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?”
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.
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|
|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|
|Suite Cleaning and Turnover Expenses||$0.18|
|Insurance, Maintenance and Utilities on common areas||$0.30|
|Other / Contingency||$0.05|
|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|
|Municipal Permit Charges||$2.00|
|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|
|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|
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.
- 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 https://ccan2013.files.wordpress.com/2015/06/costguide_2015_web.pdf
Contact: Lee Chapelle 604-365-1069 (Cell)
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.