Up False Creek

April 1, 2009

There are two kinds of developers in this town. The first you’ve never heard of. You don’t know their names and you couldn’t identify one of their buildings if they promised you a free condo in it. They build the thousands of apartments and houses that blanket the region—some good, some awful, the bulk merely okay. They have no ambition beyond finding sites, constructing something attractive and cheap enough to entice a reasonable number of buyers, and pocketing the profits.

And then there are those who long to create—for reasons best known to themselves, their analysts, or their fathers—monuments. Their work is all around Vancouver: the aggressively tall towers, the unusual shapes, the ambitious city projects, the megadevelopments. They’re the ones willing to take on the difficult sites that require years to rezone, to hire the big-name architects who will design beautiful and expensive and sometimes impossible structures, to go through tortuous marriage-counselling sessions with city planners, to fly to Germany to pick out cabinets, and generally to turn development into a Christo-like art project.

Shahram and Peter Malek, the brothers who decided they wanted to build Vancouver’s Olympic Village—who wanted it so much they were willing to pay top dollar for the privilege—are definitely members of this second species.

“We want to build things we can be proud of, driving by, for many years after­wards. You just want to enhance the environment and make things better, be proud of it,” says Shahram in the circumlocutory manner of the British upper class as we walk along the West Van seawall on a sunny winter day. Behind us is the Edgewater condo tower, characteristic of the style Shahram and Peter brought to the city through their Millennium Development: formally elegant, with a predilection for limestone and marble, for black-and-white floors and Dangerous Liaisons landscaping. “We always had big dreams,” Peter adds. “We always wanted to build big. We wanted to build very high-quality stand-alone projects.”

That longing has led the Maleks to what can only be described as Dante’s Inferno: Developers’ Version. In eight months, they’ve been flayed alive as the village’s golden future—an international model of green design embodied in a neighbourhood of walkways, plazas, and 1,100 units of architecturally unique housing—has sunk like Atlantis under the rising tide of financial- and housing-market woes. The story of their financial torment, of the evaporation of financing by their U.S. hedge-fund lender, ongoing cost overruns, and a somewhat embarrassing rescue by the city and province, has played out like a disaster movie. It’s been accompanied by a hostile soundtrack from city councillors asking pointed questions about Millennium’s bookkeeping and management skills, and a public venting its resentment about the Olympics in particular and developers in general.

Their dream project, now valued at over $1 billion, has made them the leading topic of gossip as developers, politicians, and city staff debate whether they are incompetent ditherers or well-meaning but naïve fellows whose financing and management weaknesses got exposed when the global economy’s tide went out. As all their projects come under scrutiny, these intensely private brothers have thrown themselves on the mercy of a revolving, eclectic cast of advisers: their marketer Bob Rennie, former mayor Larry Campbell, realtor Allan DeGenova, former councillor Jim Green, and National Public Relations.

Peter and Shahram Malek didn’t start out in Vancouver as glamour-project developers. Their first local construction contract, almost three decades ago, was for the BC Place parkade. The two brothers, newcomers to the city, lost money on it, and the parkade—a piddly million-dollar job—was a comedown for the family.

“But our father said, ‘We have to start all over again here. He said there’s no point resting on our laurels and saying we were this or that back in Iran,” Shahram later recalls at lunch at the Beach House restaurant. It’s a conversation in which the phrase “our father” appears with metronomic regularity. “Everything we are is because of him,” says Shahram, who is the Scheherazade teller of complex financial and family stories. “If it wasn’t for him, I would probably end up being a poet somewhere.” Even Peter, the quiet older brother who joins the conversation only intermittently, interjects the phrase from time to time.

