THE developer of a rental apartment building currently under construction is asking the City of North Vancouver to waive hundreds of thousands of dollars in fees to save the project.
Kevin Jardine of Chesterfield Holdings came to council Monday night to ask the city to forgive $167,373 in engineering fees for street improvements adjacent to 201 West First Street, a further $30,000 in general development fees, and permission to forgo a connection to Lonsdale Energy Corporation that Jardine said would cost as much as $296,000.
"We've come to realize our project is somewhat in jeopardy considering some unforeseen costs that we have just now calculated that the city has imposed on us," Jardine said.
Jardine presented an overview of the project's financing in a pro forma
invoice, which suggested the 27-unit market rental building would lose money for its first four years of operation before producing a modest profit in 2016.
"What I'd like to do is show you why I believe no one is building rental apartments in North Vancouver," he said. "What this pro forma shows is that you have to go all the way to 2020 on the net cash return line, nine years from now, before you get to a number that is similar to a government bond. That explains how challenging it is."
Jardine said he isn't able to pass on the engineering fees - which pay for sidewalks, street lighting and a fire hydrant - to renters. Furthermore, he said, the cost to connect to LEC, the city-owned heating utility, was $296,000, nearly five times the price of conventional electric baseboard heaters.
"Plus," he said, "in the electric environment we have a metered scenario in each of the units which creates an efficiency. Usage is charged directly to the tenants. With LEC, the costs to meter are astronomical and the costs are borne by the landlord."
Jardine said while the city had given him a 50 per cent discount in development cost charges, he had thought the markdown would also apply to the project's building permit fees and Metro Vancouver sewerage fees, which knocked a further $30,000 from the bottom line.
"Your support of these requests would save what we consider to be a badly needed project in the city," he said. "It would also demonstrate your actions are in line with your stated policy . . . to support and build on its rental inventory. And finally it would hopefully encourage future rental development projects."
Several city councillors were suspicious of Jardine's financial analysis.
"The problem is we look at your numbers," said Coun. Bob Fearnley regarding the LEC costs, "and we think they are extraordinarily high. In fact, it looks like the cost differential that you're stating is as much a two or three times as high as it should be."
"The main source of profitability in the real estate market," said Coun. Guy Heywood, "is the line not shown in your pro forma, which is capital appreciation rather than income. This kind of performance is not untypical of real estate companies who embarked on a buy-and-hold strategy."
Heywood said forgiving the city's engineering costs amounted to subsidizing Jardine's rental business at the expense of strata owners.
"Mr. Jardine seems like an honest fellow," Coun. Rod Clark said. "Perhaps he wandered into this naively - I'll take that at face value. But we're talking big dollars here."
Clark pointed out that Chesterfield Holdings was aware of the city's fees more than a year ago.
"Surely (Jardine) would have had that before he put a spade in the ground. I would have and I'm not in that particular business. So the engineering charges he wants to be forgiven are in my mind not forgivable."
Clark was also unimpressed with Jardine's pro forma document and the lack of land appreciation estimates.
"That's where the money is going to come from. So don't come to us and say 'Oh, I forgot that.' That's just not on," he said.
Despite the criticism, council unanimously supported Coun. Craig Keating's suggestion that staff investigate the possibility of deferring some of the city's fees for either a set period of time or until the building was sold.
"The bottom line for me is that this is a rental opportunity," said Coun. Mary Trentadue. "What I hear from my colleagues is that we shouldn't be helping along a profit-driven business. But the profit for the city is rental housing and I don't think we should lose sight of that. Almost no buildings for purpose-built rental have been built in many years and there's a reason for that.
"I've said this a million times," Trentadue said, "but rental is not just for the tenants, it's for the community. It's so my grandmother or my sister or my child can live in this city and not have to purchase something, which many people cannot."