Michael Geller, Opinion – “While Vancouver prices are high by Canadian and North American standards, as evidenced by a recent photo essay on the most expensive streets in the world, they are still less than some European and Asian cities.”

Very occasionally we will headline the opinion of a local commentator, for the record. Hat-tip to jesse for alerting us to this recent comment on the Olympic Village and the Vancouver market by Michael Geller at francesbula.com 21 March 2011 3:39pm. Geller describes himself as “a Vancouver based architect, planner, real estate consultant and property developer with four decades’ experience in the public, private and institutional sectors.”

We’d characterize Geller’s outlook as “sunny and clear, with unexplained brief patches of drizzle”. He’s a complacent bull, he is not warning of an overheated market. He sees $700/sqft as a fair price for a condo in Vancouver. Comparisons of local pricing with “the most expensive streets in the world”, and the presence of mainland Chinese buyers, have soothed his concerns that prices may have gotten too high. At the same time he sees some westside/Richmond SFH lot prices as “outrageous”, and he notes the poor quality of construction (“the construction quality is not any worse than what one has come to expect in the Vancouver market”).
He plays the very tired and very wrong “stopped clock” card (roulette-betting version) and, in a rearview fashion, points to past price appreciation as a reason to not be bearish (“anyone who followed [Garth Turner’s] advice in the past has probably missed out on some significant property appreciation”). Both of those arguments are classic bull-blinkers during bubbles. Michael Geller is not warning of a bubble; in fact, the headlined quote classifies him as a bubble-denier. -vreaa

Here’s the recent comment from Michael Geller, in full, for the record:
I will offer a few thoughts on OV and the housing market as a whole.
I do not think anyone should attempt to generalize about the Vcr real estate market based on what happened at OV. The fact that prices were reduced by 30%in this project is not a reflection of a drop in the market. It is a reflection of the overly aggressive pricing for this development when it first went on sale, and in May 2010 when it was re-launched.
I think it is fair to say that most developers and real estate analysts in Vancouver always considered this project to be over-priced, given the location (it’s not yet Coal Harbour, or even the North Shore of False Creek); the general site and building designs which reduce the number of units with views and result in many contorted layouts, and the overall standard of finishes. I would also add that given the extent of exterior walls, which are included in the floor space calcualations, the effective interior area is often less than for a comparable unit in a more conventional building form.
That being said, I do believe that many of the units are now much more fairly priced. Indeed, I did encourage a friend of mine to purchase a penthouse unit at what I thought was a very attractive price.
As for concerns about construction quality, while there have been problems, including water pouring out of at least one light fixture, and problems with the heating system, I am told by people in the industry that the construction quality is not any worse than what one has come to expect in the Vancouver market. I understand that some of the green features have ‘bugs’ that need to be worked out, but this happens with many innovations. One day, they should offer increased livability and other benefits.
There is no doubt that some of the finishes are below the standard one might expect for a $1000 a sq.ft. plus product, but they are in line with $700 a sq.ft. product.
As for the unit layouts, there is no doubt that many of the plans are quite odd, and not always as furnishable as they should be. As to why this is, I too would like to hear from the marketing team, since this is something they usually go over with the developer and architects. (Sadly, too many architects are more concerned with the overall look and appearance of a building, than whether a bedroom is properly dimensioned to accommodate the required furniture.)
It is my view that the plans were not as good as they should have been because of the very large number of units being built at once; the many different unit types resulting from the many, non-standardized building forms; and the shortage of time due to the rush to get permits issued and construction underway.
(As an aside, I have spent weeks trying to perfect 3 unit types for a small project I am doing in W.Van, and am still fretting about certain details!)
But is the OV signaling a potential drop in the Vancouver market? No. Is the Vancouver market going to drop? Well, some of us have thought prices were too high for quite a long time. But now that many buyers are coming here from Mainland China, prices have remained high, especially in certain areas. (Personally, I find the prices being paid for West Side Vancouver and Richmond single family lots outrageous.) And to some degree, this indirectly influences the prices being asked for other properties.
While Vancouver prices are high by Canadian and North American standards, as evidenced by a recent photo essay on the most expensive streets in the world, they are still less than some European and Asian cities.
Two final thoughts. In my opinion, the adverse publicity resulting from the lawsuits from disatisfied purchasers has to be having some effect on the current sales program. How can it not? At the same time, I too find it hard to be too sympathetic towards someone who probably devoted less time purchasing a very expensive apartment than they would devote towards the purchase of a new car.
In this regard, I would urge future purchasers to review the floor layouts and unit outlooks carefully, both in the daytime, and at night.
Finally, as for Garth Turner….well, he has been predicting significant corrections in the market for a long, long, time. One day, he’ll be right, of course, just like the person who keeps betting on the same number on a roulette table. But in the meanwhile, anyone who followed his advice in the past has probably missed out on some significant property appreciation, especially in Vancouver.”

