Exploring group purchase deals in Vancouver

Back in the summer of 2007, David Fields was overhauling his backyard garden when his landlord dropped by. At 70, the East Vancouver property owner wanted to retire, he explained to Fields. But he knew if he sold this complex—three buildings at Salsbury Drive and Charles Street, including the landmark grey 1904 mansion where Fields lives—a developer would inevitably tear it down. Would the renters be interested in working something out with him, so the buildings and their tenancy in the 18 suites could be preserved?

“We are all within the parameter of ”˜working poor’, so we couldn’t buy it [the buildings] as individuals,” Fields told the Straight in a phone interview. A developer offered $4 million for the complex at the time. “We discussed the possibility at the beginning, but it didn’t go far.”

Instead, the tenants decided to become a co-op. Although they’re still working out whether they will lease the site from the landlord or buy it with the help of the Cooperative Housing Federation of Canada, they’re planning to complete the deal by the end of the year.

“We think we can be a good example for the city and the country,” Fields said. “This is a positive story to counterbalance the ugly stories [of evictions] coming out of the West End.”

The rents at the three buildings range from about $800 for a garden-level, one-bedroom unit to more than $1,200 for a two-bedroom suite with a heritage turret. Interestingly, if the renters bought the buildings for $4 million, the price would work out to $222,222 per suite, or $1,526.43 a month (that’s with $22,222 down per suite, over 25 years, at eight percent interest, according to Vancity’s mortgage calculator). Fields said that’s out of range for most tenants. In fact, he said, $1,200 a month is pushing it; as a co-op, they’re hoping to eventually lower the monthly housing charges.

Although the numbers didn’t work out for this building’s tenants, a group purchase of an entire Lower Mainland apartment building can be a sweet deal—at least on paper.

At the posh end, for example, a 24-suite building directly across from Kitsilano Beach (2280 Cornwall Street) recently sold for $6.6 million, or $275,000 per suite. In the middle, a 38-suite Richmond building near Granville Avenue and No. 3 Road sold for $3.9 million, or $102,236 per suite. And at the bargain end, a 53-suite building at 5th Street and Lonsdale Avenue in North Vancouver sold for $4.8 million, or $90,566 per suite. That works out to $648.73 per month, per suite—cheaper than many rents in the area.

Alas, there are plenty of reasons why more community-minded crews aren’t rushing the banks, looking for massive joint mortgages. David Goodman, a real-estate agent who specializes in selling apartment buildings (and sold all those listed above) told the Straight the concept has merit but is a legal nightmare. Because of the ban on strata conversions in Vancouver (rental buildings becoming owned condos) and other municipalities frowning on the same practice, you’d have a tough go of it, he said. You’d have to work around the Land Title Act, he explained, which requires a single owner. And within the group, you’d have to sort out who pays for what when things break, and what happens if someone stops paying their part of the mortgage.

“It could probably be done, but it’s brain damage, serious brain damage,” Goodman said. “And it would still generate unwelcome publicity and negative blowback.”¦though on paper the idea is a great one.”

Real-estate lawyer Darren Donnelly agreed.

“If this were easy, of course people would be doing it,” he told the Straight. “It’s not a very workable arrangement.”

In other words, if you’ve got $4 million in your pocket, go shopping. If you don’t and you’re relying on friends and family for capital, forget about it.

Shabir Amarshi, Vancity’s vice-president of business banking, told the Straight no one has contacted the bank about cobuying a building.

“If someone was ingenious enough and came up with a way to organize this, it could really be the start of something.”

Comments

3 Comments

everything

Apr 3, 2009 at 10:46am

"Instead, the tenants decided to become a co-op. Although they’re still working out whether they will lease the site from the landlord or buy it with the help of the Cooperative Housing Federation of Canada, they’re planning to complete the deal by the end of the year."

The author of this piece could've done some follow up to this statement. CHF Canada is not in the business of helping people buy property so this assertion is either incorrect or naive. A 40 year lease would likely cost 60 or 70% of the property's value. so the monthly mortgage payment (with a six figure downpayment) would still be well over $1,000 a month per unit. That's not factoring in all the additional costs such as maintenance, insurance, tax, management and accounting services and dozens of extras which would at the very least equal another $300 per unit per month.

Whether or not they could even secure a loan for a lease purchase in the current financial climate is also questionable. The only security they could offer a lender would be their rental income but as that's going to exceed the market averages in the neighbourhood, lenders are going to find that offer quite resistable. With no money saved for long term maintenance planning and no experience of working as a co-op I'm thinking that finding a lender for this deal would be impossible for this group.

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David Fields

Sep 15, 2010 at 4:43pm

As it happened, CHF Canada did offer to purchase the property under a new initiative. Ultimately it would have meant that our housing charges would increase and that is why the membership voted against the purchase. We attempted to find another partner but in the end we could not.

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everything

Sep 18, 2010 at 6:21pm

Sorry David, you are being misled or blustering to save face. I posted over a year ago that this was a naive pipe dream and so it turned out to be.

Anyone in the co-op sector could tell you that the idea of CHF Canada going into the business of buying property on behalf of prospective co-ops is nuts. Extracting membership fees from a group of naive tenants who are not even living in a co-op is more their style. Ever had the feeling you've been cheated?

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