Design '07 (Housing): Prince of the city

Robert Fung renovates the real estate business in one of Vancouver's most troubled areas.

Light streams into a secluded mews in Vancouver’s Gastown, transforming bullet-blue shadows into golden sunshine. Local restaurateur Scott Hawthorn stands clutching a can of cleaning spray outside Salt Tasting Room — a starkly minimalist charcuterie in Blood Alley. “It’s for the graffiti someone put on my wall,” he says. “There’s always new graffiti around here.”

All over Vancouver, property owners and city officials are cleaning up. They’re getting ready for 2010, when Vancouver hosts the Winter Olympics. The sprucing-up effort has even reached the fringes of the Downtown Eastside — among the poorest postal codes in Canada.

There’s just one problem. Every night, an estimated 1,700 people sleep rough on the streets of Greater Vancouver. With a vacancy rate of 0.7%, the city is struggling to accommodate its own economic success. Public expenditure on Olympics-affiliated capital infrastructure projects alone is pegged at $620 million; the provincial government, by contrast, recently announced $41 million to public housing. Homelessness advocates accuse officials and developers of trying to airbrush the city clean of its “undesirable elements” to make way for shiny, new Olympic-ready facades — and the tenants to match.

Enter Robert Fung and the Salient Group.

Fung is a developer. He makes money by creating stunning new designer condos out of some of Vancouver’s oldest building stock, in some of its most depressed neighbourhoods. And he’s using a basket of incentives he helped devise in which a chunk of public money from the city offsets some of his costs.

For those on the political left in Vancouver, that’s enough to write Fung off as just another capitalist looking to raise rents in a city already short on social housing — and using public money to do so, no less. For those on the right, Fung’s city-financing initiative means he’s using taxpayer funds to help develop projects that might or might not take off, considering the chancy economic environment in which he works.

But suspend judgment for a minute. On April 14, all 29 units of Fung’s Paris Block — a development on West Hastings Street featuring lofts priced at $300,000 and up — sold out in under three hours. Similarly priced units in the Salient Group’s Garage building nearby sold out in an hour and a half. And with a 5% vacancy rate for office space downtown, Fung has had no trouble charging top dollar for the estimated 80,000 square feet his projects will add to the market in the next year.

So Fung and his partners are making money — and raising property values — on some of Canada’s meanest streets. “He’s been a driving force in creating a better environment. He really believes in the neighbourhood,” says commercial real estate broker Robert Tham. “Properties I used to rent for $20 a square foot are now going for $30 — even $35.”

For those looking to develop the neighbourhood, that’s great news. For those scraping out a living close by, it’s not so great. Yet to hear Fung tell it, he is after something more than just making a buck. He’s trying to revive the most impoverished neighbourhood in Canada — through luxury real estate.

The Salient Group is housed at the far end of another Gastown hidey-hole, Gaoler’s Mews. The space is in chaos, with models and plans everywhere; it is a temporary holding spot while the main building next door undergoes renovation. A tall man with a hint of grey in his hair, Fung, 41, adroitly weaves his way to his office at the back. Motioning to a chair, he clears his desk, sits down and leans forward. “It was late 2000 when I started the Salient Group,” he says. “The plan was to target areas which had a standing inventory of older buildings that needed to be rehabilitated — areas no one else was tackling.”

Fung was born and raised in Toronto. (His father, Robert Fung Sr., is a well-known financier.) Fung Jr. studied anthropology at the University of Western Ontario, graduating in 1989. “Toronto was crashing,” he says, “so I came to Vancouver.” He took a job with another developer, Concord Pacific, where he worked for eight years, followed by three years at a smaller firm, before starting Salient. It has one project completed — the Taylor Building, a loft conversion on Water Street. Seven more are under development. Why attempt such an ambitious program in such a challenging neighbourhood? “I’ve always had an affinity with heritage, with the way people live,” says Fung, “and there was very little energy around here.” He says he sensed a unique real estate opportunity that, he reasoned, could also help bring the area back to life.

To that end, Fung worked with the city in 2001 on a package of incentives that could encourage both heritage restoration and economic development. The goal was to get the city to partially offset the risk of investing heavily in an economically depressed area. Developers working with heritage buildings in Vancouver can now obtain from the city what’s known as density credits, which can be sold to other developers to enable them to construct higher-density projects elsewhere. The city also kicks in a property tax break for between three and 10 years per project. And for every dollar Fung puts up for a project, the city matches it, up to a total of $50,000. Fung says his heritage redevelopments in downtown Vancouver represent a total investment of $250 million, toward which the city has contributed density credits of about $27 million. In total, the city has invested $100 million in restoration projects in the area.

