Victoria Hotels, East Vancouver Condos & Why We Need to Focus on the Rental Market with Byron Chard

Listen On: Apple Podcasts | Spotify | Google Podcasts | YouTube

Chard Development has been a dominant player in British Columbia real estate for almost three decades & its success is built on a tried and tested strategy: finding the up-and-coming neighbourhoods & doubling down.

President & CEO Byron Chard joins Adam & Matt to share his thoughts on current Vancouver real estate trends & details where the market goes from here. Where are the next big growth markets in BC? What neighbourhoods is Chard doubling down on currently. And what can we expect from the market for the balance of 2023 & beyond?

Stand on the shoulders of giants!

Why has it been 25 years since Victoria has seen a new hotel? Why is East Vancouver the most exciting market in Metro Vancouver? And why do we need to focus on rentals right now before it’s too late? Chard Development CEO & President, Byron Chard, spills all!

Who is Byron Chard? What is Chard Development?

Chard Development is a family owned developer based in Vancouver. We have just over 2500 homes with over 2000 being rental. We have three commercial buildings, including the first new hotel being built in Victoria in 25 years. We’re a team of just under 50 and are becoming more and more fully integrated. We have our own sales, construction, development and work with some contractors.

I took over the company from my father a few years ago. My background is in accounting. During the financial crash I was working in Dallas, which was really interesting. I saw the impact the real estate industry can have on people’s real lives, which affects the decisions I make today.

Being a CA gives me a background on numbers. I’m a true risk mitigator. As long as I can make a pro forma work, I don’t need to sell at the top of the market. We want to provide a risk-related return to our partners. We use outside capital so my background in accounting helps me structure those deals.

How did Chard Development get started?

Chard is based in Vancouver but we have done a great job of having a local flavour in Victoria. My father is so relationship-driven and he loves Victoria. We’ve been working there for 20 years.

Chard Development started when my father found a parking lot in Victoria. He had a vision for a condo building and continued with that for 10+ years. When I joined the company, he had a few projects in Victoria that I got to cut my teeth on. I trained with our sales team on the Island to learn how to build relationships with everyone we work with. We always want to end on a positive balance.

We didn’t talk a lot about real estate at the dinner table growing up. But I learned it through osmosis. My father was always on the phone and he talked through a lot of his work with my mother. I didn’t appreciate what I was hearing at the time. But my father has been a great mentor. He brought me to all of the meetings and taught me everything. I feel so lucky to have the foundation he started and to be able to scale it.

How do the different pro formas work for different asset classes?

My father started on the commercial side and we’ve always had diversity in both office and residential real estate. We feel comfortable in those asset classes.

When it comes to designing the buildings, a hotel is actually a better representation of a rental building than a condo building because you’re building a business. It’s about operational efficiency for both but the pro formas are completely different. That took some learning. But now I feel comfortable underwriting and understanding different asset classes.

How did you come to build the first new hotel in Victoria in 25 years?

We started this hotel project in Victoria six years ago. The first vision was a condo building with student housing. But we were asking for too much density so we scaled it back. I was working on a separate hotel project with Hyatt at the time and thought, “This works for our site in Victoria!” I did the math on the back of a napkin and it all made sense. Three years later and with a rezoning process, we’re getting started in a few months!

Our company will retain and operate the building, which has been a pivot for us.

Why do you prefer to work in different asset classes rather than different municipalities?

My strategy that I put into place five years ago was that Chard would focus on the City of Victoria, City of Vancouver and the North Shore. Whenever brokers called, I had very specific answers of what we were looking for. We started to build relationships in Vancouver that we already had in Victoria. It’s really important to focus on the policies and learn about the council.

About a year out from a municipal election, we stop buying rezoning sites. It’s just too much risk as policies could change. For example, the Broadway Planwas voted in by the last council with some terms being voted down by the current council. Instead, we buy where permits are already in place.

We tailor our acquisition strategy to election cycles. The municipal government is such a player in the real estate industry so we have to pay attention. 

How is the market?

Dynamic! We’re starting to see life in every asset class – something we haven’t seen in six or more months. There’s interest across the board and we’re starting to see stability. That’s what people are seeking.

The banks that failed in the US failed due to poor management and poor risk mitigation. We are in such a better position here in Canada with our regulatory environment and banking system. The stress testing has done its job and kept us in a healthy environment with less risk.

People are starting to feel confident about making decisions in the market. They believe interest rates will be down in 12-24 months, like the banks are projecting.

Are you more bullish now than you were six months ago?

In terms of our product, I do feel more confident now. I like to compare Chard to other developers. I like to say we’re a Volvo; we’re going to be safe, reliable and some may say boring, but you know what you’re getting and your investment will be safe. We want everyone to succeed and we want your presale with us to be a strong investment.

I’m feeling more confident in the Vancouver real estate market now but the fundamentals have always been here. They never left; people have just been on the sidelines. But now that confidence is coming back in.

