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As I was driving to BC Place two Saturdays ago, my thoughts were focused on the final two days of the home show. The sun was shining, the air was still -- ideal conditions for many outdoor activities revered by folks here in Lotusland-by-the-Sea, but not so good for attendance at indoor shows.
As I neared the stadium, storm clouds appeared, via my cellphone. Shannon Patterson, a hard-working reporter from CTV, called to ask if I had heard that Sophia, an 81-unit condo project in Vancouver's Mount Pleasant neighbourhood, was placed in receivership. No, I told her.
When I returned home that evening I discussed the issue with my wife, telling her I was feeling quite disconcerted. I said if I am that gloomy, I can't imagine what those 81 purchasers were feeling. They, too, found out about the receivership that day, most of them long after I was informed of it.
An attractive eight-storey building, Sophia now sits idle, 85-per-cent complete, more than two years after the first sales were achieved in 2005. David Bowra of the Bowra Group is the court-appointed receiver, the same guy who was receiver for the ill-fated Riverbend development last year.
Just after this column was filed (darned editorial deadlines), Bowra submitted his recommendations to the B.C. Supreme Court for its consideration and judgement. A court date has yet to be set.
Developer Bill Eden of the Eden Group said he ran out of viable options, attributing the receivership to ongoing problems with higher-than-anticipated labour costs, a three-month strike by Vancouver civic workers, delays in the city's approvals process, and mounting financing challenges.
This is not the first time the Eden Group has cancelled a project. Last fall, two Vancouver projects were cancelled, both before a shovel entered the ground. At the time, I commented that the cancellations were appropriate since the purchasers -- mostly investors -- only bought in two to three months prior and delaying the inevitable would have mired the developer and purchasers in financial quicksand.
Not so with the Sophia situation. Many people are affected significantly by the receivership. Some have waited more than two years to move into their condos, located in an up-and-coming, vibrant neighbourhood.Predictably, they are experiencing a range of emotions: sadness, anger and confusion.
Claire Munroe and partner Josh Alter, both 27, purchased their one-bedroom condo in early 2006. Their projected possession date was the summer of 2007, then winter of 2007, then this month, then spring. The delays were disappointing but tolerated because the sheer volume of construction activity in the Lower Mainland, including a shortage of skilled labour, was well documented.
Munroe said she and Alter just celebrated their fifth anniversary together and were looking forward to moving from their Kitsilano rental and taking their first step onto the home ownership ladder.
"We already shop and dine in the neighbourhood and were excited about being part of our new community," said Munroe. "Hopefully, the judge orders the completion of the building and allows us to complete the purchase of our condo at the price we paid two years ago. Right now we are riding a roller coaster of emotions; it's not a good feeling knowing our future is uncertain," she said.
Bright, articulate and feisty, Kristen Gray is just 22 and has been saving for her first home since she was 16. Gray works for a prominent residential developer who has allowed Kristen time at work to spearhead efforts to contact other purchasers to establish e-mail information chains and organize meetings where they can discuss the receivership process and possible outcomes.
'My dream house'
"I did lots of research before I bought at Sophia. This was supposed to be my dream home. I bought furniture and made plans for the move. Just in case, I spent last weekend looking at other condos all over Vancouver but, you know, I couldn't find a single place I would rather live," said Gray.
Gray purchased her condo on assignment last August from an original purchaser. She paid the market value of the condo at that time, essentially remitting to the seller the lift (profit) in real estate values since the original purchase (eg., if the original purchase price was $250,000 and the condo is now valued at $350,000, the lift is $100,000).
In Gray's case, she paid the lift applicable to her unit and the down payment to take over the contract. Thankfully, both lift and deposit are held in trust.
No such luck for Michael Nowak and family. In October, Nowak, 33, and his wife Paulina, who have a seven-month-old daughter, sold their home in Windsor, ON and moved to a Vancouver apartment.
Like Gray, Nowak purchased a condo from an original purchaser, but, unlike Gray, he did not have the lift ($120,000) and deposit ($16,000) placed in trust.
He paid the seller cash, up-front, so if the judge decides Sophia will be completed but purchasers must kick in thousands more to secure their homes, Nowak might have no choice but to pay the extra cash. He is currently seeking legal advice.
'Such nice people'
"Originally I was stressed out. I felt swindled. Now, after meeting all the other purchasers, my family is actually looking forward to moving into the building. They are all such nice, friendly people, it will be great to have them as neighbours. That is, of course, if all goes well in court," said Nowak.
Which begs the question, are assignments problematic? Some developers allow them while others do not.
"Our purchase-and-sale agreements only allow for assignment with our written consent once the building is 100 per cent sold out," said David Podmore, president of Concert Properties. Podmore added he would consider selling his personal home before he subjected his purchasers to the trauma and uncertainty of a receivership action.
So, what is to become of Sophia purchasers? B.C. Supreme Court will decide, likely this month. My strong desire is that the purchasers -- cash-strapped first-time buyers, downsizing empty- nesters, move-up buyers or investors alike -- will get their condos at the price they paid for them. That would be a fair and just outcome.
I also hope the beleaguered developer is able to resolve his challenges. The receivership has upset the development industry and, understandably, has cast a shadow over the presales process. Rest assured the sky is not falling, and pre-sales will remain a reality. Developers must achieve a certain number of pre-sales before lending institutions will advance development financing. The pre-sales threshold depends on the relationship between the developer and banker.
To put this situation into perspective, although there have been four such receiverships over the past year or so, they are unusual. I realize this fact is cold comfort to the Sophia purchasers, but more than 78,000 new homes and condominiums have been sold, built and delivered to the purchasers without incident and for the contract price during the past four years in the Lower Mainland alone.
There have been those, mainly occupying the Opposition seats in the B.C. Legislature, who are calling for provincial legislation to prevent situations like Riverbend and Sophia. Please, no political grandstanding. The court and existing regulatory agencies provide mechanisms for resolution.
And how would the provincial government act if, God forbid, the real-estate market collapses, and values drop well below both the purchase price and mortgage amount, as is currently the case in many U.S. markets? Will there be calls for new laws to prevent purchasers from walking away from their deposits and collapsing presales deals, leaving developers saddled with completed and unsold condo projects? Note to legislators: The pre-sale issue falls into the double-edged sword category.
Condo buyers must do their homework before they sign on the dotted line. Find out if the developer has a history of building and delivering homes at the agreed price. Length of time in the business is a good yardstick, but many relatively new developers are quickly establishing excellent reputations.
Buying a new condo is an exciting experience. You line up for hours, sometimes days, for a chance to secure a preferred unit at a price affordable to you. But after the celebration, set aside time for sober thought. Have a real-estate lawyer review your contract. If there are any clauses identified as problematic, go back to the developer's sales centre for clarification.
B.C. law provides you with a seven-day right of rescission, during which you can cancel the sales contract, for whatever reason. After that, your deal is binding, so make good use of that week.
Disclosure statements now must include information, in conspicuous type, about a developer's history of receiverships, bankruptcies, fraud or other worrisome legal and contractual issues.
If you are considering taking that important step into homeownership in the near future, you might want to attend the Greater Vancouver Home Builders' Association's 14th annual free seminar for first-time home buyers on Tuesday, April 8. It is the largest seminar of its kind in North America, attracting more than 850 first-timers. A blue-ribbon panel of speakers will provide expert guidance.
As seminar moderator, I will ensure the condo pre-sale process is discussed in detail. The Vancouver Sun and Homeowner Protection Office are among the sponsors. For details, visit www.gvhba.org.
Peter Simpson is chief executive officer of the Greater Vancouver Home Builders' Association. E-mail: email@example.com