Why Kelowna pays way over assessed value for land it buys
Whenever the City of Kelowna announces a big land purchase, reporters scurry to the BC Assessment website and write headlines screaming out how many times more than the assessed value was paid in taxpayers’ dollars.
A recent example is the December 2023 purchase of the Truswell waterfront property for a whopping $18 million, three times the assessed value.
Does anyone selling property really aim for the assessed value or rely more on a property appraisal?
READ MORE: iN VIDEO: Kelowna pays $18M for lakefront property, triple assessed value
“An appraisal and an assessment are two different terms and have two different meanings,” Johannes Saufferer, director of strategic investments who is essentially the city's head of its real estate department, told iNFOnews.ca.
“I don’t think too many people would willingly transact, necessarily, at assessed value. That is a proxy for value that is used for taxation purposes and it serves its function because BC Assessment’s role is to value every property throughout the province, every year, so they make some assumptions and use methodologies that are very different than if you spend a significant amount of money getting an appraisal and analyzing it for one specific property.”
An assessment will cover one page whereas an appraisal of a commercial property can run 70 to 80 pages, he said.
The city owns a wide range of lands, from roadways to parks to a landfill. The way the value of any particular piece of land is calculated varies widely.
“We get approached quite frequently for, let’s say, oversized roads,” Saufferer said.
“My team would circulate to all internal stakeholders, like utilities and transportation (and ask) 'do we have any concerns for it?' More often than not we can sell it but if we have to protect a water utility or a bike path or some city asset or some long-term city objective we need to protect for then we would pass that information on to the other party and say we need it. It’s not excess.”
If the land in question is part of a roadway the city will look at what nearby properties sold for and ask for the same price per square foot.
Larger pieces would need to go through the formal and costlier appraisal process.
Selling larger parcels of land generally comes with strings attached, especially when the city bought that land for “strategic” purposes.
The former Kelowna Secondary School site on the corner of Richter Street and Highway 97 is a case in point.
The school closed in 2002 but it took until 2015 before construction on what is now the Central Green site started.
At least three highrises were envisioned but given the high cost of concrete construction at the time, the site became a sea of four and six-storey apartment blocks instead.
READ MORE: Why Central Green never became the 'gateway' to Kelowna
Another strategic acquisition was the former McDonald’s restaurant and Husky gas station sites along Highway 97 and Water Street.
In 2022, the city announced a pending sale for those lands with a 40-storey “gateway” tower for downtown Kelowna.
READ MORE: New 40-storey highrise tower proposal part of 'gateway' to downtown Kelowna +
That deal fell through and the property is not yet back on the market. It's now in the hands of city council to create a new vision for what they want to see there before looking for a buyer.
“When we do sell properties we put restrictive covenants on them,” Saufferer said. “We say: 'here’s our vision for this site. We want a building of X height or a certain type of use.' We always have for these larger sites a certain timeline so if you don’t develop within a certain period of time the city has the ability to reacquire them.
“We kind of stamp our vision, as it were, on the property when we go through the disposition process and that does come at a cost. If we were just to buy a property and wait three years and sell it without any strings attached that would maximize our financial return.”
Instead, the city may look for things like market rental projects or having some of it below market rentals or achieving certain environmental goals. Or for it to be a “gateway” project.
“We don’t want to put so many restrictions on a property that we’re selling it at a loss,” Saufferer said. “Because it’s been historically a pretty buoyant market, we’ve been able to generate financial return and create other community benefits that are of value.”
The latest focus of “community benefits” is the city’s new middle income rental housing policy where the city plans to lease land to developers for $1 if the complexes include at least 20% of the units renting for at least 20% less than market rental rates.
“We are hoping for a model that has some financial regenerative value,” Saufferer said. “A number of units in the project will be market or close to market so they should be viable, especially since we’re lending them the land and there may be favourable financing. So, there is some potential for some financial return that the city achieves and the other partners as well.”
That payback to the city isn’t expected to be huge but over time as more projects are developed it will help finance future land purchases to expand the program.
Earlier this week, city council considered two proposals, but since negotiations are still ongoing where those sites are is still confidential. A third property is being discussed as part of the new provincial BC Builds program with similar middle income rental targets.
Saufferer expects details about those projects to become public in the next month or so.
Another three or four such projects are expected in the next five to eight years.
This is one thing the city can do to help more affordable housing get built.
“Deeply affordable” housing, on the other hand, generally requires ongoing financial support from BC Housing and is usually done in conjunction with non-profit societies. That means the city doesn't take the lead role in getting that housing built.
The city’s role can again be supplying land at little or no cost.
Is there enough land in the city’s inventory to do both middle income affordable housing and deeply affordable housing?
Saufferer believes so especially with funding from things like the federal Housing Accelerator Fund that has already been used to buy more land.
Right now the city has about 17 parcels of land totalling almost 10 acres that it has some flexibility on how it is used, as opposed to it being required for things like parks or public works yards.
— This article was updated at 11:30 a.m. on March 4, 2024, to correct that appraisals, not assessments, are needed on larger pieces of city-owned land.
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