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Cressey Development Group is planning a retail and condo development between West 47th Avenue and West 48th Avenue in Vancouver. 6300 Block of West Boulevard, between West 47th Ave. and West 48th Ave. in Vancouver, British Columbia, Monday, September 29, 2014. Rafal Gerszak for The Globe and Mail

Rafal Gerszak/The Globe and Mail

An aging three-storey apartment complex covering one city block on Vancouver's affluent west side has been sold at a hefty profit to a developer for $26.3-million, the latest sign of the boom in Canada's most expensive housing market.

Cressey Development Group's purchase price is $6.35-million higher than what the sellers paid last year, or a 32-per-cent premium. Cressey plans to demolish five buildings dating back to 1948 on the site and construct a new four-storey, mixed-use development with retail space on the ground level and condo units above.

The purchase places the spotlight on builders' hunt for developable land in Vancouver, which is boxed in by the ocean, mountains and agricultural land reserves. Canadian Pacific Railway Ltd.'s abandoned freight line, the Arbutus corridor, is being eyed by some developers because the 9.5-kilometre-long route is up to 20 metres wide. The railway's property snakes through some of Canada's priciest neighbourhoods, including a stretch of track next door to Cressey's new acquisition.

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Cressey's deal to buy the multifamily complex will close on April 7. Tax records show that the sellers, Alex Zhang and Lucy Xu, assembled three commercially zoned lots between January and May of 2014 for a total of $19.95-million to clear the way for a single listing. The three land parcels combined had assessed values that totalled $15.87-million in July, 2013.

Apartment tenants in the complex used to be suite owners in a long-standing co-op arrangement for 44 units, said Mark Goodman, a principal at HQ Commercial, which listed the property in September for $28-million. Mr. Zhang and Ms. Xu, through West Boulevard Property Ltd., invested hundreds of thousands dollars in preliminary work by architects and planners for a condo proposal.

Vancouver-based Cressey, no stranger to the upscale Kerrisdale neighbourhood, paid a total of $22.14-million last year for multifamily buildings on one city block directly south of the one that it will take possession of in April. Cressey has filed an application to the City of Vancouver to build a new project on the south site, and expects to apply this fall to construct a similar-sized retail and condo development on the north site, between West 47th Avenue and West 48th Avenue.

CP has the right-of-way for the Arbutus corridor, but City of Vancouver officials have balked at rezoning the railway's property for residential development, opting to keep the transportation designation. CP hasn't used the line to transport freight since June, 2001.

"A real estate project along the corridor would be successful, but first the zoning has to be determined," Cressey executive vice-president Hani Lammam said.

CP reckons its land is conservatively worth $100-million, while the City of Vancouver is willing to pay $20-million – a lowball offer when compared with prices for the two blocks sold to Cressey.

"We know this is a very valuable piece of land," said Mark Wallace, CP's vice-president of corporate affairs. "The true value of this corridor is huge. We think that we're being very reasonable and so far, the city's offers to buy this land from us have been wildly inadequate – not realistic."

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He said there are creative hybrid ideas worth exploring – the railway has proposed a pilot project to build housing on a small portion of the Arbutus corridor, subject to rezoning. CP believes that selected real estate development could co-exist with public transit while setting aside space for sanctioned community gardens.

CP has offered to hand over its property for free if the city rezones several parcels and allows the railway to participate in housing development. "The city zoning is what's really blocking us," Mr. Wallace said. "You're talking to a wall when you talk to city hall. I'm tired of negotiating with myself."

But Vancouver city manager Penny Ballem said CP is engaging in short-term thinking about real estate because civic leaders envisage a corridor strictly for streetcars carrying passengers, possibly within 20 years. "As the city grows, you really have to work very hard to preserve green space and transportation corridors for future citizens and generations," Ms. Ballem said.

For now, CP plans to reactivate the Arbutus line to use the tracks to store rail cars.

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