The Malekyazdi family—the Maleks of Yazd, as their name implies—had been a powerhouse in Iran, one of those dynastic families that deploy their members strategically. Their father, Amir, started the construction branch after his older brother decided Amir, then 16, should get an engineering degree in Berlin to diversify the family’s merchant-trader strength. After graduating in 1944, Amir built up a company that was by the mid 1970s building towers and shopping complexes all over Tehran. It also got the contract to build the enormous complex for the seventh Asian Games in 1974, a project the government developed in the hope that it would become an Olympics site. Shahram and Peter, home after a decade spent in boarding schools Holmewood House and King’s College in England, and then university in Edinburgh—civil engineering for Peter, economics for Shahram—were each put in charge of a development project of their own, a responsibility Amir insisted they take on as part of their training. The family also ran a foundation back in Yazd that took in orphan children and provided education and medical care—noblesse oblige for a well-off family.

And then the revolution. Amir thought the family could stick it out, but when trips to work started to involve random road checks and diving for cover as gunfire broke out, he changed his mind. He picked Canada because he thought it was a blend of the best of Europe and the U.S. In 1981, the whole family—Amir and his wife, Mahin; Shahram, and his three sisters—moved to West Vancouver, and Amir got his boys started in the development business. Peter, who had gone to San Francisco on his own to work in construction management, was ordered to move north to work with the family.

Amir made his sons drive all over their new city to meet construction-company operators and developers. He told them to do whatever it took to break into the market, so after losing several government contracts, when the BC Place parkade job came along, they stripped out any profit, then reduced their bid by another $50,000. They won it and got their foot in the door.

As contractors throughout the 1980s, they built malls, airport expansions, viaducts, and hospital wings. Finally, they ventured into development, beginning with a Burnaby apartment tower and a White Rock mall in 1987. By 1989, their father and mother had moved to Paris, where Amir started building tasteful suburban apartment complexes. Today they visit their extensive family often, staying at the apartment they bought at the Edgewater. It allows them to be close to one of their daughters, who lives in another Millennium project in West Van, and to Shahram, who lives with his wife and two young children in a house near Dundarave. They’re only a short drive from Peter, a father of three living by himself in another Millennium project in Vancouver. But although his parents are inextricably tied to their family, Shahram says he thinks they moved away “so they wouldn’t suffocate us.”

Once on their own in Vancouver, Peter and Shahram established a reputation as developers who built quality projects. Like so many before them, they started in the suburbs, Burnaby being one of their preferred sites. They built a single tower near the SkyTrain line in the late 1980s, then moved into larger projects over the years on the former Oakalla prison grounds, at both UBC and SFU, and in North and West Vancouver. In 1991, they started working on the substantial City in the Park project, which envisioned 1,000 units spread across several towers on 15 acres, landscaped in a formal European style.

By the late 1990s, they were becoming a presence in Vancouver, building the award-winning Lumiere project at the entrance to Stanley Park. In 1997, they bought the historic Province building at the edge of the Downtown Eastside and restored it meticulously—a move industry associates thought was either prescient or nutty. History suggests the former: it’s now worth at least double the $2 million they paid for it, houses the Vancouver Film School, and is poised to be part of the DTES transformation with Woodward’s and the Robert Fung-restored Flack Block across the street. In 2003, they negotiated a unique deal with the city to incorporate social housing into the Hermitage luxury condo and hotel project downtown. And around the same time, they put in a bid for the Woodward’s project with a design for a soaring tower so unusual that it startled people. They lost that bid—in spite of offering more money than anyone else—in part because of the out-there design. But they established themselves as developers who wanted to play in the big leagues. When they offered the highest land price Vancouver had ever seen for the Olympic Village, they got there.

But as they moved up the city’s ladder of Very Important Developers, they also earned a reputation for being difficult, haggling over relatively small sums, acting as though every dollar spent was being removed from their internal organs, and intervening extensively. In a couple of dealings they had with the courts over those years, the Maleks did not fare well with judges unimpressed by their style.

In a messy 1996 case involving the North Shore Winter Club, in which the club operators sued their property owners and also the Maleks, who were building a tower next door, the judge had a number of negative comments to make about the Maleks. Among them: “Peter Malek attempted to mislead the plaintiff and the Court with regard to the efforts that he made. He was cross-examined on his own affidavit in which he swore that he personally sat down and negotiated with some five or six contractors with a view to bringing down the costs. He admitted at trial that at no time did he sit down with any contractors with a view to bringing the costs within the estimate.” (The tower did go on to win several awards.)

