Ian Young has produced another remarkable story for the South China Morning Post.

The implications are profoundly disturbing.  Not only is the real-estate market disconnected from local supply-and-demand considerations but increasingly the ability of the City to plan for its residents looks to be threatened.  When the West End plan was being considered a year or so ago, no one imagined the deal outlined below: a 60-storey tower priced out of the realm of even affluent Vancouverites, valuable accommodation being left empty, and unimaginable pressure being put on the West End and its affordable housing stock.

This will only add to the seismic forces that are building just under the surface, waiting for a political earthquake to shake the status quo – that sense that our leaders, public and private, are incapable of responding or, at higher levels, do not care about the consequences.

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Stampede

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Stampede: the inside story of Vancouver’s wildest property deal, gone in 7,200 seconds

It was in fall last year that Bruno and Peter Wall received an offer too good to refuse.

The prominent Vancouver property developers behind Wall Financial Corporation had spent C$16.8 million (HK$102 million) to buy two ageing walk-up apartment blocks on adjacent lots on Nelson Street in 2013. They had big plans for the downtown site: a glittering 60-storey residential skyscraper, taking advantage of the location within the city’s West End Community Plan, where a building could rise 168 metres tall under new zoning. The project was dubbed “Nelson on the Park” and the Walls turned to favourite designer Chris Doray to come up with what they hoped would be a new Vancouver landmark.

But now a consortium of investors was proposing something even more remarkable.

They would pay the Walls C$60 million for the site alone, which had just been valued at C$15.6 million by BC Assessment. The huge profit was impossible to resist, and the sale was completed in late January.

Doray, a 25-year veteran of the Vancouver development scene whose design has now been shelved, said he was “astonished” by the transaction, which he said set a new benchmark for commercial real estate in the city.

“The price on this block of land has now thrown everybody in the industry out of whack,” said Doray. “The property is worth, what, C$20 million, and somebody pays C$60 million? One wonders what’s going on. Is this New York? Is this Hong Kong?”

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The scale of the purchase, orchestrated by Sun Commercial Real Estate (Suncom) – a firm that specialises in pooling wealthy investors from Vancouver’s Chinese immigrant community – was exceptional enough.

But an investigation by the South China Morning Post now reveals the strange and frantic backdrop to the transaction – including a two-hour stampede by Suncom’s investors, desperate for a slice of the deal. It is a transaction that also sheds light on the rush of Chinese money fuelling Vancouver’s soaring real estate market.

… capital outflows from China were reaching a fever pitch, as companies and individuals scrambled to send money overseas last year in record volumes ahead of a feared yuan devaluation. The Canadian dollar was also plummeting, making Canadian property relatively more affordable to yuan earners, and average detached house prices in metro Vancouver soared more than 40 per cent last year, hitting an average of C$1.8 million. …

And so, against this heady backdrop on the morning of October 12, Suncom threw open the gates for the Nelson Street sale.

The result was nothing short of a frenzy.

“The 60 million dollars project at 1065 Nelson St Vancouver’s shares sold out in two hours! Thank you very much for the supporting from all my clients!” Lau announced on Facebook on October 14. …

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Fundraising tactics used in deals involving Suncom have previously drawn the attention of the BC Securities Commission, which in January announced it was reviewing the firm’s activities, partly in response to an SCMP article about whether the firm was involved in crowdfunding. …

Keeping up with the changing ownership of the Nelson Street site has been no simple matter.

The changes do not show up in land titles for the two lots, because they remain to this day in the hands of Nelson Street Residences Ltd, a firm set up by the Walls in 2013 which was added to the titles in March 2014.

Instead, it is ownership of Nelson Street Residences that has changed hands, thereby avoiding property transfer taxes of C$1.78 million for Suncom’s consortium. The share-transfer tactic is common among commercial real estate deals and perfectly lawful. …

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Chris Doray, who designed Vancouver’s Wall Centre and was again commissioned by Bruno and Peter Wall for the ill-starred Nelson on the Park project, has watched the site change hands with a mounting sense of disbelief.

