Vancouver’s residential development land market will face difficult times as it goes through an adjustment period, say leading commercial real estate executives.

Participating on a panel at the recent Vancouver Real Estate Forum, the leaders concurred that the market needs to sort itself out.

“Things are going to have to get a little bit worse,” said Richard Weir, executive vice-president of acquisitions and asset management for Bosa Development. “Owners are going to have to be a little bit more motivated to allow deals to transact. I don’t know how long that’s going to take, but it has to happen.”

In recent months, the Vancouver market has seen many distress sales as condo development projects are pushed on to the market through forced receiverships and foreclosures. Many developers have grappled with high debt loads and lower-than-expected demand often attributed to high interest rates and elevated construction costs.

“There’s a lot of listings,” said Weir. “A lot of them are horrible. They’re overpriced, including some income-producing properties. You’re seeing a lot of junk. We’ve underwritten, I don’t know, hundreds of deals, and none of that makes sense.”

Beau Jarvis, president and CEO of Westgroup Properties, said many struggling proposed projects initiated by offshore investors do not have enough strata entitlements to make the developments profitable. For the projects to make sense financially, developers would have to go back to municipalities and seek new rezoning applications, resulting in delays and increased expenses that reduce viability further.

Many developers are not meeting time-limited presale thresholds, required under provincial real estate law, to meet financing conditions, he said.

Previously plentiful, cheap mezzanine debt is drying up, and similar volumes will not return to the marketplace, Weir predicted.

“I think that’s going to constrain development activity going forward and put pressure on land,” he said.

“But I don’t disagree with [Jarvis] at all. Presales are the lifeblood of our industry. We’ve got to find a way to make them work. It’s reassuring to know that there’s much dry powder on the side of the residential market. I think [positive] sentiment will slowly bring that back into the market.”

Gino Nonni, founder and CEO of Nonni Property Group, said presale metrics must shift or change before the residential development land market can improve.

“We’re looking at more mixed-use [development opportunities] to try to maintain assets within a mixed-use form,” he said.

Nonni said the market needs to work its way through the prevalent foreclosures and receiverships to right-size. Today, generally, developers can’t buy land at market value, construct a condo building and make money.

“A lot of what we’re seeing is historical land values and developers getting out of their dirt and monetizing,” he said.

Nonni included his firm in that group.

Pictured: Financially troubled proposed Harlow Project in Vancouver’s West End

Image: Patkau Architects