MEMORANDUM: Correcting staff denial of windfall profits at 3701–3743 West Broadway (MIRHPP)

Click to access chw-memorandum-3701-w-broadway-windfall-profits-cov-council-12-nov-2020.pdf

Text version follows below references.


CityHallWatch has done many posts on MIRHPP and this particular rezoning. Below is a selection of the most recent ones. 

Alma and Broadway rezoning (Public Hearing Oct 28): Financial analysis shows windfall profits for developer (Westbank). Posted on October 23, 2020

MEMORANDUM: Excessive costs of Moderate Income Rental Housing Pilot Program (MIRHPP). Posted on October 28, 2020

Interim Rezoning Policy for Kitsilano and West Point Grey (WPG) and how they apply to a major current proposal at Broadway and Alma, Posted on October 28, 2020

Controversy: Public Hearing 27-Oct-2020 (Tues) for 172 foot Westbank tower at 3701-3743 West Broadway (corner of Broadway & Alma), Posted on October 23, 2020

Six reasons to reject Westbank rezoning at 3701-3743 W. Broadway (& Alma): Christina DeMarco (former senior planner). Public Hearing Oct 27. Posted on October 25, 2020



M E M O R A N D U M                                                  November 12, 2020

TO:                  Mayor and Council

CC:                 City Manager

Chief of Staff, Mayor’s Office

General Manager, Planning, Urban Design and Sustainability

FROM:            Civic Finance Research Unit, CityHallWatch

SUBJECT:      Correcting staff statements denying windfall profits at 3701 – 3743 West Broadway


On October 29, 2020, Vancouver City Council approved the rezoning of 3701 – 3743 West Broadway (and Alma) for a 14-storey tower proposed by Westbank Corp. (CEO Ian Gillespie) after three sessions of the Public Hearing (starting Oct 27) (link to related documents and video).

While Council has made its decision on this rezoning application, it is important to note that staff’s responses to certain questions from Council during the Public Hearing were misleading.

Accordingly, council may wish to reconsider its decision. Council is also encouraged to consider corrective actions with senior management in the relevant department to ensure that staff provide correct information for Council decisions in the future. Council may also wish to review the underlying assumptions of the MIRHPP program, which this case shows provide windfall profits to developers, subsidized by taxpayers.


  1. The Moderate Income Rental Housing Pilot Program (MIRHPP), approved by the previous City Council on November 28, 2017, was used by staff to justify its recommendation to approve the rezoning requested by Westbank for 14 storeys at 3701 – 3743 West Broadway.
  2. As it stands, there is no budgetary approval of subsidies for developers under MIRHPP, hence no effective public oversight of the subsidies. As our 28-Oct-2020 memorandum to Council states this represents a fundamental breakdown in corporate governance at the City.
  3. During the Public Hearing, responses regarding financial aspects (specifically, the profitability) of the application were provided to Council by Mr. Chin of the City’s Property Development group. He stated that from the City’s perspective, the land value for the property was set at the time the rezoning application was submitted. He further stated that the developer did not earn a profit beyond the “standard” 15% profit margin. The profit methodology Mr. Chin is using appears to be that used by the City in calculating Community Amenity Contributions (CACs), as in the City’s recently-published “Community Amenity Contributions Implementation Procedures” (
  4. Council needs to be made aware that the approach used by the City’s planning staff to calculate the profitability of projects, and how they value land in their analyses, is not what happens in the real world. In the real world, the profit of a development project is based on the actual cost of the land (including carrying charges), not the value of the land at the time a rezoning application is submitted. It is undebatable that a developer’s income taxes as determined by the Canada Revenue Agency are also on an actual cost basis.
  5. Now, consider the numbers for this specific property. Assume the current assessed value of $17.4 million was also its value on the day the rezoning application was filed. It is publicly known that the developer acquired the land in 2011 for $9.4 million. Assessing profitability using actual cost ($9.4 million) demonstrates that the developer’s profit is actually $8 million higher than the calculation presented to Council by City staff, and the actual profit margin will also higher than the City’s “standard” 15%.
  6. The preceding point underscores the need for greater transparency from the City with respect to the need for subsidies and bonus density for developers to support the construction of “affordable” rental units. Staff and developers may argue that their proforma profit calculations contain sensitive information and cannot be disclosed, but the reality is that most, if not all, of the components of a proforma can be readily obtained from public sources. Key assumptions such as the capitalization rate used by the developer are not proprietary – they are market-derived. However, a developer may not want Council and the public to see that it is using a high cap rate in its calculations to generate a lower property value on paper, in order to avoid paying CACs.
  7. As noted in CityHallWatch post “Financial analysis shows windfall profits for developer” (23-Oct-2020), Westbank, the developer of 3701-3743 West Broadway, has a considerable cost advantage in terms of cost per buildable foot over the developer of 2538 Birch Street (rezoning for 28 storeys approved by Council July 21 2020, following Public Hearings on July 9, July 10 and July 14). Despite its cost advantage Westbank receives the same subsidies under the MIRHP program as any other developer participating in the program.
  8. Most importantly, in contradiction to Mr. Chin’s assertion, that cost advantage gives the developer a windfall profit in the real world, particularly when supplemented by the provision of subsidies via the waiver of Development Cost Levies (DCLs), CACs and reduced parking requirements, along with additional density.
  9. From the above, one can only conclude that as currently formulated and implemented, MIRHPP is indeed providing windfall profits to some developers, as a cost to taxpayers.

