Saturday, July 10, 2010

Getting out of Dodge...

Kelowna is a city on Okanagan Lake in the Okanagan Valley of British Columbia and ranks as the 22nd largest metropolitan area in Canada.

It is a popular summer destination for both Vancouverites and those Albertans from Calgary and Edmonton. Like Vancouver, it has it's share of multi-million dollar homes - and a real estate boom just as bubblicious as the Village on the Edge of the Rainforest.

In the heart of Kelowna, on Springfield Road, is a new 14 storey luxury hirise called Invue. With walls of windows, pointed balconies, a desirable proximity to Orchard Park mall and varying sizes of units; it has all the elements which the developer figured would enable the building to be marketed as a desirable address in a highly desirable BC city. It other words... an easy sell.

But the development has become the sure thing that isn't.

And making this particular development even more significant is the recent hiring of a marketer to promote the building... none other than the infamous Vancouver condo king, Bob Rennie.

Originally the target market for this sale was to be Albertans and Vancouverites looking for upscale vacation, retirement and investment homes.

But as we have noted in recent posts, the real estate market has swung dramatically. And sensing what is coming on the horizon, Rennie has been brought in to dramatically shift focus.

The new target strategy? Locals first. Then those Albertans and Vancouverites who are returning, post-recession to the Okanagan, looking to find bargain-priced second and investment homes.

And the key here is 'bargain-priced'.

Recognising the shifting sands, Rennie has sold the developers on a marketing strategy that has, at its core, slashed prices. And we mean SLASHED prices... by a stunning 40%. (Recall that Rennie is also marketing the Olympic Village in Vancouver, a campaign that saw 36 units sell in the first two days but has stalled with no further sales after five weeks).

Unit 707 at Invue - a 1,011-sq.-ft., two-bedroom condo on the seventh floor with nice views - is now for sale for $298,000, down from $440,000.

Unit 1406 - a 1,231-sq.-ft., two-bedroom on the 14th floor with stunning views - has been reduced from $625,000 to $419,000.

And the penthouse, a 2,400-sq.-ft., three-bedroom with loft beauty, is now $1.2 million, down from $1.8 million.

Recently Rennie mingled poolside with realtors and media on Invue's rooftop terrace in a promotional shindig. And Rennie let everyone know that Invue is serious about selling out at dramatically reduced prices.

"The reality is even if you have an architectural icon and an A-inventory building like Invue, pricing has to be repositioned," said Rennie. "This is not 2007, and Albertans are not buying over the phone just because it's a condo in Kelowna. The economic collapse eroded consumer confidence and that means people are only going to buy if the price is right and the home makes sense by being the proper size and having the proper layout, being close to shopping and transportation."

Rennie's job is to sell the 80 of the unsold units in the 96-unit Invue. So far, in a recent 18-day period, he has sold 14 units at the reduced prices (16 sold as pre-sales). And while Rennie has almost doubled the number of units sold in the project with the 'slashed prices' approach, 66 remain.

"To be truthful, we were in a bind," said Invue developer Adrian Block of The Rykon Group of their dismal performance in only selling 16 units at 'full' price. "The economy has changed and we have unsold condos and it costs money just hold onto inventory."

Block said in many ways the drastic action taken at Invue is simple economics.

"The marketplace ultimately sets the price," he said.

"We made the hard decision to meet the marketplace on price rather than wait for the marketplace to come up to our original pricing."

What about the Invue buyers who paid premium prices during pre-sales back in 2007 and are moving in as this clearance sale goes on?

"It's hard on them and it's hard on us," admitted Block. "Those buyers who paid full price bought during a different economy."

Think about that for a second. The pre-sale buyers have had to go commit to their new mortgages just recently and then... just days after committing and moving in... they are advised that the spiffy new units they just acquired had depreciated a stunning 40% - overnight! - with no guarentee that they won't drop even further.

The marketplace is shifting, the economy has already shifted, and in Kelowna developers are cutting their losses and 'gettin the hell out of Dodge.'

One wonders how long before these shifting sands of 'simple economics' hit Vancouver real estate.

If a 40% reduction is just the first stage... how bad could this get?



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  1. Excellent post. Is this a prelude of things to come in so many other pre-sale buildings that are not even built yet? Hold on to your hats people things are just starting to get interesting!

  2. "The economy has changed and we have unsold condos and it costs money just hold onto inventory."

    Yes, interest rates are absolutely usurious these days. What's a poor developer to do?

  3. Don't forget the strata fees, which are often very high. The developer will eat costs beyond the interest to hold units. Also, people who paid crazy prices may be more inclined to bail if the building is empty.

  4. I will have to post here! I attempted to post on Garth Turners blog at and he will not allow my posts! I go by jjpetes. Basically I said that he had Robert Prechtor syndrome in that "being" since that for 3-4 years he's been calling for a crash in Canadian real estate that has yet to fully materialize. I also said that he is talking two books in that on one side he's for the common man and on the other I said he was a politician enough to take an ex-MP's pension funded by all the happy bloggers on his site. Garth Turner, he drives a Hummer, you read that correctly, in this economic environment. That does not mean I believe that real estate in Canada will not correct, which it appears to be in the early stages of now.
    How much can it go down? It is very hard to say, so many factors have to materialize before one can allow more accuracy. That being, inventories, default rates, new building permits, foreclosure statistics, to a certain degree interest rates and perhaps demographics. Garth only seems to focus on interest rates and he has a penchant against gold.
    Either way, I called him on the fact that BNN news site stalled and canceled his appearance and he concluded that he was being hushed. Well he will not let me post when I confront some of the issues he rants about! See how this works? Only allow those to post on your forum whom blindly agree with you!


  5. Not to mention the building is one of the uglier expressions of today's architects.
    Has all the charm of Regent Park in Toronto,and what's with those stupid useless pointy balconies??

  6. jjpetes
    i also have given him some negative comments on his blog and he wont post them....primarily when he talks about economics as he is some sort of money manager and tells us what to do with our portfolio, not to mention he is clueless about gold.

    i do agree with him on housing, maybe he was too early because he saw the rest of the world (USA primarily) blowing up and and found similarities and figured the downturn in the american economy would sink canada.
    the reason why we were able to get away from it these past few years was because our debt levels were so low in all levels. now they are very high in all levels and all those years of saving went to waste in 2 years.

    so now canada has to catch up to the rest. in every cycle they always go to the extremes. just like home prices went higher then people expected here with bidding wars, we will see home prices reach prices on the low end that we can't imagine and then hope for stability right after for a while.

  7. Whadya do to piss off Turner, jjpetes?

  8. That is one ugly building. It looks like a Yaletown special collided with a 1970s Scarborough mid-rise. "East meets West".

  9. All you have to do to piss Turner off is disagree with him.

  10. InVue is an empressive piece of architecture inside and out, and kelowna should be proud that it is gracing their skyline.