It’s On Like Donkey Kong

It’s On Like Donkey Kong Even though the price of oil is crashing and the provincial government is raising taxes and introducing user fees, developers like condo king Brad Lamb are still pouring money into new high-rise projects in Edmonton. For them, the party’s not over yet. by Steven Sandor…

It’s On Like Donkey Kong

Even though the price of oil is crashing and the provincial government is raising taxes and introducing user fees, developers like condo king Brad Lamb are still pouring money into new high-rise projects in Edmonton. For them, the party’s not over yet.

The party was rocking, but the guest of honour wasn’t there.

Developer, salesman and former reality TV star Brad J. Lamb was throwing an early-November party to launch the sales drive for his first-ever condo venture in Edmonton. The lobby of the Art Gallery of Alberta was filled with real-estate salespeople, developers and city councillors, as well as a roster of young, hip influencers – from local Twitter stars to a who’s who of the Make Something Edmonton crowd. Waiters brought around canaps while whiskey flowed freely from the bar. 

The party was a sign that Lamb, the millionaire who has been crowned the Canadian king of condos, was diving into Edmonton at the deep end. 

Illustration by Josh Holinaty

The guests waited and mingled. They mingled and waited. Finally, Lamb – who was easy to spot, being bald and over six feet tall – made an appearance in the back of the room. He took some time to chat with Mayor Don Iveson. Finally, he took the stage and trumped a new condo concept meant to capture the imaginations of hip young Edmontonians who wanted a downtown lifestyle.

It was designed to be a shock-and-awe moment. While Lamb was already giving his new Jasper House concept the hard sell, he hadn’t yet secured the zoning – or sold enough units – needed to go ahead and start building the 37-storey project on 106th Street, north of Jasper Avenue. In the condo business, you need to sell people on your vision; when you have enough sales commitments, the bank will release the money so you can start construction. 

Lamb’s blitz came just weeks before oil prices started to tank. And though his big party happened just half a year ago, it already feels like years have gone by since oil slipped under US$50 a barrel. When Lamb was here, we were optimistic; since then, we’ve heard about natural-resource rollbacks and higher taxes.

Yet, the doom and gloom has done little to slow the demand for housing. Edmonton is still dealing with the after-effects of the last oil boom – most notably, finding a way to house a population that has surged over the last decade.

City of Edmonton chief economist John Rose says that, at the end of 2014, Edmonton’s rental vacancy rate was as low as 1.7 per cent. To put that in perspective, what’s considered “normal” is a rate of four to five per cent. The rental vacancy rate is a prime indicator of how hot the housing market will be.

“I liked what I saw here. I liked the unemployment rate, I liked the disposable income, I liked the fact that the per capita income is highest here and that the hotel rates are the highest in Edmonton and in Calgary.”

-Brad Lamb

“We’re not going to see a rapid decrease in housing prices,” says Rose. “That’s because we have such a pent-up demand for housing, because of the very significant infusion of people coming to Edmonton over the last couple of years, and rising incomes in Edmonton.”

In fact, to deal with the no-vacancy crush, Rose thinks the market for high-density projects – condos and townhouses – will remain strong.

“In some areas of the city, the vacancy rate is effectively zero,” he says. “So, for some people who want to live close to their workplace or close to the LRT, they don’t have the choice to do so.”

Robert McLeod, a member of Avenue‘s Top 40 Under 40 class of 2011 and principal behind McLeod Project Marketing, says that a 1.7 per cent rate is “effectively zero,” as that small number of “vacancies” will be taken up by units that are being repainted or renovated.

(Disclosure: While the editorial staff at Avenue have no business relationship with McLeod, our publisher is involved in a business partnership with his company.)

This Valley is Different

In the past, Alberta’s boom-and-bust economy has only made the housing crunches even worse. McLeod says that, historically, when we’re in the valley of the natural resource price roller-coaster, builders delay or cancel planned projects, waiting for economic indicators to improve. 

“It’s a herd mentality,” McLeod says. “So what happens is that we have a real lack of inventory, and then the province jacks up again.”

But, when we’re in the valley, that’s when we should be playing catch-up in terms of our housing inventory. As one developer put it: This is when labour costs fall, and it becomes more economical to take on large projects.

