Independent analysis suggests City Hall poised to enrich a developer while ignoring Greenest City promise

Cedar Cottage Area Neighbours (CCAN)                                                                              MEDIA RELEASE: June 21, 2015

A controversial proposal by developer Cressey for the corner of East 18th Avenue at Commercial Drive would result in the loss of dozens of mature trees while resulting in a much higher than normal profitability according to an independent analysis. The question asked by the community member who did the analysis is,  “Why should this developer be allowed this much density with so much profit potential, destroying all these trees, while all the usual development fees and community amenity contributions are waived?”

Background

The City of Vancouver Planning Department is considering this rezoning application for a large six and four storey rental project submitted by Cressey Development Group for the 1600-1700 hundred blocks of East 18th Avenue at Commercial  Drive. The developer is proposing a density of 2.85 FSR for the rental project (current maximum is 0.75 FSR). Large block buildings would occupy the majority of the site eliminating most of the existing mature trees. Due to being dedicated rental the project will have development fees and community amenity contributions waived.

Local residents have already experienced the impact of a lot of new development by this same developer in an adjacent formerly light industrial area. Cressey is now pushing into this quiet residential neighbourhood, buying up a group of properties that has always been a green oasis, a habitat for many species of birds and other animals. This amount of density would result in the excavation of virtually the entire site. A project with smaller buildings would still be very profitable for the developer, providing substantial rental housing while retaining the natural beauty of this location. A lower density project with more ground oriented buildings as stressed in the Neighbourhood Plan would also be a much better fit for this single family neighbourhood. Local residents want to see Vancouver prove it is serious about being The Greenest City by rejecting this bloated project.

Analysis

A financial analysis is referred to in the industry as a Pro Forma. In the case of a rental project the analysis tells the developer how long it is likely to take to recoup 100% of investment. This figure is called the capitalization or Cap Rate. For example, a Cap Rate of 4% would mean that the project will recoup 4% of the initial investment each year, meaning it would take 25 years to pay off the cost to build the project. According to Colliers International this is at present the standard cap rate in Metro Vancouver for apartment projects. Anything above 4% would amount to a bonus.

Cost to a developer includes the cost to buy the land plus the cost of construction (Altus Cost Guide 2015) (Page 5). The yearly profit is the net income from rentals after expenses. Typical rents for new buildings are available from the CMHC Rental Market Report (page 23). In the case of this project a few more factors must be considered.

  • The construction is wood-frame which reduces the cost to build by at least 10% in comparison with concrete construction according to BTY Group.
  • This project is proposed to receive a huge concession on required parking due to it being dedicated rental (64 parking stalls for 112 Apartments). According to the City of Vancouver Parking By-Law this number of units would require 105 parking stalls. This amounts to a reduction of 41 stalls. This is a saving of, very conservatively, $25,000 per stall. The analysis factors this in.
  • There are no community amenity contributions (CACs) being paid for this project. This CAC elimination amounts to immediate benefit to the developer. The project would also receive a waiver of development cost levies (DCLs).

 

