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Cost of the social housing at Olympic village?

January 14th, 2009 · 28 Comments

I haven’t bothered posting the last couple of days on the Olympic village because there is now such a raging torrent of media coverage that I decided to stand on the riverbank letting it flow by, while I think about what’s going on. I’m sure many of you are in the same state, as we’ve all been hit over the head by one piece of staggering news after another.

I’d just like to repeat again that it’s a great idea to take a deep breath and recognize that we’re all in a state of adrenaline overload, not a great condition for making rational decisions or coming out with thoughtful opinions about anything.

With that warning out there, a couple of questions/observations that have gone unanswered for me amid the uproar:

1. What might the project have cost if it had gone ahead as one-third social housing, one-third market rental, and one-third market condos, as COPE/Vision originally planned?

Michael Geller has estimated that the cost of the 250 units of social housing likely stands at around $100 million. (That works out to a construction cost of about $500 a foot if each unit is an average of 800 SF, less if there’s more SF than I have guessed at.) The federal government, through VANOC, only gave $30 million for this site. It’s unclear where the rest of the money is going to come from to ensure that these units remain at the low, subsidized rates for social housing.

It’s also unclear how the 100 market-rental units that the city wanted as part of the project factors into all this. The city essentially gave Millennium the land for free, by giving an additional 70,000 SF of density for those units. That means Millennium only needed to build them and then work out a rental rate to recoup those costs. Again, with construction costs having more than doubled in the last three years, how much of the current debt is related to those units? We don’t know because the messaging coming from city hall has all been about the cost of the market for-sale condos.

It would be just great if the Vision council would get those numbers out as well, in their work on being transparent. Because it seems to me the thing that we are all losing sight of here is that any project that had to be built for the Olympics was at risk of going awry, given the two factors of 1. an inflexible deadline 2. an explosive increase in materials and labour costs.

So to act as though all of the problems of this project were caused by allowing a private developer to build high-end market condos obscures a good analysis of all the component parts of the project. As we all know, the convention centre expansion isn’t being built by a private developer trying to make a profit. But the construction costs there have doubled and we taxpayers are going to be paying for a building that is now in the $850 million range. As with the condos at Millennium Water, it is unclear how long it will take the province (i.e. us, the payers of the bills) to recoup the costs of construction, given that the convention industry may be seeing a teeny bit of a slowdown in coming years.

One thought for the day. More to come at some point.

Categories: Uncategorized

  • julia

    I would also like the price tag on the green component of the project. While the concept is laudable, how many developers would have taken on that sort of cost risk with the hopes that someone was willing to pay extra for it.

    I always get a kick out of public project wish lists that nobody ever bothers to put a price tag on to see if the math works.

  • alan

    Construction costs have only been approaching $500 sq/ft because we have been in the middle of a speculative feeding frenzy. True construction costs will now come down to under $200 sq/ft.

    I’d like to see the total cost of construction using normal construction costs, not the hyper-inflated costs.

  • VHB

    “it is unclear how long it will take the province (i.e. us, the payers of the bills) to recoup the costs of construction”

    I’m sorry to be tedious about this, but this is the wrong question. We will not ‘recoup’ the costs. The condos will not be selling for $1000/sf. Returning to ‘normal’ is not returning to 2007 pricing. See here if you want details.

    The right question is ‘how much we can get for them to minimize the loss.’ Sitting around and waiting for prices to ‘come back’ is likely to leave us like Charlie Brown in the pumpkin patch, waiting for the Great Pumpkin to appear.

    The ‘doomsday’ scenarios bandied about in the press *still* assume that prices will soon rebound, or will bottom out at a 20% loss. Prices are already down 20%, we have record used inventory and record under construction inventory of condos in the pipe. Unemployment has just begun its rise. Banks have just begun to tighten mortgage lending. What, except for religious hope, would lead one to think that we are at a bottom now?

    Please just consider–if only for a moment–what things will look like if prices do not ‘come back.’ Maybe I’m wrong. But it would be worthwhile I think to at least consider it as a worst case scenario.

    While the cost side is interesting, there is much bigger variance in predictions about the revenue side.

  • tommi

    I found this old 2003 article from The Straight that is now very topical today. I’m posting it below because it’s not available online anymore….

