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Vancouver real estate: city staff note to developer seen to suggest land lift for controversial Broadway rental tower

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On July 21 this year, Vancouver city council cast a close 6-5 vote to approve a rezoning application for a 28-storey rental tower.

The development site is at the southeast corner of West Broadway and Birch street, the former location of a Denny’s Restaurant.

About two years earlier, council enacted a comprehensive development zoning bylaw for the property at 1296 West Broadway.

This was to enable the construction of a 16-storey market rental tower with 153 housing units, and commercial uses on the lower levels.

The developer later returned with a new application, this time with the property addressed as 2538 Birch Street.

The company 1061511 B.C. Ltd (Jameson Development Corporation) wanted a taller building with more rental units.

It was now going to be a 28-storey rental tower, meaning an additional 12 storeys.

There will be a new total of 258 rental units, of which 22 percent or 58 units will be under the city’s  Moderate Income Rental Housing Pilot Program or MIRHP.

Among the materials considered by council in the second rezoning application was a July 9, 2020 memo by Gil Kelley, the city’s general manager of planning, urban design and sustainability.

In his memo, Kelley wrote that there is “no additional land lift generated by the additional height proposed under the MIRHPP application”.

“The costs to secure 22% of the residential floor space at below- market rates equates to the value of the additional storeys,” Kelley stated.

The Kelley memo was in response to a query by councillor Jean Swanson.

Because there is no land lift, or an increase in the value of the property, the developer does not have to make a community amenity contribution or CAC.

“By way of comparison, “ Kelley explained, “if the project was permitted to achieve 28-storeys at 100% market rental rates, the additional storeys would have generated a CAC of approximately $9 M[illion].”

“Therefore the costs to secure 58 MIRH units over 60 years at this location is $9 M,” Kelley continued.

The Fairview/South Granville Action Committee represents citizens who opposed the new rezoning.

The grassroots-based organization did not want a taller building, and preferred Jameson Development Corporation to proceed with its original 16-storey rental project.

One of the documents the Fairview/South Granville Action Committee secured through Freedom of Information was an email by Brian Lightfoot, a property development officer with the City of Vancouver.

The Lightfoot email dated January 14, 2019 was addressed to Tom Pappajohn of Jameson Development Corporation.

“Further to your recent conversation with Brian Sears, please find attached the City’s revised version of your proforma indicting the potentially far greater land lift that could be achievable from this proposed rezoning which would suggest a potential capacity to increase the provision of MIRHPP units,” Lightfoot told Pappajohn.

[Sears is another member of city staff.]

Ian Crook of the Fairview/South Granville Action Committee provided the Georgia Straight a copy of the Lightfoot email.

According to Crook, there seems to be “discrepancy” between what the Lightfoot email stated and the assertion to council of the Kelley memo.

“This begs the question whether council was given correct information by staff,” Crook said in a phone interview.

Crook said that he finds it “quite troubling” that councillors are being “told one thing, and when you actually get a chance to reflect on what you discovered through Freedom of Information reqest, they’re saying something entirely different to the developer”.

“So on the one hand, theyre saying to council there’s no landlift here, and on the other hand, ‘we reworked your proforma…and we think you can get far greater landlift’,” Crook said.

Most of the one-page Lightfoot email was redacted.

The Straight asked city hall for a phone interview with a staff member who can talk about the matter.

No interview was granted, but the city provided a written statement.

According to the city, the Lightfoot email was “in response to a pre-application enquiry proposing a higher density”.

“The actual form of development proposed had changed by the time the application was formally submitted, with lower density and fewer units,” according to the statement.

When asked to comment on the city’s response, Crook described it as “wrong”.

According to Crook, the Lightfoot email dated January 14, 2019, and which talked about a land lift, came after the developer’s open house in late 2018.

Crook recalled that the proposal at the time had “already been accepted into the MIRHPP Program with the 28 floor proposal in June 2018, and had a response to their rezoning enquiry in October 2018”.

The Fairview/South Granville Action Committee has yet to decide what to do next.

Source: – Straight.com

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This Week’s Top Stories: Canadian Real Estate Prices Forecasted To Fall, As Households Make Fewer Payments – Better Dwelling

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Time for your cheat sheet on this week’s most important stories. 

Canadian Real Estate 

Moody’s Doubles Down On Forecast Of Canadian Real Estate Prices Falling Soon

One of the world’s largest credit rating agencies confirmed an early forecast of falling home prices in Canada. Moody’s had expected government measures would delay any impact to home prices. The firm believes this is still true, and even elaborated on which markets will be hit. They expect enthusiasm over stimulus measures will begin to wear thin. At this point, the reality of a damaged labour market, and how meaningful improvements have been will start to hit sellers. This is expected to be stronger in some markets, like Toronto, than other markets – like Vancouver. 