PRO FORMA for Rental Portion of Rezoning at 3365 Commercial Drive and 1695, 1707, 1733, 1775 East 18th Avenue
Site Area of 27,917 sq ft at 2.85 Floor Space Ratio (FSR) gives a Gross buildable of 81,827 sq ft and Net buildable of 71,956 sq ft
$/sq ft Calculated out
Rental Income
Type of unit Studio 1 bed 2 bed 3 bed
Number of units 25 45 32 10
Size of units in sq ft 431 597 778 942
Total rentable area 10,775 26,865 24,896 9,420 71,956 sq ft
Rent per Month (CMHC) $1,242 $1,561 $1,972 $2,465
Total Monthly Income $31,050 $70,245 $63,104 $24,650 $189,049
Gross Monthly Income from rentals ($189,049 ÷ 71,956 sq ft) $2.63
LESS Deduction for vacancy rate $0.05
Monthly Income from rentals before expenses $2.58
Rental Expenses
Suite Cleaning and Turnover Expenses $0.18
Management Fees $0.15
Property Taxes $0.12
Insurance, Maintenance and Utilities on common areas $0.30
Other / Contingency $0.05
Total Expenses $0.80
Net Monthly Operating Income ($2.58 – $.0.80) $1.78
Net Yearly Operating Income ($1.78 x 12 months) $21.36
TOTAL (NOI) Yearly Net Operating Income ($21.36 x 71,956 sf) $1,536,998
Construction Costs and Expenses
Construction costs (Altus Costguide 2015) $185.00
LESS 10% for woodframe construction $18.50
Net Construction Costs $166.50
Construction Financing $14.00
Municipal Permit Charges $2.00
Consultants $11.00
Management through approvals and construction $6.00
Land Holding Costs through Approvals and Construction $10.00
Holding costs through initial lease up $5.20
Construction and Lease up costs $214.70
LESS Savings due to parking relaxation (see calculation below) $12.53
Total cost of Construction $202.17
Gross building area sq ft,                     (includes units, storage, hallways, etc) 81,827 sq ft
Cost to build (81,827 sq ft x $202.17) $16,542,965
Cost of land (4 lots plus part of 1695 E 18th, 27,917 sq ft, see below) $5,500,000
TOTAL COST (land + construction) $22,042,965
Years to recoup investment ($22,042,965 ÷ $1,536,998)(Total Cost ÷ Yearly NOI) 14.34 years
Effective Capitalization Rate (Cap Rate) for this 2.85 FSR project (Yearly NOI ÷ Total Cost x 100) 7.00%
Standard Cap Rate for Rental Construction in Greater Vancouver 2015 (Colliers) 4.00%
Bonus to developer (7.00 ÷ 4.00) above typical expected return 75.00%
Community Amenity Contributions $0.00
Impact on neighbourhood: loss of green space, added traffic and parking congestion
Land Cost Analysis
Address Site Area Cost Source
3365 Commercial $2,000,000 BC Assessment
1775 East 18th $1,600,000 Land Title
1739 East 18th $800,000 Property Tax
1707 East 18th $670,000 Land Title
1695 East 18th (partial)* $430,000 BC Assessment
Total 27,917 sq ft $5,500,000
*1690 sq ft of 7503 sq ft (22.5%) of total $1,900,000 cost
Parking Relaxation Analysis
Stalls Cost/stall Total Saving Saving /sq ft
41 $25,000 $1,025,000 $12.53

Conclusions

The density sought in the proposal cannot be justified according to this analysis. The 7.0% return this project will achieve has not been typical in Greater Vancouver since 1998 when the bank rate was 6%; currently it is 0.75%. If the City of Vancouver were to approve a project with a Cap Rate of 4.5% that would be consistent with today’s market. In that case the density would be about .80 FSR which would allow for the retention of a lot of the trees and green space. The residents of this neighbourhood would like to see Vancouver prove it is serious about becoming The Greenest City by rejecting this application.

References

Contact: Lee Chapelle   604-365-1069 (Cell)

Email ccan2013@shaw.ca, FaceBook https://www.facebook.com/ccan2013, Twitter https://twitter.com/CCAN2013

Cedar Cottage Area Neighbours (CCAN) is a non-profit coalition of neighbours who are striving to preserve the livability and unique character of this special community.

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Developer Makes a Killing While Community Loses Green Space

A controversial proposal by developer Cressey at East 18th Avenue at Commercial Drive which would result in the loss of dozens of mature trees would be a financial windfall for the developer as the analysis in this article shows.

The City of Vancouver Planning Department is currently considering a rezoning application for a six and four storey rental project submitted by Cressey Development Group for the 1600-1700 Block of East 18th Avenue at Commercial  Drive. The developer is proposing a density of 2.85 for the rental project (currently at 0.75) which would occupy the majority of the site with large block buildings and eliminating most of the existing mature trees on the site.

Local residents, having seen a considerable amount of new development by this same developer recently in a nearby formerly light industrial area, are upset that the developer is now pushing into this quiet residential neighbourhood and onto a property that has always been a green oasis here and a habitat for many birds and animals. Residents say it’s not just that they want to redevelop the property, it’s that this amount of density will result in virtually the entire site being excavated.  The amount of density in the proposal is exorbitant and not justifiable according to a financial analysis done by a member of the Cedar Cottage Area Neighbours community group. The rate of return being sought has not been seen in Greater Vancouver since 1998 when the bank rate was 6%. The bank rate is currently at 0.75%.