Developers didn’t work in Gastown for decades. But in the late 1990s, the city invited more companies to locate there, to try to improve the building inventory. “Some were in really bad shape,” Fung says. “And probably one of our biggest social crises was the Downtown Eastside. There was considerable political will to make something happen.”

That “something” turned into the heritage incentive program. Eight years on, the program has surpassed expectations. Consider the redevelopment of the Woodward’s building on West Hastings. Woodward’s represents $250 million invested in 1.1 million square feet of mixed office, retail, market and social housing. Like Fung’s Paris Block and Garage projects, it also sold out in a matter of hours. “My ultimate goal is to keep the heritage character on the street,” says Fung, “while offering very high-quality spaces to high-quality tenants — people who can really afford to support the neighbourhood.”

Perhaps. Yet those high-quality tenants — and their unerring ability to drive up rents — also create headaches for the neighbourhood’s homelessness advocates.

Vancouver’s ECONOMIC boom means the average cost of a single-family home there is $837,500. With the city’s 0.7% vacancy rate, affordable housing isn’t keeping pace with demand. Developers say that given the cost of labour and construction materials, they can’t afford to offer really affordable housing and make a profit. That puts the issue squarely back on government.

In theory, says planner Ben Johnson, an expert in housing stock in the Downtown Eastside, the city’s goal is for each single-occupancy unit (in rooming houses, motels and the like) to be replaced by a unit of social housing. In the 1980s, when the federal government funded social housing development, low-income public housing was built at a rate of about 1,000 units a year in Vancouver. But in 1993, Ottawa offloaded social housing responsibility onto the provinces. Construction has since dwindled to about 300 units a year, says Jill Davidson, senior housing planner with the City of Vancouver and author of its 2005 homelessness action plan.

All of which helps to explain why all those people are sleeping rough on the streets of Vancouver. According to a recent report titled Shelter: Homelessness in a Growth Economy, Canada’s 21st Century Paradox, 66% of the homeless surveyed in Greater Vancouver cited insufficient income to pay for housing as the reason they were on the streets. One study estimates that if nothing is done, the homeless population is likely to triple by the time the Olympics rolls around.

So the problem is real, and it’s not going away. Some cite new social housing as the solution. A typical new unit costs $200,000 and up. But there’s also a cost to servicing the homeless — $40,000 per individual per year. So on Oct. 12, the provincial government announced $41 million toward new housing initiatives to help address the problem.

Robert Fung’s father, Robert Fung Sr., is as engaged in urban issues as his son: he chaired the Toronto Waterfront Revitalization Corp. for years. He says his son hardly ever asks him for advice — so he was surprised to see so many ideas he was working with in Toronto playing out in Vancouver. While careful not to comment directly on Vancouver’s situation, Fung Sr. believes that throwing money at social housing alone doesn’t solve housing problems. “Look at Toronto’s Regent Park,” he says. “That was a social housing development, and it has not worked.”

What’s needed, Fung Sr. argues, is variety. Rather than sidelining those on lower incomes to a publicly funded ghetto in which the only employer is government, social housing should be embedded in a larger community. If need be, he says, this should be encouraged through private-public initiatives, such as the heritage incentives his son helped develop.

Fung Jr. believes the developer’s role in tackling homelessness is simple: build more housing. “Market pressure means a developer doesn’t have a lot of opportunity to provide capital-A affordable housing,” he says. “What we can provide is less expensive housing. Also, many condo units end up as rental suites. That adds to the rental pool available.” The goal is to provide a mix at a variety of price points — “and leave developing the most affordable housing to the public sector.”

Both father’s and son’s reasoning makes sense. But neither logic quite explains why, in the case of the Salient Group’s initiatives, using so much public money to offset the cost of luxury condo development — during a housing crisis, no less — makes for sound public policy.

The senior planner who negotiated the projects is Gerry McGeough. According to him, Fung’s commitment to heritage restoration justifies the use of public incentives. Salient’s goal, McGeough says, is to try to maximize the amount of new use on the site, while respecting the streetscape.