His innovative design for the site, nicknamed the “pixelated tower”, was shortlisted at the 2015 World Architecture Festival in Singapore. It features a lattice-like façade that seems to dissolve into the sky.

But Doray now considers the plans shelved. “[They] weren’t so much interested in the project, but more in the land, as an investment,” Doray said of the consortium that bought the site off the Walls.

The widespread industry rumour – since confirmed by the SCMP – that the site had already been flipped seemed to validate Doray’s suspicions that the previous sale was a purely “speculative purchase”. …

He said that in a quarter century of involvement in Vancouver’s real estate scene he had seen nothing like the transactions linked to the Nelson Street lot. “I cannot believe that people will pay that kind of money for a plot of land. The whole industry is astonished.” …

Designer Doray, who understands the potential of the site as well as anyone, isn’t so sure. “If the developer pays C$60 million for the piece of land, can you imagine what any condos on it would sell for, if they finally finish this project?” Doray said, laughing. “It will be untouchable – well, for the local market. It could only be an elite group of people at this price.”

Comments

  1. So show of hands here. Do we now agree that Vancouver is uncoupled from the normal laws of supply and demand? I am looking at you my good friend Bob Ransford.

    Patrick Condon.

    1. I’m sure we can expect some pathetic apologist piece from Ransford in the Sun anytime now. Or has that irrelevant rag finally bounced him.

      It’s interesting that the hard hitting journalism on the real estate front seems to be coming from the Globe & Mail and South China Morning Post. Not a word from the BC Liberal mouthpiece.

  2. As Dan Ross says:

    “I don’t understand. Why don’t they just blame the Chinese? It’s solved all of our problems.”

    Keep burying your head in the sand Dan and others

  3. “She played down the role of foreign buyers – blamed by many for creating a frenzy that has in turn spurred panic buying among locals.
    Instead, Clark said the price escalation mainly reflects B.C.’s strong economic growth, coupled with an influx of Albertans – not foreigners.”

    http://www.langleyadvance.com/news/376443441.html

    Is this for real? Tell me this is just Bizarro world from Seinfeld

    1. So Albertans who have just lost everything due to the collapse of oil are now purchasing Vancouver Real estate? Who believes this shit

      1. Yup! “. . . taking on debt to pay for things that will increase income or the value of assets — such as taking out a loan for education or a mortgage on a property to open a store. But instead of using credit to finance tangible industrial investment that expands production, banks have been lending to those who want to buy property already in place — mainly real estate, stocks and bonds already issued — and to corporate raiders –those who buy companies with high-interest bonds, raising debt/equity ratios. The effect often is to leave a bankrupt shell.

        http://www.counterpunch.org/2016/04/21/we-cant-save-the-economy-unless-we-fix-our-debt-addiction/

        Sound familiar? Wars have been fought over less!

        Premier Clark needs a wake-up. Indeed so do Vancouver’s somnambulant council and Ottawa’s starie eyed new boys and girls.

  4. How many of you will email your Vision councillors over this? How many of you expect to receive a reply from them if you do?

  5. Please permit me to cut through the paranoia and offer what may be the only solutions to this problem, tempered by possible outcomes.

    1. Ban immigration by wealthy Chinese. This idea may go far in blogs, but will likely fall down on court challenges. However, there may be a temporary decrease until the inevitable supreme court decision comes down that will open the gates once again. This won’t stop the flow of money.

    2. Ban money from wealthy Chinese. This idea will also go far in blogs, but will utterly fail because transactions move at the speed of light and there are too many loopholes in the rules and laws to stop it from finding leaks, squirrel burrows and portals where it’s converted to different forms.

