There are a few numbers that separate Wesgroup from the pack in Vancouver: 40+ active projects currently under construction, 800+ subtrades on Wesgroup construction sites every day & almost 5000 homes set to be delivered to our market in the short to medium term. You want to hear from somebody with his finger on the pulse of our market? You came to the right place. President of Wesgroup Beau Jarvis sits down with Adam & Matt for a far-reaching conversation about the current state of Vancouver’s real estate market. How will a potential slowdown today reverberate through our market for years to come? Where are the opportunities currently & when should potential buyers be ready to pull the trigger? And how does this slowdown play out from the perch of one of Western Canada’s largest private development companies? One thing is certain in these uncertain times: Beau knows real estate!
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Who is Beau Jarvis?
I was born and raised in Whistler. My family was in construction and real estate there all my life. I was a broker up there, working with my mom, and then moved down to Vancouver. As a broker in Whistler, I got to work on residential, commercial and land development. At one point, the market was quite sour up there, so I took a parcel package down to Vancouver and was able to get it sold. That got me a job offer in Vancouver.
That was about 18 years ago. I started working in Vancouver with Onni for about 9 years in a prolific growth phase. It was an incredible education. From there I jumped over to Wesgroup, and here I am.
Growing up on a construction site and my broad background in brokerage, plus my education at Onni, gave me a great pathway into the development side of things. That has helped me have a broader knowledge of all asset classes today.
It wasn’t a straight line into real estate. Upon graduating university, I wanted to get into tech. So I started working for a dot com company, which then lost its funding two days after I started working there. So I had to work as a cab driver and pizza delivery person. I then worked at a video game company, which also failed, and then finally moved back to Whistler to join the family business.
What is Wesgroup?
Wesgroup has been around for about 50 years, founded by Peeter Wesik. It came from humble beginnings, started by an immigrant family. Fast forward to today and we’re probably one of the largest privately held real estate development companies in Western Canada and only continuing to grow. We’re involved in all facets of real estate. Our core objective is to grow our own portfolio and engage in merchant activity.
Most of our services, like interior design, construction and property management, are in house. We have the volume to support that and it gives us a competitive advantage.
We care deeply about our culture and we’re known for it.
What is a day in the life of Beau Jarvis at Wesgroup?
A day in my life is running around and bugging all of the executives who do the heavy lifting at our company. My focus is on the external factors, like politics and policy around what we do. I’m engaged in a lot of advocacy work for our industry. Throughout the pandemic, I was advocating for construction to become an essential job. I also keep up with short and long term trends affecting our market, like immigration.
What are the current challenges facing Wesgroup?
It’s probably one of the most complex times to be operating in real estate. It’s a perfect storm of so many things.
Historically, developers are not a well-liked group. The media and general public have their way with us and there’s a lack of understanding around what we do. I think that’s the development industry’s fault for not educating people enough. The really good development companies are good companies, doing good work in their communities. A big challenge has been conveying that in a meaningful way to find common ground in the affordability crisis.
Climate change is another huge issue. Governments need to tackle that and build policies around it. Reconciliation and “renovictions” or “demovictions” are real things we have to navigate. The layering on of all of these policies is like breathing through a fire hose. It’s only getting worse, not better.
It’s challenging to tackle the affordability crisis and I don’t see that changing quickly.
How can we solve some of the current challenges in real estate development?
We’re starting to see provincial politicians come out and hold municipalities more accountable, which is great. All of the processing and permitting to build housing is done through municipalities. But it’s hard to move the agenda forward with all of the public hearings and no support from higher levels of government. Intervention from the provincial and federal government is needed to unlock these processing issues.
Education and engagement is another huge factor we need to overcome. For example, most of the headlines around the Broadway Plan are about tenant displacement and renovictions, which are very real threats. However, when you look at the landlord side of things, we’re seeing revenues being capped while costs are escalating out of control. So it’s not a sustainable environment.
This is an example of where we need to gather all of the stakeholders, educate one another, find common ground, and create policy that is fair and sustainable for everyone involved. If that doesn’t happen, we are setting ourselves up for failure.
