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Vancouver and British Columbia In For Big Hurt

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October 19, 2008 – Comments (7)

As far as the Canadian housing bubble goes, British Columbia has it the worst.  You have more then half the population, perhaps 75%, living in areas where the homes were the least affordable.  Indeed, for about 8 years ago now struggling families started moving to try and manage expenses better.  So the suburb Coquitlam, which saw the education system grow by a 1000 students per year in the 1990s saw the student population declining by 500-1000 per year and the number one reason on the exit surveys done was affordability.

Well, when household incomes are $60-100k and homes are $500-1000k, things really fall apart.  Here's a story about a 1400 unit condo development in trouble.  It is the largest development in Vancouver's history.  There are deposits for 40% of the units, but if they are under $5k it would be an easy decision in my mind to walk away.  It describes the project as a $350 million project, which on average is $250k per unit...

Oh, this is interesting...

"'What the developer has done is taken the necessary steps to try to see the project move forward by replacing Lehman Brothers with a new developer,' said McNeill, president and CEO of MAC."

A look back at the project in 2005.

Here's a look at what you get for your money...  What a joke suggesting the units are "highly affordable."

All I can say is bring it on.  One thing that I noticed back in Vancouver in the summer was the same thing I notice in Florida in 2006 and Las Vegas in 2007, construction is/was going on like crazy.  We all know how that kind of story ends...  People actually believe that massive levels of construction will raise prices.

Here's my prediction for Vancouver, as these projects are finishing the supply of housing that must be sold increase dramatically.  Currently there are people who own a home and have deposits on some of these units and will need to sell their home.  There are probably speculators.  Not all the units have people lined up to buy them.  So, must be sold supply goes up from the developers themselves and from the people who essentially have two homes and need to sell one.  Over supply and prices go down.

The other news I saw is about Whistler and that is where the 2010 winter olympics will be.  Whistler is one of the best ski resorts in the world.  It gets tons of repeat business from skiers around the world.  I don't have link to this one...

 

 

Intrawest (owners of Whistler/Blackcomb) has 1.68 billion in debt coming due on the 23rd Fortress fights to keep Intrawest afloat

Reuters Published: Friday, October 17, 2008

Fortress Investment Group LLC, one of the few publicly traded managers of private equity and hedge funds, is taking action to keep two of its companies afloat, the Financial Times said, quoting people familiar with the situation.

Fortress is struggling to preserve the value of its investments in Intrawest, a ski resort company based in Canada that has US$1.68-billion in debt due on Oct. 23, and Gagfah, a German residential real estate group that is seeking to raise additional equity to comply with the terms of its debt, the paper reported on its Website.

People familiar with Fortress say there is a low probability Intrawest will file for Chapter 11 bankruptcy protection, the Financial Times said.

The paper quoted a portion of a letter sent to investors on Oct. 3 which said, "We are engaged in constructive discussions with the balance of the lending group."

Fortress was not immediately available for comment.

New York-based Fortress controls Intrawest via a US$1.37-billion equity stake. With Intrawest's debt trading at less than 70 cents on the dollar, Fortress has approached potential and existing lenders to discuss a refinancing involving US$1.4-billion in senior debt, the Financial Times reported.

It is putting in an additional US$100-million of capital to preserve its equity's value, but talks will be tricky since any member of the lending group can veto a deal, the paper said.

Founded in 1998, Fortress went public in February 2007 at US$18.50 per share in the first initial public offering by a U.S. private equity and hedge fund manager. Its shares closed up 4% at US$5.50 on Thursday.

© Thomson Reuters 2008

Whistler's prices are super out of control.  A 2000 sq ft home there goes for a million easy right now.  Luxury 3000 sq ft homes have gotten prices in the $3 million price range.  Certainly world class ski resort around the world have become play grounds for the rich, which has really pushed prices up.  Additionally Whistler is land locked due to water issues and proximity to the lifts.

