B.C.’s Link to Arizona Real Estate

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Southbound: Canada Arizona Business Council CEO Glenn Williamson is deternined to open Arizona’s eyes to Canadian opportunity.

When many British Columbians hear “Arizona,” they think golf and time-shares. But there’s much more than that linking our two jurisdictions.

Later this month, Arizona’s two major political parties will nominate their candidate for November’s gubernatorial election. The defining issue in both primaries has been Arizona Bill 1070: a controversial measure, signed into law on April 23 by current 
governor (and presumed Republican nominee) Jan Brewer, that makes it a crime for an alien to be in Arizona without carrying federal registration documents. Critics call the new law racial profiling in a state where 30 per cent of the population is Hispanic, twice the national average, but the law remains popular at home; even the likely Democratic standard-bearer, Attorney General Terry Goddard, has said he won’t repeal it.


In Arizona – with an unemployment rate hovering just below 10 per cent, up from four per cent in 2007; where one in 169 households received a default notice in May, the second-highest foreclosure rate in the U.S. and more than twice the national average; and where the state’s total debt load now tops $10 billion, five times what it was a decade ago – much policy attention and public anger is now being directed southward. Cheap labour from illegal Mexicans and cheap goods from maquiladoras are taking jobs from hard-working Arizonans – or so goes the argument. Mexico has become the whipping boy upon which populist fury can beat unencumbered. And yet as far as the future is concerned – where the requisite products, talent and investment capital, the very building blocks of Arizona’s climb from deep recession, might be found – Arizonans would be well advised to look north, well north, for some answers.


That, at least, is the hope expressed by Glenn Williamson when I meet him for breakfast, on a sunny and warm March morning, at the W Hotel in Scottsdale. Williamson, 53, is the founder and CEO of the Canada Arizona Business Council (CABC), a private sector group sanctioned by the Canadian government and the State of Arizona to build trade between the two jurisdictions. Formed in 2004, the CABC – which consists of about 130 by-invite-only members, including Vancouverite Peter Thomas, founder of Century 21 Real Estate Canada Ltd. – helped to increase bilateral trade by just over $1 billion in its first four years of operation (before the recession hit) to $3.2 billion. B.C. represents an estimated $500 million of that total. 


“Six years ago, I woke up one morning and said, I know Canada has an influence down here and that it’s bigger than most people think. So I went to the Canadian government and asked, Why aren’t you guys here?” explains Williamson. “They finally agreed to create a presence, but it was going to take a year, so I got a bunch of guys together, we ponied up $600,000 of our own money and created this YPO-type organization.” 


Williamson, born to an establishment Anglo family in Montreal (his grandfather, T.H. Atkinson, was briefly chairman of the Royal Bank of Canada in the early ’60s), spent his formative years in Canada, working across the country in the travel-resort business before coming down to Phoenix in 1987 to become senior vice-president of operations at the Vancouver-listed company International Laser Technology. In 2000 Williamson, in partnership with Jonathan Birks (of Montreal’s jewelry-store family), established Nest Ventures LLC, a private-equity firm that works primarily in the biotech, communications, energy and e-finance sectors. 


As Williamson explains it, Arizona businesses have a higher interest in Canada these days than in Mexico, and that wasn’t the case six years ago. “The universities here didn’t have any Canadian program; they had Mexican programs. The Department of Commerce had no trade office in Canada; they had three trade offices in Mexico. The governor used to go to Mexico but never went to Canada. We brought the governor up; we brought the mayors up. We managed to create a balance and tap into the fact that Arizona’s growing market wanted to be high-tech. High-tech is Canada, Japan, the U.K.; it’s not Mexico.”


While companies such as Vancouver’s Metrobridge Networks International Inc. and InNexus Biotechnology Inc. and Victoria’s Carmanah Technologies Corp. have a significant presence in the Arizona market today, B.C. businesses historically have made their name and fortune here with natural resources and raw materials. And despite the inroads made by tech and biotech companies, that remains true to this day. Twenty-five B.C.-based mining firms have operations in the Copper State, while the single largest export from Canada to Arizona remains building materials, most of that coming from B.C. 


And with those building materials have come western Canadian developers by the planeload, starting in the 1970s with Peter Thomas and continuing today with builders such as Vancouver’s Avenir Group and Anthem Properties and Langley’s WestStone Properties Ltd., each hoping to capitalize on one of the fastest-growing regions in North America.


[pagebreak]THE DRAMATIC RISE AND FALL of Arizona real estate created great wealth and also great misery. The mushrooming Greater Phoenix area, home to two-thirds of Arizona’s 6.6 million residents, saw home prices jump more than 101 per cent between 2002 and the 2006 market peak as massive in-migration paired with lax loan regulations drove up the ante. But then the music stopped and prices dropped, 52 per cent from that 2006 peak through the third quarter of 2009, the second-worst decline in the States after Las Vegas. Many home­owners were forced off their properties, and by the fourth quarter of 2009 nearly 62 per cent of single-family home mortgages in Phoenix were underwater, with homeowners owing more on their home loan than the property was worth. 


