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Olympic village details: The sequel

January 10th, 2009 · 10 Comments

Thanks to all the previous posters for their thoughtful and extremely detailed analysis of the economics of this project. I think we have pretty much all agreed here that we don’t have enough specifics to be able to truly understand what is going on financially with the project in terms of construction costs or the future sales prices of the condos.

Thank you to Michael for the information that the Millennium/Fortress loan was intended to cover the cost of more than just the market portion of the the construction.

I should just say, before I go on, that it’s interesting to see the debate divided between those who see apocalypse and those who see a not-great deal that’s been made worse by unprecedented market/housing conditions. You’re likely not going to change your opinions, but it does seem interesting to me that, for every person who thought the condo bubble was going to go on forever, there seems to be another person who is convinced that housing prices have tanked in such a dire fashion that they will never come back.

Being a fence-sitter, as my loving critics like to call me, I find myself as unconvinced by those who say (with considerable glee) that the housing market as we knew it will never EVER return to anything near what it was as by those who thought condos would keep selling like cheap underwear at Wal-Mart.

Okay, enough about me.

As a public service, I’ve been going back through old staff reports to try to figure out how much actual space was permitted for the Olympic village site. This staff report, the CD-1 rezoning from September 2006, seems to be the final report setting out the space allowed.

You can read it yourself, but it seems to be that staff recommended at that point that the Olympic village site get:

1,179,884 SF for residential

which include 213,000 SF for social/affordable housing

and 89,800 SF for modest-market housing

In addition, 63,640 SF was given for commercial floor space. As well, there was 14,000 SF allowed for the community centre and the plaza (which Millennium is building for the city) and 26,500 SF for the Salt Building, which a consortium is handling.

If those numbers weren’t tweaked at some later date, that would mean (unless my famously bad math is wrong) that there was 877,084 SF left for market condos. Michael or Bob could probably tell us how much of that would actually be saleable square footage and how much of that is lobbies, hallways, etc.

As well, I’ve checked the floor plans posted on the Millennium sites and previous reporting on the sale prices. Early promotional stories said the market units would sell for between $450,000 and $6 million. The smallest condo is 574 SF or thereabout and the largest is 4,600 (plus a lot of deck space). That means the smallest, which likely sold for the lowest price, came in at just under $800 a SF in price. The highest is $1,300 if you match space to price, though there could well be some units that are higher because of their height or view. (Some enterprising person should hop down to the Millennium showroom to pick up their materials and prices as historic artifacts.)

Also, while I was scanning the website for more information I came across this news release from the city sometime in 2008. I can’t tell if it was early in the year or during the campaign, when the city was trying to put out some information to calm the troubled election waters.

At any rate, reading it does make me think that we reporters are indeed developmentally disabled.

That’s because, to me and almost everybody, I think, the big news out of Friday was that the city is on the hook to complete the village if Millennium can’t do it. I hadn’t heard that before and it made me think differently about the whole deal. But this fact sheet clearly states that the city gave Fortress a completion guarantee. Not a single media person picked up on what this was and what it meant.

Many more thoughts and tidbits, but I’m off to other things right now. Looking forward to more observations.

Categories: Uncategorized

  • condohype

    At the time the city disclosed it was putting up a completion guarantee, no popular opinion in the mainstream media thought demand and pricing for condos would decrease — let alone decrease so deeply that a developer would lose financing for a project under construction. I say this not to absolve the media but to provide context. If we remember when Sophia went into receivership in February 2008, the media story was about pre-sale buyers wanting compensation for the “lost market value” of their deposits. It’s incredible that less than a year ago the worst thing about a condo going bust was the “loss” of paper gains.

    Most reporters probably looked at the completion guarantee as the city agreeing to cover cost overruns. British Columbians are so used to cost overruns it barely qualifies as news, and nobody really expects anything to do with the Olympics to come in on budget anyway.

  • RossK

    Re: The ‘timing’ of the completion guarantee…..

    Won’t finding out the date (early 2008 vs. during the fall campaign) be pretty important for those attempting to gauge the ‘truthiness’ of alleged Fortress’ stated reason for backing out in September (ie. that Millenium was ‘out of balance with it’s commitments’ as per the Rolfeson/Lee VSun piece yesterday)?

    .

  • Michael Geller

    So let’s all take another look at what some of us have learned today…although the mayor’s statement suggested that Vancouver taxpayers are on the hook for $875 million, in fact a good portion of that money is to pay for the city’s social housing. Some of it is to pay for the city’s rental housing. Some of it is to pay for the city’s retail space and community space.