    January 20, 2003
    The Stright – Charlie Smith

    An opponent of the city’s 2010 Olympic bid has claimed that Vancouver taxpayers—and not the provincial and federal governments—could be liable for cost overruns on some of the facilities.

    Last year, the city signed four separate contracts with the Vancouver 2010 Bid Corporation concerning the construction of an athletes’ village on city land at southeast False Creek, a curling facility at Hillcrest Park, an ice-hockey practice facility at either the Killarney or Trout Lake arenas, and figure-skating and short-track speed-skating venues at Hastings Park.

    The four agreements each acknowledge that “BidCorp” is not an agent of any of its partners, including the federal and provincial governments.

    Phil Le Good, a spokesperson for the No Games 2010 Coalition, alleged that this clause means city taxpayers, and not other levels of government, will be liable for all risks except where BidCorp states otherwise.

    The city has also agreed to forgo any rent for Vancouver-owned facilities, as well as parking revenues for Vancouver’s parking lots and streets. “Vancouverites were led to believe they wouldn’t have to pay a cent, that the province would cover all the costs,” Le Good said.

    He added that citizens should worry about a clause granting the International Olympic Committee the right to order any changes to meet its regulations and requirements.

    Trevor Miller, a spokesperson for the Vancouver 2010 Bid Corporation, told the Georgia Straight that the Olympic Games Organizing Committee—which is identified as BidCorp in the legal agreements—won’t exceed its $30-million capital contribution for the village.

    “The developer would be liable for any cost overruns with regards to the athletes’ village,” he said.

    Miller added that the provincial government’s guarantee would cover any cost overruns on curling and skating facilities. He said those would be financed from the federal and provincial governments’ $620-million capital contribution to the bid.

    “The idea, obviously, is to work in partnership with the planning people to ensure that there won’t be any cost overruns on those because we’re working with a fixed amount here,” Miller said. “Basically, the official line is there is going to be opportunities for program enhancement and cost- sharing, and those will continue to be explored with the city and the two levels of government.”

    Vancouver Mayor Larry Campbell and Coun. Tim Louis, chair of the city services and budgets committee, were unavailable for comment.

    In the Vancouver Athletes Village agreement, BidCorp has agreed to cover the costs of all “temporary facilities”, which include tents, trailers, signage, building modifications, temporary partitioning within residential or commercial units, and temporary parking lots and infrastructure.

    Apart from BidCorp’s $30-million capital contribution to the “permanent facilities”, the city is responsible for everything else, including: 612,000 square feet of residential accommodation, not less than 30,000 square feet of commercial space, internal roadways, pedestrian walkways, underground parking, lighting, and site servicing for power, water, sewer, and other utilities.

    The overall budget is $167.3 million: $16.3 million for environmental remediation, $31 million for infrastructure, $15 million in financing charges, and $105 million for building construction. Approximately 250 of the 564 housing units will be converted into subsidized housing after the Olympic Games.

    The city is also responsible for site remediation and site preparation. Le Good has demanded a full cost-benefit analysis, including an examination of City of Vancouver staff time that has gone into the bid.

    “There is some deliberate stuff going on to hide the costs that are going to be borne by the residents of Vancouver,” Le Good alleged. “Where are they getting the money to pay for this?”

  • RossK

    I very much agree with Frances that it would be very useful if we had a good cost analysis of all the various component parts of the project.

    However, persuant to VHB’s point that speculating on a market bounce is very possibly folly, I think it would also be very useful if we started to seriously retro-analyze what it would cost to alter the parameters of those component parts, in various degrees, perhaps even all the way back to the 2005 proposal.

    Would the resulting numbers be crazy?

    Maybe.

    But if there were things in it for other government bodies other than the CoV to support (ie. governments that may soon change and/or are looking for ways to spend components their infrastructure/stimulus packages that are coming online), well……

    .

  • Wayne

    In an earlier post Frances stated that Hank Jasper estimated the green premium at 10%.

    Looking to green building as one of the culprits in this boondoggle is silly. I don’t support the Olympics because they seem to regularly end up as financial disasters. But this site will eventually be occupied and no doubt it will be a great place to live. It is imperative that it be built green. You can argue that one eco-technology is more effective or less effective or it could have been done this way or that way cheaper. But it has to be built green and it probably should have been built greener than it is.

