Friday, January 23, 2009

Developer Turns Condos into Rentals

I came across this interesting article -- from January 2007 -- about a developer named David Franco turning an unbuilt Washington DC development from luxury condos into rentals. To quote:

"In many cities, banks have significantly scaled back loans to condominium builders. Some have demanded that developers sell half or more of the units in a building before even beginning construction.

In hopes of salvaging something from their costly plans, hundreds of developers like Franco are looking to the strong market for apartments, planning to rent their units for at least a couple of years while waiting for today's condo surplus to shrink.

After six weeks of failing to lure more than a couple dozen buyers, Franco and his partner, Jeff Blum, joined the builders of nearly 6,000 condominium units in the Washington metropolitan area who have decided in the last three months to recast their projects as rental apartment buildings."

Read the whole thing. Like a book we've already read, today we hear this:

"In the face of sales that have ground to a halt, Wall Financial Corp. has decided to scrap its 414-unit Wall Centre False Creek condominium project in favour of building rental apartments on the site, company principal Peter Wall said in an interview.

In its last quarterly financial results, Wall Financial said it had sold almost 30 per cent of the Wall Centre Creek's units, 120 in all, but that sales had come “to almost a complete stop” during the quarter."

I see. What an innovative concept! Vancouver hasn't seen any substantive purpose-built rentals for years now so sounds like a winner; a real contrarian move. Surprised nobody else has thought of that. I would love to see how Mr. Wall pitches this idea to his financial backers, or is he using his own money?


Van Housing Blogger said...

Yeah, and how do rents go when the housing market / economy goes into the can?

Not up.

Van Housing Blogger said...

Quote from above article:

"Many landlords have had to slash rents by around 20 per cent, according to agents. In the most oversupplied parts of London, falls in rental income have been as sharp as 30 per cent."

Bah. That's just London. No one wants to live there. No mountains.

van_coffee said...

VHB - Hilarious.

I was in London recently staying with friends. They have half of the 4th floor, in a beautiful 6 floor building right on the river Thames. It is shocking to me how affordable that city is (relative to incomes, of course) when you compare it to Vancouver. It aint cheap, but if you're a professional, London housing is cheaper than Vancouver.

jesse said...

It's one thing to be an "accidental landlord" but to do it for 400+ units? Those be high stakes. It's just like the hotel business, only with long-term guests, right?

patriotz said...

The numbers for purpose-built rentals simply do not work, even without allowing for any downside on rents. You are going to have to get every single fool out of the condo market before condo prices fall enough to make yields attractive enough for rentals.

That's years away if indeed it ever happens.

Toronto Condo said...

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Alan said...

What ever happened to the plan to convert the Coast Plaza Hotel on Denman into rental apartments?

CJ said...

Hey, what can Wall do? He can't really make lemonade out of lemons on this one, so he's trying to minimize his losses. They should at least be decent quality design and construction -- they won't be Onni-type junkpiles. Wall's got deep pockets. Notice he was smart enough not to overbid on the Olympic Village.

van_coffee said...

Demographia has updated their international housing market affordability analysis. Interesting read.

Vancouver is not #1, but it's pretty damned close.

johnnyrent said...

van coffee

We may have just missed #1 in the world, however we are #1 on the Continent. Mind you, according to Rennie et all in today's Province, its still "a great time to buy".

Robin said...

van_coffee, thanks for posting that PDF.

We are (4) for affordability (ahead of New York & London), but we seem to be (1) for "prescriptive land use" (regulated land use). We're ahead even of San Francisco.

According to the survey, markets that have heavily prescriptive land use lead to the greatest boom/bust cycles and also greater unaffordability in general. Therefore, I am disturbed that they are reporting the the US and Canada are not heeding this, and are continuing with prescriptive policies, whereas the UK and Australia are paying attention and softening restrictions.

Is there some disadvantage to softening restrictions? And, is this just going to keep unwinding throughout my lifetime in Vancouver!!? Or will we have short sharp shocks? (Boom/Bust and consistent unaffordability seem contradictory to me, so then, which is it, I mean?)

van_coffee said...

Ella -
Good question.

There is one big disadvantage to softening - it's called political suicide.

Once there are land-use restrictions in place, and the longer they go on, the harder they are to change.

jb.m said...

fantastic article. one thing though, the cities with the highest land use restrictions are also the "most desirable". I assume that factors that make a city desirable (seaside, mountains) necessitate stricter land use.

jb.m said...
This comment has been removed by the author.
patriotz said...

According to the survey, markets that have heavily prescriptive land use lead to the greatest boom/bust cycles and also greater unaffordability in general.

And just what "heavily prescriptive land use" was there in Arizona, Florida, or Nevada? Or, for that matter, in California's Central Valley or Inland Empire?

There was no housing bubble in Germany, and their land-use restrictions make anything in North America look tame.Compare to Spain, which had one the biggest bubbles in the world with virtually no restrictions.

Or right here in Canada, Ottawa with no bubble to speak of is every bit as restrictive as Vancouver.

These people are pursuing an ideological agenda claiming the land-use restrictions are responsible for housing bubbles. They're wrong.

jesse said...

Yeah I don't get why Demographia is still harping on the "restrictive land use" thing. Of COURSE land use is more restrictive when the city is desirable. NIMBYs and BANANAs don't just happen out of thin air; they are a product of wanting to maintain desirability.

Other commenters here have commented about potential flaws in how Demographia defines affordability.

Robin said...

re Demographia.

I appreciate the answers to my question "Is there some disadvantage to softening restrictions?".

Lots to think about, thanks.