For acquisitions, that confidence is still not there. Developers aren’t transacting as much as they were. Construction pricing and labour increases are still huge issues.

Where will we see the growth and demand in Metro Vancouver in the next 3-5 years?

I think we’ll see demand across the board in all markets. That’s due to immigration and the fact that Vancouver, and BC in general, are great places to live. The trend of moving out to the Valley is going to continue but people are coming back to downtown.

So every market is feeling the pressure. Young families are still moving out to the Fraser Valley to get that white picket fence and other households are decreasing and want to be in the city.

We have an aging demographic too, which we can’t forget. Older parents may choose condos so they can still stay in their community but without the hassle of yard maintenance. We need supply to suit a variety of demographics. That’s overlooked a lot in the city process.

With a $2 million budget, what is the best residential investment right now?

I would try to purchase an income producing property; a small-scale rental portfolio. There will be a significant amount of pressure on rental rates. While every policy has the best intentions, it’s driving more people into rental housing.

So that’s where the best investment is. We’re getting to the point where rental rates are starting to meet condo prices. I think that’s where the best opportunity sits.

Is Chard focusing on market rental?

For Chard, rental is the biggest part of our portfolio. Part of that is due to the pension funds we work with. We want to create amenity-rich rental projects so that renting is a way of life, not just a phase of life. That rental culture is one of the biggest issues in Canada. It’s very different in the US.

The transaction cost of real estate has gone up significantly. That’s another factor driving people into rentals. Add to that the immigration coming into Vancouver and the fact that we’re land constrained and you can see why we have the pressure on rentals.

Will we see double digit increases on rent?

Unfortunately, I think we will. It comes down to a lack of supply and lack of the right supply.

What policies are needed to get more rental housing into the market?

The policies need to focus on the debt side of purpose-built rental projects. A rental building needs 30-40% of equity whereas a condo building only needs 10-15%. That’s a big difference. With a rental, we’re also writing a 5% cheque to the government for GST whereas with condos, the purchaser pays for that.

I’m hopeful that our provincial government is looking at something to help offset the GST cost and increase housing supply. But right now, it is making the federal government a lot of money. As an accountant, this is a sensitive topic.

Is Chard bringing projects to market quickly right now or are you pressing pause?

For Chard, we’ve delivered every project we’ve ever rezoned. We do that also for our reputation at city halls. I want city council to know we deliver on our promises.

Once you make the “go” decision, you’re still months away from launching. These are large projects and you need a lot of presales. We’ve never worked in 30-40 storey condos; we’re usually in the 100-150 unit range. That’s my sweet spot and I know I can get presales with shovels in the ground on time.

What are the biggest challenges facing the development community?

The easiest challenge to deal with is actually the interest rates. We just have to plug a new number into our pro formas. Sure, it won’t look as good, but we can quantify it. We are working with lenders to help purchasers lock in rates to mitigate their risk.

The biggest issue is timelines; everything is taking a little bit longer. I don’t know if that’s the work from home culture, especially at city hall. Buildings are built when people come together and bounce ideas off of one another.

What area in Vancouver are you most excited about?

We’ve always been big believers in East Vancouver. It’s a market that is coming into its own more and more. Back when we purchased our site at Main and 7th in 2016, people thought we were crazy. Most developers were purchasing on the west side. But now it’s the coolest street in Canada and where everyone wants to live. That trend is expanding east.

In East Vancouver you have a sense of community, you’re walking distance to shops and schools, you’re close to downtown, etc.

On office culture in Vancouver and how it impacts real estate

I think the office culture will have settled by next year. Each company will figure out what their office requirements are by 2024.

We see the tech industry struggling in San Francisco and Seattle, which is hurting their real estate markets. But we don’t have that here because of how diversified our employment base is. That’s where we’ll see the residential market and offices respond. People want to live in 15 minute neighbourhoods.

What does office culture look like by summer 2024?

It will depend on what position you have in the company and your own personal growth. There’s an opportunity when you’re in the office to learn and get experience.

In our company, individual productivity was better during covid when people were working from home. But company productivity is superior when people are back in the office.

We have a flexible policy. On Tuesdays, everyone has to be in the office. That way, you know someone from accounting will be there if you need to talk to them. It helps us build that family culture. Otherwise, we’re flexible on work from home. But being back in the office lets us have those quick conversations and cuts down on redundancy.

What other areas of East Van are you excited about?

We have a project called Earl in Norquay Village that is launching in the next month. It’s a four-storey, wood frame, 130 unit building with a large interior courtyard which makes it family-friendly. There’s a bit more green space but you can still walk to get your coffee.

We’re seeing East Vancouver pick up over Kitsilano because of transit. We have rapid transit to get you to Metrotown or downtown or anywhere in Vancouver. Access to transit drives the real estate market and the opportunity in East Vancouver.

