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Apt. builders offer strategies to keep projects flowing as costs rise

Thomas Burr, vice-president, mixed-use development at ONE Properties. (Courtesy ONE Properties)
Thomas Burr, vice-president, mixed-use development at ONE Properties. (Courtesy ONE Properties)

The pace at which construction costs in Canada are rising has slowed, but elevated development and building prices remain a major challenge impeding the pipeline of new housing projects, stakeholders say.

“We're not seeing the 20 per cent year-over-year (increases) that we were seeing maybe a year ago, but it's still escalating,” said Thomas Burr, vice-president, mixed-use development at ONE Properties.

Burr was speaking at the Western Canadian Apartment Investment Conference in Vancouver on April 4, during a panel focused on strategies developers are taking to ensure their development pipeline continues in a timely and profitable manner amid turbulence and obstacles.

Getting a real estate project off the ground is about as complicated and expensive as ever, most developers and builders say. Permitting delays at the municipal level, relatively high interest rates, labour shortages and construction-cost inflation (made worse by laggard permitting) is making it a tough go — especially in the apartment building industry.

However, there are strategies some developers are taking to ensure buildings get off the ground and become new homes and businesses.

Line up your lending early

A key strategy for Chard Development is to start lining up financing well before capital is needed, said Mackenzie Biggar, vice-president, development with the B.C.-based developer.

"Borrowing is costing us two times what it used to and that means a lot more equity (is) required," Biggar told forum attendees. "We talk to our lenders a year out in advance and get in line for their capital."

Biggar said about half of Chard's residential portfolio is rental. "On the long-term-hold, income-producing property . . . we work with pension funds to be able to purchase the sites.”

That arrangement means Chard is also delivering projects for its financiers, so it creates a bond and mutual reliance. "They know that we are developers that are going to build what we say we are."

Focus on cities where you know you can succeed

Efficiency can also be built into the development process by focusing on a short list of cooperative municipalities, Biggar said. Chard focuses almost entirely on Vancouver and Victoria.

"We are repeat (builders) in Victoria for the past 20 years," Biggar said. “We know how they work and they answer our calls; we answer their calls. That was very key during COVID . . .  especially on the rental (home) front."

Kendal Harazny, co-founder and principal with Wexford Developments, agreed.

He noted there are many factors in the industry developers can't control, including interest rates, macroeconomics and construction costs (to a certain extent). But, they can choose where and when they take on a project.

"We have to control time, and pick our municipalities that want to play ball,” he said.

There is a tendency in the industry to wait and see how politics will play out as mayors and councils come and go, Biggar added.

"The lesson learned over the last however many years we've all been in the business is that it (government changeover) doesn't usually have a huge effect," Biggar observed.

It’s wiser to focus on building relationships with those who are in power while being prudent about which ones are more developer-friendly and collaborative: "We stick to those municipalities," Harazny said.

Vancouver is a challenging case, Biggar continued, but Chard has put in the work to understand its people and its processes.

“Once you have a planner that you work really well with, you hang on to them and you build relationships with senior staff so that you can keep stuff moving," Biggar said.

Develop other strategic partnerships 

A hot topic around the conference was the Canada Mortgage and Housing Corporation MLI Select program. CMHC launched the Mortgage Loan Insurance program in March 2022 to help boost construction and financing for apartment buildings. 

Access to MLI Select reduces premiums and provides longer amortization periods using a points system based on a developer’s level of commitment to affordability, accessibility and climate compatibility.

Incentives are available for new construction and existing properties.

Harazny is a supporter of MLI Select.

"Without that program, the (housing) supply crisis in the entire country would be even further exaggerated," he said.

"It's still going to be a huge issue because we have so many projects being shelved across the country due to interest rates and lack of equity available, but the MLI Select program is the shining star to keep some supply happening in the multifamily rental market.”

Wexford Properties is using the program for projects in Kelowna, Victoria and in Alberta markets, Harazny said. 

Engineer efficiencies within the construction process 

Construction costs for residential buildings in a composite of 11 Canadian metro areas rose 15.4 per cent year-over-year in Q4 2022, while non-residential building construction costs rose 11.1 per cent year-over-year during the same period, according to Statistics Canada. It noted that both of those rates of growth had “moderated from previous highs.”

While permission delays aren't as bad in Alberta as they are in B.C., developers in Calgary and Edmonton are facing labour shortages, Burr said. ONE Properties has ongoing residential development projects in Calgary, Edmonton and Toronto. 

"We've had to really sweat hard for construction efficiencies,” Burr told the panel. "It is very difficult right now and things are out of equilibrium.”

He said that makes it essential to start the conversation early with construction managers and be transparent with risks — and then share the risks to get decent construction pricing.

Mackenzie Biggar, vice-president, development, with Chard Development. (Courtesy Chard)
Mackenzie Biggar, vice-president, development, with Chard Development. (Courtesy Chard)

Chard and many others are investing heavily in the pre-construction process with Building Information Modelling (BIM), which provides early visuals on costing and can get construction and general contractors on the same page throughout the design-build process. BIM used to be a "nice to have," but now "it's an absolute with our general contractors and consultants," Biggar said. 

Chard can "engineer value" using BIM, while ascertaining market fit early in the planning process. Moreover, Chard employs its own building science engineer as well as a construction risk and analysis expert to produce forecasts and historical cost analysis, providing data to support "pivots" in the current market.

"We're really spending the money and investment upfront to minimize costs from Day 1,” Biggar said.

Wexford's Harazny said they too are taking steps to ease the construction price burden, including buying lumber directly from the mills.

"Framers don't like it, because they like to mark that lumber up, but at this point, it's a job, or no job," he said.

"All of those little things become so . . . important when your construction interest has doubled or in some cases tripled; you have to find the room somewhere."

How can other stakeholders help?

Other opinions emerged at the conference focused on how to manage rising development and building costs, including: 

  • Municipalities could ease permissions obstacles by digitizing and unifying the application process; by providing pre-zoning and then sticking to the policies within official community plans; and fast-tracking applications that adhere to those plans. 
  • Local governments should also be hiring more subject-matter experts that can be attached directly to projects or plans to streamline the communications and approval process, eliminating red tape caused by unfamiliar bureaucrats and politicians. 
  • Industry should start focusing on larger-scale prefabrication of building components to clean-up sites, reduce construction site congestion, and reduce waste.

Start now because tomorrow it will cost more

Those who are waiting on the sidelines for financing and construction costs to come down, or for governments to change, will be waiting for a long time, Harazny said.

The best way to fight against rising costs is to start your project now, because costs will likely be higher tomorrow, the panelists agreed.




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