Long Term Investing in Vancouver Real Estate with Wesgroup

Listen On: Apple Podcasts | Spotify | Google Podcasts

As players in the Vancouver real estate market for over 60 years, Wesgroup knows a thing or two about long term real estate investments. We sit down with Wesgroup VP of Development, Dean Johnson, to talk about Wesgroup’s 50 year outlook on projects, their unique approach to master-planned communities, and where to invest in and around Vancouver for the long term.

Who is Dean Johnson?

I’m Vice President of Development at Wesgroup and I oversee our development activities. We have a lot of projects underway, including master-planned communities and individual projects. I oversee the team, make sure collaboration takes place and make sure we stay on schedule.

I grew up in and around construction. As I was completing my business degree at university, I spent my summers doing construction. I saw a lot of different components of the on-site piece. I realized that I could combine my business degree and my construction skills on the development side of real estate.

After university, I got an entry-level job at Concert Properties. I spent about eight years there working on different projects in Victoria and the Lower Mainland. Following that, I found my way over to Wesgroup and have been working on a lot of stuff since then.

Where is Wesgroup working right now?

Wesgroup has been around for over 60 years. Those principal investment decisions have brought a lot of land into our portfolio.

Some of the future projects we’re excited about include a master-planned community in Port Moody called Inlet District Port Moody, a master-planned in downtown Surrey, and a partnership on North Road. We’re looking at 10,000 units and 10 million square feet just on those few projects. We’re in the process of scaling the team to support those projects right now.

How is the real estate market right now?

We look at a 50 year horizon for some of these projects. Obviously there are ups and downs along the way; you need to be strategic and take advantage when times are good and protective when times are bad.

Right now, it depends what product type you’re looking for. We’re still seeing strong demand with some of the projects we’re launching. But it’s hard to paint with a broad brush. Everything has a different buyer type.

For the cost-competitive product in great locations with great unit plans, there is a deep market. There always will be. That’s the beauty of living in Vancouver.

Does this moment in the market remind you of any other?

Not that I can really think of. It’s been a long time since Vancouver has seen this much uncertainty, especially with interest rates. Interest rates impact getting projects out of the ground but also buying decisions, so there’s a compounding effect.

We’re working through those challenges but are still excited about the projects we’re bringing to the market.

What’s happening in the commercial real estate market right now?

There’s some uncertainty around where the commercial market is. With our master-planned communities, we see the commercial and the residential working together hand in hand. You have to have well-curated retail that fits with the vision of the master-planned community. With that perspective, there is still a good market for retail and industrial.

Are we seeing lease rates top off? I think we are. But we also have land scarcity, so how does that play into pricing?

What makes Wesgroup’s approach to master-planned communities different?

A lot of developers see the long term benefit of master-planned communities, but you have to understand the risks. Having the experience to set yourself up for success is what Wesgroup brings to the table.

We have a lot of experience with master-planned projects and we understand the risks. We’ve built a leadership team and skills that can execute on that. We also have the financial backing that lets us walk the walk, not just talk the talk.

We look at developing master-planned communities as a symbiotic relationship between the city, the community and Wesgroup. We focus on building and fostering those relationships all the way through.

Does Wesgroup only build master-planned communities or would you take on an individual building?

We’re investors first and foremost. If an opportunity presents itself, we can be adaptable and make it happen. So we wouldn’t turn down an individual building. But we have set up our business to efficiently execute on the master-plans. It’s what we’re comfortable with.

Are we set up for master-planned communities? Absolutely. But is it the only thing we do? Absolutely not.

How do you make a decision with a 50 year horizon?

It’s big decisions but it’s baby steps. We have large visions but we try to mitigate risk along the way. It’s daunting if you look at the whole thing but we have specialized teams who are well-versed at working on their components.

We talk about the political risk, financial risk, cash flow, interest rates, etc. All of those things factor into our decision making.

But there’s also a massive gut check at the end of the day. Do you believe in this real estate for the long term? Is it in a good location? Is it a space people want to live in? Is it close to transit? Is it better than what our peers are doing?

Is the changing political landscape the biggest risk to developers?

It can be. Given how long it takes for projects to get off the ground, you’re looking at 4-5 years of planning work before you’re in the ground. Will political attitudes change at the wrong time? It’s possible. So it’s a big factor in the decision making.

We saw a big shift to remote work during the pandemic, but now more people are back in the office. How has Wesgroup shifted from pre-pandemic times to now?

From a fundamental decision making standpoint, I think we’ve come full circle. We went through a hiccup and obviously some people are still working remotely. For the most part, we’re back to the office. But in terms of the product we’re designing, we haven’t seen a fundamental shift in building design.

Building design is impacted by society’s changing needs. For example, the powder room came about during the Spanish Flu because people didn’t want their guests coming into the main bathroom if they were sick. So that influenced design and changed the norm.

There was some discussion about including work from home elements in our designs but the push towards smaller, more efficient unit mix has trumped that due to where pricing has gone. So from a design and pricing perspective, nothing has really changed. People have to live in smaller spaces because of affordability.

How do higher interest rates factor into your project launches and pricing?

Given thesupply constraints we have in Vancouverdue to construction costs, policy decisions, interest rates, etc., that supply constraint is going to be unchanged for a long time. There is a shortage of housing. We foresee interest rates normalizing in the next few years and coming down to a reasonable level, but probably not the 2% rates we were used to.