8 responses to “Michael Geller, Opinion – “While Vancouver prices are high by Canadian and North American standards, as evidenced by a recent photo essay on the most expensive streets in the world, they are still less than some European and Asian cities.”

  1. This is one of those “arguments” that could work on the delusional and ignorant people who have never travelled outside of North America.

  2. I’d actually characterize Geller as knowing there’s a huge amount of speculation going on (“I find the prices being paid for West Side Vancouver and Richmond single family lots outrageous.”). The problem Geller faces is that he is a politician and needs to choose his words with future popular support in mind. Note how carefully he crafted his words: “many of the units are now much more fairly priced“, not explicitly stating the units were fairly priced, just MORE fairly priced. It is implied many of the units are still overpriced (which they are!).

    The man hangs around with enough developers and property investors to know a good deal, know the experiences of other “world-class” cities now in trouble, and reads the same bank reports we read. I highly doubt he’s in the dark. That said, I highly doubt he would do much to disturb the rickety edifice if elected to council.

    I enjoy his points of view, even if I disagree with them, as they provide a portal into Vancouver’s development/planning world that us “outsiders” don’t see except by stretching for a look over the high fences.

    • jesse ->
      Possibly, as you suggest, Geller has more insight than he lets on, and is consciously self-censoring. If that is the case, then he is being dishonest, and he’d gain our admiration (and likely have more self respect, and more sustained political staying power) if he came out and called the bubble a bubble.
      Alternatively, (and more probably, in our opinion) the ongoing price strength has suppressed any critical thinking he may have entertained about the market. This quote suggests to us that that is the case: “Well, some of us have thought prices were too high for quite a long time. But now that many buyers are coming here from Mainland China, prices have remained high, especially in certain areas. … While Vancouver prices are high by Canadian and North American standards, as evidenced by a recent photo essay on the most expensive streets in the world, they are still less than some European and Asian cities.”

      Sometimes being an ‘insider’ blinds one, and “outsiders” have perspective that those wallowing in the kool-aid can’t appreciate.

      • @vreaa, that may well be, but there are some interesting trends that shout out like a screaming banshee to many “insiders”. How many large-scale rental developments are being built in Greater Vancouver? There must be a few investors with experience with such beasts in other areas of the world who habituate the same parties as Geller. You’d think this inconvenient fact should come up from time to time.

        The “insiders” know Vancouver well enough to realize the best money is made up-front, not in the perpetual maintenance of a low cap investment. But I can’t believe they aren’t aware their business cases that work so well elsewhere are untenable in Vancouver. Just saying… I think the rose-coloured glasses are donned mostly because optimism is an enviable quality for an elected city official. That, and any look at who funds all sides of the tripartisan make-up of city politics shows a slight conflict of interest in keeping the status quo.

        I don’t know if people like Geller have put 2 and 2 together to figure out how prices can become so detached from rents and whether that’s sustainable in the long-run.

  3. Michael Geller is positioning himself for the NPA nomination for mayor – he is a self-serving individual and his comments should be taken with “a grain of salt”.

  4. I was pleasantly surprised to find this blog. I wasn’t aware of its existence. Thank you for considering my comments.

    I have enjoyed reading your responses and speculations regarding my post on Frances’ blog. First of all, I have no intention of running in the next municipal election. I like travelling, and golfing, which are difficult to do when you have to attend so many meetings! I have a very gratifying real estate consulting practice and recently purchased a property in West Vancouver that I hope to develop with smaller ‘cluster housing’ if I can get rezoning approval.

