An American developer is looking to attract the international buyers who would have previously looked to Vancouver.
“There are a lot of international buyers that were buying in Vancouver until they couldn’t really do it anymore, so we want to capture those buyers,” says long-time developer Bob Kagan, senior vice-president of California-based Laconia Development. “We want to capture that market.”
Mr. Kagan has been building in Seattle for more than three decades and his latest project there, in central Belltown, is a 41-storey condo project called Spire. The tower, which is near the landmark Space Needle, is being built in partnership with China’s biggest residential developer, Vanke.
Mr. Kagan will be in Vancouver in October and November to meet with Vancouver brokers from Nu Stream Realty, who will help him entice buyers to his project. About one quarter of the building has sold since it launched in May. He’s not the only one looking to drum up buyers in Vancouver. Last weekend, Concord Pacific, which has a condo project in Seattle, was co-sponsor for a Vancouver event that billed itself “an in-depth understanding of top tier educational opportunities, future job market in Seattle and the Real Estate Boom!,” featuring expert speakers from Seattle, with seminars for English- and Chinese-speaking attendees.
They see an opportunity in Vancouver buyers, now that the city’s housing market has slowed. In May, 2017, Greater Vancouver detached house prices peaked at an average of $1.8-million and have been declining since. House prices on Vancouver’s tony west side – once popular with satellite families and foreign buyers – have fallen by 30 per cent since the peak. Experts say a host of taxes deliberately aimed at foreign and speculative buying activity as responsible for the slowdown, as well as tighter mortgage rules.
Mr. Kagan says that as a result, he’s seeing more Vancouver developers in Seattle and basically, he’d like to beat them at their own game.
“They are all coming down here because your [market] is drying up and we are going to have to compete with them.
“And they come with buyers who’d otherwise like to buy in Vancouver, but for one reason or another they can’t, so they buy in Seattle.”
The Spire was originally going to be a rental tower, which has been the trend for years in Seattle. But the developer switched to condos last year, pricing the units at US$1,200 a square foot.
“Everybody was doing rental,” Mr. Kagan says. “The condo market dried up around the recession and is just now coming back. In real estate timing is everything. We call it the real estate casino – that’s really what it is.”
Vanke is a publicly traded company and Mr. Kagan says they are moving into markets outside of China.
“[Vanke] have been here [in the United States] for a while, and what they do is provide capital to U.S. developers,” Mr. Kagan says, “and they form partnerships with developers like us and we do the work and split the profits.
“So they are doing it because they see the company’s future eventually [moving] out of China. They are in London, Singapore, the U.S., and they want to learn how it’s done here. The way to learn is through partnering with domestic builders like ourselves.” He says the arrangement includes direct sales to China. He is not concerned about Vanke’s ties to the Chinese government.
“We’re so used to it, it doesn’t bother us. But they are a private company and they are expected to make earnings for share, just like we do,” he says. “Their name in China is gold; they carry a big marketing punch in China. So they have taken some units to China and we have had some sales from them because of that. They have sold a good number of units for us in Spire.
“Spire is three blocks away from Amazon’s world headquarters and the Chinese investors know that. That’s a big deal.”
Dean Jones left Vancouver 25 years ago to settle in Seattle, where he is president of Realogics Sotheby’s International. He has travelled to China to market Seattle properties to buyers. Mr. Jones says he has closely watched the transformation of Vancouver’s housing market in the past couple of decades.
“There’s a part of me that regrets leaving my hometown right at the flashpoint of the market,” Mr. Jones says, “but I now feel well-positioned – and I benefited from viewing those trends up north, that are following a similar trajectory here in the Seattle market just 20 years later.”
He says foreign nationals are arriving in the region for work, to send their kids to school or to invest in a secondary property.
“That’s just part of being a global citizen. If you have got a multi-entry visa program and you can afford it, why not pick up a place in the Seattle area? You can have a second home, or your fourth home or your 10th home," Mr. Jones says. "It’s no different than what Los Angeles, San Francisco, New York and perhaps Vancouver has been for years – a great place to have a home and also portfolio diversification.”
Mr. Jones says every major developer from Vancouver is working in Seattle, as well as many Chinese and Hong Kong developers. Concord Pacific, Westbank, Onni, Cressey, Bosa and others have all made their mark on Seattle, he says. Because the region suffers from some of the worst traffic congestion in North America, there is a huge push for urban density, to avoid commutes.
He says that Vancouver developers have an advantage because of their experience in building towers. “It seems like those who have it figured out are coming from experienced urban density markets, like Vancouver and Asia. I would say we are working with more international developers than we are with local ones.”
The difference between Vancouver and Seattle is that Vancouver’s residential market has been largely driven by wealth; in Seattle, the majority of the market is driven by jobs. The tech industry is flourishing in Seattle because companies don’t pay a state tax, as they do in California, and housing costs are still lower. Mr. Kagan says those lower costs combined with a thriving jobs market makes it a less riskier investment than Vancouver, where wealth can come and go. The rental market especially benefits from a strong jobs economy.
Daryl Simpson, senior vice-president of Bosa Properties, says his company is developing rental units in Seattle, along with other Canadian developers who are diversifying during Vancouver’s market slowdown. He agrees that Vancouver’s development frenzy has given them the know-how to do the same in Seattle.
“There are very few other places other than New York that have developed the sheer number of buildings we have developed in the last few decades, so the talent pool is quite deep in Vancouver and the number of projects is pretty significant,” he says. “The U.S. has incredibly good home builders, but in high-rise, whether condo or more affordable rental in an urban context, there is an experience in Vancouver that creates a culture of competency.”
And while Asian buyers who otherwise might have bought in Vancouver might be eyeing Seattle, he says they’re looking at other cities, too. Mr. Simpson says his company will stick with rental projects in the United States. However, Bosa Development, which is a separate company, has built condos in Seattle.
“The reality is, there is opportunity there now,” Mr. Simpson says. “The rental market is incredibly strong.”
It’s easier to build rental in Seattle than Vancouver, he says, for a few reasons. The permit process is more straightforward and land economics make it more feasible in certain areas of Seattle. Those lower land costs combined with high local salaries make it worthwhile to build luxury rental.
“It’s far easier to live in Seattle and pay rent on a brand new luxury rental suite than Vancouver, because incomes are so much greater there. The average employee in the Amazon campus earns around US$120,000, and that is the average – so the math works out better,” he says.
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