The province sold 25 acres of prime land in the Cambie corridor for $302 million in 2015/16, the site of the Pearson and Dogwood care facilities. But the developer still owes nearly half the money, and construction of market condos, social housing and replacement health facilities is behind schedule.
A tree-lined property with two aging health facilities along the busy Cambie corridor is to be transformed into a new community with 21 multi-storey buildings, including homes for 4,500 people — the equivalent of nearly every resident of Osoyoos moving onto this 25-acre site.
These Pearson-Dogwood lands were bought by developer Onni for $302 million. It was, by far, the largest sale under a provincial program started in 2013 to liquidate “surplus” public land to raise money for government. This single transaction represented nearly one third of the $1 billion in deals the former Liberal government signed while selling more than 160 properties, including schools, hospitals and industrial lots.
Experts have raised concerns about the structure of the Pearson-Dogwood deal and question whether taxpayers are better off now that they no longer own this prime property, which is near SkyTrain stops, schools and the Oakridge shopping centre.
It is not new for governments to sell land, but Postmedia took an in-depth look at the Pearson-Dogwood deal given what it recently uncovered about the province’s 2008 sale of Little Mountain. The developer who bought that property still owes the province $230 million and 229 social housing units more than 11 years after the sale.
“The public sector and public institutions or non-profits should never sell their land. If they want to benefit from the value of their land as an asset, it should be leased,” says Herb Auerbach, a veteran real estate consultant and urban planning academic at Simon Fraser University’s City Program.
“You have to appreciate that (with some land), it’s not just a simple real estate play. It’s not just a simple transaction,” says Gordon Harris, a professional urban planner and CEO of SFU Community Trust. “Once you sell it, it’s gone.”
Provincial government sells prime land
The Pearson-Dogwood development, known as Cambie Gardens, is zoned for 2,160 market condos, 540 social housing units, commercial spaces, a daycare, parks, a community health centre, a long-term care home, and 114 supported apartments to replace the two aging health facilities on the site.
The government sold the Dogwood Lodge Complex Care Home in 2015 and the long-term residential care George Pearson Centre and the surrounding land in 2016. However, Postmedia has learned that Onni has paid just over half the money it agreed to pay: It still owes $137 million because the provincial Liberals gave the developer a low-cost loan and until 2023 to pay off the remainder of the sales price.
In the last four years, as Onni subdivided and rezoned the properties, their assessed value jumped to $842 million, nearly three times what it agreed to pay the province for the land.
And that, perhaps, is not surprising given the potential of this property, which spans from 57th to 59th avenues, and from Cambie all the way to Heather Street. In this neighbourhood, homeowners have sold old bungalows for double their market value to developers who have built blocks of four- and six-storey condos.
And the nearby Oakridge Centre mall area is undergoing a massive transformation as Westbank Corp. and QuadReal add more than a dozen residential towers with record-breaking per-square-foot price tags. About 10 blocks in the other direction PCI Developments built Marine Gateway, another hub of condos, mixed-use and office towers.
At Cambie Gardens, Onni plans to build 2.2 million square feet of market housing, and with the average Vancouver condo selling for $1,345 a square foot, that’s a conservative estimate of $3 billion in real estate sales.
Leasing public land instead of selling it to developers
The site’s previous owner — the provincial government through the Vancouver Coastal Health Authority — could have cashed in on some of this profit had it maintained some control over the land, argues Brad Foster, a former project director of Lower Mainland Facilities Management, which oversees real estate for VCH and three other health boards.
He and his colleagues pushed for an independent land trust to hold and develop underused health sector properties — Pearson-Dogwood being “the diamond” of this group. The idea was modelled after UBC Properties Trust, which leases land to developers and negotiates to collect some of the market-housing profits for the university.
“The principal reason for forming a trust is to maintain control and ownership of public land assets in perpetuity,” he said. “Well-located public land is rare and valuable so the intent is to retain this value and leverage strategically.”
Foster and his colleagues thought the trust could have been overseen by a board of directors with in-depth knowledge of the real estate industry, but the proposal was not approved by the former provincial government.
