Developer says city should cut losses by discounting Olympic Village units

As Vancouver’s real estate market cools, losses on the troubled Olympic Village development could soar above $225-million unless condo king Bob Rennie quickly drops prices on unsold units that have languished on the market for too long.

That’s the view of developer and architect Michael Geller, a former NPA council candidate, who suggests flawed pricing and weak marketing is turning the fiasco on False Creek from bad to worse.

In fall 2010 a receiver, Ernst & Young, was tasked by the city to regain as much as possible of $750 million owed to taxpayers on the development, after the city stepped in to save developer Millenium with an emergency loan in 2008.

The receiver’s latest report says condo sales have been better than expected, and efforts to shed the Village’s “ghost town” label have succeeded. Sales jumped after price reductions of about 30 per cent were offered last year on lower-priced units, and occupancy has been boosted to about 83 per cent with rentals of some unsold strata units.

There are currently about 200 remaining market units to be sold from 737 originally on offer, as the city tries to chip away at its outstanding loan, listed at $462-million in late 2011. The city has already written off about $50 million of the loan that will never be regained, and it will not receive payment of $175-million on its land sale to Millenium.

As of mid-June, the receiver has gained $165 million from condo sales and rental income. Only about $114 million of that was passed to the city, due to running expenses including repairs for Village building problems, $11 million in marketing and sales costs, and $4.2 million going to the receiver, among other one-time charges.

In interviews with The Province, Geller said he fears the city will be unable to sell many of the remaining condos at current prices, as Vancouver’s real estate market seems to have peaked “a year ago when there was a lot of fervour from Asian buyers.”

Geller says better to cut prices and stop losses as competing developments and resale units start to hit the market at prices below Village units, than continue to pay carrying costs for years in hopes of seeing a big real estate rebound.

The nightmare scenario Geller worries about – with the city throwing good money after bad by renting even more of the unsold units but actually piling on strata and tax costs instead of paying down its loan – would see Vancouver taxpayers burdened with losses well over $225-million.

“If there was more confidence in this project then maybe all the units would sell out at the current prices,” Geller said Friday, while walking through the village. “A lot of people in the real estate community are saying this project shouldn’t be taking years to sell out. Everybody knows the market has softened over the last year, and is going to continue to soften.”

Geller acknowledges there are positive developments in the Village, such as the bustling Terra Breads café and a well-attended bar. And sales of the most expensive Village condos have been good this year, he allows.

But pointing to garbage strewn in a Village park space, messy landscaping and weeds in the public square, Geller says that Rennie – the appointed marketer of the Village who is seen by many in Vancouver as a real estate genius of sorts – hasn’t been doing enough to justify his fees.

“There are things happening here that shouldn’t be happening if you are trying to show off the development in the best light,” Geller said, adding that he believes Rennie “gets very upset” whenever Geller offers comments about the Olympic Village. “I think Bob’s problem with me is that no one else is saying he’s not the condo king or even the condo prince.”

In an interview, Rennie blasted Geller, saying the former NPA candidate is politically motivated and his views are harmful to the city’s efforts to repay its loan. Rennie suggested Geller has “lost all credibility” and has no idea what he’s talking about.

“The problem with arm chair gossip that the Michael Gellers of the world have, is they don’t sit in the board room with the decision makers and the stake holders … and we have fine-tuned the pricing all the way through,” Rennie said. Rennie said various appraisers are involved in his team’s pricing decisions, units have continued to sell in August, and he is confident in his marketing strategy and pricing going forward. And while some economists and pundits are forecasting a significant correction or even crash in Vancouver real estate, Rennie disagrees.

“People come to town and say it is a bubble, but what do they know?” he said. “When you look at how conservative the banks are in Canada … banking has really restricted (housing) supply.”