    Furthermore, we are not necessarily on the hook for the money advanced by Fortress. And any losses we may incur should be reduced by accessing the security put up by the developer, if he is in default.

    And the Mayor’s significant new announcement that Council, (on staff’s recommendation) had agreed to a ‘Completion Guarantee’ was not even news. It had been publicly declared last year!

    This is not to say the situation is ok. It isn’t. The city has taken on risks that we didn’t expect. The costs are much too high…there has apparently been very poor cost control leading to the over-runs, but I can tell you that a lot of this is attributable to new ‘sustainable features’ that have not been tried before. After all, didn’t someone say we want Vancouver to be the greenest city in the world!

    The situation is greatly exacerbated by the turnaround in the financial and real estate markets,. This has happened so quickly that it has caught most of us off guard.

    As I retire for the night, I cannot help but reiterate that our city did not deserve all of the negative national press that we received today. My friends in Toronto think the Vancouver taxpayers are going to lose $875 on the Olympic Village. They are not.

    And I sincerely hope that the Mayor and Council will now undertake an independent review by people knowledgeable about real estate development, (not just auditors), and share the results with us. I am quite confident that the review will reveal that city staff and Council did the right thing by retaining title to the land until after the project was completed, notwithstanding the complications it created.

    I also hope the city will call upon the Province for assistance with preferential rate financing, if required, and that we will see some real leadership, not alarmist statements, in remedying the situation.

    There is a problem. Yes. But we the taxpayers are not going to lose $500 million or $875 million or $1 billion. The sooner this is clarified, the better.

    Now, may I suggest that you all go for a walk along the new city walkway in front of the Olympic Village. I think you will be impressed!

  • condohype

    No doubt the headlines aren’t telling the whole story. Still, the superficial understanding of our friends in Toronto is probably the least of our concerns even though I agree the numbers being thrown around are easy to misinterpret. It is true that the net loss to the taxpayer, pending no more catastrophes, will not be $875-million. It will be less than that. But how much less is unclear.

    When the mayor told us we were on the hook for $875-million, he seemed to be bringing the completion guarantee to down to reality. The number is the amount of money the city will have to provide in order to finish the job. Some of us knew of the completion guarantee from before. It wasn’t widely reported until a few months ago but it was public.

    What I didn’t know on Friday was that Fortress stopped all financing in September. I assumed the so-called “secret loan” was for cost overruns but the rest of the financing remained in place. Now we know the money tap is shut off and it’s the city’s problem to finance the remainder of the project.

    There are points to be made about green features driving up costs but let’s be real — Millennium signed up for this job. They saw the plans and the numbers and they went for it. It was a gamble and they lost. Except their loss is our problem, because we signed a deal to make it so.

    No matter how many millions we end up losing, this is a bad situation. The anger of the citizenry is not so much the staggering figure — though it’s part of it — as it is the recklessness that brought us here. How could a deal of this sort be signed by responsible managers? I ask this as an honest question. What was the rationale behind those who put this together?

  • Michael Geller

    I generally agree with ‘condohype’. I must confess that even though I was a candidate for city council in the last election, I was not aware that the city was advancing construction financing to the project. That was news to me too. Very disturbing news, I might add.

    Which is why I look forward to a third party assessment of the situation, and a strategy to manager the project through to completion in a manner that will minimize losses to the Property Endowment Fund and ultimately city taxpayers.

    ps. CBC is still saying that taxpayers could be on the hook for $875 million. I hope this will be clarified as soon as possible.

  • Wayne

    The reason I personally opposed the Olympic bid was because we can refer back to other cities, quite a few I think, which ended up in a financial quagmire over their Olympics.

    I’m quite sure these examples were pointed out at the time the debate on holding the event here was taking place. I’m also pretty sure that we would have been given complete assurance from developers and the politicians of the day that nothing could possibly go wrong with the Vancouver bid. We have actually been watching this tsunami slowly coming at us from south of the border for almost two years.

    I really appreciate the information and opinions that are coming forward now from Michael, Francis and ch to name just three. I’m following the posts religiously.

    It sounds like everyone is having trouble wrapping their heads around this but I maintain this was a gamble and it’s looking like we lost. I’m offended because I don’t think politicians have the right to gamble with taxpayers money.

    I think it was ch who pointed out that Vancouver never seems to grow up. It feels that way to me as well. It can be argued back and forth but as far as I’m concerned, after Expo, Vancouver sold (or gave away) the False Creek land for a fraction of what it was worth. Now, even though we must be talking about some of the most desirable urban land in North America we’ve managed to screw up again.