We don’t talk about the financing of real estate development and the risks involved. It’s becoming increasingly complex and there’s no negotiating with the banks. A lot of the policy being created is being created on the fly. No one is asking if any of this is financeable or reasonable. There’s no testing being done. Housing policy that is created on the fly and without testing hurts the viability of housing plans.
It seems that people are finally starting to believe that housing supply is an issue. Have we made progress on the supply side of housing?
I’m optimistic. David Eby has fostered one of the most open and collaborative relationships with the development industry. He’s not being as political about it; he’s using data to solve the problem. So I’m optimistic about the future.
For so long we heard about all of these demand side issues, like foreign buyers and money laundering. But it was all bullshit! We’ve had the speculation tax, empty homes tax, luxury homes tax, etc. We put in all of these demand-side taxes but the price of real estate has only kept going up. Because it’s supply, stupid! We were ignoring that market fundamental for the last 10-15 years.
As a developer, I should prefer to operate in an environment with low supply and high demand. But my honest opinion on how we come out of the affordability crisis is by increasing supply. So when people say to me, “Of course, you’re a developer so you want to increase supply,” that’s not true. A developer who wants to make money does better in a low inventory environment. But that’s not how we come out of this crisis.
Overall, I am optimistic that the supply-demand conversation is shifting in the right direction. Now we need policy to reflect that. The narrative is changing but we have to see what happens on the ground.
Is it necessary to take the decision making on housing away from local politicians and allow for higher levels of government to intervene?
I do think it’s necessary. I don’t see the municipal process changing without this intervention. Some municipal politicians would welcome this intervention. They’re in the trenches and have zero political cover. They can’t say to people, “I’m sorry you don’t want this project in your neighbourhood but we have these mandates from the provincial or federal government due to the affordability crisis, so we have to move the project, or a variation of it, forward.”
But there are other municipal politicians who are pushing back and don’t want to give up power. They’re in the community and are advocating for what’s best in the community. So we have to be careful and ensure it’s a balanced approach. We don’t want levels of government that are not community-based to be making decisions for communities that are not in their best interest. It will be interesting to see how this intervention plays out.
Sometimes it’s a sh*tshow on the floor of city council. It feels like a comedy show! There’s serious stuff we’re trying to work through and get done, but it’s not happening. I think it’s an unmitigated disaster on the floor of many city councils.
Of course, some city councils are very strong. North Vancouver and New Westminster both have very aligned councils and work hard to get things done and advance policy.
When you’re looking at development sites in the Lower Mainland, how much do the local politics affect your search?
Wesgroup is built for larger, master-plan communities. Those sites are harder to come by nowadays. But when we are searching, we’re increasingly concerned with the political risk. We have a site in Port Moody right now and it’s been a roller coaster ride to advance that project. It’s challenging and risky.
What is the growth trajectory of the Lower Mainland?
It’s no secret that the federal government’s initiative around immigration is how we’re going to grow the skilled workforce in our country. We’ll see 60,000-70,000 new people in BC next year, but we only build 25,000-30,000 new homes each year. So there’s a massive disconnect.
Immigration is going to drive growth in our Metro Vancouver communities and each municipality is planning for it. But we need to see how those plans turn into action – homes being built for these people.
What role will Vancouver play in the future of the Lower Mainland?
Vancouver is the best place to own real estate and the worst, from a development perspective. It’s the best because land is scarce. Your valuation is quite stable over the long term. But many Tier 1 development groups are no longer doing business in Vancouver. They’re shifting to municipalities that are more open for business and less complex, which is a problem for the City of Vancouver.
We see a lot of off-shore money coming in and a lot of people getting into the development game in Vancouver. A lot of groups operating in the City of Vancouver don’t have much experience and end up agreeing to things that are not viable.
Capital has little tolerance for bullshit. If Wesgroup is trying to deploy capital and make a profit, while still being community-minded, we need to deploy in a place where we can get a return. If the City of Vancouver stays on its current course, the people who want to make a return, and actually have the experience to execute, are going to leave.