In 2002, Shahram appealed a federal tax-court ruling, in another complex case that involved the family’s White Rock shopping centre, a Swiss bank account, and a loan of a million dollars by Malek’s father to his brother-in-law in Iran for a canning-company operation that failed. The judge had this to say, in part: “Generally, the evidence of Shahram was unreliable and insufficient. Much of it was his surmising or guessing what took place.”

Talk to people around town today and two portraits of the Maleks emerge. “They are very good people—gentlemanly, conscientious, very design-conscious and community-conscious,” says Stuart Lyon, an award-winning architect who has worked with the Maleks since 1987. His firm designed the Olympic Village’s social housing. While Lyon has nothing but praise for the Maleks’ meticulous approach, one that he says takes their developments to a noticeably higher level than many others in town, he notes gently that “they do spend a lot of time studying the contracts.”

Their eye for detail can be excruciating. Even as bad media continued to rage around them in February, as information emerged about $45 million in cost overruns on the site’s 250 social-housing units, Peter Malek still spent his days on the site making corrections to, for example, window sills. The focus on detail doesn’t always mean cutting costs. At L’Hermitage, the combination hotel, grocery-store, condo, and social-housing complex they built on Robson, the brothers decided they didn’t like the concrete cladding, even though the city had approved it. So they replaced it with much more expensive limestone and granite. They’ve made dozens of similar decisions at the village.

Development consultant Michael Geller has also seen both sides. Geller negotiated with the Maleks to do one of the projects at UniverCity, SFU’s massive housing development. They were hesitant, wanting the university to share the risk of development, but they became convinced to take it on themselves and built, Geller says, a beautiful and innovative project. But, he notes, they’re challenging to work with because they operate in an unusual way. Most developers either handle all the contracting themselves or hire a general contractor. The Maleks do a mix, resulting in some fractious dealings. “Peter is a much tougher negotiator and he has managed to alienate a number of people,” Geller says. “He’s not as lovable as Shahram.”

The Maleks insist they’ve only ever tried to get a fair deal for themselves. “Because we were in construction before, if something is wrong, we see it right away,” Peter says. “If something is not fair, we see that as well. We expect our contractors to be fair and reasonable. We’re fair with them and we expect them to be fair with us.”

In spite of everything, Geller says they’re one of the city’s more interesting development teams. “Together with a lot of handholding by Bob Rennie, they’ve done some pretty impressive things.”

Rennie has been at their side throughout these Olympic Village travails as the Maleks try to work their way through what was supposed to be their most impressive accomplishment of all. So has their father, reminding them that they have a good project and that they need to rise above the short-term pain.

But they still have a few more bitter pills to swallow. One, the loss of authority over the project. Their father believed in giving them freedom to make their own mistakes. Increasingly anxious city overseers do not feel the same way, as the Olympics deadline approaches. Nor are those overseers going to be willing to do the Maleks any favours that make it appear taxpayers are merely bailing out a development company. That means the city, risking its credit rating to borrow for the project, is unlikely to give the brothers a very favourable interest rate—just barely favourable enough not to drive them into bankruptcy (which could void the 250 condo presales). That sets the scene for a No Exit drama of the first order. It may look in future months as though it’s about money, but it’s really about control and respect. As many people who’ve been pulled into the Olympic Village orbit have observed, the development has become a Spartan “return with your shield, or on it” scenario for the Maleks.

“I’ve asked them the question every which way: ‘If you were given the option to take your $70 million out of this and go home, would you go?’ And they keep saying, ‘No, we have to do this for our business, for our family, for the province,’ ” says Ward McAllister, who heads the city-appointed developer committee recruited to monitor the Maleks’ progress. He’s astounded at their doggedness and willingness to gamble everything.

“They’ve got the farm in this deal, completely.” That would be all of their personal and corporate assets—not worth as much as they used to be, as city officials have noted. But still the farm. And why? The pragmatic, and somewhat bemused, McAllister can think of only one reason. “Face. It’s all about face.” VM

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