“It all didn’t go the way I hoped or thought it should. The land trust was modelled after the UBC properties trust, which we thought was a very intelligent way to treat pubic land assets. We developed a very strong business case for the Pearson Lands as sort of a way into that for the health sector,” said Foster, who now works for B.C. Housing.
“The developers are the ones that are going to get the latent value of that land. … We (the public sector) could have participated in that.”
He argues there were some positive elements leading to the Pearson-Dogwood sale: His group worked with the city to get advance approval in 2013 for the site to eventually hold a master-planned community.
“It was a huge success in many respects. The only thing that niggles at me is we should have formed that trust and managed that development over time, with the development community,” he said. “We would have been able to phase out those land sales over time and make the optimal buck.”
Selling public land with low cost loans
The Liberals justified the sale of public land by saying it needed the money to balance the budget, but in some recent big-ticket sales, it provided low-rate mortgages to the buyers and therefore the province hasn’t yet collected all the money it claimed to have raised.
The province is still owed $137 million for Pearson-Dogwood, $233 million for Little Mountain, and more than $250 million from the 2016 sale of the Oakridge Transit Centre — totalling $620 million in outstanding payments. The Finance Ministry could not tell Postmedia the total amount of money currently owed to the government for all land sales deals.
B.C. Transit, a Crown corporation, sold its 14-acre transit centre across the street from the Oakridge mall to Intergulf-Modern Green Development Corp., which was offered a 2.1 per cent, eight-year mortgage by the province.
Similarly, after Onni beat out about 10 other bidders with the highest offer for Pearson-Dogwood, the province offered an eight-year mortgage with 2.61 per cent financing, and the final payment of $44.5 million is due in 2023.
“The deferred payment structure is not that unusual. In this case, the province/Coastal Health is just taking on the role of a banker (as well as seller) to provide the financing for the purchase. By doing so, it is able to arrange a preferential interest rate for the buyer,” UBC accounting professor Kin Lo said in an email after Postmedia asked him to explain how the finances of the deal were structured.
“What I can tell you about the rate of 2.61 per cent is that it is a very good borrowing rate. It was likely significantly lower than a rate that Onni could obtain commercially to finance the transaction.”
Developers and commercial real estate brokers defend the selling of these larger pieces of land with deferred payments and favourable terms such as low interest rates. They say there are few buyers for these expensive properties that carry years of complicated wrangling for approvals and permits before they can be developed.
But others say that when it comes to making the most of public land, there are better options such as long-term leases, and they are critical of low-interest loans offered through the public purse.
“These are all examples of the developers using OPM, or other people’s money. Partial payments are usually accepted by sellers as an incentive to the buyer,” says Auerbach, who also wrote a book about the history of real estate called Placemakers: Emperors, Kings, Entrepreneurs.
Tom Davidoff, a professor of real estate finance at UBC’s Sauder School of Business, said if long-term financing with variable rates is an option for the purchase of public land, then it can be more challenging for government to fairly compare offers from various bidders.
“Generally, I think to avoid taxpayers getting ripped off, it is good practice to standardize terms and sell through as close to an auction as possible,” he said. “When (government) officials have more discretion in evaluating bids, I think that invites trouble.”
Delays at Cambie Gardens
City hall gave permission earlier this year for Onni to start excavating and foundation work for two towers on the southeast corner of the site, but has not yet green-lighted full construction for these buildings or any of the others.
The project appears to be behind schedule, as VCH said in 2017 that construction would start in 2018.
The city says development permits are under review for the remaining buildings in the first phase of the project; an application by Onni to develop the northeast corner of the property (Phase 2) will be reviewed by the city in the fall and Onni is expected to deliver the social housing units in this phase no later than 2027; the development has five phases in total, so a final completion date will be many years down the road.
Onni began selling presale contracts for two of the Phase 1 towers in mid-2018 just as sales and prices started to soften from what had been a super hot market for several years. Last month, these presales hit a seven-year low across Metro Vancouver, in part, after the introduction of taxes aimed at curbing foreign ownership, speculation and vacancy.
