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Ten on the 10th: COVID-19's impact on Victoria's real-estate Q&A with Jordan Milne of GMC Projects

Jordan Milne of GMC Projects discusses COVID-19's impact on Victoria's real-estate market, and his organization's development efforts in Victoria, Vancouver and Seattle.  Citified.ca

Ten on the 10th: COVID-19's impact on Victoria's real-estate Q&A with Jordan Milne of GMC Projects
Ten on the 10th
Citified's Ten on the 10th is a monthly question-and-answer segment connecting our readers with the insight and knowledge of Victoria's top real-estate and business professionals.
 
June's Ten on the 10th features Jordan Milne, President & CEO of GMC Projects, a real-estate development firm with offices in Vancouver and Victoria, B.C.
 
Asking the questions is Ross Marshall, Senior Vice President of the Victoria offices of commercial real-estate brokerage CBRE. As a leader in facilitating large-scale commercial real-estate transactions throughout the Capital Region – which include apartment complexes, industrial retail and office properties, and land/development opportunities – Ross and his team are at the forefront of market-leading real-estate transactions on Vancouver Island.
 
Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you.
 
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Tell us about GMC Projects and what differentiates you from other developers and property owners.
Founded in 1999, GMC Projects has gained recognition for creating high quality, award winning projects lead by an incredible team with properties and developments in Greater Victoria, Vancouver, Seattle and Winnipeg. It all starts with identifying the right opportunity and then becomes about successful collaboration with amazing designers, architects, engineers and community members. We create projects that are clever, creative, and aim to serve the community. We view what we do as a platform to inspire others to be their best selves, and to empower individuality and self-expression. We are humbled to be able to do what we love and we aspire to create environments that allow others to do so, too. Put simply, we want you to love where you live, and we work hard to make it so.
 
There are a number of factors that set GMC apart from other developers but where it begins with what we do and how we do it. We have never built anything strata, or for sale. We believe in creating rental homes for those who live and work in the community. Not to say we never will, but currently we focus on creating high quality mixed-use rental housing as well as commercial projects that help to serve the needs of the community in a holistic way. You can’t support a community without multiple elements in our built environment. Housing is a major part of that but so is retail, office space, distribution centres and so on. We do this by restoring, rehabilitating, converting and building new. We also manage all of our properties which gives us a unique opportunity to engage with residents and tenants to help create a sense of community within our properties.
 
You have several projects underway, can you provide us with a brief snapshot of your local (and international) developments?
In Victoria, we are currently finishing up the restoration and revitalization of the historic Adelphi Block on the corner of Yates and Government streets. We have three character apartment homes above those buildings that will be coming back to market for the first time in decades. I am excited to see the response to the finished product as we have curated something special within these homes. We expect to welcome new residents for August 1st.
 
Also in Victoria, we have a project at 1015 Cook Street called The Charlesworth, featuring 28 rental apartment homes and 3 live/work units at-grade. We passed Committee of the Whole in February and expect to be at a public hearing shortly after council sessions resume. Next door to the development site at our Bell Apartments property, Victoria Council approved a development variance permit in February to enable us to convert our former warehouse space at the rear of the building into two two-bedroom and two-bathroom townhomes. These units are both over 1,000 square feet in size with 10-foot-plus ceilings, exposed brick walls and direct exterior access from Meares Street. The units will have lots of character and will be a good fit for those seeking a more ground-oriented living space, such as families and those “rightsizing” within the neighbourhood.  
 
In Vancouver we have partnered with the Immanuel Baptist Church at 109 E. 40th Street in the Rupert Heights neighbourhood to build a new church with market rental housing on excess land the church has owned for decades. The present church is nearing the end of its life and it doesn’t program well for how they serve the community today versus when it was built in the early 1960s. With church closings on the rise, it brings me considerable joy to know that we are helping to extend the presence of Immanuel Baptist within the neighbourhood and provide them with a new facility that programs to the way in which they worship and serve the community today.
 
In 2019 we made our first acquisition in the United States with the purchase of a first generation self-storage facility in greater Seattle that now happens to be 100 feet from a Link station (Seattle’s version of the Skytrain). The project we have envisioned is called TIME and will feature 289 rental apartment homes with commercial at grade. We are excited to be able to work on a transit oriented development and given the scale we have been able to design some incredible amenity spaces. TIME features its own private 12,000 square foot courtyard park, two rooftop decks overlooking Puget Sound with a further 10,000 square feet of outdoor space including multiple outdoor kitchens, games space, a zen garden, dog run, and more. Our interior amenities include co-working spaces, an on-site wellness centre, gym, lounge and a private dining room for special events and larger gatherings.
 
Tell us more about The Charlesworth and your expectations for the public hearing that is likely to occur later this year.
The Charlesworth project is named after Alick Thomas Bentall Charlesworth, a former resident in the neighbouring Bell Apartments building. Mr. Charlesworth left with the 88th Battalion from Victoria in 1917 and unfortunately perished in an aviation accident leaving his wife Elizabeth as a widow in the Bell Apartments. As part of our restoration of the Bell Apartments, we added several murals, one of which we affectionately call Lady Bell. She wears a poppy in honour of Mr. Charlesworth and all those who fought and died for the rights and freedoms we enjoy today.
 
