Investors buy SRO buildings as City of Vancouver calls on Province to discourage speculation
Credit to Author: Joanne Lee-Young| Date: Fri, 31 Jan 2020 02:04:45 +0000
The assessed value of all single-room occupancy hotel buildings in Vancouver increased by a striking 84 per cent during the last five years. And even though values dipped slightly last year, there has been a string of sales in recent months, with some trading hands at yet higher prices.
Real estate prices in Vancouver drew worldwide attention and sparked a slew of tempering measures by governments at all levels when the assessed value of all properties in the city went up by 56 per cent between 2015 and 2020, according to numbers crunched by Andy Yan, director of The City Program at Simon Fraser University. The assessed value of single-family homes rose by just 32 per cent.
Yan said the sharp increase for SRO buildings is why community advocates are concerned. Speculation brings high risk for already vulnerable, low-income tenants who depend on these units for shelter.
“It’s been an issue for some time, but it’s becoming worse. It’s the moving of tenants, which allows for increasing rents that reset new (property) values,” said Yan. “And this is feeding into the (growing) homeless population.”
In early December, Vancouver city council asked the province to tie rent increases to the rooms and not the tenant, “in an effort to discourage speculative investment, slow rent increases, and discourage displacement of very low-income tenants into homelessness.”
“Landlords would lose the economic incentive to evict tenants,” said Wendy Pedersen, an organizer with the SRO Collaborative Society. She said some are aggressively using “tons of inspections, holding (tenants) to every little rule, documenting everything to give them cause (to evict), and offering payments to grease the wheel. There are so few rooms, so (evicted tenants) live on someone’s couch and then, that’s it. There’s no place for them.”
Pedersen said that even with the proposed vacancy controls, landlords could still increase rents by the allowed fixed amount of 2.5 per cent annually. There is an existing bylaw that protects SRO units, but it dates back to 2003.
The city said on Thursday that Mayor Kennedy Stewart has reached out to the provincial government and “discussions are ongoing on how to improve protection for low-income renters in SROs.” Staff are expected to report back to council on discussions in the spring.
Meanwhile, this week, realtors announced the sale of another SRO building. The three-storey, 26-room Shamrock Hotel on 635 Hastings Street sold for $3.51 million, a price over its 2020 assessed value of $3.023 million. It last sold in 2012 for $1.65 million.
Two months ago, a three-storey building with SRO units at 1168 East Hastings, known as the Vernon Apartments, sold for $3.54 million, also above its 2020 assessed value of $3.267 million.
Around the same time, the Arno Hotel, a four-storey building in Chinatown at 291 East Georgia, sold for $3.8 million, which was less than its 2020 assessed value of $4.23 million, but much more than the $966,166 it last sold for in 2014. In 2015, the Arno was assessed at $2.103 million, said Yan, meaning the assessed value in 2020 was 101 per cent higher.
These old buildings have long been known as “cash-cow” investments, providing a steady return of income.
But as land elsewhere in Vancouver becomes scarce and expensive, investors are turning to these relatively cheaper properties that are mostly in the Downtown Eastside and Chinatown, not far from the site of the new St. Paul’s Hospital. There is at least an eye to developing units with higher rents as well as new, ground-floor businesses, and marketing materials suggest future micro-lofts and gourmet, organic food stores.
Recent analysis by Vancouver-based senior specialist Eric Bond at the Canada Mortgage and Housing Corp. warned of pressure of rising rents even though it focused on market-rate, purpose-built rental units and not SROs. For all of Vancouver, the current market rents posted for vacant units are about 20.8 per cent higher than those paid for occupied units. This is the increase in rent a tenant faces if he or she has to move.
In the East Hastings area, which includes many SROs, Bond found the rent posted for a vacant, bachelor unit is $1,558, compared to $1,292 for an occupied unit, or a 20.6 per cent increase. The difference for a two-bedroom unit is 28 per cent.
“The assessed values have increased a lot,” said realtor Robert Tham of Corbel Commercial Inc., who has brokered many SRO building sales over the years. “It’s one of those things. There is impact on an area when there is a lack of a supply of land.
“There is a disconnect because these SROs are falling apart. It takes a lot to run a good building. … With the last few I have sold, the landlords aren’t kicking out tenants. They are just making improvements as the rooms come available.”
“How are owners of any building, whether a market rental building or a SRO, expected to reinvest in these buildings without being able to recapture those costs in revenue? … How can we advocate for freezing rents while not even discussing costs?” said Beau Jarvis, the chair of the Urban Development Institute, which represents developers.