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episode # 71

Creating Urban Fabric with Jordan MacDonald

Current economic challenges don’t seem to be letting up anytime soon and that has got to leave you wondering – How is this affecting the development industry?

This week Cory and Adam welcome back to the studio Jordan MacDonald, CEO of one of Vancouver’s coolest developers, Fabric.

Jordan opens about the challenges the industry has faced with rising inflation and interest rates, lets us in on how Fabric has navigated the current economy, and how Jordan and his team have continued to grow and acquire assets during this time.

Jordan also explains how different deals look now and how all developers need to be more creative than ever to keep the pipeline stuffed with projects. Another must listen to episode which tops off with another classic 6-pack of questions with Jordan at the end!

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Episode Summary


 

Who is Jordan MacDonald? 

I’m a Vancouver resident, born and raised here, and I’ve always lived here outside of attending university in London, Ontario. I got into real estate out of university and worked as a commercial broker for a number of years. I then started my own commercial real estate brokerage company. I sold that in 2015 and started up Fabric. Fabric buys and develops land for new multi-family and purpose-built rental developments. 

I started out interning at a commercial brokerage. I really liked the energy and the people – that’s what drew me to the real estate business. I liked that everyone was out there, working hard and trying to make it happen. As my career continued, I became obsessed with the creative aspect of the business. You can get really passionate about creating these buildings and how these projects will impact the community. 

How has your business changed in the last six months due to rising interest rates and inflation?

The real estate market has changed substantially and a number of things outside our control are affecting our business. Interest rates have gone up, construction costs have gone up, city fees have gone up – a lot of costs are being added to projects. 

For projects that are already under construction, we have to give them more time and attention. We have to get creative about how to limit construction costs. If you’re actively managing a project, you can mitigate those costs. But that increases the workload. 

With new acquisitions, we can factor in the higher interest rates. Right now, none of the big lenders are financing land deals. You have to go to private lenders with 10-12% interest rates. So we’re having to look at our acquisitions differently. Sellers are becoming aware of that. 

We have to assume we won’t be able to close on any land deals for the next six months because land financing is essentially closed right now. We have to analyze what all of these additional costs mean for the land value. And then we have to figure out how to bridge the gap between now and when interest rates might come down and financing might be more readily available. 

It sounds like this is the most challenging time to create new housing. How will developers react? Did the recent municipal election affect the outlook on housing?

I don’t think there could have been a better outcome for our city than Ken Sim and the ABC team being elected in Vancouver. I like that they don’t lean too far right or too far left, which usually means they’re a pragmatic bunch. I believe they’re looking to attack a lot of the issues in this city. If this hadn’t been the outcome, I think a lot of developers would have thrown in the towel. 

Even with new land use policies that incentivize housing creation, specifically purpose-built rental, the fact that interest rates have increased as much as they have impacts the ability to build that housing. As rates climb, it’s harder for developers to create the rental housing that’s needed because it’s not viable to get it off the ground. If the rates keep climbing, new land won’t be acquired and land that is acquired already will just be sat on.

We take a lot of risks as developers. We use a lot of our capital to invest in these housing projects and sign our life away to lenders to get the additional capital needed. It’s a lot of risk and a lot of work. Naturally, there needs to be some profit at the end. Economic incentive isn’t the only thing that drives developers but it is an important factor. 

What is Fabric looking for right now? 

Getting land financing is next to impossible and costs are creeping up across the board. So what does that mean? It means land prices are starting to come down. Land prices are sticky on the way down but they are coming down. We’re starting to see pricing opportunities we haven’t seen in five years. That’s exciting.

The margins aren’t glowing but if you assume interest rates will come down again, they look much better. The issue is you can’t close on a land deal without the financing. Even private lenders are not financing as many land deals. 

We are structuring our deals to have more time on your conditional period and more time on your closing period. And almost everyone else in the industry is doing the same. 

Why do land deals need more time? 

With the Broadway Plan, you could submit a plan for a site you wanted to redevelop to the city by September 1st. It takes a few months to put that together and the city then will take 5-6 months to review it. They were supposed to only take 3-4 months to review but they had 70 applications come in on September 1st and over 100 now, so there’s a backlog.

That alone is nine months before a developer knows if they have a site they can work with. So the last thing you want to do is have a short conditional period if the city is going to take 9 months to let you know whether your project has the go-ahead or not. 

There are delays right now, but there are also a lot of opportunities. 

Where are you excited to buy land in Vancouver?

We’ve carved out a niche for ourselves in East Vancouver. We have always loved East Vancouver but didn’t think we’d be lucky enough to have all of our projects there. Our brand has become synonymous with East Vancouver which has created a vacuum for new opportunities. We typically get the first or second call when a new site comes up in East Van.

There are specific neighbourhoods in East Vancouver we’re really excited about like Commercial Drive, Grandview Woodlands, Cedar Cottage and Mount Pleasant. Our typical project is 50-100 homes with a commercial component. We’re trying to stay focused on that and let that energy build in East Vancouver. 

Our projects have to have a minimum scale for it to make sense for us. We also want them to be in cool communities that we’re excited about. With the Broadway Plan, we’re looking at projects with higher density, concrete build and more purpose-built rental. 

What role does the commercial component have on your multi-family projects? 

Economically, a commercial component actually has a negative impact on a purpose-built rental project. It’s easier to finance a 100% rental than something mixed use. 

But from the community standpoint, we love having a commercial component to a project. If you’re walking past a 20-storey building, you’re not looking up – you’re looking at what is at street-level. What does the facade look like? What does the animation look like? 

We ask: How do businesses become part of the urban fabric of the community? We want those businesses to be an added amenity to the neighbourhood and the building itself. 

Is Fabric looking at real estate markets outside of East Vancouver?

We talk about other markets around the office and look at sites around BC. But we are really cognizant of what is an on-brand project for Fabric. Before we move into other places in the Lower Mainland, we’d probably look for markets that are more similar to East Vancouver. This isn’t part of our current plan, but I’m thinking about places like Leslieville in Toronto or parts of Los Angeles or Austin. 

There are other markets that have analogs to East Vancouver and what we do – cool, creative projects in cool, creative neighbourhoods that attract cool, creative people. That allows us to be passionate about our projects. 

It’s not enough to know we’ll just make money on a project. Of course, we know our projects need to be economically viable for our business to survive. But for us, it’s the project and neighbourhood first. That’s what we’re passionate about.  

So yes, it’s possible that we will look at other markets in the future. But they would have to be on brand for Fabric. 

What project are you particularly excited about right now?

We’ve acquired a site right near Trout Lake called The Cut. It fronts onto Grandview Greenway, which is a huge bike lane, and is just 650 metres from the skytrain station. We’ll be building a townhouse project there. The presentation centre will be on Commercial Drive.

We haven’t launched The Cut yet and haven’t started advertising, but you can register on our website

There will be 1-3 bedroom townhomes with rooftop decks and a courtyard. It’s a ground-oriented project where you can enter your home off the street front or up a few steps. It’s going to be a great project that caters to families who want a 2-3 bedroom home with a lot of green space at an achievable price point. 

Find out more: https://fabricliving.ca/ and https://www.instagram.com/lifeatfabric/

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