Economic turmoil halts glitzy condo project - Jameson House
Special to The Globe and Mail
November 14, 2008
Tony Pappajohn's Greek immigrant parents spent half a century building up a modest empire of apartment and commercial buildings in Vancouver.
After taking that business into big-time development, Mr. Pappajohn this week had to sit down with contractors and tell them that his latest project - a cutting-edge new condo tower - has become another casualty of global economic turbulence.
Working with his two brothers, he had taken his parents' empire to an ambitious new level in the past decade. They built a couple of small, attractive apartment buildings in Kitsilano and South Granville that sold or rented immediately.
Then, five years ago, they decided to climb even further up the ladder in Vancouver's booming development world. They bought property downtown and, as plans progressed, found themselves the developers of a 37-storey, London-architect-designed glass tower with condos priced between $500,000 and $5.3-million.
Mr. Pappajohn loved the project, the Jameson House, which combined cutting-edge environmental architecture by a team from the prestigious Norman Foster firm with the chance to restore two heritage buildings next door. Although it was in the city's business district - an unusual location for a condo tower - and not on the waterfront, it had the cachet of being on the same block as two of the city's most exclusive private clubs, and brochures promised stylish Italian fittings.
But on Wednesday, he told his contractors he was stopping construction because one of his key lenders from a syndicate of three had backed out of the $180-million project.
The lender, a major Canadian bank that Mr. Pappajohn declined to identify, pulled out Oct. 28, telling the Pappajohns only that "market conditions" weren't good. There was no reference to any doubts about his ability to sell remaining condos and Mr. Pappajohn said their presentation centre had still been getting steady business.
He has spent the past two weeks looking for another lender and been unable to find one.
While he's still frantically working with his lead lender to fill in the missing major piece, he decided he couldn't keep people working when he might run out of cash with which to pay them.
"We made the hardest decision to stop," Mr. Pappajohn said yesterday in an interview at the downtown office of his family's company, Jameson Holdings. "But I had to ask myself, 'Is that fair to keep them working when you don't know if you can pay the bills? What if it doesn't work out and I can't get the financing and I can't pay these people? They have families.' "
About 40 people were working on the site, and had just finished digging a 21-metre hole.
Mr. Pappajohn now has to decide what to do for the people who bought 105 of the 144 condos.
His marketer, Bob Rennie, said he's waiting to hear the results of Mr. Pappajohn's efforts at financing before figuring out what to do for the original purchasers, who had to provide deposits of 15 to 25 per cent of the price.
The Jameson House is one of a growing number of condo projects in the Vancouver region that have been hit by a storm of bad economics: high construction costs, an abrupt condo sales slowdown that started in June, and a global financial crisis that has resulted in some lenders collapsing entirely while remaining banks are reluctant to lend.
Two projects in Surrey have been halted, while the Olympic athletes village has been making headlines because of its difficulties in getting additional financing for cost overruns. And major developers like Concord Pacific, Westbank, ParkLane and others say that they are simply putting projects on hold until the market steadies.
"It's not a project failure," Mr. Pappajohn said about his situation. "It's a market failure."
Analysts say it could be months before the condo market becomes stable.
That's a long time for a developer to hold expensive land and outstanding construction loans from a project halfway done.
Mr. Pappajohn said he'd like to find a solution sooner than that.
"Would I sell the project? In a heartbeat. I need to do what's prudent for everybody. If I could pay everybody's bills and be back to where I was five years ago, I'd have the world's most expensive MBA and be happy."
In the meantime, "I'm out there. I'm looking for an angel. I'm looking for help to finish a beautiful project."
Story posted on www.globeandmail.com