How have the challenges in real estate development shifted your strategic direction?
Wesgroup has a significant land bank throughout the province, a large majority in the River District in Vancouver. But we’re working to find areas that are more open for business and deploy capital there. The City of Vancouver is not one of those areas.
Of course, there are some incredibly talented and hard working people within the CIty of Vancouver. But they’re stuck under slow processes, poor leadership and bad culture. The city stands to lose these people – in fact, it’s already happening.
There’s been a lot of talk about the ability for us to consistently supply housing. Can we build our way out of this housing crisis?
I think it will be extremely challenging to build ourselves out of the housing crisis. And one of the challenges is these market cycles. Even when the stars are aligned, there’s still a regulatory framework that stops advancement.
For example, there’s been a lot of talk about increasing purpose-built rental lately. There were low interest rates and the federal government created an incentive program for these projects. The province and municipalities came to the table too, so it seemed like everything was aligned. But now, interest rates are rising, the federal government has tweaked their incentive program, and municipalities are all over the place. So it’s extremely challenging.
Our country is relying on the private sector to deliver housing, like it or not. Even if you wanted to change that, it would take many decades and a ton of public funding to do so. So how do we work within this current system? We need all levels of government and the private sector to come together.
CMHC just came out with a report saying we’re 3.5 million homes short across the country. Building our way out of this crisis is going to be extremely challenging, so we all need to come together.
I desire a healthy market. A healthy market is balanced with supply and demand. There aren’t crazy dips.
How has Wesgroup’s strategy changed in the current real estate market?
At Wesgroup, we do advance projects in soft markets. We’re okay to carry inventory, besides the implications of the Vancouver empty homes tax. But we do change our strategy based on the current operating environment. We believe a rising tide lifts all boats so look for how we can help the tide rise.
What are your predictions for the real estate market for the rest of 2022 and into the future?
For the balance of 2022, I think the real estate market is going to be much of the same. In fact, I think it will get worse before it gets better. The July rate hike will create more psychological shock for consumers. I think real estate will continue to be soft. We also have rising construction costs, supply chain issues, fuel costs, inflation, etc. I don’t see that changing drastically in 2022.
But thinking about the next 1-3 years, I look to immigration. The demand is only increasing and it’s not going away. I believe that will lead to a robust real estate market in the future. Will it be lumpy along the way? Probably.
What is your favourite Vancouver neighbourhood for investors?
I wouldn’t say I have a favourite neighbourhood. We live in one of the most beautiful places in the world with so many great neighbourhoods! But in terms of opportunities for mom and pop investors, I look at downtown Vancouver. Condo values there could be an opportunity. We saw an exodus from downtown Vancouver throughout the pandemic, and unfortunately, an increase in homelessness and crime.
So there may be some opportunities in downtown Vancouver. A significant amount of the product on the downtown peninsula is below replacement value. Prices haven’t moved much since 2017.
Do we see the same housing problems in the Lower Mainland as in the rest of BC?
I don’t think the province of BC is dealing with the same problems we see in the Lower Mainland, just due to the growth we’ve seen here. Things are more complex in the Lower Mainland.
What areas of the province and country is Wesgroup looking at for development?
While I really like the market on Vancouver Island and the fundamentals, Wesgroup doesn’t do a lot of work outside of the Lower Mainland. Markets outside of the core tend to be a little lumpier, with valleys lasting longer.
With the Okanagan, so much of that market is tied to the economy in Alberta. Wesgroup has some projects there but we’re not very active.
We are looking at Calgary for industrial real estate. They have a very talented workforce and there are good, long term fundamentals. Toronto is another city we’re interested in. It’s a big market and there’s room for other operators. It’s all about the timing.
For smaller investments outside of Wesgroup, Nanaimo is a great area. I like the fundamentals there. There are always opportunities in these smaller cities, but you need to go and investigate. Learn what the cap rates should be and what the fundamentals of the market are. Understand the risks, like higher vacancy rates, in the area.
Find out more: https://wesgroup.ca/