    I agree with your observation that I tend to qualify my words, but that’s because I find it difficult to be absolute about the Vancouver real estate market. I have a good client who wants to invest in Vancouver but regularly asks me whether I think we’re in a bubble. He’ll tell you that I am very cautious about our market. But I’m reluctant to say that we’re in a bubble since the market has been quite strong for so long.

    It is no secret that I sold three large apartments at Bayshore over the past few years because I couldn’t believe prices would remain so high for much longer. But I was wrong on two of the units. I could have made much more had I hung on a bit longer. The truth is none of us really know what’s happening, and what’s going to happen.

    As for the Olympic Village, I tried to tell it as I see it. I do think some of the units are now fairly priced, but not all. Furthermore, while I like some of the plans, there are many that are really strange and it is very unfortunate that the architect, the developer and his marketing team did not fix the mistakes before the units were constructed. Some of the mistakes are unforgivable.

    As for the development of rental housing, the city of Vancouver recently completed some very good examing the economics of new rental housing. You can find a link to them on my blog at http://www.gellersworldtravel.blogspot.com. They clearly identify the challenges of building new housing, and covering the costs with the initial market rents.

    However, an even bigger problem, in my opinion, is what to do with all of the rental buildings that need renovation, including seismic upgrading, and energy conservation measures. Many of the landlords I know are afraid to contemplate such major works, because they don’t want to appear on the front page of the Vancouver Sun. But that’s another story.

    I’ve bookmarked this site, and look forward to what others have to say in the future…..cheers

    • Michael -> Thanks for your comment, for your clarifications, and for your interest in this site. We’ll welcome your comments on topics in future.

      To address your uncertainty regarding whether we are in a bubble: When you say “But I’m reluctant to say that we’re in a bubble since the market has been quite strong for so long”, realize that that is the case in every bubble… the strength always looks indomitable from the inside.

      We at VREAA believe that we are, indeed, in a local RE bubble, one driven by very, very cheap (“emergency”) finance, by a few stories, and by very broad speculation. We believe that there is speculation inherent in almost every Vancouver RE purchase, in that the vast majority of buyers would hesitate, and many would NOT buy, if they didn’t believe that RE prices in Vancouver were on a relentless upward path. The only exception to that is those who are purchasing properties where the property value is only a relatively small percentage of their net-worth (10-30%). Those folks can afford to buy regardless of future price appreciation (or price drop). The rest are speculating that prices will increase. Many have their entire net-worth in RE, and some are leveraged many times their net-worth into RE. We believe that such players are at very high risk of ruin in the coming bust, and that, because of the bubble’s breadth and depth, the subsequent implosion will be the defining social and economic event for this decade, for our city.

      The ubiquitous speculation was accurately alluded to by Frances Bula in the Feb 2011 CBC radio discussion that you had with her and Kathryn Gretsinger. We featured her comments on that occasion here [20 Feb 2011].

  5. Restaurant Unemployee

    vreaa,

    “We believe that there is speculation inherent in almost every Vancouver RE purchase, in that the vast majority of buyers would hesitate, and many would NOT buy, if they didn’t believe that RE prices in Vancouver were on a relentless upward path.”

    that is a succinct sentence, right there! FWIW, i will follow you and Nemesis on bloody stumps through the snow..

    i know of not ONE person who has bought in the last 3 years that has not espoused this view to me as the main motivating justification for their (mostly leveraged) purchase. the look in their eyes.. their house was never a home first, it was a guaranteed lottery ticket first and a place to sleep between double shifts second. i stopped espousing my unsolicited opinion after receiving the full fury of the true believers, and then i stopped espousing my opinion even when i was asked. on a side note, there are more jobs in this city than people think, but the bubble has pushed the COL so high that if you ask, you’ll notice a lot of service industry workers (especially the hot ones) have 2-3 jobs, specifically to cover their mortgage, when they have no business having a mortgage in the first place.

    all of the newlyweds, all of the newly graduated… locally speaking, mine is a generation (the aspiring strivers among us, not the hipsters, though they deserve it more than most) that will be flattened completely. they’re going to lose some years and some health because of this. you cannot make a choice without all of the information, otherwise it’s not a choice at all. i know of multiple cases where aging parents of newlyweds have pooled huge chunks of their life savings to make their children’s down payments. FTB

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