East Vancouver is also easier to get around if you have a car, than in Kitsilano. You can easily get on the road to Whistler or Kelowna.

How Earl introduces moderate density in Norquay Village:

There’s a mature plan in place with the City of Vancouver for moderate density in the Norquay Village area. I played softball at a nearby park and realized it was a fantastic neighbourhood. Earl is just off the busy street of Kingsway, walking distance to the train and there are great schools around.

As a developer, we bring change to the neighbourhood. Most of the time, people don’t like change. But there is a need for supply. We have to be respectful of the single family neighbourhoods and how we transition them. With Earl being a four-storey building in a single-family neighbourhood, it means we get some great views.

It’s about being smart with transitions and respectful of the neighbourhood. That gives me confidence when I go to city hall because, ultimately, we need to work with the city and hear their concerns.

On making decisions in real estate:

One of my big criterias when looking at new acquisitions is it has to get me excited. If I’m not excited, we’re not going to look at it. I want to drive by the site and be proud of why we built it and who we built it for.

The gut feeling of real estate is a true indicator of how we’re doing. If I get a bad gut feeling, I hunt it down and figure out what is going wrong. We report to a lot of people as developers. That relationship is important, so it’s my obligation to figure out what’s happening.

Why are you excited about Victoria?

Victoria is a very stable market. It’s backed by the provincial government, has a growing tech industry, and has strong population and immigration trends, particularly inter-provincial migration.

The weather is another big factor; Victoria has 50% less rain typically than Vancouver. A lot of people like to test Victoria as a retirement place and then their kids move out. So it’s full families moving to Victoria.

We do quite a bit of work in downtown Victoria. We like those vibrant, 15 minute neighbourhoods just on the fringe of downtown. That’s where our project Nest came from. We only have five units left in Nest and also had a sister building, Haven, that we worked on with BC Housing. Nest will be completed in spring 2024.

What are the biggest risks to the market right now?

The government is absolutely the biggest risk to the real estate market right now. The uncertainty they bring to the process, the purchasers, the renters, etc. is a risk. It’s a lot of talk but no one knows what the implications will be. There’s a lot of positive intentions; we all want the same thing when it comes to affordability, better lifestyle, etc.

Developers are seen as being self-interested but we live in the city too. We want to create and enjoy that vibrancy. As developers, we bring that experience to the process and we take on the risk.

The provincial government needs to focus on rentals. I’m optimistic about Eby but I’m also very concerned. I look forward to further announcements but rental needs to be a focus. We have to keep rental rates tied to incomes.

What will prices do in 1,3 and 5 years? What are your market predictions?

I think we’re going to see double-digit increases in the rental rate this year. In 2024, I think it will drop to a 3-4% increase and we’ll see that for a year or two after that. The big thing to watch is the allowable annual rental increase. But either way we’ll see strong rental rate growth due to immigration trends.

On the resale and presale side, we’ve seen a 10-15% decrease in the last eight months. I think that will rebound by summer 2024. We will see confidence come back into the marketplace as interest rates stay flat.

I wouldn’t be surprised if the interest rate we have today is the same in December 2023. At that point, we may start to see interest rates come down – but not by much and not too quickly.

Once people think the interest rate is going to start coming down, they’ll get off the sidelines and be back in the market with confidence. I think we’ll be back to early 2022 pricing by the summer of 2024.

On the hotel front, we don’t have enough hotel rooms in Vancouver or Victoria. The tourism industry is very vocal about this. Marcon has recently proposed a hotel in downtown Vancouver and that should be expedited. We need more hotel rooms to keep tourism going and keep jobs. It shouldn’t be $800 per night to stay in Vancouver.

The 5 Wire: Getting to Know President & CEO of Chard Development, Byron Chard

Share a book recommendation with us

I’ve been focusing more on management books. A book we read as a management team recently was The Five Dysfunctions of a Team by Patrick Lencioni. As a younger leader, it helps me learn how to build trust, healthy conflict and culture as we work towards the same goal.

What new belief, behaviour or habit has most improved your life recently?

I’ve been drinking more sparkling water which has helped me drink less alcohol. I went to lunch with the VP of Food Services at Hyatt recently and he told me mocktails are the biggest trend at their hotels in North America.

That might be a factor of the drinking we all did during covid and the pinch of inflation. Alcohol is a choice some might eliminate.

What have you been binge watching lately?

I prefer to watch sports. But I did binge watch You on Netflix. It’s a spin on Dexter.

Favourite band?

I’ve always liked The Killers but I’ll go with John Mayer. I’m going to his concert on Monday.

What is something you’ve recently purchased for under $1500 that has had a positive impact on your life?

I’ve started to go to Barry’s workout classes recently. It’s not cheap! But I do enjoy it and it’s a good change. I bought a package at Christmas when they had a sale. It’s very motivating!

• Chard Development