Is 1075 Nelson Street really worth $68 million?
How the story behind a baffling recent real estate transaction has everyone in Vancouver talking
April 21, 2016
Print journalism, as it turns out, isn’t dead just yet. A few weeks ago, Globe and Mail reporter Kathy Tomlinson revealed how local real estate agents were profiting from—and, perhaps, fuelling—speculation in Vancouver’s overheated housing market. This was on the heels of her February expose that introduced everyone—well, everyone who doesn’t work in the real estate industry—to the existence of a practice called “shadow flipping.” Kerry Gold, meanwhile, wrote the cover story for a recent issue of The Walrus, one that laid out the negative impacts associated with rising real estate prices in painstaking detail for an audience that might not yet be quite so intimately familiar with them. All three were the kinds of stories that should remind everyone about the value of great print journalism (speaking of which: buy more of it!) and the price we’d all pay—and are already paying—for losing it.
But Ian Young’s piece in the South China Morning Post on Wednesday may have topped them all. In it, he detailed the deal-making behind an astonishing chain of transactions that saw a piece of property (1059 and 1075 Nelson Street) assessed at $15.6 million sold for $60 million—and then effectively flipped for $68 million barely a month later. Most astonishing of all, perhaps, is the fact that the initial seller was Wall Financial Corporation—a company that had clearly signalled its intent to build yet another signature skyscraper on the property it tied up for $16.8 million in 2013. As Young wrote in his piece, “They had big plans for the downtown site: a glittering 60-storey residential skyscraper, taking advantage of the location within the city’s West End Community Plan, where a building could rise 168 metres tall under new zoning. The project was dubbed ‘Nelson on the Park’ and the Walls turned to favourite designer Chris Doray to come up with what they hoped would be a new Vancouver landmark.”
That’s right: Peter and Bruno Wall were effectively priced out of their own development plans by an offer they couldn’t resist passing. And while nobody should feel too bad for the Walls—they effectively quadrupled their money in less than three years—the deal still marks a new high-water (or, perhaps, low-water) mark in Vancouver’s increasingly frenzied real estate market. “We’re basically in a mania,” Young says. “When you’ve got investors so desperate to pay $60 million for a site that’s valued at $16 million that it sells out in two hours, what does that tell you is going on? What’s the mentality behind this investment? Is this a well-thought-through and measured investment on their part, or are we in a gold rush?”
Worse still, the government doesn’t appear to be getting its cut of that bonanza here. Because the deals involved the purchase of shares rather than real property, the property transfer tax that would otherwise be paid goes uncollected. This isn’t illegal, Young stresses, and it’s a widely used tactic in the commercial real estate market. But, he says, it’s worth reflecting on whether it should be. “It’s perfectly lawful, the way that these sales have been structured. But should it be lawful? In the case of Suncom’s consortium’s purchase of the site from the Walls, they legally avoided about $1.8 million in property transfer tax. In the case of Gao Shan’s subsequent purchase for $68 million, he avoided about $2 million in property transfer tax. I think that’s a huge issue.”
After all, this isn’t just some crazy outlier, a one-off transaction that doesn’t accurately reflect what’s happening elsewhere in the market. Suncom has also done deals with both the same legal structure and mind-blowing valuation at the Silver City site in Richmond and at two properties it tied up on Tisdale Street near Oakridge. And therein lies the rub—or, at least, one of them. We don’t know about these sorts of transactions—Young, for example, hadn’t heard about the Silver City deal until he started digging into the Nelson street properties—because there’s no meaningful paper trail for anyone to follow. Because of the way these sorts of deals are structured, the land title doesn’t actually change hands. In this case, for example, it still shows the property as being owned by the same company that’s had it since 2014: Nelson Street Residences, which was set up by the Walls. “This stuff is opaque, because it’s certainly not happening in the view of regulators or the public—at least, the non-Chinese speaking public. It’s occurring out of the view of what you’d probably call the English-speaking mainstream in Vancouver.”
Oh, and as to the ludicrous valuation on the property? Young says that Suncom deserves credit where it’s due—after all, they turned an $8-million profit on their purchase in under a month. “They have read the market so far. They appear to have read the market better than anyone could have imagined.” But as to the longer-term returns that people like Gao Shan can expect from their investment? Chris Doray, the architect who had been committed to the project when the Walls still owned the property, told Young he doesn’t see how it can possibly add up. “He doesn’t see how it makes any sense—at least, not at prices that can possibly be paid here in Vancouver.”
But maybe, Young says, that doesn’t matter—and maybe, more perniciously, that’s actually the point in the first place. Suncom’s marketing material, after all, describes its investments in Chinese yuan terms. “It’s quite clear who they’re targeting—people who think in yuan, and have yuan to spend. Not Canadian dollars.” Given that, you might think that this would at the very least put to rest the notion that Vancouver’s real estate market is being driven by an influx of foreign capital. Don’t count on it, Young says. “We’ve seen things that are far more rigorous than my reporting, in terms of academic, peer-reviewed material, that people still just shrugged off. If you’re a denialist by mentality, then I don’t think a story like this is going to convince you either way.”