Other than provincial Premier Gordon Campbell’s record low popularity and the new bike lanes being built on Hornby Street, nothing is lighting up talk show listener calls in Vancouver like the financial fate of the 2010 Olympics athletes' village. Set on the False Creek waterfront a 10-minute ferry ride from Granville Island, a 15-minute walk to Chinatown, downtown, and City Hall, it’s been judged the greenest development in the world.
Environmentally green, that is, with North America’s first net-zero carbon building, LEED Gold everywhere, a short walk to the Expo SkyTrain line, rooftop gardens and a shared district heating system pulling heat out of the sewers. This is a stunning and beautiful development — 1,018 units, all steps from the stylish seawall path and bike route, with views over downtown to the North Shore mountains. It has its own Arthur Erickson-designed community centre (LEED platinum, of course).
Financially, however, it’s in high distress. As Mayor Gregor Robertson famously put it during his 2008 election campaign, the city is on the hook here for $1 billion. It’s not quite that simple, but the original sphincter-tightening response to that remark has not let up as the city struggles to manage its financial rescue of this project.
Only a third of the 1,018 units have sold, and sales are what will take for the private developer, Millennium Development Corp., to pay back its $761 million loan from the city. Most of the unsold units are larger-sized luxury condos that have to sell for an average of $1,000 per square foot to pull it out of the financial soup. Ouch.
This would just be another private-sector development clinging to the thin skin of this city’s real estate bubble if it weren’t for the city’s financial bailout. When Millennium ran out of money amid the market meltdown on the eve of the Olympics, the city of Vancouver had to step in to honor its contract with the International Olympic Committee to finish the project in time for the Olympics. The final months of construction were a frenzy of overtime work in the midst of the biggest run-up of construction costs in the city’s history. The city’s social housing building, budgeted for $65 million, ended up costing $110 million. Soaring costs that threatened profitability were one reason Wall Street's hedge fund Fortress froze its loan and forced the city to the table. The province then had to pass special legislation to allow the city to loan another $561 million without any taxpayer approval.
Ah yes, the social housing component, aka subsidized housing, non-market housing, but never intended to be housing for the truly destitute. In keeping with the city’s policy of mixed-income neighborhoods in every major new development (a legacy from Gordon Campbell’s era as mayor), Millennium Water (the site’s official name now) will have more than 20 percent non-market housing. With cost escalations, some of these units will be worth $600,000, probably the most expensive subsidized housing in the world.
This has triggered a wild debate about whether it makes sense to invest that much in non-market housing at this location, or bow to financial pressure, invest part of that money in social housing somewhere else, and thereby undermine the cornerstone of social sustainability in this development. On the one hand, the financial pragmatists: build three times as much social housing somewhere else and rescue the city taxpayers. On the other, the social justice engineers: how dare we talk green and eliminate affordable housing here, with the city’s housing affordability rating the worst in the world? One developer who dared to point out that most rich people are wary of moving in next to poor people has been publicly accused of “picking a corner of the project to pour gasoline on the fire” by exasperated über-marketer Bob Rennie, the man in charge of sales.
City council, under Mayor Robertson, insists on keeping the non-market housing intact, adding its own stamp by reserving the city’s 126 designated “market rental” units for workers in essential services (firefighters, teachers, nurses, police, and the like). Six months after that decision, they still haven’t found a way to choose tenants. Meanwhile, misconceptions about who will end up in the non-market housing (“does that mean crack-heads in my elevator?”—no, except for the rich ones), added to all the other uncertainties about the slumping real estate market, are slowing down sales.
Another stick in the spokes was the provincial government’s recent refusal to accept any of the operators who bid to manage the 126 units of subsidized housing. The city vows it will find its own operator or run the housing itself.
The fiercer the debate, the duller the sheen on this development jewel. The longer the place remains partly filled, the higher the bills pile up and the ghostlier the whole place feels, with Myfanwy MacLeod’s giant sparrow sculptures lurking over the empty public square. (Bring in buskers and coffee vendors to liven it up on the weekends, urged one councilor.)
So what to do now, a month after Millennium fell $8 million short on its latest $200 million loan repayment to the city, with $539 million still to pay? The difference between what Millennium owes the city and what the property is worth is said to be north of $150 million, putting the whole project underwater financially.
Should we stay the course and pretend that 600 square foot units will sell for $600,000? (One of the penthouses is on the market for $10 million.) Or, force a mass selloff of all the unsold market units to hold losses to today’s levels — and undermine every other developer in town? Or, undermine other sales on site by selling off the social housing? Or, rent the unsold units to get some cash flowing “until the market comes back”, as one councilor suggested? Or, seize all of Millennium’s assets here and everywhere else in the world, as allowed in the city’s loan agreement?
That, said yet another developer chiming in with yet another finger-pointing oped in the Vancouver Sun, would trigger the biggest construction litigation case in the province’s history. He says it’s all the city’s fault for flip-flopping over the final design, failing to clean up contaminated soil as promised, and imposing impossible green standards. He recommends we stay calm and keep selling.
With every day that goes by, accusations continue, sales slump, the city’s interest costs pile up, the market softens, and the mayor gets closer to the wall. The very project that vaulted him into power as a guy who would clean up the mess he inherited from previous councils, is now his mess, awaiting his decisions. Whatever else he does, he also has to smile big, talk up the project, pray for sales, and act as if nothing is wrong.