The Olympics have fueled speculation to spectacular levels.  Local people remember what happened to housing with Expo 86, yet they fail to examine the enormous difference, like housing was about 2 times family income versus 8 times family income today.  There was a lot of room for housing to go up in 86 and housing was exceptionally cheap.  Now it is exceptionally expensive and that is an enormous difference.  But speculators this round are using highly limited critical thinking skills and this is going to be a painful slaughter...

Add that to BC's resource based economy...

7 Comments – Post Your Own

#1) On October 19, 2008 at 2:40 PM, jgseattle (29.79) wrote:

Visited Whistler once in Jan to ski, rained three days straight.  Oh well.

I agree that Vancouver is in expensive.  I think in the past the imigration policy of Canada has affected this pricing.  Baiscally if you had X dollars and invested X dollars you could imigrate to Canada and for most of Asia the destinatio was Vancouver.

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#2) On October 19, 2008 at 3:01 PM, dwot (46.63) wrote:

Bad timing for you.  My first time skiing there was in March when I was 15 and it was freezing rain and back then we didn't have the ski clothes like we have today.  Two runs and I was so cold that was it, two weeks of babysitting money gone.  But I've had way more good days then bad days.

Yes, with Hong Kong going back to China there was an enormous exodus over the uncertainty and many came to Vancouver.  Vancouver was the fastest growing city population wise.

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#3) On October 19, 2008 at 4:55 PM, devoish (95.76) wrote:

This is probably a little further away than the Winter Olympics, but you know what they say... Location, location, location.

From Waterwired:

PNW Climate Refugees - They're Coming!

I received this email the other day.

Hello.

We live in Northern California in a small town in 
the Napa Valley.  There has been little planning here for either water 
use/supplies for the future or global warming. We are looking to move 
to a place that has and will have water.  We also want a local economy 
that produces food and a place where we can garden and grow our own.  
We have been looking at climate maps and water maps endlessly but no 
one source seems to lead to an answer.  We would love to stay in CA 
but we realize that CA, especially Northern CA has no plan to capture 
the excess rain water that we will be expecting.  We want a walking 
community so that cars are not a necessity.  We are in our 50's and 
60's respectively and hopefully can find a place to settle for the 
long haul.  Any suggestions?  Thanks.

My advice: hit the road northbound on Interstate 5, and keep going till you reach British Columbia.

"I don't care for future generations. What have they done for me?" -- Groucho Marx

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#4) On October 19, 2008 at 5:25 PM, dexion10 (27.95) wrote:

very interesting

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#5) On October 19, 2008 at 8:10 PM, dwot (46.63) wrote:

devoish, when I look at how the glaciers that I saw in the late 70s, early 80s are gone, well, I think Canada is going to be the best place in the world to be.  We have a huge country for a relatively small population which means we aren't going to be stretched for resources.  I am not so sure about the US.  I guess the population density is 10-12 times higher and the water resource have been raped at an unsustainable level for a long time.  Look at Florida.  Apparently the land mass has sunk about a meter because the under water reserviors have been declining.  They have huge water issues coming up and yet they water grass excessively. 

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#6) On October 20, 2008 at 11:10 AM, russiangambit (29.49) wrote:

> They have huge water issues coming up and yet they water grass excessively. 

You got me on this one. -)). I cannot understand the obsession with lawns here in the US. I guess,it is British heritage. The only problem, the climate is a bit different. I live in Texas, I spend hundreds of dollars each summer to maintain the lawn. But If I let it go all natural, I am afraid I am going to get evicted per HOA restrictions, because I will be affecting the value of nearby homes with my unkempt yard. Obviously, we are nowhere near the depression since people still care about such silly things as front lawn.

As for Canada, it does seems that housing could correct drastically since oil is a way down and oil ia a major part of canadian economy.

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#7) On October 20, 2008 at 12:44 PM, DemonDoug (32.36) wrote:

"Add that to BC's resource based economy... "

Still a plus more than a minus. You are right about vancouver though, possibly more bubbled up than any other North American city, more than LA, San Fran, or NYC.

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