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Canadian Condo Prices Peaked In April, Only Three Major Markets Now At Peak

Despite booming Canadian real estate sales, condo apartment prices have now fallen from their peak price. The aggregate benchmark reached $478,700 in August, up 6.45% from last year. This number is down 0.15% from the all time record reached in April. As you might expect, not everywhere is falling. Three markets have printed new all-time highs as of August. The rest however, have fallen – and some markets haven’t seen an all-time high in over half a decade.

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CMHC: Nearly Half Of Canadian Real Estate Markets Have “Moderate” Vulnerability

Canada’s national housing agency, and state-owned insurer, sees a lot of risk in real estate markets. Seven markets are now flagged as having “moderate” levels of vulnerability, up from five in the spring. Toronto and Vancouver remain in the moderate category, while Montreal continues to be considered low risk. The organization did say things appear better than the reality, due to disposable income temporarily being inflated by government support. Once disposable income falls back to non-supported levels, overvaluation metrics should rise once again.

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Canada’s Largest Real Estate Markets See Permanent Resident Declines Accelerate

Canada’s biggest real estate markets are seeing one of their fundamental drivers continue to deteriorate – immigration. Toronto only saw 4,450 permanent residents arrive in July, down 64.0% from last year. Vancouver  saw 1,300 people, down 71.1% from last year. Montreal fell to 2,110, down 47.2% from last year. Toronto and Vancouver have seen the declines become larger from the month before. Montreal bucked the trend by seeing a smaller decline, but has also seen a much longer trend that goes back before the pandemic.

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Canadian Mortgage Debt Is Soaring, But Payments Fall Over $4 Billion

Canadian mortgage debt is swelling, but households are making a lot fewer payments. The amount paid towards mortgages hit $90.27 billion in Q2 2020, down 3.32% lower than last year. Almost all of this is due to paying off less interest. Breaking the numbers down, we see payments towards principal are on the decline, while payments towards interest are actually rising. 

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Office real estate market will get back to pre-Covid level, in 2025: Cushman & Wakefield – CNBC

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The coronavirus remote work experiment will become a permanent trend, but at some point, employees will return to the office in numbers that match the past. When? It could take five years, according to a new forecast from Cushman & Wakefield.

Global office vacancies will not return to their pre-Covid peak levels until 2025 and, in all, a net 215 million square feet of office vacancy will have been lost due to the pandemic, according to the outlook from one of the largest real estate services firms in the world. Between Q2 2020, when Covid-19 hit the U.S., and Q3 2021, the net negative office square feet damage will reach 95 million square feet, roughly 10 million square feet more than the financial crisis trough.  

The situation will be the worst in the West. During the financial crisis, Canada, Europe and the U.S. recorded a combined loss of 120.5 million of square feet occupancy from peak-to-trough. Including Q2 2020, that will reach over 200 million square feet of “negative absorption” peak-to-trough in the Covid recession, according to Cushman & Wakefield’s analysis.

Work from home is ‘very real’

“We know this work from home trend is very real,” Kevin Thorpe, the firm’s chief economist, recently told CNBC.

For the study, Cushman & Wakefield surveyed some of largest companies around the world about the future of the office, and attempted to measure both the cyclical impacts of the Covid recession and structural impacts assuming a higher increase in work from home. 

Thorpe said two key findings emerged. First, office leasing fundamentals will be significantly impacted and vacancies reach an all-time high. But the second find is more encouraging: the office real estate market will fully recover, according to Cushman & Wakefield, largely due to employment growth and the ongoing shift in the U.S. economy’s concentration in certain types of professional jobs. 

Vacancies caused by Covid-19 will result in over 200 million of net negative square footage in the office real estate market, but the growth of professional services sector jobs will help lead to a recovery over five years, says Cushman & Wakefield.
Thomas Barwick | Getty Images

In all, the real estate firm estimates that 82% of the damage will be related to cyclical factors: permanent office job losses and the rise of coworking, while 18% is related to structural factors: primarily assumptions about permanent remote workers and hybrid workers — those who work remotely some of the time.

Work from home will double, and hybrid workers will increase. The study estimates that the share of people working permanently from home in the U.S. and Europe will increase from roughly 5-6% pre-Covid-19 to between 10% and 11% post-Covid, while the share of hybrid — also referred to as agile workers — will increase from between 32% to 36% to just under half of all workers.

Levi Strauss & Co. CFO Harmit Singh recently told a CNBC @Work virtual event that it pulled the plug on any new commercial real estate during the crisis. “The myth that work from home is not productive has been busted,” the Levi Strauss CFO said. “I believe we will settle into a culture where working from anywhere will be the new norm, with work from home or office or a hybrid arrangement.”

Google recently announced it will try a hybrid model of work as most of its employees do not want to be in the office every day.