A project with smaller buildings, one that preserves more of the mature trees and a stream on the property could still be very profitable for the developer,  provide substantial rental housing, while retaining the natural beauty of this location. If the City would approve a more moderate version of this project at a much lower density the resulting more ground oriented buildings would be also a much better fit for this neighbourhood, something that has been stressed in Neighbourhood Plans.

Financial Analysis of the Proposed Rental Project at 3365 Commercial Drive

Explanation of terminology:
Every construction project is subjected to a financial analysis in advance to determine its financial viability.  This analysis is referred to in the industry as a Pro Forma. In the case of a rental project the analysis produces a figure which tells the developer how many years it is likely to take to recoup 100% of his investment.  This figure is called the capitalization or Cap Rate. A Cap Rate of 4% for example would mean that the project will recoup 4% of the initial investment each year, meaning it would take 25 years to pay off the cost to build the project. This in fact is currently the standard cap rate in Metro Vancouver for apartment projects according to Colliers International. Anything above 4% should be considered a bonus.  These analyses are typically prepared by developers and presented to The City along with each proposal.

The cost to a developer includes the cost to buy the land plus the cost of construction (Altus Cost Guide 2015) (Page 5).

The yearly profit is the net income from rentals after expenses. Typical rents for new buildings are available from the CMHC Rental Market Report (page 23)

In the case of this project a few more factors must be considered.

The construction is wood-frame which reduces the cost to build by at least 10% less than concrete construction according to BTY Group.

This project is receiving a huge break on required parking due to it being dedicated rental. The project is slated to have 64 parking stalls for 112 Apartments. According to the City of Vancouver Parking By-Law this number of units would require 105 parking stalls. This amounts to a reduction of 39 stalls. This is a saving of, very conservatively, $25,000 per stall. The analysis below is corrected for this factor.

There are no community amenity contributions being paid for this project. This is a straight windfall to the developer.

proforma5

If the City of Vancouver approved a Cap Rate of 4.5% which would be more in line with today’s market rate, the density on this site would be about .80 which would result in the retention of many more trees and much more green space. The residents of this neighbourhood would like to see Vancouver prove it is serious about being The Greenest City.

References

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The Shifting Goalposts

The following series of images illustrates how a certain City Government, without due process, conspired and so far succeeded in robbing residents and visitors alike of one of Vancouver’s precious protected public views. Given an opportunity to engage citizens in an open dialogue they opted instead for deception.

For many years the City has used photos featuring virtual “goalposts” like the ones on this page to describe visually Vancouver’s protected views. This typical goalpost shot of View Cone 9.1 (Cambie at 10th) was taken from the 2009 Downtown Capacity Options Study presented by then Director of Planning Brent Toderian.

Image1

The City website under Protected View Cones has always featured goalpost photos such as the one below from 2009 of Main Street View Cone 22. Notice the glowing text, dimmed background and brighter view area. This effect was triggered by mouse movement to literally ‘highlight’ the protected view. This was how this web page looked until 2010. Every View Cone had a similar page dedicated to it.
Image2

In April 2010 as shown below, out of the blue an altered and frankly confusing representation of View Cone 22 appeared on the website; the left goalpost had been shifted sharply to the right, making the view cone about 1/3 narrower. The east side of the view cone remained in its original position. But curiously, although on the City website they shifted the left goalpost, the highlight effect and text remained in the same position, centered on the previous wider view.

Image3

This has always felt to me like a sloppy maneuver, smacking of desperation. One wonders what the decision making process had to have been to have an outcome such as this.

The smaller view cone also appeared in handouts at a City Open House at that time, which is where I first encountered it. When questioned about this change I recall staff appeared puzzled by the question, implying that I was confused and that this was the view cone. A few people commented on this in the feedback forms. The City was caught red-handed attempting to rewrite history  George Orwell style.

This was how the webpage looked until 2013 when the website got an update and the latest version of the view cone as shown below was unveiled as part of the MPCP Implementation Report. Now the view cone has been restored to close to it’s original size, but shifted to the east so it no longer protects views to the northwest over downtown.

Image4

This, not surprisingly, coincided with ongoing discussions between The City and developers regarding rezoning to allow greater heights along the west side of Main Street from 2nd Avenue to 7th.  When people, including myself at a public hearing, have asked for an explanation for this mystery neither staff nor City Council had a plausible answer.

It is my view that this sequence of events shows a City government quite out of touch with residents, one prepared to do whatever they need to do to avoid having to engage in the messy business of due process and public consultation.

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