We are building for investors and end-users. We want people to live in our master-planned communities, use the space, access the amenities, etc. So the interest rates haven’t changed our investment decisions or style, but it’s a consideration. For the long term, we’re still designing master-planned communities for the end-user.

Let’s talk about one of your projects, River District.

River District is a 130 acre master-planned community in Southeast Vancouver right on the water with 30 acres of parks and an up and coming community space.

While many of our other projects are based on transit or right on top of skytrain stations, we looked at River District as a complete community. This is a place where people don’t have to leave – they have parks, amenities, retail, etc. There’s a density of residents to create that successful dynamic.

There is a bus to Waterfront Station and River District is close to Metrotown, so it’s quite central even if it’s not right on rapid transit. That’s almost what makes it special. It’s not as crazy as some of the master-planned communities on transit and that works for certain people with certain needs. People like that there’s open space, a slower paced community, quiet and some breathing room.

River District has half a million square feet of commercial real estate, with most of that being retail. Most of it is located on our high street, which we call our commercial spine, and is the heart of our community. We have tenants such as Save On Foods, Shoppers Drug Mart, Bosley’s, lots of restaurants, banks, doctors, dentists, a liquor store and a recently opened pub. It’s awesome to see the vision come to life because when I started at Wesgroup, none of those buildings existed!

We’re about 40% of the way through the master-plan, so there’s still a lot to go. A lot of the amenities are still to come. At the end of the day, this will be a home for 15,000 people. That makes it a top 20 municipality in BC. So we’ll need all of the services and infrastructure to support that.

How involved is Peter Wesik, the founder of Wesgroup, in your current projects?

Peter is in the office almost every day. He’s an amazing person to work for and puts a lot of trust in his team. He looks at projects with a different lens and sees the opportunities. I think Peter had a vision of where the city was going when he purchased the River District land back in the 90’s.

Where do you see opportunities in BC?

I grew up in Tsawwassen and did the commuting thing into Vancouver for a while. I think there will be opportunities coming in Port Moody. It’s an amazing community and everyone knows it. I think it will be at a premium compared to the surrounding areas.

I think there are opportunities in the Valley but there has been a lot of price growth. And River District will continue to be an amazing place to live. We have some very unique features coming in the near future; people will want to be there.

Where would you recommend someone invest right now?

Certain areas are still undervalued. We’ve been building a master-planned community in the Brewery District of New West for quite some time. If you look at how central New West is, the amount of park space and the transit access, it’s insane to me that places farther away, like Surrey, are more expensive. The area has definitely changed for the better in the last little while.

Another master plan set to launch in the fall of 2024 is Inlet District Port Moody where Wesgroup is set to build more than 5000 homes.

It’s hard to choose an area to invest in – and that’s the great thing about Vancouver! A lot of places are so close in price so it really comes down to your needs and what you value.

Does Vancouver swing back to being the premium or will it be outpaced by the suburbs?

Vancouver will be the premium no matter what, but by how much remains to be seen. During the pandemic, some municipalities put their money where their mouth is and built needed housing. That allowed some of these regions to take a forward step.

Vancouver has a problem of not understanding that dynamic. They’ve opened the door to these other areas to take the lead. Other municipalities are finding ways to do things faster and better. That will mean more amenities and desirable neighbourhoods outside of Vancouver.

Developers are investors. We’re community builders but we’re also investors. There’s been an evolution of developers needing to invest outside of Vancouver.

What happens with the market for the rest of 2023 and going into 2024 and beyond?

We’re pretty bullish on the Vancouver real estate market. With the right product, there’s still lots of demand. We’re launching a new project in Metrotown, the River District and on Cambie, so we’re definitely moving ahead.

There are some key fundamentals that give us confidence in this region – immigration, geography, etc. There is such a demand for housing in this region. It’s tough to forecast price growth because of interest rates and all the massive jumps we’ve seen, but absorption is almost guaranteed.

Let’s talk about Harlin at River District.

Harlin is a 29 storey tower at River District with over 330 units, plus retail. We’ve just launched and have about 100 units sold. We’ve designed the project in a very unique way as it’s the tallest tower at River District. All of the amenities and outdoor space are on the rooftop so everyone gets a view.

We have a ton of 2-3 bedrooms in the 800 squarefoot and larger range, as well as studios and one bedrooms, which are great for investors and first-time buyers. We like to appeal to a variety of purchasers. It’s very contemporary with access to a large amenity package.

The 5 Wire: Getting to Know Vice President of Development at Wesgroup, Dean Johnson

What is one book you recommend?

A book that is close to my heart is Band of Brothers by Stephen E. Ambrose, because I did a trip with my dad to Normandy this year. He’s a military guy and history buff, so it was a very special trip and special book for me.

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

Fitness for not only my physical health but my mental health. I try to get out in the morning as it’s helped me be calmer during the day, be a better dad, and be better at work.

What have you been binge watching lately?

I’ve been watching a lot of the Untold sports documentaries on Netflix. They’re pretty amazing!

Favourite band or musician?

I grew up listening to a lot of classic rock but I like a lot of stuff. The best concert I’ve ever been to was AC/DC. I went with friends and it was a ton of fun.

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

We got a fancy coffee maker when we moved into our place and it’s been a game changer for me. My coffee intake has skyrocketed!