    3. Enact disclosure laws and taxes on the incomes of wealthy Chinese, and/or on their property purchases. This is possible but is within the purview of senior governments, not, as some would imply, local government or the real estate industry. This one might get traction, like it did in Australia, but the results in terms of housing prices barely moved the needle on the dial and sales continued apace. It appears wealthy Chinese took it as a line-item cost of doing business. The tax revenue may well end up in the general revenue accounts of the BC government and may not end up benefitting local residents. Perhaps Christy will have another 10-second faux rage on camera, maybe even shed a tear, but residents will likely get a vacuum in place of real follow up because she will have one eye on the steep revenue from the property transfer tax (when a sale is declared).

    4. Rewrite or eliminate the foreign immigrant investor program. Some of this has already been done, but could use another look across jurisdictions. This is almost entirely in the federal government’s purview. The new government has already allocated $500,000 to studying the issue of foreign money in the real estate markets. The results and subsequent action remains to be seen, but removing foreign investor immigration won’t stop foreign investment and may in fact cause more of it to occur from offshore.

    5. Down-zone specific properties (like Nelson), or hold back development approvals. This one would be immensely popular with locals seeking revenge for an inflated market, but this may be as far as local government can go. See #1 above for the likely results.

    6. Stabilize the Chinese economy. Bravo! This is the nut to crack because, obviously, wealthy Chinese are seeking stability and aren’t entirely happy with their own economy. Good luck with that, especially if the world economy enters a period of conniptions, maladies and cold flashes. Come to think of it, the latter item may actually help lower Vancouver real estate prices.

    7. Act locally and learn to surf tsunamis. An inflated $60 million land sale in the West End may be the peak of foolish, inflationary real estate transactions, but it is still in line with world supply and demand parameters (see #6.) The supply is extremely short, and the demand is extremely high, no matter what the distances and perspectives are. The residual effect will be greatly diluted with distance from the site. In other words, an average condo in Surrey may see a barely noticeable bump in value, and when it does, the supply will increase and temper prices. Just because someone paid through their nose for a downtown site doesn’t mean we shouldn’t be up-zoning RS1 areas into more attached housing on smaller parcels (many with suites which increase family incomes), which will always be about 1/3rd less than the benchmark detached home price, perhaps even less if enough supply was delivered. Ditto low and mid-rise within two blocks of arterials. If we have a serious issue with prices and supply, then why is there still an abundance of 33, 50, and 60-foot lots all over the Metro?

    Just saying.

    1. The Solution is this:

      1.) Immediately scrap the Quebec Investor Program.

      2.) Restrict Foreign ownership in BC to only citizens of NAFTA countries (USA and Mexico), this will eliminate the Chinese influence and help avoid the sticky issue of regulating US property owners which I’m guessing is a big reason behind the scenes the Liberals have not acted with the legacy of vacation homes on both sides of the border. China can’t complain because it is illegal for Canadians to own property in China so no reciprocity agreement.

      3.) Immigration reforms at the Federal level swing towards poorer/refugee streams. Syria, Africa, Central America. No more rich money laundering leaches.

      DONE

    2. Your rather dismissive reply is no surprise, given how you seem to bristle at any implied criticism of Vision Vancouver.

      Certainly the Nelson Street fiasco is a direct result of Gregor’s declaring open season on rental buildings in the West End. Anybody who believes that the planned starchitect tower for this site would have done anything to truly alleviate the affordable housing crisis is naive.

      By your logic I don’t see why we insist on the preserving the bucolic fantasy of the ALR. Obviously it’s true value is much higher for condos than it is for supplying the world with cranberries or two weeks of corn for roadside vegetable stands.

      1. This is one of a very few sites where the West End Plan contemplates a possible rezoning. It’s in area 2 of the Burrard Corridor (see page 63 of the West End Plan). It appears that there hasn’t been a proposal submitted yet either by Wall Financial or subsequent owners.

        If there is a proposal, then the plan says that “additional density can be considered through rezoning for new developments that provide at least 25% of floor space as social housing, or one-for-one replacement of the existing market rental housing with social housing units, whichever is greater”.

        If a 20 FSR tower could be built here (which seems possible) then 5 FSR would have to be social housing. That’s over three times what’s on the site now, and it would be social housing, not just replacement market rental.