We have proposed a new mural in honour of Mr. Charlesworth which has been designed by the same mural artist that did Lady Bell in an effort to have the pieces complement each other as they will be offset from one another and therefor visible together at the same time.
 
I never know what to expect from a public hearing these days, but even more so now as this will be done virtually. I am eager to see how the first few go to see if there is any change in the dynamic of council. We have worked hard to collaborate with our neighbours and believe that while there are a few who would prefer the building by four-storeys tall instead of five, we have found the right balance for the majority as the Official Community Plan suggest up to six-storeys and at a higher floor-space-ratio than we have proposed. We are cautiously optimistic council will make the right call to approve our application to allow us to create much needed rental homes in a thoughtfully designed building that is rich in history. Time will tell.
 
With the Adelphi Block underway, could you speak to the costs and complexities of a heritage restoration in 2020 versus costs in the heritage conversion segment of the industry in the past +/- five years?
Each heritage project has its own complexities but they are usually a result of how the building was designed and built. Seismic building codes changed in 2018 which has made working with heritage structures more complex than it was five-years-ago depending on the scope of what you are proposing. Any additional scope regarding the approach to seismic upgrading or restraining adds cost and in the tight construction market we have seen the past five years, this only adds further to the challenge of making heritage projects viable.
 
One of the ways in which we were able to address these additional costs for Adelphi was through the increased grant monies available through the Civic Heritage Trust which were updated to reflect the increased costs. We are grateful to the Trust as without those supports, we would not have been able to undertake the project.
 
What does the future hold for the multi-family rental market in Victoria post-COVID-19, in terms of supply and demand?
Victoria’s multi-family rental market had strong fundamentals before COVID-19 arrived. Chronically low vacancy, strong population growth, a burgeoning tech sector and one of the lowest unemployment rates in Canada were among the reasons that made Greater Victoria an ideal place to invest in rental housing. Despite the uptick in supply in recent years where record numbers of rental units were brought online, CMHC reported that vacancy actually went down in 2019 to 1.0% from 1.2% in 2018. If you are looking at the market over the next 12 months, there are challenges ahead with population growth, unemployment and a diminished student population most likely creating an increase in vacancy and a levelling-off of rent growth or slightly reduced rent for certain home types. However, expect these to be short lived.
 
Over the medium to long term I expect growth to outpace the regional projections, as it already was pre-COVID. Working remotely has become part of the new normal and enabled those who may not have realized they can work remotely to do so. I believe Victoria and Vancouver Island have only become more desirable places to live compared to other parts of Canada and we are going to see more companies and people relocate here.
 
How has COVID-19 effected access to capital for land, investment and construction loans?
Real-estate is a relationship business to a large extent and strong relationships with your lenders have never been more important. There is still capital available but lenders are returning to more stringent underwriting criteria as the lending market has turned from a borrowers market to a lenders market. If you do not have a solid track record and good lending relationships, it will be difficult to obtain financing.
 
Which COVID-19-related measures taken by governments to address financial impacts on apartment renters and commercial tenants have been effective, and which haven’t been?
The provincial government acted early to create a residential rent subsidy. The subsidy provided between $300 and $500 to eligible tenants to assist in paying rent for April, May and June and it has been effective in helping bridge the gap for a lot of tenants, but I am disappointed that the province is not extending this into the summer for those who will be unable to return to work.
 
The federal government established the Canada Emergency Commercial Rent Assistance (known commonly as CECRA) program which will certainly help eligible tenants but has a number of flaws. For example, this does nothing to help business that were just about to open during what became a global pandemic. We have two restaurant tenants about to open in our Brixton Flats building in Vancouver and neither qualify because they don’t have historical sales, but I can tell you that they need the help as much as any other business.
 
There are also other tenants who worked hard to mitigate the impact to their businesses instead of closing up shop, and while their revenues are down by 50% or more, they have mitigated the impact to such a degree that they do not meet the eligibility criteria set forth by the federal government. Despite needing the assistance and having done the right thing by finding ways to secure revenue streams, they are being left out.
 
The Capital Region managed to weather the 2008 market correction relatively well when compared to other markets across the country. Can you speak to the fundamentals in play that will impact local land valuations as we move into a post-COVID-19 recovery phase?
I think it will depend on the product type a developer wants to execute. I expect to see prices softening for parcels on which condominium projects are planned, as well as a valuation impacts for development sites with a significant retail component. However, industrial and rental housing will be impacted less so, if at all.
 
Rental proposals already have a much lower residual land value when compared to a condominium project and the financing structure for the land is much different. Industrial has been the shining star of the commercial sector over the past few years with steady rate growth, reduced vacancies a lack of new supply. The pandemic has only put more pressure on industrial land and should prove to open up new opportunities within the sector as developers look to meet that need. 
 
