Wesgroup Properties president Beau Jarvis presented to the City of Burnaby last week to say the city's density bonus policy was hurting the viability of a highrise development on this site. He's so frustrated he returned a thank-you gift plant he received from the city years ago. (Google Street View / Edited by Dustin Godfrey)

A plant has been safely returned to the City of Burnaby

A developer got the plant from the city as a thank-you for participating in the housing task force. He's now returning it out of frustration with the city's density bonus policy.

By Dustin Godfrey | June 25, 2022 |5:00 am

The City of Burnaby can add one (1) plant to its vast, multi-billion-dollar pile of assets.

The plant, the genus of which is not currently clear, was given to a developer after the mayor’s task force on housing ended in 2019 as a thank-you gift for his participation in the task force.

Beau Jarvis, described as the “charismatic leader” of Wesgroup Properties on the company website, returned the plant safe and sound to the city’s financial management committee in a presentation this week.

“I kept it alive for this occasion,” a frustrated Jarvis told the committee as he placed the plant on a table in city council chambers.

In an interview with Burnaby Beacon, Jarvis said he was unaware of the type of plant but said it looked to be drought resistant. Mayor Mike Hurley, a member of the finance committee, said he was also unaware of what kind of plant it was, as he hadn’t seen it.

The latest evaluation of the city’s assets, according to the 2022 budget, is $4.1 billion, most of which is made up of buildings (37%) and roads and drainage (23%). Another 17% is occupied by lands and land improvements.

The city’s budget highlights document doesn’t say how many plants the city owns, or the value of its plant holdings, but it can now add one more to its inventory.

You probably have questions.

Why did he return the plant?

The Wesgroup president’s presentation to the committee started off with an air of frustration, which only dialed up as he went on.

At issue is the way the density bonuses are calculated. And hold on, because this gets a little wonky.

Density bonuses are agreements between cities and developers in which the developer is granted more vertical space on a property in return for some kind of community benefit.

The city has density bonuses in exchange for below-market rental units, for instance, but many density bonuses are for cash into the city’s amenities reserve—money that can legally only be used for amenities like parks and community centres.

Wesgroup’s proposal is located at 6280 and 6350 Willingdon Ave, near the corner of Central Boulevard, and it calls for two towers of 35 and 38 storeys in height.

The non-market rentals would be in the podium at the base of one of the buildings with a separate entrance facing onto Cassie Avenue, according to a city staff report in November.

This particular development, which has a total floor-area ratio (FAR) of 7.13, would include an amenity density bonus of 1.6 FAR, or 125,680 square feet of floor space.

Depending on the methodology used, that 125,680 sq ft of floor space could cost Wesgroup $192 to $317 per square foot, according to Jarvis. The city had put forward a claim for around $300, while a third party hired by Wesgroup submitted a proposal for about $200.

Laid out over 126,000 sq ft, that roughly $100-per-square-foot crevice adds up to a $12-million-plus canyon separating the valuations—or a difference of 32%.

“That makes no sense,” Jarvis said.

The lower-end valuation, which Jarvis, unsurprisingly, prefers, is based on a residual land valuation. The higher end is based on what’s called a comparable valuation, which is the method the city uses.

“Really, the land residual method … is what we use in our industry 100% of the time. 100% of the time.”

Photo: Dustin Godfrey / Burnaby Beacon

What’s the difference?

A residual land valuation, as noted in a City of Vancouver procedural document, uses the following formula: revenues – costs of development – profit = residual land value.

Comparable land valuations, on the other hand, are based solely on the sale price of similar nearby properties.

Jarvis argued that the residual land valuation is more fair to developers, as it takes into account site-specific costs.

With respect to the Willingdon property, he noted, there is not enough room to build the mandatory non-market housing units in a separate wood-framed building, which would cost less. Instead, it has to build them into the concrete towers, at a higher cost.

And that higher cost also comes with a greater benefit to the community, Jarvis noted—concrete buildings last longer than wood-frame buildings.

“No two sites are exactly the same. A comparison method does not account for site-specific challenges or benefits and costs and revenues,” Jarvis said.

Other site-specific issues, he said, could include land that needs remediation because it’s contaminated, ground water challenges, and off-site servicing costs.

Why is this just coming up now?

In short, it isn’t.

According to Jarvis, industry has been pressing the city about this for some time.

“The industry has questioned this for a very long time, but the city says, ‘Well, industry members continue to move forward and do business in Burnaby,’ so fair enough,” Jarvis told the finance committee.

“Really, the land residual method … is what we use in our industry 100% of the time. 100% of the time.”

The Urban Development Institute, an advocacy group for the real estate development industry, declined to comment for this story, saying they hadn’t seen Jarvis’s presentation to the committee.

But Jarvis said the city is effectively alone in using the comparable valuation methodology.

Vancouver’s procedural document does acknowledge the comparable method, saying, “In certain cases, it may be possible to use the comparable method to validate existing land value.”

Specifically, the comparable method would be used in cases where “transactions do not reflect any speculative [value] or ‘hope value’ associated with an anticipated rezoning of the land.”

“The existing land value should reflect the development rights under current zoning and applicable policy constraints,” the document notes.

