Lunch With: Former Melcor CEO Ralph Young talks real estate development with Chris Curtola
Location is important, but so is timing and the right project
by Michael Ganley
Young Exec: Chris Curtola, co-owner, New Monaco Enterprise Corp
History: Curtola and a few other Edmontonians own and want to develop 125 acres of orchard south of Kelowna
Lunch: Fresh Atlantic salmon with grilled artichokes, cherry tomatoes and black olives, coffee
Senior Exec: Ralph Young, former CEO of Melcor Developments
History: Young worked for Melcor for 42 years, most recently as CEO, until retiring a year ago. He has experience at every level of residential, commercial and vacation-home development
Restaurant of Choice: Sabor Divino
Lunch: Small Mista salad (greens, tomato, cucumber, onion, balsamic vinaigrette) with chicken, Diet Coke
Chris Curtola is into land development. Or, rather, he’s into a land development, in Peachland, B.C., just south of Kelowna. He and a group of co-investors bought 125 acres overlooking Lake Okanagan in 2006, rechristened it New Monaco, and are seeking approvals to build 2,500 residential units alongside 250,000 square feet of commercial development. “We identified Kelowna as an important spot,” Curtola says. “We knew that people from Alberta were flocking out there and there are a lot of European retirees. And we really got lucky with this piece of land: It’s right on the water, with a 180 degree panoramic view of Lake Okanagan.”
Right now it’s also still an orchard. New Monaco has most of its approvals, but no shovels have yet hit the ground. Curtola and his partners envision a high-density community, with main roads lined with three- and four-story residential units on top of commercial and not a lot of single-family homes. The plan is to start with some of the commercial and office development. “We don’t think the residential market is where it needs to be,” Curtola says. “And we’re in a good position. We don’t have a lot of debt and we’re not in a rush.”
For a lunch partner, Curtola asks for Ralph Young, who for 42 years worked for Melcor Developments, most recently as the company’s CEO. He retired a year ago, but continues to serve on the company’s board (and as chancellor of the University of Alberta), and knows the Kelowna market pretty well. Melcor developed a golf course/residential community called Black Mountain on the eastern edge of the city. “Kelowna is a very challenging market,” he says. “It’s a small community – much smaller than most people think.” Many local residents work in service jobs, he says, meaning there’s not a lot of internal growth in the economy. The University of British Columbia’s Okanagan campus is the largest local employer offering high-paying jobs.
So Kelowna’s real estate market relies heavily on people from B.C.’s Lower Mainland or from Alberta, particularly for high-end units. “There certainly is wealth there, but a lot of it is from outside,” Young says. “When you start getting into the higher end projects, there’s not much depth to that market, so the demand for housing tends to be pretty modest.” Young also makes the point that when Albertans really want to get away, in the winter, the climate in Kelowna is not at its finest. “It doesn’t compete very well with Palm Springs or Phoenix,” he says. “People can be keen to buy but when it comes to putting money down, it’s another story.”
“You’re right,” Curtola says. “The market is not like your typical big city. You can’t compare it to Edmonton or Calgary or Vancouver. You have to be careful, especially on the residential side.” Curtola says B.C. has some good tax incentives for companies wanting to be in the Okanagan, which is why they want to start with some of the commercial work. “But I also think that, long-term, people want to be there,” he says. “It’s definitely the right place to be, maybe not right now, but we really believe in it in the long term.”
The New Monaco lot is a long and slender piece wedged between Highway 97C, which heads to Vancouver, and Highway 97, which runs along the western side of Lake Okanagan. It’s steeply sloped toward the water.
“That’s a lot of density,” Young says, “2,500 units in 125 acres.”
“It is, yes,” Curtola says. “A lot of it is focused on multi-family. We’re looking for an almost Whistler-esque, outdoor, walkable retail space with condos above.”
“You have to be careful with multi-family,” Young says. “We have a fair bit of density over at Black Mountain, but there’s no demand for density out there. To get density, you have to be in the downtown core – people want to be close to amenities.”
New Monaco has faced some turmoil since the partners bought the land, beginning with the financial crisis in 2008. The economic downturn that followed slowed things as buyers weren’t showing up, and ever since a lot of discretionary money has chased better deals in the U.S. “A lot of people buying the summer homes went to Phoenix or wherever because it was so cheap,” Curtola says.
“The prices are still more attractive there,” Young says, “but it is changing.” He says prices in the U.S. are gradually climbing, and the recent drop in the value of the Canadian dollar when compared with its American counterpart is also seeing more Albertans look for vacation properties closer to home.
So far, New Monaco is a money pit as the partners work through approvals and designs. And they haven’t begun to market any lots, so it’s all being done with no revenue. “That’s one of the fascinating things about our business,” Young says. “You get a lot of money tied up in approvals and design and building and it takes a lot of time to get it back. You need patience. Sometimes the fast return is there, but it’s more the exception than the rule.”
Curtola’s partners do include some experienced businesspeople from Edmonton, including Paul Tsang, who has an extensive history in development, Wayne Wallace of Dawson Wallace Construction, Tom Fath of The Fath Group of Companies and Robert Gilles, a co-owner and vice-president of All Weather Windows. “I’ve always said you have to surround yourself with good people,” Curtola says. “So that’s where I’ve tried to put myself.”
So where does Young see the greatest risk for New Monaco?
“Can I answer that for him?” Curtola interjects. “It’s very ambitious and it’s a little crazy.”
“The biggest risk by far is the market risk,” Young says. “Whether the market will accept the kind of project you’re proposing.”
“Which is why we have to go slow.”
“It sounds like you have a great location, but as I’ve said before, if you don’t have timing or if you don’t have the right project …”
Curtola agrees. “We see so many things where it’s the wrong time or place,” he says. “But the location is still so important. We have that great location and are positioned well enough so we don’t have to worry. We will take our time to do it at the right time and market different pieces of it when we get to those stages where we feel those markets are coming back.”
Young supports that approach, saying it is important for New Monaco to maintain as much flexibility as possible when it comes to the nature and timing of the development. “I’ve seen a lot of projects suffer when the economy turned on you when you didn’t expect it,” he says. “You need the ability to…”
“Turn on a dime, almost,” Curtola interrupts.
“Well, it’s difficult to turn on a dime in real estate because there are too many long-term commitments,” Young says, “but sometimes you have to go back and live with a pretty basic real estate project until things improve. You have to be careful about being ahead of your time, which can be worse than being behind the times. Everybody wants to be on the leading edge, but there are not many people that will get a payoff from being on the leading edge.”