By Glen Korstrom
Real estate industry insiders say the City of Vancouver is making a huge mistake by marketing former Olympic Village condo units the same way as troubled developer Millennium Development Corp. did.
The city assumed ownership of the development after Millennium defaulted on multiple loan payments and the project went into receivership on November 17.
Staying the course on the marketing strategy, they say, will hurt taxpayers because it will keep the city from realizing maximum financial return from the development.
Few advocate renting the market condos to generate short-term revenue and populate the neighbourhood.
But many others have ideas for changes, aside from price reductions, that could help the city sell the 474 unsold properties and repay a larger portion of the project’s roughly $740 million in outstanding debts.
One suggested shake-up is for the city to encourage receiver Ernst and Young to replace marketer Rennie Marketing Systems with one or more other local successful marketers such as MAC Marketing Solutions or Magnum Projects Ltd.
Real estate consultant Michael Geller said that whoever is in charge of marketing should use creative solutions such as a hybrid between renting and owning the units.
“In Canada we tend to think of two forms of tenure: you either lease or you own. In the U.S. and the U.K. there are other forms of tenure,” Geller told Business in Vancouver.
“The city could explore a rent-to-own arrangement where somebody might put down a small down payment and then their rental payments would go toward ownership.”
Geller said another option would be for the city to sell a $700,000 unit for $600,000 and have the contract structured so the city would get the remaining $100,000 at some point in the future when the initial buyer resells the unit.
“[Rennie] mismanaged the sale of those units,” said longtime city watcher George Puil, who was a city councillor for 26 years and a park commissioner for 12 years.
“Bad publicity hasn’t helped. But, certainly they could have made them competitive with other units in the immediate vicinity, which are selling.”
Eleven unhappy buyers filed writs in B.C. Supreme Court in June to rescind their purchase agreements, claiming that washers and dryers were not installed in their units and that their $5,000 electric fireplaces weren’t working properly.
But Don Vassos, CB Richard Ellis senior executive vice-president for B.C., chalks those complaints up to buyer’s remorse and “posturing” from people who wanted to get out of their contracts because the price of real estate had dipped.
“If I were to buy a condo in downtown Vancouver, that would be my first choice,” Vassos said of the Olympic Village units. “It’s an opportunity that will probably not appear again for investors and for owners for decades.”
Prices are already far below the original cost.
Vladimir Bondarenko told BIV that he bought his two-bedroom unit for $920,000 in mid-2007. He put the unit on sale two months ago for $900,000 and then lowered the price to $790,000 on November 30 – the day after councillor Geoff Meggs hinted to media that he “wouldn’t be shocked” if there was a 20% price reduction early in 2011.
A 20% discount on Bondarenko’s initial investment would knock his sale price down to $736,000.
As of November 30, neither Ernst and Young nor the city had approached MAC Marketing Solutions owner Cameron McNeil to see how he would change what he considers Rennie’s “disaster” of a marketing strategy.
McNeil’s team sold approximately $1 billion worth of real estate in 2007. That dropped to $400 million in the sluggish 2009 market.
“There’s been a lack of urgency, not a lack of desire for the [Olympic Village] project,” McNeil said.
“I would have broken this project down into marketable bite-sized pieces and released one building at a time and described why the building was special: ‘This is a value building’ or ‘This is a waterfront building.’ That would have made buyers realize that units that have specific desired attributes are in short supply.”
McNeil added that Rennie’s post-Olympics sales relaunch in May was a “fiasco,” because units on sale ranged from $550 to $1,550 per square foot and incorporated too broad a spectrum of unique selling points for potential buyers to narrow their decision to a specific unit and imagine living in it (see Peter Mitham’s Real Estate Roundup, page 12).