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.
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.
- Colliers International http://tinyurl.com/qccq6vt
- CMHC http://tinyurl.com/lv29jxs
- BTY Group http://tinyurl.com/pngtjr3
- Project Stats (COV) http://tinyurl.com/qybk59m
- Altus Group http://www.altusgroup.com/research/construction-cost-guide/