What was a disaster for many proved a great opportunity for others. One of the self-described opportunists is developer Rob Macdonald, president and founder of Vancouver-based Macdonald Development Corp. Macdonald first established a presence in the Arizona market in the late 1980s, gobbling up a series of Phoenix apartment buildings (as well as properties in Atlanta, Seattle, San Diego and Sacramento) in the wake of the U.S. savings and loans collapse, when many highly leveraged lenders went belly up and their properties got resold by the U.S. government. 


“We were buying buildings for a third of replacement costs. So replacement costs at that time were, say, $65 a foot; we were buying for $20,” says the 1980 UBC commerce grad, clearly relishing the story. “Assets were cheap.”


Back then Macdonald’s privately held company was primarily in the rental property market, purchasing apartment buildings in a down market, fixing them up, then selling when things rebounded. While that’s still a large component of what Macdonald Development does, the company has also moved in recent years into the new-home market, developing the Hudson condominium project in downtown Vancouver and several single-family tracts in Qualicum Beach, Nanaimo, Parksville, Victoria and Kelowna. 


When the subprime-mortgage crisis hit, Macdonald once again turned his attention to troubled U.S. markets, pouncing when Century Plaza, a 145-unit luxury condo conversion in midtown Phoenix, went into foreclosure in May 2009. Macdonald bought the project for $16 million, a fraction of its original price, and rebranded it One Lexington. While units that pre-crash were selling for more than $500 a square foot are now going for only $240 a square foot, Macdonald – who occupies one of the units himself – says he expects to sell out by mid-2011 and realize a net profit of about $75 a foot. 


Macdonald – who is also a major shareholder in David Aisenstat’s Keg Restaurants Ltd., which has four outlets in the Greater Phoenix area – is bullish on Arizona. He says it’s an easy place to do business, because everything is pretty similar in terms of law and business culture. (“It’s way easier to get building permits here,” he notes. “In Vancouver it’s a nightmare.”) Most importantly, he says, the market fundamentals remain strong. 


“My broad view is that it’s going to come back and it’s going to do well. The city has had pretty regular growth for the past 40 years. It’s a place where people like to live; call it the value of the sun. It’s going to have continued in-migration from across North America. And that’s just not going to stop; it’s going to continue for the rest of time.”


About six kilometres to the northeast of One Lexington, tucked into a bland late-’90s industrial park in East Phoenix, lies the Arizona outpost for Foreign Affairs and International Trade Canada. Rick Stephenson is the government’s senior trade commissioner for Arizona and New Mexico. Prior to taking control of the Phoenix office in 2008, the career civil servant was based in Vancouver for almost three decades. 


“When I was living in Vancouver, we had a condo in Scottsdale, long before I knew I’d ever get to live and work here,” says Stephenson from his bright consular boardroom, with views of Camelback Mountain and the McDowell Sonoran Preserve in the distance. “We did the typical thing: we bought a condo, furnished it, came down and used it at Christmas, then rented it out to snowbirds for the rest of season.”


In 2005 the Canadian government decided to open seven new consulates-slash-trade offices across the U.S., and Phoenix was one of them. “We opened these offices five years ago to promote trade, to promote investment and to promote research partnerships between Canada and institutions in this market,” explains Stephenson. “One of the key reasons we opened in Arizona is that there’s a lot of research going on in this market, and part of our job is to identify key areas of research – particularly where they’re close to commercialization of innovation – where there’s an opportunity for Canadian institutions and businesses to partner with that research or leverage research dollars.”


A big initiative the consulate has been working on in recent years relates to border security technologies. In 2007 Stephenson and his office helped broker a partnership between UBC, SFU and the University of Arizona to develop a centre of excellence at UA in border security and immigration, with $5 million in new research money directed toward issues relating to the border and commercialization. 


In terms of new business development, Stephenson points to a major project now underway by Phoenix-based Iridium Communications Inc., which manages a multibillion-dollar satellite system. Over the next five years, the company is due to take down the 66 satellites they have in outer space and replace them with new ones. “That’s a $2- to $3-billion project,” says Stephenson, “and MDA [MacDonald Dettwiler and Associates Ltd. of Richmond] has a good chance of getting a good chunk of that business.” 


But MDA is a global player with tentacles everywhere. The biggest obstacle right now, admits Stephenson, is getting small to medium-sized Canadian companies to make that first tentative step away from home. 


“Not to beat up on Canadian companies, but if you want to be a global player you’ve got to get off your ass and pursue the global business. If you’re a Canadian company and you want to grow, you’re going to have to export or invest abroad. We find a lot of Canadian companies who will phone us or email us, but to get them on an airplane and come down here and look for the business? That’s still the thing that challenges us the most.”