    Thanks for all the hard work that’s going into trying to get to the truth of what Vancouver is faced with here.

  • foo

    Michael,

    No-one is disputing that what’s being created at the OV is very nice and impressive. But it’s completely unreasonable, and unsustainable in the extreme, to create it at such cost to the residents of the city, especially since the majority of them will almost never be able to make use of it.

    And to have taken such risks is ridiculous. Plenty of people could see years ago that this was a bubble that was going to burst badly, and to hear people like yourself say “no-one could have known this would happen” is outrageous.

    Maybe if more city staffers and councillors had been reading VHBs blog back in 2005 we wouldn’t be in such a mess now.

  • urb anwriter

    I just find it inconceivable that bidders are allowed to bid without being held accountable…

    You walk in to a store, the price-tag says $1.49, that’s what you pay. No. The store phones you later and tells you that you are now on the hook because the bill for shipping, which came in late, was higher than they expected. The additional charges will be added to your credit card.

    Or, perhaps, you get a written estimate (perhaps, if you’re really obstinate, a price guarantee) and when your repairs are finished, and your car ready to go, the bill has mysteriously doubled – ‘oh, it was a more complicated job than we thought.’

    Good.

    It’s more complex than you thought. That means you are incompetent. If you, or in this case the prime contractor and sub-contractor, can’t actually determine the cost, you are, by definition, unable to perform the task.

    And, yes, the cost of materials was rising. And, yes, the cost of labour was rising. But many contractors managed to bring projects in, more or less, on budget.

    And, in a delightful response to Wayne, I think the appropriate quote is Jean Drapeau’s “the Olympics can no more lose money than a man can have a baby.”

  • Dawn Steele

    Being “on the hook” in this context means 2 different things to me:

    1) We’re suddenly in the position of having to find credit to the tune of almost $500 million in a big hurry to complete this project on time if we can’t convince Fortress to cooperate. No easy task in a normal market – a truly daunting prospect in the middle of a global liquidity crisis the likes of which we haven’t seen in 80 years.

    2) In the longer term, we have assumed significant risk in that we taxpayers will be liable for any shortfall in the final reckoning, if and when we finally manage to get all these units built and sold. We are also liable for the carrying costs in the meantime, so it’s not like we can sit on these units for a decade waiting for the market to turn around. In the current market and given the global financial situation, the risks this poses to the public purse are enormous.

    This is why governments aren’t supposed to play in markets – we just can’t afford to take such huge risks with other people’s (taxpayers’) dollars without their agreeing that the potential payoff is worth the risk. So it’s one thing to guarantee a loan for private construction of a new public facility like a sewage plant, because this is something the public has agreed we need to have anyway.

    It’s quite another thing for a government to provide a 100% guarantee on what is essentially a speculative market investment. The fact that the units will be borrowed for use as an Olympic Village for a few weeks doesn’t change that fundamental fact, which everyone seems to have forgotten from Day 1.

    Someone who understands governance should have asked this question from the outset: Why are Vancouver taxpayers guaranteeing a private condo project?

    So why didn’t that happen?

    1) Because the lines between the public and private sectors and between public and private risk were blurred. Larry Campbell was so confident in an ever-rising condo market that he risked his personal capital on a stake in two luxury condos, so why indeed not do the same as mayor by putting the city on the hook for the whole hog? How many other key decision makers were personally invested in the local condo bubble?

    2) I’ve read a few really interesting analyses in the past week on the reasons for the global bubble and why so many people foolishly bet the farm (as opposed to some pocket money) on assumptions that a rising market was inevitable. There are many reasons, but many of the pivotal reasons seem to relate to human psychology. For example, the same reason people are prepared to live in Richmond or to ignore seismically unsafe schools: until it’s actually happened to you, you don’t really believe that the Big One is ever going to get you. Or groupthink – if everyone else is doing it, it must be OK.

  • crs

    I’m interested in knowing how much it will actually cost if the city does nothing. I don’t really understand what a completion guarantee means. If the project was cancelled, how much in cash would the city actually have to pay out? Never mind the value of the land, I would like to see an apples to apples comparison of how much the price tag is if we help finish the project versus abandoning it. Then, assuming its actually cheaper to abandon then to borrow, we can decide how much not having egg on our face is actually worth.

    On a seperate note, I was hoping our mayer would play hardball with the federal government on this, if we play chicken with them, surely wouldn’t they want to save face and pony up whatever is needed. I think we should vote on this matter, say no, and hope for provincial or, even better, federal rescue.