Globe and Mail: Paying the price for heritage

July 4th, 2008
Robert Fung stands in front of the newly restored archway at The Flack Block building on Hastings Street.

Robert Fung stands in front of the newly restored archway at The Flack Block building on Hastings Street.

Globe and Mail: Paying the price for heritage
Vancouver’s wildly successful restoration program raises questions about trade in ‘density bonuses’

by Robert Matas
Globe and Mail
July 3, 2008

VANCOUVER — Robert Fung is the most active player in Vancouver’s hugely successful heritage restoration program, undertaking six of 25 buildings that have been saved in the past five years. He spearheaded multimillion-dollar projects on the promise of incentives from city hall intended to help pay extra costs associated with preserving the city’s history.

But Mr. Fung now suspects the city may have a memory problem, forgetting its commitments to those who took risks on heritage restoration.

A proposal to modify the program to help other neighbourhoods would be a betrayal to those who invested in the projects, he said in an interview.

“We negotiated in good faith years ago,” Mr. Fung said. Any move by the city to alter the nature of the program “is really reneging on a good-faith arrangement.”

The heritage building rehabilitation program, introduced in 2003, has sparked unprecedented private investment of more than $400-million in heritage preservation in Vancouver’s historic Gastown, Chinatown and more recently in the Downtown Eastside.

The city encourages developers to invest in restoration of heritage buildings by providing them with an exemption from property taxes, a modest grant for renovations to the building facade and a so-called density bonus that can be sold to other developers.

The density bonuses were intended to provide extra money to developers to help fund their projects.

Under the program, the city hands out the right to increase density on a site to a developer who restores a heritage building.

The developer can sell that right to another developer who could use it elsewhere, possibly by adding more floors to a condominium tower or hotel.

But city planners did not foresee the full impact of allowing the sale of density bonuses from heritage projects to condominium developers.

As expected, the bonuses were used to build condos taller than would otherwise be allowed. But after contributing to restoration by buying density bonuses, developers were no longer required to put any more funds into public amenities.

City Councillor Suzanne Anton said the heritage program has distorted development in Vancouver.

The new condo community in the southern part of the city’s downtown peninsula does not have its own daycare centre, swimming pool or cultural facilities.

That’s a direct result of the city’s heritage program, she said in an interview.

“People used to say on council, and developers used to say that this is at no cost to the taxpayer … but when you put money into heritage, you are not putting money into something else,” she said.

“There is no question there are a lot of extra storeys on the buildings around the downtown area because they [the density bonuses] are used to pay for heritage, and consequently they are not being used to pay for park space, child care, community centres and so on.”

City hall suspended the program in July, 2007, after realizing it was more successful than anyone expected. Despite Vancouver’s hectic pace of development, the city was handing out more than twice as many bonuses as developers could use.

Ms. Anton would like council to take a closer look at incentives to developers before the program starts up again this year.

Marco D’Agostini, a senior heritage planner, said staff will likely recommend the program resume this fall with a cap on the number of heritage developments, linking the creation of density-transfer bonuses to the pace of development. He did not comment on whether staff will also suggest limits on how the bonuses can be used.

Mr. Fung is involved in restoration of the Alhambra Hotel, the Nagle Bros. garage and the Terminus on Water Street, the Marquis on Beatty Street, and the Paris Block and Flack Block on West Hastings.

He said he has relied on the full package of incentives – tax breaks, grants and density bonuses – to finance his projects. “Otherwise, there was no way economically to get the projects done,” he said.

The cost of restoring heritage buildings is higher than new construction, and revenues are significantly lower because the buildings are in “economically challenged” neighbourhoods, Mr. Fung said.

Restoration of the Flack Block, at the corner of West Hastings and Cambie, has cost around $20-million.

The project involves “spectacular” stonework and the addition of a floor for a total of 50,000 square feet of office and retail space, Mr. Fung said. The renovated Flack Block is the first new office building in the Downtown Eastside in recent memory.

The city provided a density bonus of 118,208 square feet for the project, based on what was necessary to make it economical.

Mr. Fung had sold only 29,000 square feet as of late June. New restrictions on the use of density bonuses could cut the value of those he now holds.

City councillors may wish to ensure that Vancouver, as it grows, provides swimming pools and community centres in the neighbourhoods where the density bonuses were used, he said.

But projects currently under construction were negotiated “a long time ago, well before the city decided to horse-trade on other community amenities,” he said.

“The projects we are working on need the incentives. These things cannot happen without these incentives.”

Heritage Vancouver president Donald Luxton also indicated concern about what council may do.

He said he “strongly supports” the program and would like to see the suspension lifted as soon as possible with only minimal tinkering to limit the bonuses as suggested by city planners.

“Other amenities can be funded in other ways. But heritage does not have that luxury,” he said.

Neither the federal nor provincial governments put significant support into heritage preservation.

The private investment that has been leveraged from the public investment is amazing, he said. “Now we have this enormous amount of building activity which has an enormously positive impact. That could stop or slow down to a real trickle – that’s my concern,” Mr. Luxton said.

Trading in density bonuses is the only effective tool that the city has for heritage preservation, he said. “If we don’t have that, we are in trouble.”

Density bonuses

Vancouver’s heritage building rehabilitation program has quietly generated $419-million in private investment to restore 25 buildings since 2003. The fixed-up sites have 1,151 residential units, office space and stores. The city encouraged developers to invest in heritage sites with incentives worth $93-million, including about $65-million in so-called density bonuses.

Restoration is more expensive than tearing down and building something new. The density bonuses were intended to provide extra funds to help make up the difference.

The city hands out density bonuses to a developer who restores a heritage building based on a cost-and-revenue analysis of the building. The developer sells the bonus to another developer who could use it on another site to increase density, perhaps by adding more floors. The second developer goes to city hall with the bonus and receives approval for a project with increased density.

The price of the bonus started as $25 a square foot in 2003, but is now about $65 a square foot.

However, the scheme became a victim of its own success. The city received proposals for numerous heritage projects, leading to approval of an abundance of bonuses. It now has bonuses for about 1.4 million square feet that remain unsold.

If city hall keeps handing out more than can be used, the market for purchasing bonuses from heritage developers would be flooded and the price would drop, in effect wiping out a significant source of funding for heritage restoration.

The original story can be found here.