This downturn looks to be different, though. The oil-price dive came at a very unique time in Edmonton’s history. A new arena is being built downtown, as is a new provincial museum. New hotels have been promised. Stantec and the Katz Group have committed to a 62-storey office building. And, outside of Lamb, a slew of developers are in the process of selling or building ambitious condo projects. The 35-storey Pearl Tower on Jasper Avenue is almost complete. The Symphony Tower, near the Legislature grounds, advertises that it is over 55 per cent sold. The 33-storey Fox II is under construction. Just west of downtown, Vibe Condos promises the kind of open-plan, modern concepts to attract the young professionals that Lamb also covets.

Rose says that, while the city doesn’t keep statistics on who is building and buying the condos, there is no doubt that Edmonton is seeing an increase in the number of out-of-town developers targeting the city. 

He adds he was taken aback by a Canada Mortgage and Housing Corporation study of Edmonton’s condo market, which found that 30 per cent of the units were being rented out. “I would expect to see that 30 per cent number in Vancouver or Toronto, but not Edmonton.”

According to a report from the Realtors Association of Edmonton, condo prices in the city rose by 4.5 per cent from 2013 to 2014.

Reza Mostashari is the president of Langham Developments, which built the Fox I tower and will soon complete the Fox II project, near its two Icon towers on 104th Street. He agrees that the demand for downtown living spaces will mitigate the impact of a slowing natural-resource economy.

“We have created a bit of a microclimate here in downtown Edmonton, because of the arena. And the trend continues to be that more and more Edmontonians want to urbanize their lifestyles. I don’t think that desire to come downtown will evaporate.

“I think, if you build a good, quality product, there is always going to be a demand for it.”

While Mostashari won’t reveal where he’ll build next, he says he isn’t done building downtown. He has faith the market will stay strong, and he thinks that having more developers will only create more housing options and improve the core for everyone. 

“I worry about what I do; I don’t lose any sleep over what other developers will do. I wish them luck.”

Kicking the Tires

Lamb hopes that the Jasper House project will break ground in late 2015 or early 2016. He has also purchased land just up the street, earmarked for a second condo project simply named North.

He first began looking at Edmonton in 2010, but he says the timing wasn’t quite right. But Lamb, who had previously concentrated his projects in Toronto and Ottawa, did decide to invest in Calgary. (Lamb claims over $1 billion worth of condo development in Toronto.) When the plan to build Edmonton’s new downtown arena finally got the green light from city council, Lamb’s enthusiasm for the city turned into a fever. 

 “I liked what I saw here. I liked the unemployment rate, I liked the disposable income, I liked the fact that the per capita income is highest here and that the hotel rates are the highest in Edmonton and in Calgary. So we started in Calgary mainly because it was on the radar for people coming from the east. We did a project [the 31-storey 6th and Tenth condo], it was successful, and we bought some more land for two more projects. Then, we decided to open up a fourth city to mitigate risk. So, if you screw up in one city, it can’t take you down.

 “I came in and I looked at Edmonton, and I was amazed. All the economic factors were here. And the whole hockey arena was a real catalyst for me to come here. And what won me over was that this is a far cooler city than anyone knows outside of Edmonton. It punches above its weight in coolness. I don’t think the rest of Canada gives Edmonton its due. I am one of those people; before I came here, I didn’t realize that. It’s a bigger and more vibrant city than I expected, and I was pleasantly surprised.”

But, as the economy tightens, so do the margins for developers. That’s because banks will be more hesitant to lend money. And that even affects Lamb, whose appearances on reality TV in Canada have made him arguably the most recognized real-estate player in the country.

“This is a massively risky business. [The whole real estate business is] taking a flier, spending millions of dollars on marketing. And you have to sell. In Alberta, it depends on the environment. Generally, you are going to need to sell 60 to 70 per cent of your building [before a bank lends the money for the project’s construction]. It used to be 50 [per cent] in this province before banks would lend money. Now it’s 60 to 70 because they’ve gotten tighter in their criteria. There are 240 units [in Jasper House], so I’ve got to sell 160, 165.

“But I wouldn’t want to sell them all in a month because that tells me I’ve sold them too cheap.”    

At the Jasper House sales centre on 106th Street, next door to the Alberta Craft Council, condos are advertised starting at $239,000 and then climbing to over $1 million.

“That will be a challenge for some of the local developers, to build better projects.”

-Robert McLeod

McLeod says that, while there are nice artist’s renderings of Jasper House and a sales office, there are no shovels in the ground. And, until the project actually has a land-mover or a crane on site, it’s not real.

“A project that’s worth talking about is the one that’s being built.”

Mostashari goes even further: He says the buyer needs to have the keys in his or her hands. 

