As Vancouver city council waits anxiously to see whether reduced prices on condos at the Olympic village will entice buyers, it is bracing itself to consider approving additional options from renting out suites to allowing a bulk buyer to take everything at fire-sale prices to recoup its $731-million loan to the village's private developer.
"No decisions have been made, but all of those options had always been potentially there," Vancouver Councillor Geoff Meggs said after an in-camera meeting earlier this week at which councillors were updated on the options and confirmed city manager Penny Ballem's authority to act quickly if necessary to allow any of those options. "There's milestones in the lending agreement. As they come up, you have to consider where you are. This all has to be assessed financially and legally on a continuous basis."
So far, Millennium Developments has paid nearly all of the first $200-million that was due by the end of the summer as part of the loan agreement with the city. The city, which had a legal obligation to provide an athlete's village to the 2010 Games, became the lender in early 2009, when Millennium's original lender refused to provide any more money because of ongoing cost overruns.
Millennium's repayment on the first $200-million came from the sales of the 257 condos on which buyers definitively closed their purchases this summer.
The city says that Millennium is not in default on the loan.
However, the sales picture is about to become much more difficult. The early sales were all at the lower end of the price range, the condos that are easiest to sell.
Millennium's Peter and Shahram Malek are now faced with trying to sell the remaining 480 condos, many of them the high-end units that the Maleks decided would be the feature of the development. Other developers who bid on the village four years ago had proposed smaller units that would have sold for lower prices. But the Maleks, who bid on the land when luxury condos in Vancouver were still selling like hotcakes at steep prices, decided to build a lot of larger units with luxury finishes.
Those kinds of units have sold for $1,500 to $2,000 a square foot in other parts of Vancouver. Bob Rennie, the high-profile condo marketer who has been in charge of the village's sales plan, said the remaining condos will go on sale in mid-October with incentives for prospective buyers, such as reduced HST or maintenance fees.
Other project marketers in the city are trying similar incentives as the housing market stumbles under the weight of another economic slowdown and uncertainty over the fate of the harmonized sales tax.
If those incentives don't work, Millennium and the city have to decide whether to try waiting for the market to rise or to push for a bulk sale or even to rent some out to get cash coming in.
Mr. Meggs said the city is trying to stick to its role as the lender and not take over the developer's job. So in-camera discussions about the project, which have been going on regularly, have focused on being prepared for what Millennium might decide to do to meet its loan-repayment deadlines.
"If Millennium wants to make a dramatic move, they have to apprise us as the lender. We're prepared to assess strategies they have, but it's their development."
Millennium could also make loan payments by selling other pieces of property from its extensive land holdings in the city. It has given no sign so far that it is prepared to do that.