    I’m disgusted that Vancouver rate-payers have been dropped into this quagmire but the project will eventually be an occupied, viable and, more than likely, an enviable place to live.

    Frankly, it’s amazing to me that with so much information on global warming readily available that anyone can try to find fault with green construction initiatives.

    Remember, if the greenest practices of the day were code requirements it wouldn’t be green construction, it would just be construction.

  • julia

    nobody is faulting green initiatives but someone at the end of the day has to pay for those features. What is the threshold that a potential purchaser is willing to pay for the technology. We have been discussing square foot costs and square foot selling prices. If those green features price a suite 15% above its square foot ‘less green’ counterpart – how many buyers will you lose?

    In a pure performa analysis, would someone (developer) bet his life savings that a 15% premium would be easily absorbed in a up or down economy.
    All I am suggesting is that in a totally free market environment, this project may not have moved forward with such a rich lists of wants. At which point… what are we crying about. We bought something nobody else was likely to build on pure speculation.

    Which begs the question… why did we ever allow politicians and city staff to take on a project like this in the first place. None of them will be out a dime as a result of their poor decisions.

  • Travis

    Predicting what will happen with this project is like trying to staple Jell-O to a block of ice. People can weigh in and speculate all they want but there is something missing in all of this.
    The Olympics are a certainty and the Millennium project has to be finished one way or another. I am frankly surprised at the shock and awe surrounding this issue. Is it really a surprise that this is happening? As that Georgia Straight article predicted the cost is going to fall on us. The reality is that this was going to be the case no matter what. It’s our tax money that has been funding the project (instead of funding other things) from the very beginning. So it’s $875 million instead of $600, or $1 Billion. When you are talking about that much money, what is the difference? We elected the people who made the decision to host the Olympics. We should not be surprised that the cost of doing so has gone up.

    Blame it on lack of transparency. The economy. The impending housing collapse. The cost of green building (which is laughable). The rise of the tide or the insane winter we are having.

    Regardless, we are completely powerless to do anything to change the outcome. This is what I am really learning from this boondoggle.

  • condohype

    The project moved forward in a free market. No developer was forced to take on the job. Millennium bid on the project. The city did not impose wish-list features after the fact. The right to develop the land was subject to the city’s parameters. In their business judgement, Millennium believed the terms allowed for a viable and profitable development. They moved forward. Free market.

  • T W

    Look at the example of Canary Wharf (London)- the grave of the Olympia and York company and the financial downfall of the Reichmann family. The concept was right, the timing wrong and it took about 15 years for the original plan to complete.

    In our case, we have a range of outcomes and various probabilities and it is asinine to focus only on the most optimistic or the most pessimistic. But whatever unfolds, the taxpayers of Vancouver are going to be adversely affected.

  • LP

    I’m not sure Canary Wharf is a good example, the size of that project was immense, and they didn’t have any deadlines or associated events which negatively effected negotiations. They over-leveraged and collapsed, and it was them not their financiers.

    As well there are people out there that seem to want to link this to the Montreal Olympics and the $1B price tag on Olympic Stadium.

    That isn’t a fair comparison either because,
    a) a stadium shouldn’t be compared to housing that will be sold,

    b) if money really doubles every 7 years, a billion in ’75 is worth about $10B today, and

    c) some of the excessive spending in that case was linking to criminal activity

  • Bill Lee

    And that many mucky-mucks bought into the Condos on spec.
    Certainly Larry Campbell, former insider mayor, now Senator, has
    admitted he had a condo there. (But he has a house in Dunbar too)
    So there is a lot of self-interest in some elite circles on
    this project.

    And how much has Mr. Rennie been paid for marketing all those
    expensive 4 colour double-sheets adverts in the Sun, Province etc?

  • Dawn Steele

    “Predicting what will happen with this project is like trying to staple Jell-O to a block of ice. ”

    That pretty much says it.

    Ditto for estimating what this or that component would have cost, or what if there had been more or less social housing etc. Given the formula mixing market and non-market components, it’s all speculative until you’ve sold all the market units and calculated whether the market units subsidized the rest or vice versa.

