Owners of a 114-unit condominium complex in North Vancouver have become among the first to achieve court approval to sell their entire complex to a developer.
The BC Supreme Court approved Anthem Properties’ bid of $51 million for the 6.5-acre Seymour Estates project on Lytton Street in North Vancouver district in December. The transaction closed in late January.
Justice Lisa Warren noted the sale price is 50 per cent higher than the property’s assessed value of $32 million, according to court documents. This pencils out to an average of $447,368 for each of the 44-year-old units.
Seymour Estates is technically not a strata complex. The project was created as a “common-law condominium corporation”, a type of ownership popular in the 1970s that has since been banned by the province.
Unlike a strata complex, where each owner individually owns his or her unit in a common law strata, Seymour Estates owners have a “fractional interest” in the whole complex.
“The process was similar to selling a strata complex under Bill 40,” said Lance Coulson, senior vice-president of CBRE in Vancouver, who brokered the sale with Jim Szabo, CBRE vice-chairman of capital markets.
Bill 40, a B.C. law that took effect in July 2016, lowers the required threshold to 80 per cent from 100 per cent for strata corporation members to vote to dissolve their entity and sell their buildings. The Seymour Estates vote was close to 90 per cent, but still required a court judgment to proceed. The transaction closed in late January.
According to Coulson, the Seymour Estates land would be allowed a density range increase from the current 0.75 FSR (floor space ratio) to 1.2 to 1.7 FSR under the District of North Vancouver official community plan for the area.
CBRE is recognized as a leading agency in Bill 40 transactions and is often approached by strata corporations, but Szabo said condominium owners must be realistic about the increased value they expect to achieve.
“If the land lift is less than 25 per cent, it may not be worth it,” Szabo said.
He advised condo owners to consult the official community plan for the neighbourhood to see what level of density is allowed, and to also consider access to transit, the amount of land and other factors in deciding whether a project would be attractive to a developer.
Seymour Estates owners received more than a premium price for their units, and a chance to escape ongoing repair bills on the aging complex. Under the terms of Anthem’s offer, owners have the right to buy back into the building at a discount and can rent their units back from the developer at discounted rates for 18 months after the deal closed.
According to CBRE, the deal achieved one of highest prices ever paid for residential land in the District of North Vancouver.
Szabo expects many older strata projects to sell this year as Bill 40 becomes better known and the process becomes smoother.
Owners of units at 2777 Oak Street in Vancouver have already gone to court to approve the sale of their three-storey, 30-unit, 44-year-old, wood-frame building to a numbered company for $21.5 million.
That is more than twice the site’s 2016 assessed value of $10,630,300.
Bill 40 has spurred a flurry of interest among members of dozens of strata corporations that own buildings that are becoming more expensive to maintain.
This was the case at 2777 Oak Street, which is also known as Twelve Oaks, where owners were “facing increasing capital expenditures to maintain and repair the building,” noted a court filing.
Legal advice
Vancouver law firm Clark Wilson represents more than a dozen Metro Vancouver strata corporations that are in various stages of trying to sell their buildings.
“[Clients’ buildings] tend to be underdeveloped relative to the density that would be allowed, and they are near transit so the development value is higher than the current value,” said Clark Wilson partner Darren Donnelly.
“At the other end of the spectrum you have stratas that aren’t necessarily in high-value locations or underdeveloped, but they are facing devastating repair bills,” said Donnelly, adding that a small number of owners who are strongly opposed to the process can stall things.
Failure to get legal advice and an accurate assessment of a property’s worth early in the process might also stall the process because strata corporation mistakes could force it to backtrack and redo parts of the process, Donnelly said.
Issues that strata corporations should consider when assessing a property’s value include whether the local municipality will require a percentage of newly built units be social housing and whether view cones or other city stipulations will limit a site’s future density.
Donnelly advised that strata corporations avoid trying to rezone their properties on their own because it is a complicated process that might require each owner to be served and to sign papers.
Developers who want to buy the property, however, may bid a lower price to factor in the risk that they may be unable to rezone the land to their density expectations.
Dividing the proceeds
Another thing to clarify early in the process is how proceeds will be divided, Donnelly said.
“People may think that proceeds will be divided based on the relative assessed values of the strata lots.”
But he said the division of the proceeds is far more complicated.
Donnelly said all of the condominium buildings built between August 1974 and July 2000 have a schedule of “interest upon destruction” in their strata plans.
While some homeowners may receive a share of proceeds that is higher than the market value for their units, they may vote against a strata dissolution because they are upset that someone else in the building is getting even more. “That thinking is human nature,” Donnelly said.
Finally, he warned that court approval of a vote to dissolve a strata corporation is not a rubber stamp.
Courts may reject a vote to wind up a strata corporation if it inflicts a “significant unfairness” on one or more of the owners, he said.
