Land Values: The ups and downs of building a real estate development in B.C.

It shouldn’t be that difficult to build a 66-storey building with almost 600 apartments—some of them for-sale condos, some of them rentals, some of them subsidized rentals—plus a few floors of office space, an indoor lounge, an outdoor area with a barbecue, a gym, a ground floor filled with interesting restaurants and shops, storage for about 1,500 bikes, underground car parking and a children’s play area. Should it? Should it?

Of course it’s complicated—it takes a team with a couple dozen specialists to make that mini-world function well, to find and coordinate the hundreds of building details, from ordering glass to figuring out how many EV plug-ins to install to running the projected costs and revenues for decades ahead. That means building in a cushion for unpredictable bumps: the way the price of steel skyrocketed after Russia invaded Ukraine, for example.

Those are all twists and hurdles that the team at Anthem Properties—one of B.C.’s top 10 private developers—is used to. Eric Carlson’s company has 96 projects on the go in B.C., Alberta and California. It has 4,300 apartments and townhouses under development in Coquitlam alone. Definitely not a rookie.

But, as the firm’s experience with just one of those developments has shown, all of that intense planning can hit a chassis-bending road bump in a minute.

The story of Anthem’s Citizen complex in Burnaby—where pre-sales are just starting—is not a case study of the worst development muck-up ever. But its evolution has been an unforgettable roller-coaster for Melissa Howey, vice-president of development at the company, who has been steering it through since 2019. It tells a story about the current state of the art and science of development, one that the Anthem team offered to share with me when I asked to get taken through the process of building a single project.

When the planning for Citizen started, the projected cost was $480 million for two 33-storey towers on a large site on Kingsway a block from Metrotown, near Anthem’s successful Station Square development. The carrying costs were estimated at $150,000 to $300,000 a month, and that was included in the building pro forma for what everyone thought would be a two-year process. So was the $300-per-square-foot subsidy needed for all the below-market- price rentals.

Four years later, the construction cost is now estimated at $580 million. That will add an average of $100,000 to the cost of every condo, something the company will have to absorb to stay price competitive with every other developer around. (Having more condos at higher floors will generate a small amount of extra revenue, but nowhere near enough to pay the $100-million bill.)

It’s not just because the price of materials has gone up or even because of the additional interest costs that are punching everyone in the gut. Those were factored in. It’s been the extra time and the surprise changes that Anthem has had to adapt to.

There is no notoriously obstructive planner in Burnaby who has put spokes in the wheels with capricious requests. Those planners do exist, sprinkled around B.C.’s high-development cities and known and feared by many. I hear about them on the regular from every architect, nonprofit housing developer and builder I know.

Planners who will request, at the last minute after three years of negotiations and design work, that the builder put in a cute coffee shop. (A change like that requires a major revamp of the whole building, plus additional costs to meet building-code requirements for a commercial area.) Or who will quibble about the colour of the tiles planned for an area. (Leading to a project getting held up for a month, at a few tens of thousands in interest costs, in the meantime.) Or who saw something in Copenhagen they think is cool and should be incorporated into the building. (Even though it’s totally unworkable in the setting.)

That’s not the case for Burnaby, which is seen as having a strong planning team that collaborates productively with builders. “The senior team in Burnaby is some of the best. They want to work with us,” says Rob Blackwell, another VP of development at Anthem. And the whole team says the senior planner who worked with them is one of the Very Good Ones.

But things happen. And they did with this building.

After Anthem bought the property in 2019, Howey and her team coordinated closely with city staff. “In the early planning stage, you rely heavily on information from the city. If that information changes, even in the slightest way, you can’t technically achieve what you planned,” she says.

In spite of what everyone thought was rigorous attention to every rule, it turned out, a year in, that the whole project would have to be redesigned because someone in engineering finally alerted planners and the development team that the sidewalk needed to be wider as part of the city’s efforts to create more pedestrian space. There doesn’t seem to be an explanation for why that crucial information wasn’t transmitted earlier.

That meant the buildable area on the site had to be pushed back. In turn, there wasn’t enough room to have two separate towers—everything had to be combined into one 66-storey tower. With that came tens of millions in extra costs: more concrete to support a bigger building; a different kind of crane that would have to be rented and for a longer period; many more months (55 instead of 40) to build; a building-maintenance unit that costs a million more; $2 million more for a different kind of window. And so on.

That came on top of other unexpected changes. A year-long delay while Burnaby worked out a new policy for below-market rentals. Being told partway through that the buyout for parking stalls was changing from $10,000 to $25,000 per stall—an extra  $2 million.

At this point, Carlson and his team are hoping they can at least get the GST rebate on rental apartments that the federal government announced last September. It wasn’t totally clear to them, when we talked in the fall, whether buildings that have a distinct air-space parcel of rental units in a condo building, like theirs, will be eligible in the way that a stand-alone rental is. They’re waiting for the federal bureaucrats to write the detailed regulations.

If the Anthem team does get it, they say, they’ll use it immediately to reduce prices slightly throughout the building. Developer critics typically pooh-pooh any suggestion that something like this ever happens, saying that builders will simply keep any government money they get to make a bigger profit. But that’s not what is likely to happen, says the team.

“We’re all competing against each other out here,” says Blackwell. “If you have a competitive price advantage, you’ll take it. We’re always looking at how do we get an advantage over the person down the street so we can  fill up the building before  they do.”

And no matter how experienced people in a company are, every project feels like a walk on a tightrope without a net as you watch tens of millions of real money run down the drain. Carlson talks ruefully about emerging on the other side of this project with “cuts and bruises.”

So what, some might say. So they make a few million less than they might have. Carlson’s argument is that he’s not the only loser. So is the public. If the project had taken less time and stuck to the original budget, the company could have built double the amount of housing. A project like this eats into a company’s capital and strength.

And governments could fix this without spending a lot of money, like they are with the GST rebate and various housing programs.

The most effective solution, says Carlson, is for cities to be clear and consistent once a project has reached a certain point in the road. No policy on the fly. No, “Oh, why don’t you just do this or that?” No changes that result in multi-million-dollar additions.

“You can take any one hit,“ says Carlson, “but not when it’s hit after hit after hit.”