Recently, Onni joined other developers trying to spark sluggish presales with various incentives by quietly sending some potential buyers an offer of up to $40,000 off a Cambie Gardens condo.
Onni, which the city says has offered community amenities valued at $142 million as part of this deal, did not reply to emails and phone calls from Postmedia.
Developers generally need to sell a certain percentage of their presale contracts in about nine months to get bank financing for construction, and this needs to be in hand before getting a full building permit.
It’s hard to know exactly where things stand in this process, but Dogwood and Pearson residents — who will remain in these aging facilities until replacements are built — are keen to know what is going on.
This state of limbo also exists for operators of various Vancouver Coastal Health-backed programs at the Dogwood and Pearson facilities.
The ASK Friendship Centre, which runs a day care program for seniors, vacated the space it had been renting at Pearson in November 2018 and is now paying double the rent at a new location. It wants to return as soon as construction is complete.
“We are hoping for a timeline that is not too far away,” said Elaine Wass, chair of the board.
Vancouver Coastal Health hopes to move the 113 residents of Dogwood to their new care home by late 2021. It hopes to relocate 44 of Pearson’s 114 residents into new supportive homes by the spring of 2022, and the rest will move based on Onni’s construction schedule for future buildings.
The health board will fund the construction of the replacement health facilities, using the profit from the land sale, although the estimated cost is not yet available, it says.
Onni will pay for the construction of all 361 social housing units, and provide the city with a piece of the site that can hold another 179 affordable homes one day.
Lack of transparency on public land sales
Information on the land sales is not readily available to the public.
The 160 surplus land sales — which did not include Little Mountain or the Oakridge site — are listed on a government website that, for the vast majority of the transactions, provides no sales prices, no information about the buyer and brief, sometimes-vague, descriptions of the lands.
• Properties that changed hands twice on the same day, benefiting the buyers and not the government.
• The province leasing back land after selling it because they still needed the properties.
• The off-loading of 50 school sites, including in areas where new classrooms are now needed.
• Large land parcels being sold to developers who immediately had them subdivided for dramatic increases in their value, including Pearson-Dogwood.
Onni bought the six-acre Dogwood portion of the site in 2015 for $85 million, more than the assessed value at the time, then had the land subdivided in two. Today the combined value of those lots has increased more than fourfold to $380 million.
Onni bought the 19-acre Pearson portion the following year for $217 million, less than the assessed value, had the land subdivided into four, and today those lots have more than doubled in value to $462 million.
The NDP government appears to have slowed the sale of public lands since its election in 2017, and said it will consider subdividing and rezoning any properties before selling them in the future, on a case-by-case basis, “in order to maximize revenue.”
Assessing market potential of health care sites
Derek Holloway, who is retired after working for 28 years as an appraiser at B.C. Assessment, said the Crown corporation often “lags well behind” on the potential market value of a property like Pearson-Dogwood. That’s because until the owner gets rezoning approved by the city, the property remains assessed for low-density health facilities, rather than for the future potential of thousands of upscale condos.
He cited two recent sales of health care facilities by private companies — not by the provincial government — that showed the buyer paid far above the assessed value, presumably because of the possibility of developing those sites: A seniors facility in Vancouver had an assessed value of $32 million in 2017 and sold for $115 million; and a West Vancouver care centre had an assessed value of $14 million in 2018 and sold for $32 million.
But Holloway questions why governments are selling land at all, or at least why they don’t wait to sell until after rezoning of the property has been approved by the municipality.
“Why would you not subdivide it, rezone it, service it and then sell off the parcels? And get all that value uplift? Because It is just insane that the public purse takes $85 million (for the Dogwood sale), and then shares the value uplift with a private developer. There’s no need for that,” said Holloway.
“You don’t need to throw away an asset like that. That’s a trophy trophy trophy” property.
(Article written by Jlee Young & Lori Culbert posted on Vancouver Sun)