But it adds: “Purchase price”—which the comparable method is based on—“is not necessarily equal to existing land value.”

Does this affect the viability of projects?

Wesgroup is a private company, so its finances are not made public, and Jarvis said he wasn’t prepared to share pro formas on the Willingdon development or other projects.

The Willingdon project is still going ahead, he said, but he did describe the density bonuses—among a slew of other factors—as damaging its viability.

Those other factors include inflation, the supply chain shortage, and rising interest rates, all of which are currently troubling the economy at large.

In fact, Metro Vancouver Housing Corporation noted recently that these rising costs were impeding the regional district’s affordable housing developments.

“We’re having challenges underwriting the viability of the project,” Jarvis said. “This density bonus payment, and the methodology that they use to arrive at the number, is adding further challenges to the project.”

Perhaps more pressingly, however, is the future of business in the city. While developers have gone along with the comparable value methodology in the past, Jarvis said he’s not sure about bringing future projects to Burnaby.

And adding more costs onto developers with inflation and interest rates where they’re at may be discouraging for new projects.

“I’m never going to [say] that this will be our last project in Burnaby because Burnaby, typically, is a very good place to do business, and generally fair,” he said.

“The irony, here, is I devoted close to a year of my time working on the mayor’s task force, and the policy I helped develop is significantly hurting the viability of our development."

Photo: Dustin Godfrey / Burnaby Beacon

What does the city have to say about this?

Committee members didn’t have much to say to Jarvis during the meeting. Only Coun Sav Dhaliwal spoke up, to say the policy has to be applied to all properties equally.

He also noted that despite the city’s policy on density bonuses, the city has still seen thousands of units built over the years.

In an interview with the Beacon, Hurley said the committee heard his point, but the residual land value method has its own shortcomings.

“He’s right in what he says: most other cities do it a different way. But this is the way Burnaby has done it, and everyone has understood Burnaby has done it, since 2010,” Hurley said.

“The issue really is that [residual land value is] a lot more subjective. The way our people do it now is, they go on and they get actual values of what buildings have sold for, say, in the Metrotown area.”

This only complicates the process further, Hurley said, because the developer will put forward a pro forma on its valuation of the project’s revenues and costs, often using a third party to conduct the valuation.

In response, he said the city would have to hire its own third party to do a valuation, and then a lengthy back-and-forth would follow to hone in on a final dollar amount for the density bonus.

“You’re relying a lot more on estimates rather than actual values,” Hurley said. “We just find that our method is cleaner, much … easier to get to resolution.”

He added that developers go into projects knowing the site-specific issues that might make a project more costly.

“They should have hopefully made that adjustment in the price when they were buying it,” Hurley said.

“Certainly, the residual method is not something we would be against looking at, but it’s not something that we change on the fly either. We will have to sit down and really come up with a policy.”

OK, but how does the plant figure into this?

It all comes back to the mayor’s task force on housing.

Jarvis first received the plant after the task force had wrapped up as a thank-you gift from the city. And last week, he returned the plant in what presumably was a dramatic fashion.

(Exactly how dramatic the gesture was is not entirely clear, as a recording of the meeting does not capture Jarvis or the plant. The gesture did not generate much response from the five councillors who were recorded on video.)

He said the plant gift only added “insult to injury.”

“The irony, here, is I devoted close to a year of my time working on the mayor’s task force, and the policy I helped develop is significantly hurting the viability of our development. Had I known this to be the case, I would have shown up in that environment in a much more defensive way,” Jarvis said.

“Then you basically turn around and ignore your partners. … I am extremely frustrated with the outcome of this.”

More specifically, he said he didn’t feel the city was treating the developers of projects that were caught up in the moratorium on new projects fairly.

In 2018, after creating the housing task force, the city halted all projects currently in the works.

That includes Wesgroup’s Willingdon project, and Jarvis said he believes the projects that got caught up in that moratorium have been treated poorly.

Since a rezoning application for the project was first submitted to the city in January 2018, he said the city should pin its density bonus calculations to that point in time.

Since property values have risen since then, that means the density bonus cost would also be higher for a project today than it was in 2018.

Jarvis said the task force and the moratorium were the right things to do—he even participated in the task force—but he said the developers have been treated unfairly.

An agreement ‘under duress’

Jarvis agreed with Dhaliwal that developers caught up in the moratorium, including him, have acquiesced to the policy.

“When I asked them why, they said that their backs were against the wall. Every time they tried to engage real estate, the price went up because there was a new comparable transaction in the marketplace,” Jarvis said.

“You, as elected officials, ought to be aware of the fact your policy could be creating unintended consequences in the market. … The policy doesn’t reflect reality. We are the victims of the dumbest person in the marketplace, and you are the beneficiaries.”

As for his own capitulation to the city’s density bonus, Jarvis said it was a decision made “under duress.”

“We have to move forward. We can’t just sit on this land,” Jarvis said.

The city’s communications department was not able to comment in time for publication on the genus of the plant in question or what became of the plant.

The city was also unable to say if any review of the density bonus program is forthcoming, but noted that, without a formal direction from council, it would be unlikely.

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Dustin Godfrey

Reporter at Burnaby Beacon

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