What will the commercial real-estate and development industry look like one year from now?
Different than before COVID-19, that’s for sure. Some sectors have felt and are going to continue to feel the impact of COVID-19 in an outsized way to other industries or asset classes.
 
Retail and hospitality have been the two hardest hit sectors, and there were several hotel proposals in Victoria before COVID-19 happened. I would expect one or more of those proposal to be shelved, or converted to another use, like rental housing. Hotels were already the most difficult major asset class to finance and capital has dried up in that space as a result of COVID-19. Only those with a strong financial track record, balance sheet and lending relationships will likely succeed on that front for a while.
 
For retail, I wouldn’t expect to see much if any new supply beyond what is required in mixed-use projects and I think a trend towards alternative main floor uses may emerge. This isn’t a bad thing in my view as I think we need to focus our commercial space more and not spread it too thin. We are densifying, but not enough that the main floor of every project can be retail/restaurant type uses. With increased inventory levels for condos, especially in the downtown core, I expect some condo projects to be shelved or converted to rental, if even just in the interim for the build-out.
 
Industrial properties already had the lowest vacancy of any asset class before COVID-19, including multi-family, and I suspect this will be a sector that sees increased demand leading to rate increases. We have limited industrial land left for development, especially large sites. I expect more interest from developers to meet that need.
 
COVID-19 has caused a spike in parcel delivery in a way that no one could predict. While we should see this level off, it will most likely remain higher than it was pre-COVID. Municipalities and developers need to turn their attention to how we deal with that “last mile” of the delivery. Smaller distribution hubs may be needed down the road to ensure expedient delivery to customers.
 
I believe rental housing demand will return to normal within a year but I expect some of the supply previously planned to be shelved in the interim as lenders take a more conservative underwriting approach and wait to see the longer term impacts on the market as a result of COVID-19.
 
Office space will be interesting. I think it may be a wash between those that need more space as a result and those who need less. Due to the uncertainty of what will happen I expect rates to stay flat or drop slightly depending on the quality and location until more information is known about demand shifts.
 
What can the City of Victoria do to encourage the retail, business and development community to keep calm and carry on (in the downtown core)?
Leading by example is always the right approach and I think Victoria has to be commended on how they have responded to the business community so far. Staff moved swiftly to working virtually and have been working hard to balance their normal duties while also helping community associations, applicants and stakeholders navigate the normal processes virtually.
 
Council is considering a proposal to create outdoor spaces for restaurants and retailers to open up on sidewalks, parking lots, etc., and are saying the right things. They want to do this quickly, without it being a huge bureaucratic process because they recognize to recover quickly from this crisis we need to plan and execute the recovery just as quickly as the shut-down occurred. My only frustration is that they don’t take the same approach or have the same attitude when it comes to the housing crisis. A crisis that we were in before COVID-19 and we will continue to be in until changes are made to our housing approvals process. If we need more housing, why haven’t there been any significant changes to that process? Going forward, the City needs to listen closely to the business and development communities and act quickly to help ensure the strongest recovery possible. C
 
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 Article resources

  • Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you
  • View CBRE Victoria's website here
  • View GMC Project's website here
  • 2018
    • October, 2018: Reed Kipp of Devon Properties talks about Victoria's rental housing industry
    • November, 2018: Business Development Bank of Canada's Chris Boissevain talks about interest rates
    • December, 2018: Aryze Development's Luke Mari and Ryan Goodman talk about real-estate development
  • 2019
    • February, 2019: Phung Horwood's My Phung talks about real-estate appraisals
    • March, 2019: Luke Mills of Megson Fitzpatrick Insurance talks about the insurance industry
    • April, 2019: Greg Damant of Cascadia Architects talks about architecture in Victoria
    • May, 2019: Real-estate development with Robert Fung of The Salient Group
    • June, 2019: Rental housing industry Q&A with David Hutniak of LandlordBC
    • July 2019: Harris Green redevelopment Q&A with Mark Chemij of Starlight Investments
    • August 2019: Land remediation Q&A with Harm Gross of NEXT Environmental
    • September 2019: Business banking Q&A with Raj Wirk of Coast Capital Savings
    • October, 2019: Real-estate development Q&A with Mike Miller of Abstract Developments
    • November, 2019: Real-estate development Q&A with Byron Chard of Chard Development
    • December, 2019: Interest rate and commercial mortgage brokerage Q&A with Dave Ganong of Canada ICI Capital
  • 2020
    • January, 2020: Real-estate development costs Q&A with Doug Foord of Invictus Commercial Investment Corp.
    • February, 2020: Private lending and the mortgage industry Q&A with Len Shorkey of Shorkey Mortgage Corp.
    • March, 2020: Strata insurance premiums Q&A with Luke Mills of Megson FitzPatrick Insurance
    • April, 2020: Rental housing and COVID-19 Q&A with David Hutniak of LandlordBC
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