2545 Queens Avenue / West Vancouver, BC V7V 2Y9 / George @ Pajari.

ca
District of West Vancouver 750 - 17th Street West Vancouver, BC 2011 May 24 (Revised) Attention: Mr. Bob Sokol, Director of Planning, Lands, and Permits Dear Mr. Sokol: re Community Amenity Contribution for the Proposed Rezoning of 2031, 2047, and 2063 Esquimalt Avenue

As I made clear at the Public Hearing May 16th, I fnd the suggestion that upzoning residential land by 300% in the number of units and by 74% in the overall density, increases the value of the land by only 5%, barely credible. Although the problems with the land-residual appraisal method used to come up with this result are well known in the literature (as I alluded to in my brief presentation at the Public Hearing1), I would like to show that even using the land-residual method and the numbers presented in the staff report2, a more accurate estimate of the Uplift is something closer to $1.7 million3. The incorrect low estimate of Uplift of $155K by the consultant is a result of a number of mistakes in applying the pro forma model to the determination of Uplift in this particular case. 1. Incorrectly Including Costs Associated with Rezoning Delays Rezoning is a time-consuming and risky process that the proponent, an experienced developer, is very familiar with. The developer could have commenced construction on his land last year (under the existing zoning) but made the informed and deliberate attention to gamble on obtaining an upzoning. It is not clear why his additional carrying costs incurred as a result of this risky decision ought to be borne by the municipality (in the form of a signifcantly reduced amenity contribution). It is not the policy of the District to compensate developers for their additional costs incurred from delays in the rezoning process if the rezoning application fails. so why is staff recommending (in essence) that the District compensate this developer for those costs if his application succeeds? To put it another way, if Uplift is the increase in the fair market value of the land from the day before it is rezoned to the day after, what does it matter to the calculation of fair market values how long the developer has owned the land prior to the rezoning? That the developer has been sitting on the property for seven months is of no concern to potential purchasers of the rezoned property and therefore will have no effect on the value of the rezoned property. If a developer decides to delay his project in an attempt to obtain an upzoning, that decision is his alone and so all costs associated with that decision ought to be his to bear. Therefore the Uplift calculation (i.e. the community amenity contribution) should not be reduced by the carrying
1 District of West Vancouver, Public Hearing 2011-05-16 2 Council Report: Community Amenity Contribution for the Proposed Rezoning of 2031, 2047, and 2063 Esquimalt Avenue (Development Application No. 08-041); dated May 10, 2011; File 1010-20-08-041 3 This is a very rough estimate, after correcting for the two major errors detailed in this letter, but before the reduction to account for the carrying costs associated with the corrected community amenity contribution amount.

Letter to Mr. Bob Sokol, DWV

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2011-05-24

costs associated with those delays. This correction increases the Uplift calculation by approx. $230,000. 2. Failure to Adj ust Sale Prices for Appreciation Recall that the basis of the land-residual appraisal method is that land value is the difference between the value of the development and the costs of the development (including proft). The pro forma calculated by the consultant4 estimates that the development, if sold on September 1st, would fetch $9.3 million, and would cost $5.4 million to build. This would result in an imputed land value of $4 million (i.e. an Uplift of $788,000). But this would only be the case if one could sell the development the same day as the land was purchased, which of course is not possible. So the consultant has added $633,000 in costs to cover the interest charges that will accrue over the 33 months from property purchase to the sale of the last unit. The problem is that while the consultant has increased the costs to account for the time period from purchase to sale, he has not similarly adjusted the revenue fgures. He assumes that if the units would sell for $9.4 million on September 1st, 2010, they will still only sell for $9.4 million 33 months later. Obviously this is wrong as a comparison with the consultant's April 13th report5 proves. In that report he estimates the development would sell for $9.6 million if sold on April 13th. So the consultant estimates that the development's sale price would increase by 3.5% over the seven months from September to April (5.7% annually6) but does not include that appreciation in his pro forma. To adjust the costs for the time-value of money without similarly adjusting the revenue fgures is not balanced nor fair to the community. If we correct the pro forma to adjust both the costs and revenue for the passage of time, and use the consultant's own estimate of the increase in revenue over time (extended out 33 months), we fnd that the revenue fgure ought to be closer to $10.8 million (and not $9.3 million). There are a number of other much less signifcant errors in the pro forma (calculating interest charges on the imputed Uplift including community amenity costs from day one, even though the community amenity costs are not incurred until much later in the project and that a fraction (25%) of Uplift is never an incurred cost; including the imputed Uplift value in the proft calculations) but these are much smaller than the errors detailed above. In summary, even if we accept the land-residual approach and the assumptions used in the pro forma, the May 9th consultant's report overstates the costs in the pro forma by $233,000 and understates the revenue by something on the order of $1.5 million. Therefore a more accurate estimate of the Uplift (for the purposes of community amenity calculations) will be closer to $1.7 million than the $155,000 suggested. Yours truly,

(signed)
George Pajari
4 Ibid. Appendix 'D'. 5 Ibid. Appendix 'C'. 6 For comparison, the Canadian Real Estate Association (CREA) forecasts that BC home prices will increase 9.2% in 2011.