Rendering of the original Raphael building.Cape Group
When Vancouver developer Zack Ross heard that the Broadway Plan had been approved, he immediately ordered all work stopped at the site of a 95-unit apartment building on East 2nd Avenue, in the False Creek Flats area. Instead of a five-storey building, Mr. Ross now had the potential to go to 20 storeys.
His crew had finished excavation and was ready to start pouring concrete at the site, which is a short walk from a future subway stop on the Broadway subway line. The president of long-time family company Cape Group had already spent about $2.9-million in pre-construction costs. But according to the newly approved plan, he could go four times higher and at least double the number of units than the building underway.
He was hoping it would be easy enough to change the plan, since it fit with the City’s mission to generate for more rental housing. But now he has to apply for a new rezoning, a major setback that will take a few more months as he comes up with a new plan. The plan was mass timber construction for the original five-storey building, but that won’t be possible with a 20-storey building.
With the increased land value, he’ll recover some of the sunk costs, but he’s also scrambling to keep up with increasing production expenses. He says construction of purpose-built rental is getting more difficult.
“It’s a bigger project, so someone might think that means the developers make a ton more money. But that’s just not the case,” Mr. Ross said. “So many different things need to come together to make these things work, and [costs] all go up proportionate with the size of the projects.”
He is one of a few developers caught in the grey area of the new massively upzoned plan, and all the uncertainty that comes with it. On top of costs, uncertainty of how long it will take to get approved is making it difficult to supply the market with more rental housing, he says. He currently has three rental sites in the pipeline and hasn’t yet built one unit of housing.
“We now have a giant hole in the ground with no building there helping us to pay for the property,” he says. “We thought it should be a fairly easy process to get up to 20 storeys, and now we are looking at however long to rezone. And that doesn’t help with bringing units onto the market.”
If he’d known they’d be included in the Plan, Mr. Ross would have kept his retail tenant and the revenue coming in. It’s a predicament, he says, but at least he is fortunate enough to apply to go four times higher.
Mr. Ross’s developments wouldn’t displace existing renters. But if there were existing renters, he says it would be problematic to redevelop because of the City’s enhanced tenant protections policy, which requires that developers top up the rents of displaced tenants while they rent elsewhere, and then offer them an opportunity to return to the new building at the same rent they’d been paying, or a 20-per-cent discount on citywide average rent, whichever is less.
“The problem with those is they will be difficult because you have to replace the rentals. … It’s a huge impact on the pro forma when you try to put it together.”
Commercial realtor Mark Goodman, who specializes in the sale of rental properties, says that it’s a major obstacle. Properties have sold and there are listings for apartment buildings (RM zones) for sale in the Broadway Plan, but moving forward with development will be a challenge, he says.
“In those areas, the plan has been a failure,” Mr. Goodman says. “We have had enough feedback, we have talked to probably over 30 developers, and the sentiment is one of frustration. The plan does not work in RM-zoned districts, and that is the unfortunate truth, and the reality that we are facing.
“The tenant [protection] plan is onerous. A tenant can come back at same rent, and that’s a big risk, if you are tearing down 65-unit building and hoping for market rents. … The reality is that the plan does not work and will not encourage redevelopment of RM-zoned areas.”
He also takes issue with the province’s recent announcement that rent increases for 2023 will be capped at 2 per cent, far below the rate of inflation. New development outside RM zones will fare much easier, said Mr. Goodman.
One investment company is feeling confident about the rental market, despite the risks. Crombie REIT, which is developing the Broadway and Commercial Drive Safeway site with Westbank, said in an earnings call last month that it is considering a push for greater density than previously proposed, now that the Broadway Plan has been approved. Although it’s a few blocks away from the Broadway Plan area, Crombie’s president said in the teleconference meeting that it only makes sense at such an important transit hub. He also spoke about the profitability of having a thousand residents living above a SkyTrain station and grocery store that sells high-margin groceries.
The three-tower project includes two rental towers and a condo tower. The tower height at 1780 Broadway has always rankled some residents, who formed a group called No Safeway Megatowers, because the 24 to 29 storey heights are higher than what was set out in the Grandview Woodland Community Plan. That plan, approved by council, recommended heights of 12 to 24 storeys at the site. The group argues that the retail and office base pushes the height of the tallest proposed tower to 40 storeys. Residents of the neighbourhood, which has a high concentration of social housing and small mom-and-pop retailers, say they need a large public gathering space and more affordable housing for low-to-moderate incomes.
Paisley Woodward, member of the citizens group, had listened in on the earnings call and was disheartened to hear they want to apply to add more floors. She said she understands the need for towers at a transit hub, and she also understands that the REIT is duty bound to its shareholders to ensure the best returns possible. But she said the affordable component is scant.
“The job of Crombie REIT is to make money for investors. That’s what they need to do. So that’s fine. But for us as Vancouverites, what is in it for the neighbourhood? And what are we getting in terms of affordability? Virtually nothing,” Ms. Woodward says.
The three-tower project is offering 438 rental units, including 93 at below-market rates and 215 condo strata units, for a total of 653 units.
Vancouver city council postponed the project’s public hearing until after the municipal election in October. It’s expected the hearing will happen in the early part of 2023.
“We do have a little bit of time, and what I said publicly at the time was that we will take the time and have a look, and we may be able to add a number of floors of density,” Mr. Clow said in the virtual meeting, held last month.
“We have seen the Broadway Plan approved nearby with the towers with significantly more density or height than what we have on this site, even though it’s got that superior transit location,” Mr. Clow said.
Although Crombie, and REITs in general, don’t typically build condominiums, Mr. Clow said that in this case the condos would self-fund the project.
“In my mind the golden goose is population growth and under supply, so you see people able to raise rents in the residential business, and people generally can build developments. Even with inflation factors in certain markets they are able to build them profitably and establish that cash flow for higher cash flow growth.
“So I think we are very enthusiastic about it. And there is maybe a short pause, but it’s not a long pause. … I think the most strategic thing you can do for multi-res building is put a grocery store at the base, and the most strategic thing you can do for a grocery store is put a thousand people above it, so that one shops there every day and buys high-margin prepared foods, etcetera. So it’s a great program.”
Your house is your most valuable asset. We have a weekly Real Estate newsletter to help you stay on top of news on the housing market, mortgages, the latest closings and more. Sign up today.
Kerry Gold