When asked about the rationale for using public funds in this way, Fung insists it is not entirely fair to characterize such funds as public spending, given that the largest incentive is a density credit that encourages developers elsewhere in the city to build higher buildings — thus increasing the city’s tax base. The catalyst for using public funds at all, he says, was the social crisis going on in the Downtown Eastside and Gastown in 2000, around the time he started Salient Group. All three layers of government got together with the city, local property owners and business owners to discuss what to do; proposals, Fung says, included throwing millions in public funds at social housing and other programs. The incentives eventually devised with the city were a middle way, enticing private investment to kick-start economic activity in the area. It also meant the city contribution could be kept to a minimum.

No question there’s a steep startup cost to undertaking development through restoration. Fung spent $2.5 million to acquire the Flack Block, a turn-of-the-century building on the edge of Gastown. Another $18 million went to renovating it into 50,000 square feet of office space. “Hundred-year-old buildings mean hundred-year-old wiring, pipes — you name it,” Fung says wryly. “All of that has to be modernized.”

On the other hand, real estate broker Tham says in today’s hot market, landlords can charge more for office space with “character.” At $35 a square foot, the Flack Block’s 50,000 square feet represents $1.75 million in potential rental income a month. Provided the market for heritage office space remains strong, Fung and his partners should be able to recoup their investment on this project in just over 12 months — without factoring in the city’s incentive package. Why is the market so strong? “This area is within walking distance of downtown,” says Tham. “And Fung is known for a particular brand of cool. His projects are funky, trendy, really neat-looking. He spends a lot on design — that’s what gives him his edge.”

Fung’s design process could be called, for want of a better phrase, organic gentrification. He asks his architects to salvage the best elements of the older heritage buildings — the steel and masonry put there a hundred years ago — to ensure the street facade, while polished, is not noticeably different. Gorgeous lofts designed by top local architects — Mark Ostry, Gair Williamson — lie within. However, judging from the blueprints and the Taylor Building, the only structure to be completed thus far, there are no brash facades on the exterior to scream disapproval at the gritty lifestyles outside.

Such sensitivity is characteristic of Fung’s relationship withthe troubled neighbourhood. Since 2000, he has sat on the board of the Vancouver chapter of Covenant House, an international organization for street youth. And earlier this year he participated in a round table on homelessness, called by the Vancouver Olympic committee. In March, the group made 25 recommendations for eliminating homelessness to all three levels of government. Top of the list? That they commit to building 3,200 social housing units in Vancouver over the next four years, largely to house the mentally impaired.

More important than lobbying government, to Fung, is the belief he shares with his father: done right, private-sector development will kick-start organic economic growth in depressed areas. And he’s not talking about barista jobs at Starbucks. For example, the Salient Group has already leased the top floor of the Flack Block to Renewal Partners, a Vancouver-based early-stage seed capital organization that specializes in funding startups with a social or environmental bent.

All of which sounds promising. But so far, residents haven’t exactly embraced the revitalization efforts. Ben Johnson, the city official most well-versed in the problems of the Downtown Eastside, says there’s fear of rising rents. In 2002, the Woodward’s block was occupied for several days by anti-poverty advocates demanding no new development without social housing. (In fairness, that building will, in fact, add 200 units of social housing when it opens in 2009.) Development in the area, moreover, hasn’t been uniformly successful. “Another developer I know bet big on this hotel,” Fung says, gesturing at a darkened facade just off Water Street. “They didn’t make it work, so someone else has taken over.”

For Fung, though, selling and leasing space on the fringes of the Downtown Eastside has not been a problem. And he appears to have achieved part of his goal for economic revitalization. “There’s now a lot of demand for office space, and for condos, and that’s largely Robert Fung’s doing,” says Tham. City planner McGeough is also bullish. “There’s a lot of care taken as to how Fung’s development helps to rejuvenate the surrounding areas,” he says. McGeough is not, however, willing to put a dollar figure to the economic spillover effect, pointing out that of Fung’s projects, only the Taylor Building is occupied. “The body of people aren’t there yet,” he says.

Walking back from Water Street to West Hastings, it’s hard to ignore the contrast between Gastown’s beautiful furniture stores and the boarded-up street fronts just a few blocks away. Picturing these mean streets as a hive of legal economic activity, its hard-edged citizens transformed into hip entrepreneurs and office workers, takes considerable imagination.

But if there’s one thing Fung doesn’t lack, it’s imagination. He’s helped pioneer a mini-real-estate boom on the fringes of a troubled community. And there’s no doubting his business savvy — or his commitment to the neighbourhood. Could it be that, through Fung’s and other investors’ good auspices, one of Canada’s roughest ’hoods might catch a break?