    The sad part is that raising the portion of market units would have helped lower average costs of providing the social units if it was clearly a stable or rising market, or if the city stood to pocket those profits to offset the costs. But it wasn’t a stable market and the original terms of the P3 seem to have given the profits to Millenium, had everything worked out nicely.

    Similarly, if the city had structured the P3 so that the developer assumed the risks as well as the potential profits – which again didn’t happen – we would at least have a cap on the potential price paid for those 250 units we get at the end of the day.

    As it is, we have a worst possible case scenario where if things go south, we end up subsidizing a bunch of million-dollar waterfront condos as well as paying full price for the 250 social units. Best case scenario was we wouldn’t have been in this mess but we would still have paid full costs for the social housing while the developer walked away with the profits from the market units.

    That this was going to be costly was never unexpected. The problem was the lack of transparency about just how expensive it was going to be. And the decision to use a P3 model that seems to have stacked every single odd against Vancouver taxpayers.

    We’ve been suckered. Pure and simple. And it really sucks to confront that.

  • Denis

    This whole Olympic thing has forced King Gordo to recall the house sometime before the fixed dates he pushed through as legilsation. But don’t hold your breath because he has broken the Legislation before by not allowing the house to sit at least twice. But with an election coming, another cabinet Minister going home to spend time with his kids, and all this awful talk means it will be opening day for the MLA’s before the planned day of Feb 14. Question Period should be interesting and as most of us know, it’s all on the Internet. It’s almost time to pull a runner Gordo

  • Clam Chowderhead

    The right question is ‘how much we can get for them to minimize the loss.’ Sitting around and waiting for prices to ‘come back’ is likely to leave us like Charlie Brown in the pumpkin patch, waiting for the Great Pumpkin to appear.

    Umm VHB I’m not sure what you’ve been upto since you closed your blog but it’s obvious it wasn’t reading Peanuts, as if it was you would know it’s Linus that sits in the pumpkin patch waiting for the great pumpkin.

  • VHB

    C C: Busted. You got me.

  • LP

    Further illustrating my point that political chess moves are being played, here’s our friend Ge-off from the Globe & Mail:

    “This is the first time in the city’s history that there has been any cloud over the credit ratings as a result of a council’s actions,” Councillor Geoff Meggs said.

    Mr. Meggs is part of the Vision Vancouver slate that won all but one seat on council in the November civic election. Vision blames the previous council, led by the Non-Partisan Association under mayor Sam Sullivan, for the financing mess.

    “If they do a credit downgrade, it should be called the Sam Sullivan legacy downgrade,” Mr. Meggs said yesterday.”

    Chess move 1: Blame previous council as much as possible for anything and everything to do with village-gate.

    Chess move 2: Make ambiguous claims about the potential loss to rile taxpayers.

    Chess move 3: Get the provs involved (the request to amend the charter) so that your friend Carole can somehow link Vancouver’s council’s blunders to the Liberals.

    (Insert more moves here)

    Chess move ?: When the loss isn’t as much as you initially led people to believe, call yourselves heroes and wait for the votes to come in.

    Checkmate. Oh and another 3 years in office.

    As mastercard would say: “Priceless”.

    Note the mc analogy, credit, cards; as in house of, which have fallen, etc..

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  • Michael Geller

    I think it would now be timely for the city to engage a qualified third party real estate professional to carefully review the budgets, the costs spent to date, the estimated costs to complete and report back on the projected cost implications for the city, taking into account different interest rates, a range of selling prices, alternative sales programs, etc.

    While many of us are tempted to speculate on potential losses for the city, without knowing what interest reserves and contingencies have been incorporated into the budget, and the potential for savings if portions of the debt are refinanced (subject of course to the penalties that might have to be paid), it is very difficult to know what the outcome will be.

    This analysis should also look at all options to minimize any losses, including the possible sale of some or all of the rental units and the retail space that is currently under construction.

    It would also include a review of what monies might be recovered from the security pledged by the developer, if he is in default of his obligations.

    Only with this information can we estimate whether the city is likely to lose money, and if so the range of losses.

    There is another important consideration. The current development represents only a third of the total South East False Creek development. Much of the infrastructure that has been installed will benefit future phases of the community. One must therefore give some consideration to the financial projections of future phases to assess the total picture. I think it is very conceivable that any losses on this phase can be offset by profits from future phases.