After all, many of us drive by the Glenora Skyline project at the corner of 142nd Street and Stony Plain Road. Excavation on developer Alex Davidoff’s project began in May 2012. A concrete skeleton was up by September 2013, the date of the last construction update from the developer. No updates on the Skyline have been posted on the company’s Facebook page since November 2013. 

In fact, McLeod says that Oliver’s 29-storey The Hendrix tower and the 25-storey Buena Vista Apartments, slated to replace the old Glenora Hotel at 124th Street and 102nd Avenue, will have more influence on the Edmonton high-density housing market than Lamb’s project will. Both the Hendrix and Buena Vista are being built by Vancouver’s Edgar Development Corp.  

McLeod says that people need to be educated between the difference between plans and artists’ renderings of new projects versus developments already underway.     

“There aren’t a lot of projects actually under construction,” McLeod says. “In Edmonton, there is a lot of wealth, and developers often finance their projects simply by signing a cheque. That’s different than Calgary, where there are more partnerships and financing. But it is changing. We’ve just some sold land to a Chinese developer, and the Hendrix tower is a major project.”

Why are Edmonton’s developers so conservative? In Vancouver and Toronto, you can get $1,000 more per square foot than you can get in Edmonton. But, in Edmonton, construction costs are 15 per cent higher than in Vancouver because of our still-overheated labour market. 

The Evolution of the Edmonton Market

Lamb’s shock-and-awe style of development has definitely added more air to the condo market. But Kendal Harazny, the principal at Wexford Developments, says that Edmonton isn’t being changed by Lamb or any other out-of-town developer. Instead, these new players are reacting to changes that were already taking place.

“I think Edmonton has been evolving and transforming for the last 10 years,” says Harazny, whose company will build a six-storey project on what had been quarantined gas station land on Whyte Avenue. “But a lot of attention has been placed on what’s happening in a three-block radius. Edmonton has been a great city for development for a while.”

Harazny went to the University of Alberta, but Wexford is based in Calgary. Harazny says that, after making plans for eight residential towers in the shadow of the Stampede – plus a 150-acre commercial site in Sherwood Park – his company is already looking north. Why? He says his hometown currently offers more bang for the buck. The Edmonton real estate market isn’t as saturated as Calgary’s, and Harazny predicts his company will be part of a stream of developers who will take their trucks north up the QEII to better take advantage of the market in the capital.

And that’s where Wexford and Lamb have something in common – they’ve built themselves up in other cities, but now see Edmonton as the place to be. And they aren’t the only ones.

“We are based in Alberta, and our capital is here,” Harazny says. “But we know that a lot of outside investors are involved in a lot of the deals going on that we aren’t involved in. I think that’s because Edmonton is now viewed as a major Canadian city, and that might not have been true five years ago.”

And what will those developments do to the city? Lamb predicts a downtown with increased buzz and increased traffic. He expects housing prices will rise. 

“You have more money than us in the east, and your economy is better,” Lamb says. “So it’s a no-brainer that your economy is going to soar. The cities will get bigger, they’re going to get more expensive, they’re going to get better. That means they’re going to get denser.”

But, how fast will it change? 

McLeod thinks that Lamb took a massive risk with the blitz last fall, kicking off a project with the party at the AGA and a media blitz. He believes that approach works in Toronto or Vancouver, where there are long lineups of people waiting to drop more than $1,400 per square foot for new luxury digs. But he says the Edmonton buyer is different – the buyer will take weeks to settle on whether or not to buy a condo. Customers shop around.

“He made a big splash last fall, but how much do you hear about Jasper House now?” McLeod asks. “Not much. In Edmonton, you need to market slow and steady.”

Mostashari agrees; in all of the projects he’s directed, the flow of potential buyers has been “steady.”

“Edmonton has started this amazing renaissance of what this city is going to be. And I am here because I smell it – it’s what I do for a living – and I want to be early in. You have to change how people think about their downtown.”

-Brad Lamb

McLeod points to the Pearl, the 35-storey Jasper Avenue project that will complete construction six to seven years after the first units were sold. The most expensive condo ever sold in Edmonton, a $3-million penthouse in the Symphony Tower, was an internal deal – the unit was sold back to the developer. So, will Lamb’s shock-and-awe strategy work in a city where slow and steady traditionally wins the race? Or is the city changing, and does it take an outsider to force us to recognize it?

