City looks to boost Olympic condo sales
VANCOUVER -- Lower prices, bulk sales and other incentives are being considered to attract buyers to the financially troubled Olympic Village.
Vancouver City council held a confidential meeting earlier this week to consider options that could encourage sales of the Southeast False Creek development, which was the site of the athletes' village for the Vancouver 2010 Winter Games. The council has some control over how the residential development is sold because the developer, Millennium Developments, still owes city taxpayers more than $700 million.
At the same time the marketer for the project confirmed it will launch a fall sales campaign in mid-October with buyer incentives.
Faced with a difficult economy, a flat real estate market, comparatively high condo prices and the new Harmonized Sales Tax, Millennium Developments has had considerable difficulty in attracting buyers following the close of the Games.
So far 254 of units have been sold, largely before the Olympics. But another 483 remain unsold. Unit prices range from about $600,000 for a small 600-square foot condo with no view to about $10 million for a top-of-the-line skyline apartment.
Millennium made a scheduled payment of just under $200 million to the city earlier this month and has to meet another deadline in January. But before that can happen, it has to create sales and cash flow in what city councillors are being told is an extremely difficult economy.
In Tuesday's in camera meeting, councillors were briefed by City Manager Penny Ballem, senior staff and external lawyers and accountants hired to monitor the city's financial position in the development.
But there is no plan to call the outstanding balance of the city's loan to Millennium and the developer remains the owner of the project, Ballem told The Vancouver Sun Thursday.
She would not talk about the specifics of the confidential meeting. However, she specifically denied a rumour that Millennium had defaulted on a payment and instead said most of the pre-sales of units have now been completed.
"Millennium is certainly not in default of any $200 million. But as you know, sales are slow and we have actually done a great job in this environment with the pre-sales that have closed. We're working with Millennium every day to optimize what will happen at the village. I don't think there is any mystery about it, it is a very difficult real estate and economic environment and there is not any developer in town who is enjoying a breakthrough season."
Lesli Boldt, a spokeswoman for Millennium and Bob Rennie Marketing Systems, said the two companies had planned to begin a new sales campaign in late September but postponed it to next month. She didn't know why it was delayed.
"They are putting together a fall sales program that will include incentives to try and move these units," Boldt said. "I can't tell you what those incentives are, but they are significant."
The city became the lender for the Olympic Village in 2009 after it bought out New York hedge fund Fortress Credit Corp., the prime lender. The previous city council had given Fortress a controversial blanket guarantee for a $683 million loan. But the project ran into trouble because of a hot construction market and Fortress stopped advancing money to Millennium. In order to finish the village on time for the Olympics, the city bought out the hedge fund and bumped up the loan to more than $750 million. Including the land, which was sold by the city to the developer, Vancouver's exposure in the project topped nearly $1 billion.
The city has long viewed the new neighborhood as a jewel and believed the loan would be repaid swiftly after the Games, but the economic downturn and negative stories about the deal have made sales difficult to achieve.
Councillors said the Tuesday meeting included a four-part series of motions for options and ideas for encouraging sales. But they said there is no suggestion that the lending deal between the city and Millennium is in danger of default or that the city has to make major changes that would imperil its financial position.
"There is a continuous assessment of both the legal and financial challenges of the project. But any decisions taken don't fundamentally change what's been going on for some time, which is that the city manager, with the approval of council is considering every possible option to protect the taxpayers," said Coun. Geoff Meggs.
Council last year gave Ballem the power to approve some alternatives for achieving sales, he said, but larger structural changes to the loan agreement still need to be approved by council. Millennium, for example, can't offer "fire sale" prices just to clear out stock if it would endanger the city's ability to recoup its investments, he said.
Meggs said all of the options being considered, including conversion of some condo units to market rental units, sales price reductions and bulk sales, have been under consideration since the city took over the loan. He said there has been no council decision to approve any of the measures but many of the options are at the discretion of the developer and Rennie as long as they don't endanger the city's investment.
The imposition of the Harmonized Sales Tax has also severely harmed sales in the Millennium Water development, just as it had for real estate sales elsewhere in the city, according to Coun. Kerry Jang. He said many potential buyers and investors have "kept their hands in their pockets" waiting to see if the new tax will be repealed. Still, Jang is confident Millennium Water's units will eventually sell.
"I have a confidence that (the city's money) will be repaid. It was a good risk. All the advisers said it was something doable," said Jang. "So far the indications are that we are on track and nothing has changed from prior reports to council. Opportunities always arise and it is prudent for any city to look at all opportunities."
Meanwhile, the city expect residents to begin moving into its 252 affordable housing units in November. David McLellan, the general manager of community services, said the city expects to choose the non-profit service providers that will run the three city-owned buildings next month.
The city has already collected a list of 180 people, including firefighters, police officers and teachers who want to rent the market-rate portion of the units. In an effort to recover the $110 million cost of building the three hyper-green buildings - including a state-of-the-art "net zero" building - city council agreed to convert half the units to market-rate rentals. Those units, which the city wants targeted at key public sector groups, will subsidize the cost of the rest of the units, which will be rented out at below market rates.
"We expect to be entering into a lease with the service providers shortly, and BC Housing will also have to enter into an operating agreement with them as well," McLellan said. "I have no doubt that we will be able to fill all the units, and we're still expecting people to start moving in in November."