Many younger workers are taking advantage of the Covid remote working shift to travel, embracing a “digital nomadic” lifestyle, a shift which could become permanent for a new generation of labor.

Over time, as economy shifts to a knowledge-based, professional services economy, it will offset the flexible workforce trend, Cushman & Wakefield’s study concludes. “But in the near-term, there will be significant challenges for the office sector,” Thorpe said. 

Many workers still do not feel safe enough to return to office. One study found that only 14% of workers said that they trust their CEOs and senior managers to safely lead them back to work. 

Global office vacancy will rise from 10.9% pre-Covid crisis to 15.6% by Q2 2022, the study forecasts.

Some of the largest companies in the world have been expanding office space in major cities, such as New York, during the crisis.

Facebook, which has been acquiring New York real estate for years, agreed last month to a major lease at the old James A. Farley post office building in Manhattan. Amazon has also purchased the Lord & Taylor building on 5th Avenue, and that is even though Facebook CEO Mark Zuckerberg has said as much as half of the company’s workers may be remote in the future. In March, just as the Covid crisis hit the U.S., Amazon paid over $1 billion to acquire tha Lord & Taylor building in New York, which includes over 600,000 square feet of space.

A new analysis from Cushman & Wakefield estimates that work from home will double across the globe in the next five years with the largest share in the West.
Cushman & Wakefield Research “Global Office Impact Study and Recovery Timing”

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Appraisal data shows scale of value destruction in US real estate – Financial Times

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Commercial properties hit by the economic effects of coronavirus could have lost as much as one-quarter of their value or more, laying bare the scale of the damage being wrought across American malls, hotels and other commercial buildings.

Evidence emerging in the commercial mortgage-backed securities (CMBS) market from recent appraisals also raises questions over the value of the collateral backing commercial mortgages throughout the financial system.

Properties that have gotten into trouble are being written down by 27 per cent on average, data from Wells Fargo shows. New appraisals are triggered when a commercial property owner starts to have trouble paying the mortgage, and the loan is handed to a “special servicer” that could eventually seize the property on behalf of CMBS holders.

“It’s a big number,” said Lea Overby, an analyst at Wells Fargo. “This is material.”

Recent examples show hotels being especially hard hit, given the collapse in tourism and business travel. A Crowne Plaza hotel in Houston was valued at $25.9m this month, down 46 per cent from when it was bundled into a CMBS deal in 2014. The hotel, which sits just off the Katy Freeway has not paid its mortgage since March and was transferred to the special servicer in May. 

The Holiday Inn La Mirada, about 20 minutes drive from the centre of Los Angeles, was recently valued at $22.1m, down 27 per cent since it was securitised in 2015, having not paid its mortgage since April. Another Holiday Inn in Columbia, Tennessee, had its appraised value cut by 37 per cent this month to $7.7m.

“The numbers themselves are atrocious,” said Gunter Seeger, a fixed income portfolio manager at PineBridge Investments. “A 30 per cent markdown in appraisals pretty much across the board is horrific.”

The number of new appraisals is accelerating. The Wells Fargo analysis covers 116 struggling properties bundled into CMBS that have had new appraisals since April 1 — 68 of them this month.

Of the total, 75 of the mortgages were backed by hotels while 26 were retail properties, whose tenants have been struggling under lockdown-enforced closures and economic weakness.

Banks have been raising provisions to cover potential real estate losses this year, and the number of commercial real estate loans in US bank portfolios that were flagged as being potentially problematic spiked in the second quarter.

Meanwhile, CMBS investors have been keeping an eagle eye on appraisal values to gauge their risk of losses. Over the past four years, the average loan-to-value ratio on mortgages bundled into CMBS has been below 60 per cent, giving investors a sizeable cushion, even if a property has to be seized and sold for the loan to be repaid.

Coronavirus has substantially eroded that cushion, however, and loan-to-value ratio in the average multi-property CMBS is now almost 90 per cent.

“The longer this crisis goes on, we will move into a valuation problem,” said James Shevlin, president of special servicer CW Capital. “It absolutely concerns us but right now I still think we are covered.” 

New appraisals are an early step taken by special servicers and help them assess how much time to offer borrowers to resolve their difficulties before they start foreclosure proceedings.

Special servicers and analysts said that it can be challenging to accurately appraise a property in the current environment. The potential sale value over the next few months could be heavily affected by another uptick in coronavirus cases, more stringent rules governing travel and people’s ability to go outside, or even a volatile presidential election. Equally, property values could appreciate if the economic recovery gathers speed. 

“It’s someone’s best estimate of value,” said Alan Todd, an analyst at Bank of America. “Right now there is so much uncertainty. There could be a very high margin of error.”

Additional reporting by Robert Armstrong

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