‘There are signs of trouble elsewhere,’ says Adam Lawrence, who specializes in investment and development land sales
A recent boomlet of court-ordered sales or foreclosures in the local real estate market has mostly involved developers who had been planning to build luxury condo towers in prime areas, such as downtown Vancouver or on the city’s west side.
But developers with more modest plans in outlying areas, including the Fraser Valley, are also facing court-ordered sales, as they too are unable to make loan payments due to high interest rates and falling property values.
“There are signs of trouble elsewhere,” said Adam Lawrence, who specializes in investment and development land sales at Goodman Commercial Inc.
The company is bidding to represent a few Fraser Valley listings of residential development projects that are court-ordered sales.
This week, it put on the market a 2.26-acre site at 204th Street and 70th Avenue in Langley where the developer was proposing to build three, six-storey, wood frame projects with 254 units, including a mix of one-, two- and three-bedroom suites. It’s asking $17.5 million and was described as being ready for servicing, meaning it needs some connecting to utilities such as water, electricity and mains sewage.
Many of these involved a rush of capital from overseas and developers with ambitious goals, but less experience navigating the bureaucracies of the local market.
Lawrence said this new set of court-ordered sales for projects in the Fraser Valley is more connected to land sales after the COVID-19 years, starting around 2020 as developers and consumers looked outside of Metro and farther away for more space. They bid up sale prices for sites in Surrey, Langley and Abbotsford when interest rates were low.
“Now, the cracks are showing,” said Lawrence. “Rates have gone up and people get caught. They are less well-capitalized than expected, especially the developers who bought more recently because they paid higher prices.”
This site in Langley was submitted for rezoning and received first and second reading for a different concept. The plans were subsequently revised to increase the density and will have to be resubmitted by a new developer. Pre-sales and marketing weren’t started yet.
It’s a trend that is impacting projects across the spectrum, said Lawrence’s colleague, Mark Goodman.
“From luxury downtown towers to townhouses in the Fraser Valley, the past 24 months has been challenging for builders right across the country, and unfortunately, it’s likely to get worse before it gets better,” he said.
Harp Khela of Century 21 specializes in development land in Surrey and pointed out that unlike the luxury downtown Vancouver projects, owners of the ones in the Fraser Valley not only have had less of a lift in equity, the projects are generally also at earlier stages, meaning that owners haven’t benefited from value that is gained through a rezoning or marketing.
There can be a lot of pressure on landowners if they have two or three sites and paid peak prices for assets that are decreasing in value now.
“But if they bought five (developments) and didn’t sell, and had to hold, there isn’t enough equity to pay lenders,” said Khela.
The conundrum, however, is that interest rates are now falling again, he added. Of course, it will take them falling much more to see a substantial effect on property prices and values rising again.
In the meantime, he and others said that developers face a crazy time with the balance of trying to make loan payments and not walking away from equity on the table or value they have already built.