Posts Tagged ‘property developers’

The Suburbs Downtown and Downtown in the Suburbs

May 20, 2008

Vancouver’s downtown condo development market has been very successful.  Developers sold the lifestyle and the convenience.  “Walk to work”, “It’s like the suburbs downtown” are common selling points.  The problem is, condo developers have been so successful they’ve driven up the cost of property so high it discourages commercial property development.  Office projects can’t or won’t compete for prime locations downtown, or what few locations are left.  The condos have taken over downtown.

That has created a commercial office space crunch downtown.  Office vacancies are down to just two percent, the lowest in decades.   It also creates an interesting reverse flow situation where, while people are moving downtown into their new condos, the new office developments have largely been in the suburbs.  Wouldn’t it be an interesting twist if all those people who moved downtown so they could walk to work ended up commuting out to the suburbs to get to the office?

This might be a good time for a major office tower development downtown.  A two percent vacancy rate now, combined with the added interest in Vancouver that will likely follow the Olympics in 2010 should make for good market conditions.  It would take a couple years to complete, so the timing would be right.  The slowdown in the residential real estate market should also get some developers to look to the commercial property sector.

Vancouver could use a high profile office tower downtown.  The Shangri-La, the new multi-use tallest building in the city that is nearing completion, already makes a great addition to the skyline.  A new, even taller, office tower that stands out in both scale and form would add even greater definition.  What’s missing from the skyline is an iconic building, something instantly recognizable that people around the world will see on TV and know is in Vancouver.  It would raise the profile of the city, internationally.

If Vancouver wants to remain the commercial heart of Greater Vancouver, the city should think about trying to get an office project going and zoning to make sure there will be more in the future.  Otherwise, the amusing reverse commute situation could actually happen.  Who knows?  It may seem unlikely now, but maybe even Surrey could develop a downtown commercial district on some of its less attractive land.  They are already clearing out the crackheads and removing some houses with drug connections.  Then there’s that awful junkyard sitting on prime riverfront property.  It has the growing population and land to rival Vancouver.  It will probably have more people within twenty years.

Is Vancouver going to just sit back and let it happen?

Never Pay the Dealer Up Front

February 27, 2008

A few days ago, the latest example of a Greater Vancouver property development going tits up and leaving pre-sale buyers between a rock and a hard place occurred.  Not far from where I sit, another condo project has fallen victim to cost overruns and will not be completed on time.  The original developer will have to sell the property.  When a new developer takes it over, they will put the units back on the market at current market values, not the prices buyers originally agreed to about two years ago.  Even with first dibs, the original buyers will have to pay more.

This is becoming a trend in the lower mainland real estate market.  Labour shortages and high commodity prices drive up costs and wreak havoc on schedules.  The developers can’t finish the projects on schedule, on budget, or profitably.  Drop dead clauses are invoked or the project is sold.  Buyers are left in a situation where they’ve effectively provided the developer with an interest free loan for two years.  That’s unfortunate, because they’re not in the interest free loan business.  Nobody is, because it’s not a profitable business to be in.

Now, if I were a cynic, I might think that developers deliberately pre-sell properties at values they know will not be realistic when the project is completed a couple years later, so that they can take buyers’ deposits to the bank and say, “Here’s our share, now how about financing the rest?”  I might also think they deliberately fail to complete the projects before the drop dead date so that they can then raise the price, just as the project is nearing completion.  If I was a cynic.

The problem with paying for anything upfront is that you surrender all the power to the seller.  As soon as you hand over your money, you’re at their mercy.  That’s especially true in a hot market like Vancouver area real estate, where so many people are clambering to get in because they’ve been convinced that they have to.  Once they’re hooked on the idea of buying and hand over their money, the dealer knows they really want it and toys with them for a while.  Then, one day he says, “The thing is, the price has gone up”.  Jonesin’ for their reward, the buyers cough up more money.

Any junkie can tell you that you should never pay the dealer up front.  Maybe he’ll come back, maybe he won’t.  Maybe the quality won’t be what you expected.  And, who knows if what he charges you today is what he’ll charge you tomorrow?  But they do pay up front, because they’re junkies.

This post appears in The Carnival of Consumer Focused Real Estate.