      2. Oh I’ve got lots of criticisms of Vision (and COPE and the NPA before them, not to mention the Greens) but this isn’t a city council issue alone. It’s international, and therein Ms. Clark and Mr. Trudeau need to own up to a few solutions.

      3. Unfortunately, the designation of land being in the ALR doesn’t mean it’s going to be used to grow food. In this crazy real estate market, it’s not surprising that nothing is immune.

        http://www.richmond-news.com/news/weekly-feature/real-estate-speculation-threatens-future-of-metro-vancouver-farmland-1.2237666

        “Mullinix said this sort of valuation of farmland is hitting everyone in the pocketbook because as the region sees more unused farmland appear, local food becomes even more scarce, leading to a greater reliance on expensive imports.”

  6. Every time I think I’ve found a foolproof way of collecting property transfer taxes from everyone, someone goes and shoots it full of holes. Clearly having corporate ownership of land is a way for every buyer to avoid paying their share. I expect to see the tactic spread rapidly in the residential market too. Once a property is owned by a thing rather than a person ownership can change a million times tax free. All you have to do is pay the current owner to set up a company and sell their property to that company.

    I think we can kiss goodbye any hope that senior governments can collect anything but a pittance from the billions of dollars in real estate transactions that occur every year.

    What might help the rest of us is a change in the way property taxes are assessed. Currently we have commercial and residential. Commercial pays something like 5x as much. Why not modify the definitions a bit so that any land, regardless of zoning, that’s owned by a company is considered commercial? A company that rents residential property is conducting business, carrying on a commercial enterprise and therefore they should pay the commercial rate. If the company chooses to let the shareholder(s) live there rent free, that’s a business decision that should have no effect on the tax rate.

    Such a move wouldn’t have any effect on property values because annual property taxes are a tiny fraction of the purchase price, but if corporate land ownership spreads as a legal tax avoidance tactic it would significantly increase the tax base of every municipality. The increased money could be used to provide more amenities and services while simultaneously pleasing those on the political right by reducing property taxes for everyone else.

    I’m sure this idea will soon be full of holes too, but I feel something must be done. There are people with enormous financial resources paying absolutely no tax while average working Canadians foot the bill.

    1. That’s the way old style co-ops were structured.
      The corporation held the property and the purchasers would buy shares in the corporation with an attached right to occupy a specific suite in the building.
      (i.e. many were located along West Boulevard in Kerrisdale – now facing demolition and redevelopment)

      Of course there were issues with the share purchasers obtaining loans for their purchases.
      I understand only VanCity would grant loans because there was no “land” against which to register a mortgage in the event of default by the borrower.

    2. Another reason for separate holding companies for real estate developments is – of course – liability when (and if) the project is developed. Most developers will create separate corporate entities to insulate each project (and the parent company) from liability – that’s the whole purpose of incorporating (versus using partnerships).

  7. Just because someone pays an insane price, does that make it “the new market” price? Will the prudent investor watch this transaction to see if it actually provides a decent return? I’m wondering what the pro forma looks like on the revenue side to justify the psf land cost.

    This sorta/kinda reminds me of the heydays of the NHL free agency frenzy, when GMs would be throwing around ridiculous sums on 7-year contracts for 3rd line players, then paying with their own jobs when the deals predictably turn out to be an albatross to the team’s salary cap structure.

    I’m sure that prudent investors are watching this deal carefully, and are awaiting the day when they can look back and say “Sure glad I didn’t make that deal”.

  8. The real question is:
    Is $60m too much for buildable 400,000sqft in downtown?

    that turn out $150/sqft, add $450/sqft in construction cost, to get a condos the market prices at more than $1200 sqft.

    Even counting with 25% of social housing, the math works. What is missing in the picture?
    The negotiable CACs.

    Like in the Cambie corridor, where this has leads to an unfettered speculation (until I understand Brian Jackson introduced some fixed CAC), it is anyone guess – and the fair guess of the developper is that the city is eager to see the site to be developped.