Lamb says that where Edmonton is now is where Toronto, his adopted home, was in the 1980s. In Toronto, a perfect storm of population growth and foreign investment allowed the city to begin a boom where, now, it rivals Chicago in size. Lamb says: “Toronto, 30 years ago, was a shit city. I came out of university and I moved there because my parents lived there, in ’84. And there weren’t even outdoor patios allowed in the City of Toronto when I came there. I was like, ‘What are you talking about?’ I had lived in Montreal, where there were fields of patios in the summertime. 

“Now, you see what’s happened in Toronto over the past 30 years, it’s a massive, massive change. I’m not saying Edmonton will be like Toronto, or is Toronto, but changes are going to take place in Edmonton. Some people won’t like them. Some people will say, ‘There’s going to be too much traffic and I can’t move my car freely in the city.’ But all cities, to survive, need to be cities of the future. And that means we have to populate them densely. That means we have to get people into transit and that we have to get rid of cars.

“Edmonton has started this amazing renaissance of what this city is going to be. And I am here because I smell it – it’s what I do for a living – and I want to be early in. You have to change how people think about their downtown.”

Lamb says the city has just begun its awakening from being a collection of suburbs to focusing on its urban heart. For 20 years, Edmontonians have not thought about their downtown. According to Lamb, you can’t just tell people that downtown is now a cool place to live. You have to show them that it’s become the best place to live in the city, and you can’t do that without spending. But, before money comes from developers, he believes it has to come from the city itself. That’s why he thinks it’s absolutely vital that Edmonton agreed to give Daryl Katz $100 million to build the new downtown arena.

“You have to get people thinking and talking about their downtowns. And there has to be a catalyst. It’s not going to happen organically; there needs to be an explosion. So, in the case of Edmonton, what was needed was a big spend – and it needed to be downtown. 

“Young people are not prepared to live their lives in the suburbs anymore. If you’re a 20-something, you’re not OK living in a suburb of Toronto or Ottawa. You want to live where other young people live. You want to mass together, to create and be part of that scene. And that’s what we are hearing. Young people are saying, ‘I don’t want to live 40 minutes outside of Edmonton.’ No offence to suburbs, but I hate them. I want to live where other people live.”

And the arena is the kind of thing that acts as bait for developers from outside of Edmonton. 

“There’s going to be more money here,” says Lamb. “It’s going to change your city. And there will be developers from Vancouver and Toronto coming here, too. They’re invading Calgary and the next step is here. You’ll find that, five years from now, people won’t recognize Edmonton. If they leave now and come back in 10 years, they won’t recognize this city.”

Raising the Rent

While McLeod says the demand for condos will remain strong, he foresees a real surge in rental properties. Why? Because, for the developer, there is less risk in putting together a rental project. Banks need you to sell at least half your units before they’ll even think about giving you the financing to build condos. But a rental property allows the equity to remain with the developer. The developer gets the steady rental income, but also benefits from the appreciation of the property.

McLeod’s company has launched the Avalon Court project, with move-ins expected in April 2015. It’s a 217-unit rental project, and McLeod said he was surprised by how quickly the normally conservative Edmonton consumer responded. 

“Why? Because, right now, there’s not a lot to rent in the city. And we also see a lot of people who say they are tired of the up-and-down market fluctuations, and they don’t want to own anymore.”

But it’s creating a new class of rental property; McLeod says the crush isn’t for the inexpensive units like we used to inhabit during our university days. People aren’t fazed by four-digit monthly rent figures. They want the luxury items found in condos – the gyms, the underground parking, the premium countertops and appliances – in a rental.

Broad Shoulders

The push for more condos and the closing of the City Centre Airport will mean that the city will get taller. Because planes don’t approach over downtown anymore, height restrictions on buildings are now gone. One of the largest barriers to our city’s growth is off the books.

Lamb is a big believer in the bigger-is-better mantra. Size does matter; in general, he believes, people determine the vibrancy of an area based on the number of high-rises.

“Drive into Calgary and you see 30 high-rise buildings and you say, ‘The city is coming along.’ You come into Edmonton, look across the river and you see a bunch of high-rise buildings and you see that it’s a big city. It’s like feathers in a city’s cap – high-rise buildings.

“More cool stuff is coming to this city, and it’s going to challenge the developers that are here today to be better, more creative and be more worldly. They will need to look outside of Edmonton for ideas. I hate the term ‘world-class’ but, for lack of a better word, it’s going to make Edmonton and Edmontonians feel more world-class. And it’s coming. I think it’s an exciting thing.”

That’s where McLeod agrees with Lamb.

“That will be a challenge for some of the local developers, to build better projects,” McLeod says.

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