TO RECTIFY the situation, we recommend the following steps be taken.

  1. Council should either cancel or modify the MIRHP program to focus on seeing apartment buildings constructed at the lowest possible cost, with rents in all units in the buildings targeted at those earning moderate incomes (using the City’s definition of moderate income).
  2. Council should direct staff to either (i) discontinue the MIRHP Program or (ii) modify it to take into account the cost advantages certain developers may have as a result of, for example, lower land costs per buildable foot, or the ability to obtain benefits such as reduced parking requirements due to the proximity of public transportation, in order to avoid taxpayers providing either subsidies or bonus density which result in windfall profits for developers.
  3. Restating recommendations points from our Memorandum of October 28, Council should require City staff to present the amounts of these subsidies in a transparent fashion in the City’s financial statements, by accruing the revenue item and then recording the waiver of the development cost levies and CACs  as an expense. The cost of the subsidy must be transparent to taxpayers, and Mayor and Council should have knowledge, control, and accountability for it, as part of their approval of the City’s annual budget.
  4. Council should require staff to compare the cost effectiveness of options. For example, it might be better NOT to waive DCLs and CACs (especially if the waivers result in windfall profits) and instead to receive those revenues, and use them to acquire land which can be leased to a non-profit or co-op, for better outcomes for a greater number of people.

Action is required by Council.

Thank you for your consideration. If you have questions or concerns, please do not hesitate to reach out to CityHallWatch at                                               





7 thoughts on “MEMORANDUM: Correcting staff denial of windfall profits at 3701–3743 West Broadway (MIRHPP)

  1. Assume MIRHPP rent is $2.2/SF
    Market rebt is $3.50/SF

    Blended is $3.25 SF

    At a 3.75% Cap rate that is a value of $663/SF

    I would guess that this building would cost $380-$400/SF to build (if you looks at Altus construction guide and allow for overruns considering the form, height and labour issues lately)

    Soft costs and finance costs of $55/SF (includes DCL waivers)

    Total Development Costs Net of Land: $455/SF

    Value after 20% profit (typically required in a market project by a lender to obtain financing): $552/SF

    Residual land value: $97.50/SF

    Note that the residual land value is not the $140/SF that is claimed and the MIRHPP program can be said to reduce the land value by $42.50/SF or $5,270,000

    They still get a lift of ~$21/SF or $2,700,000 on the land, but its not the amount claimed in the article.