    So because the CACs are negotiable, the city has started to left $50M on the table, and the story is not over yet…

    The land owner has lot of power to make sure the city come to a term agreeable to him, see CP on Arbutus, or Onni at Steveston…

    It is when Bob Ransford, come in: Never short on lies, he will relentlessly explain in whatever medias, how bad the CAC are, and how the city demands prevent more social housing and much needed dwelling. It is exactly what he is doing for his Onni’s friend at Steveston:

    http://politicsrespun.org/wp-content/uploads/2014/04/bob-ransford-purpose-built-cafe-280×300.jpg

    for the record: the Onni land has always been zoned for maritime use, and Onni built there in full knowledge of it

    Obviously, at the end the Vancouver city will come to a term allowing the developper to make money, like it will on the Molson site with Concord: …the big looser of this wrongheaded “negotiable” CACS policy is the city at large…but if you are a landowner, in the city: enjoy the ride!

    1. The reason the Chinese are paying so much for the building without considering the development costs and return is because they are laundering their money, how daft are you people? When the Hells Angels do it we raid their clubhouse, when the Chinese do it we look the other way. Bullshit

      1. How do you know that ? What inside do you have which money is legit and which is not ? Do you speak Chinese, do you have a legitimate background in law enforcement, both in Canada as well as in China ?

        Do we have the knowledge, or the desire, or the manpower to check every $ that is wired into Canada ?

        Has it occurred to you that many, perhaps or likely most, Chinese that come here just want a better, cleaner, more democratic place to live, for themselves or their kids ? Or a place to park their cash as the government n China has even more power than our to grab your cash ?

        The more serious issue is the syndication of money into a Canadian firm, as there are rules, and rightly so the BCSC is investigating as you cannot just take money from folks and sell them shares. There are rules to follow, for good reason.

        Thirdly, they paid $60M .. and the land is maybe worth $20M. Every investor takes a 2/3 haircut. Seems like a dumb investment to me, regardless of it being Chinese money or not. it shows the gambling-like frenzy and misinformation though that some folks exploit. Have you noticed that folks that have lived here flip or sell houses at enormous uplifts to new folks ?

        1. If you they are only allowed to take out $50,000 USD a year then how are they affording to overpay for real estate? Its illegal. When you’re at the casino and a young kid with designer closes and jewelry walks up to the table and throws $1000 cash down, plays 2 spins and cashes out, what is he doing?

          And enough with the……. “Has it occurred to you that many, perhaps or likely most, Chinese that come here just want a better, cleaner, more democratic place to live, for themselves or their kids?”

          The Irony is comical. So we have to accommodate their desire for a better life at the expense of ours? So we should allow them to parachute in with gobs of money and displace the hardworking Canadian who is trying to save for a Condo? Why is it our job to provide a better life for people from a communist country with no human, religious, or environmental rights. Give your head a shake!!

        2. Yes the immigration rules need some amending, especially the abuse of the High Net Worth “Investor” Quebec immigration program.

          As to $s that arrive here: $s generally BENEFIT a country. A $2M condo doesn’t fall out of the sky. It gets created and creates ample tax revenue and jobs for planners, architects, plumbers, designers, painters, property managers, window manufacturers, elevator manufacturers & installers, concrete pourers, cleaners, gardeners etc ..

          What is indeed happening though is the concentration of foreign, especially Chinese money, onto single family homes in Vancouver & area, specifically high end and well located ones, and those are highly UNDERtaxed. We tax incomes too high and consumption (the new Bentley) and real estate far too low. We could certainly monetize this better, as stated numerous times elsewhere.

          As to overpaying: that is not illegal, is it ? If someone is willing to pay $60M for s.th. that is worth $20M then why do you find this objectionable. That is your right. Not very smart, but should we police pricing ? Some folks pay $200,000 for a car. is that not their right ?

          Do you wan to buy my old shirt ? It is only $500. If I can sell it to you because of my excellent BO, and you are willing to pay for it, why not ?

