and which are prudently slowing down to assess what's going on in the market.
Shahram Malek, the co-owner of Millennium Developments that is building the Olympic athletes village, told me last week that he started getting calls from people a month ago who'd heard that construction had stopped because the cranes weren't moving. They weren't moving and, in fact, were being disassembled because the builders had finished pouring the concrete. Once that happens, the cranes move off the site. (There are only nine now, down from 11.) Others who work in the business or are connected with development also told me that the Olympic site, along with others, got slowed down recently because of delays in getting glass shipments. People here get their glass either from Quebec or China. China was delaying shipments around the time of the Olympics and I don't know what the problem was with Quebec but, in either case, there was a "glass squeeze" around the city in the last couple of months. That slowed down a lot of projects because, until glass goes on a building, none of the interior work can be done.
For those who don't have to build to a certain deadline, like Millennium with the Olympics, the inclination is to hold off on starting anything. Almost every major developer in town has told me (or told someone who told me) that they're pausing until they figure out what the lay of the land is. (That slowdown actually started several months ago, when pre-sales got sluggish as housing prices dropped. The buying public is hearing that prices are coming down so they don't want to buy anything that they think will lose value. The current falling market has definitely driven speculators away.
Once that started to happen, developers also started pausing, either because they couldn't get financing without pre-sales or because, even if financing wasn't a problem, they didn't want to pay the current high cost of construction if it looked like they would have to lower their condo prices.
Oh and, by the way, there are actually still sales going on. A small Polygon project out in Delta sold out a couple of weeks ago -- likely because it was small (about two dozen units) and well priced, say observers. So things are still selling if buyers think they are getting a good deal.
In the meantime, builders are starting to lay people off, which ironically may help some of the stressed projects around town. As construction companies realize that the high times are past and that there aren't as many jobs out there, they will start lowering their prices. That means more workers at better prices will be available to the projects that are still moving ahead.
Some people think that's what is happening at the Ritz Carlton, the Holborn Developments project on West Georgia that stopped construction this week. Owner Simon Lim told me earlier this week that the construction was halted temporarily in order to do some design changes in the Arthur Erickson building that would make it a little more cost-efficient. But others have suggested that Lim, along with others who have projects in mid-stream, might be doing the prudent thing and seeing if they can renegotiate with their contractors to get lower prices on construction costs. Lim, by the way, is not someone who would be caught by the current credit crisis because his buildings have typically been financed internally.
Everyone is watching that building closely because Lim is a developer who has risen quickly in the last couple of years and he holds several significant sites around town. He's the developer who was chosen by the province to redevelop the Little Mountain housing site. (Housing Minister Rich Coleman said he sees no change in the time line for that project, which will take several years to build under the best of circumstances since it has to go through an extensive city rezoning.)
He also owns the Hudson's Bay parkade site at Georgia and Seymour and the Norquay Village site at Kingsway and Nanaimo. It would be a surprise to no one if he held off on those until housing prices and the economy stabilized.
And what I also hear from many: This is not unusual Vancouver has been through at least four major real-estate slumps in the past two decades -- the developers like to call them "adjustments." Everyone knows that the way to survive is by using the slow time to get sites ready, going through all the paperwork and development-permit processes. Then when the economy, consumer confidence, and prices start to pick up again, they're ready to go.
In the meantime, enjoy the break.