    • Thank you for your comment. It’s all in the assumptions. In your assumptions, $3.50/sf for the market units seems low. The cap rate seems low as well. Interesting comment about equity return expected by a lender. Is that code for saying how much cash an investor has to put up? It is not normal to see a bank stipulate a minimum rate of return on a property in those terms. Some additional points from Twitter discussion: This particular site was operating as a strip mall, probably with triple net leases. Carrying cost for Westbank would have been small while waiting for rezoning. And there was a mortgage on the property, likely to shelter income, so most of the value increment stays in the developer’s pocket. Which leads us back to the City’s MIRHPP program providing windfall profits by not looking at the developer’s actual costs. AND staff not providing the complete story to our elected officials to make the proper judgement. We feel this bias by staff in how the provide information to council is a systemic problem and should be rectified proactively between Council and senior staff as the current way of doing things is a disservice to taxpayers and residents of Vancouver.

      • Thanks for the reply. I’m not sure I agree with the rents being low or the cap rate being too high (remember this is a building that would have a covenant on it that rents need to stay at a certain level for a number of years, so rent increase upside is limited. This is usually a huge factor in a lower cap rate), but either way I would argue that my soft costs were actually too low. For example the GST self assessment can be up to $25/sf even after the rebate. My quick and dirty analysis put the per unit value at $550,000, which is about market.

        Typically lenders will require a project have a return on cost of 15%-20% (with 20% being the industry rule of thumb) in order to agree to finance the construction. The return on cost is measured as the profit, or development value (here I guessed $663/SF) minus the development cost ($531/SF), divided by the development. (663-531)/531 = ~25%. A solid return, but not earth shattering. Banks require projects to have this amount of profit because if the developer goes belly up in and they are left holding the project, they want a decent amount of contingency that it will still likely be a profitable project.

        I’m curious – is there anything that allay these concerns? Some developers have started publishing their proformas. Would this bridge the divide? Or is it more just the wrong building in the wrong location.

      • Thanks again! To be clear, we are looking at actual profitability in this discussion, not land lift. The City is giving subsidies to any one who shows up with a MIRHPP application in hand. If the City wants really affordable housing, you want to get the lowest cost possible – which means you shouldn’t build a high cost project like 2538 Birch (unless the City has another reason for wanting it built in its agenda), or wouldn’t give the same level of subsidy to 3701 – 3743 West Broadway, given its significant cost advantage.

        Your comments about financing appear to assume a sale of the property. Not many lenders would take the risk of providing construction financing of a rental property as a bridge to a sale upon occupancy. Lenders actually size the construction debt on the amount of cash flow forecast to be generated by the property on a fully-leased basis, and how large a mortgage that cash flow will support. This results in developers having to put up as much as 30 – 35% of total construction cost. Lenders will expect a detailed appraisal to address the pools of units differently, as well as the operating cost assumptions used, to generate a forecast NOI. (They have lots of mortgage loans they can use to benchmark/test the appraiser’s assumptions.) They would also expect to see a valuation on an “as built” basis, with vacancy-controlled units valued using a much higher cap rate, while the market rental suites would be valued using current market cap rates. Anecdotally, the market cap rate is supposedly in the 3 – 3.25% range, although we acknowledge that will vary in the current climate.

        Banks focus on making sure the developer has enough cash invested so that, if there is a problem/cost overrun, the developer has enough at risk to step up and fund the shortfall (that’s why they take cost overrun and completion guarantees, and make sure there is actual value behind them). As noted above, the equity is higher for rental projects (30-35%) given the need to meet mortgageability tests, while condos with firm presales require 25% equity – some of which the developer can fund via buyer deposits.

        We have numerous issues with the Broadway and Alma site. It looks like the MIRHP program was used to justify density that would otherwise not be acceptable from a zoning perspective. We are looking so carefully at the MIRHP program itself as it is very expensive, and the cost hasn’t been approved by Council in any budget. We think that, if the goal is to build affordable housing, there are better ways of doing than providing unapproved subsidies to developers that ultimately show up on peoples’ tax bills.

  2. Pingback: Vancouver’s chief planner urges Council to undermine integrity of Broadway Plan’s moratorium on rezonings (July 21): 1477 West Broadway at Granville | CityHallWatch: Tools to engage in Vancouver city decisions

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