I should first point out that I’m not new to the Real Estate Business. Having apprenticed as a licensed residential Real Estate Agent in 1972 to an award winning commercial Broker through the early nineties and ultimately to the position of CEO for the IDS Group specializing in purpose built rental projects on behalf of independent Landlords and Not-for-profit organizations. Suffice to say, I’ve pretty much seen it all. Like many of you, I have experienced the effects of outrageous interest rates, runaway inflation, and unscrupulous lending practices can have on the lives of everyday people. Of course, one might say, “If you’re going to sleep with wolves, don’t be surprised to wake up howling.” Explosive market changes happen from time to time; some of us get lucky and some, not so much; “Better lucky than good” is often the calling card for the fortunate but replaced with a “Swan song” for those on the short end of a deal gone south.
After a while most people looked for ways to protect or sustain their good fortune; while others took a more aggressive path and later became known as, dare I say it? “Developers.”
I actually don’t recall when I first heard the word, “developer,” I suppose it was around the time when the “Condominium Act” was put into law in 1966. By 1972, words like, “Strata lot,” “Prospectus” and “disclosure statement” were popping up all over the place, but to be honest, I was never a fan. I really wonder what Real Estate would look like today if “developers” had continued to build apartment buildings instead of condos that offered “tax shelters ”in the late 70’s/80’s to spur on the small investor. Perhaps we would see a lot more homes; perhaps not, but I can’t help thinking we kind of shot ourselves in the foot on that one.
Dwelling on past mistakes doesn’t accomplish much unless you’re focused on learning from them, does it? So, let’s leave memory lane for the faint of heart and center our resolve on finding solutions that undress the elephant in the room known as, GREED!
You can nicely refer to it as being ambitious, or driven, or even ruthless, but to me “money hungry” is the most appropriate definition. Money, money, money; the great motivator and possibly the “root of all evil.” Yet without it, the world as we know it could cease to exist; a Pandora’s box revealing Man’s true nature and the last thing we want to see under the tree on Christmas morning.
I like money. I think everybody should have some. I think money can do a lot of good but it can also do a lot of bad; especially if you have too much or too little of it. I think having “enough” money is best; but for some people, “The world is not enough.” For others, just having enough to eat is enough. I’m not judging them, in fact, I’m grateful to them and many like them who have helped remove 1.2 billion people from extreme poverty in less than 30 years according to a United Nations report. I just don’t think it’s enough, do you? The truth is, enough should never be enough if it means making the world a better place.
So for the developer “greed is good.” But for many who aren’t focused on greed and would still like to make the world a better place, I would ask yourself, this; “Do I care about the housing crisis?” If the answer is “yes” then ask yourself, “Do I own an apartment building?” If the answer is “yes,” ask yourself, have I spoken to a professional to discuss the redevelopment potential of my building?” If the answer is “no” perhaps now’s the time.
Reality bites the hands of time; it doesn’t care who feeds it, it only cares when. History is made by the stroke of a pen or the firing of the first shot; Real Estate transactions occur in much the same way and oftentimes the only way to tell if the deal is good or not is after it happens. Being prepared for the worst but expecting the best is a sound basis for investing in property. However, “information” is key. The best decisions are informed decisions and fundamental to predicting the outcome.
Did I mention I’d been around a long time? I’ve experienced three major market collapses, none of which were predicted and none of them lasted very long, thank God. Economies expand and contract but at the end of the day the only thing predictable about Real Estate is that it’s unpredictable. However, one thing is predictable; people will always need a place to live.
From caves to castles to condos to the Moon and to Mars; will it ever stop, or will we go “gently into “the good night”? I don’t think so, but it’s up to you, the apartment building owner, to explore the possibility of redevelopment. If you care about being part of the solution to the “housing crisis” and at the same time increase your cash flow and net worth, I implore you to reach out and take advantage of government backed financing programs specifically designed to add thousands of new rental units to BC’s housing shortage.
There are challenges to face for the apartment building owner contemplating redevelopment. not the least of which is coming to terms with the numbers. A fifty year old building assessed today at say $20 million dollars would, when redeveloped under current OCP (Official Community Plan) guidelines, be valued at (Approximately) an astounding $150 to $200 million dollars. This alone on the surface will seem at first, unfathomable and maybe more than double or quadruple your current net worth. But in reality, it’s only another zero; the numbers are the numbers. The bottom line is that if the numbers show the project to be viable, then the project is viable; and viable means that the projected revenues are sufficient enough to service the debt and earn the owner a positive cash flow along with oh ya, a brand new building.
I can think of dozens of reasons for an apartment block owner to reject redevelopment. Some are common to all while others are exclusive to individual circumstances. Family trusts, inheritances and partnerships can complicate matters but would not in most cases interfere with the proposed development. Although every potential project is different; the variables are easily addressed during the project analysis stage, but of course it isn’t going to matter unless the owner has enough money. How much money depends on the project but as in the example above, it is usually the amount of equity the owner has in the existing building.
I’m rather certain that the information provided in this article is not nearly enough to light a fire under the average apartment owner, but I am hopeful that there’s enough here to make you gather the kindling. Remember, this is Real Estate and time is always of the essence; so, in the spirit of good intentions, don’t wait; do it now while the fires’ hot and the phone call is free.
Dave Adelberg
IDS GROUP is a real estate development management company based out of Vancouver. Their are-as of expertise include project financing, architectural design; project, construction, property, and as-set management; sales and leasing; land assembly, and investment. For more information, visit www.IDSgroup.ca