    This is not to suggest that the current situation is not a mess. It is. But as I have said on a number of occasions, I do feel that the city and the media have overstated its negative consequences. A comprehensive third party review could help us all better understand the situation, and allow us to focus on how best to finish the project and minimize losses. It might also help partially restore the city’s reputation worldwide.

    And to those who can’t understand how anyone could make decisions that would result in financial losses, did you transfer all your mutual funds into money markets and cash, and sell whatever property you owned in the first half of 2008?

  • T W

    Michael Geller’s suggestion of an independent third party assessment is sound.

    Alas, it is about 2 years too late.

    There should have been an independent assessment commissioned directly by Council and not through the staff. Sanity may not have prevailed but there would have been a far less chance of the fiasco we are now in.

  • T W

    Different project: same result ?

    Quote:
    ” After a heroic effort to complete what we see as a synergistic and attractive transaction, the credit crunch and poor capital market conditions have finally caught up with York Pharma. Clearly, with redemptions raging, Fortress saw this as an opportunity to get their money back and acted accordingly”.

    Similar ???

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  • Dawn Steele

    Michael, re your last question, lots of people were doing that to some degree – or at least hedging their bets. I was. People with a short investment timeline were. I know others who were super-extended playing real estate who have been pulling back for the past year or two, just in case.

    And you can’t seriously compare private citizens choosing to risk their own leftover cash to city officials betting taxpayers’ money (especially without their knowledge or permission, and especially since it looks like we taxpayers had little or nothing to gain and everything to lose from this deal!) I’d never have put my own money on this particular deal, far less someone else’s.

    Here’s a nugget I just came across from a June 2007 report in The Tyee:

    “About 250 units of athletes’ housing in the Olympic Village at False Creek may or may not become homeless housing after the Games. (The developer gets to decide how many units to allot, after all capital costs are determined.)”

    Is that really true?

  • RossK

    Mr. Geller said:

    “I think it would now be timely for the city to engage a qualified third party real estate professional to carefully review the budgets, the costs spent to date, the estimated costs to complete and report back on the projected cost implications for the city…..”

    I ‘m not so sure about the ‘real estate professional’ part.

    However, I do agree that hiring a qualified third party to review the entire thing is a good idea.

    Hey!

    How about Estelle Lo?

    After all, rumour has it she’s looking for work.

    ____
    Not to mention the fact that recent reports indicate that she’s already done a pretty rigorous analysis, an analysis that was , apparently, previously ignored.

    .

  • Michael Geller

    Dawn, I have recently learned that the 250 units of social housing are NOT included in the works being financed by Millennium. They are being financed by the city, and the Tyee article is not correct…the city is responsible for these units. There will be 250 units of social housing following the games.

    Now as for whether the city residents benefited from the city’s guarantees to Fortress….without them, the Olympic Housing would not likely have been financed,( given the legal structure of the deal), and therefore not finished in time for the Olympics.

    While I appreciate there are many people still opposed to the Olympics, having made the decision to proceed following the referendum, I would like to think that most Vancouver residents would not have been happy if we were embarrassed on the international stage by not having the housing finished on time.

  • Dawn Steele

    Yup, and with Onni already dumping condos at 40%-off, fire-sale prices, the worst we can do in 2010 is break even, right….?

  • LP

    Since Michael will probably be his usual politically correct self, which there’s nothing wrong with I might add, and he belongs to the developer community, allow me to suggest that Onni is not building any of their buildings to the quality expected in the Olympic Village. In fact from the people I know in certain Onni developments, they wouldn’t buy from them again even with a 40% discount.

    Also, being able to sell condos at a 40% discount suggests they have plenty of margin available to absorb much of that, which most people commenting here suggest the OV has no where near that amount.

    Further, comparing Onni’s developments in Surrey and PM to False Creek waterfront units is like the comparison of Dianne Watts to Sarah Palin (from another FBula post).

  • Megaphone

    Correct me if I’m wrong, but I seem to remember that one of the key reasons the NPA gave for cutting the social/non-market housing in the Olympic Village was that dipping into the PEF would hurt Vancouver’s credit rating.