          The $60M went to a Canadian firm. As to no land transfer taxes paid, well that is of course yet another story and needs to change. But presumably on a $50M gain (assuming they paid say $10M for it) there is at least $10M in income taxes payable, possibly more.

          We still leave A LOT of money on the table. We could – and should – collect far more in taxes in my opinion. But we also collect quite a bit of taxes on this cash due to jobs and new construction related activity, plus the recipient, often a Canadian, will benefit and recycle this cash into a new Mercedes, another house or condo elsewhere, $s for the kids, a cruise etc ..

          For every (overpaying) buyer there is a seller that benefits ! It could be you one day, Ron !

        3. Indeed houses are undertaxed, especially for non-Canadians. The BC government now collect 2% land transfer taxes to $2M, and 3% for the portion above it. That could easily be far higher, and should be, in my opinion, 25% for non-Canadians so locals have a 22-23% price advantage. Maybe half that for condos. We tax non-residents far too little indeed.

          ==> We could monetize it far better for the benefit and health of BC residents !

          We need to also look at the elimination of capital gains taxes or capping them. Why work and pay 40-50% on an extra $10,000 if you can make an extra $500,000 tax free by living in a modest Vancouver home and selling it in 2-4 years ? That is indeed unhealthy, both personally and for a society at large. Perhaps a cap at $1M or $2M of untaxed gains is sufficient. Then treat it as income for that year.

          But, as stated, there are many winners, namely the BC government, realtors, condo builders (and any trade associated with that booming business in MetroVan) and folks that own a home and want to move elsewhere, or downsize. Of course, where there is light, there is shadow, too !

    2. Ron, you seem to do some dangerous generalizations, which endup to have you making some unproved accusations of a specific individual (the buyer of the Nelson lot).

      Recently Concord bough the Molson Brewery site for 4 times the appraised value according to the <a href="http://www.theglobeandmail.com/news/british-columbia/concord-pacific-buys-molson-coors-brewery-for-planned-redevelopment/article29602108/""G&M.

      Why cry foul in one case, and not the other?

      The explanation I have offered is immune to the origin of the money or ethnicity of the buyer, and explain why both deals (1075 Nelson or Molson Brewery) are consequence of a same City policy (rezoning speculation, where CAC are anyone guess: In the case of the 1075 Nelson, the city has already entertained the idea, so one could consider it as a safer bet than Molson).

      To relativize the numbers:
      the land where the BIG tower is to be build is assesed (by BCAssesment) at ~$220/sqf
      the Land where Wall is building its Wall centrer on the cheapest edge of the city (Boundary) is assessed at ~$120/sqf.

      That comes to the bottom line I made before:
      …The Nelson lot has been bought at ~$150/sqf…What is wrong with that?

      PS:
      I agree the explanation I offer is not necessarily the only one but, it is one the city can act upon. Another one could effectively be “foreign money” (notice “foreign money” ≠”laundered money by Chineses”): the city has decided that the later explanation was racist…

  9. Can’t believe how people quack themselves into a frenzy about this and not even peep about Greedy Jim Pattison. Seriously? You work yourselves into a lather over this good money and good people coming in while you’re silent about how he has turned Vancover into his wage slave playground.
    He spams our environment with vile billboards advertising his own crap companies; pollutes our world with cars and more stinking cars. He sucks the cash out of Vancouver while the “Yellow Peril” brings cash in. It’s racist, small-minded and provincial. Shame. Sucked in by the curbstoner at heart. Is there a more greedy geriatric on the planet?

  10. The actual value of that recently up-zoned land parcel is closer to $59 Million, not $16 Million as originally reported. And there’s no actual evidence that SunCom (the FB crowdsale promoter) played any role in the actual sale of the property. This is a sensationalized article meant to provoke outrage. I applaud Ian Young for digging and continue to encourage him to do so, but recklessly putting inaccurate outrage-provoking headlines on SCMP articles isn’t helping the affordability situation.

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