Canada is facing a housing crisis, and it has forced stakeholders from all sides to examine existing properties in hopes of using them to facilitate the creation of more housing. This has included converting existing office buildings, large-scale mall redevelopments, and building housing on or near golf courses.
In that vein, increasing attention is being placed on car dealerships, which are often low-rise buildings on large pieces of land with seas of surface parking. That makes this an interesting time to be in the car dealership business, and it is particularly so for British Columbia's OpenRoad Auto Group, which also have a foot in the real estate development business via OpenForm Properties, which it launched in 2018.
OpenRoad is owned and led by Christian Chia, who grew the company from three dealerships to 35 in British Columbia, Ontario, and Washington State. OpenForm is now led by Jason Turcotte, a development industry veteran who joined the company as President last summer after stints with Cressey Development Group and Darwin Properties.
In separate interviews with STOREYS, Chia discussed the early days of OpenRoad, the formation of OpenForm, and the intersection of the automotive and real estate industry, while Turcotte discussed his decision to join OpenForm, the company's various ongoing projects, and the development landscape.
Christian Chia
I understand that early on in your career, you spent some time in Japan with Toyota. Can you talk about how that happened and how you went from there to OpenRoad?
That was really my first meaningful job. I worked for Toyota for about two years in their overseas head office in Tokyo. It was really by chance. I had been working for the Bank of Montreal in Toronto. Bank of Montreal was my first job coming out of UBC. I studied finance and I didn't really feel that that was my calling. I thought it was, but then once I worked for a bank, I thought, no, I'm not really cut out for this. And so I decided to leave the bank and my uncle actually invited me to travel on business with him to visit Toyota and that's how that job came about.
I didn't know it at the time, but I think that experience of Toyota really cemented my business philosophy. I mean Toyota has always been about customer centricity, innovation, a spirit of partnership, and they really have a very selfless attitude towards business, so I think being a young, impressionable businessperson, I think that was a great experience for me. Still today, I continue to live by that Toyota ethos. I think a lot of Japanese companies tried to do that, but Toyota was really the pioneer. And I think, to a large extent, they still symbolize that approach and it inspired many Japanese companies to follow. We also deal with other Japanese companies in our business and still, I believe, Toyota is really the gold standard when it comes to those principles.
How did your experience with Toyota result in you coming back to Vancouver and starting OpenRoad?
It has a lot to do with our approach to business. When we started the business in '98, it was a small company [known as Multiland Investment], three dealerships, and we never set out to become the biggest. We were not called OpenRoad at the time. When I first had a town hall meeting with a lot of our staff, and obviously our numbers were much smaller, I said, "One of my core tenets of this business and my vision is to change the perception of our industry and to win fans and proponents, one guest, one sale, one experience at a time."
We even have kind of a corny saying in our company that we've tried to live by for more than 20 years, and that is to treat our guests, our company, our prospects, our customers as if they're guests in our own home. And I think with that approach, with that attitude, and with that mindset, we have now become the biggest auto retailer in British Columbia by quite a big margin. But we never set out to be the biggest. I think for us, size was an outcome of doing little things right as often as possible.
Bringing it back to real estate, I understand you own the land under most of your dealerships? Was that a strategic decision? Is that common in your industry?
I think both. I think it's very common in our industry — the control of the site — and we subscribe to that. But it was a strategic decision for us to, wherever possible, own the dirt on which we were operating. More than 90% of our dealerships, we own the property. In most cases, we also built the buildings. We've actually done some master plan stuff. In Langley, we built our own auto mall [completed in 2010]. That was a 16-acre master plan development. It's, of course, all automotive, but in fact it didn't start out that way. Originally we were going to do mixed-use with commercial, retail, and automotive, but we found that the demand for auto was too high so we repurposed the commercial space to automotive use.
How big is the company's portfolio now?
We have about 35 dealerships now, mostly in BC, although we are in Washington State and Ontario as well. We have 35 dealerships, representing 21 automotive brands, and about 2,400 associates in the group at the moment.
From there, what was the thinking behind forming OpenForm Properties?
I think it was really two or three strategies that drove us to establish OpenForm about six years ago. I think number one is that we believe in diversification and so we do believe in building a group that has resilience, that has multiple dimensions running in verticals. Then, because we own the underlying properties, we also felt an opportunity in certain circumstances to make better use of the property.
For example, one project that we have right now is the redevelopment of our Middlegate Honda property in Edmond Town Centre in Burnaby. That was our Honda dealership. We've now relocated that to Marine Way and that is designated for a two-tower high-rise site and so we felt that we could really add value and we saw an opportunity in the market where we could slot in.
I've seen a lot of that in other cities and provinces too, where developers try to make better use of car dealerships. What do you make of this trend and do you think there is still a space for traditional car dealerships?
I think the business and industry tail is very long. I think what I'll call the traditional dealership will still stay for quite a long time, but where you will see pressure on large dealerships is in the urban areas. In the urban areas, we've seen quite a rapid transition from traditional dealerships to very much "urban dealerships." A great example is here in Vancouver. if you look along the Burrard corridor, those are very attractive but very compact urban dealerships and I think they fit into the urban landscape really, really well. You don't see any more of the big yards of cars parked, you see beautiful urban facades. Often they are premium brands, but Toyota recently developed on Burrard as well, at the foot of a very large office and residential tower, so I think the two uses can intermingle, but they will take on a different shape and look. And then in the suburbs and rural areas, I think the car dealership is there to stay for quite some time.
How many projects do you have in the pipeline now at OpenForm?
We have seven or eight projects in flight. The vast majority of those are multi-family residential projects. We just completed one project in the Little Mountain area at 16 and Main that was a townhouse project. We just launched an office project in Mount Pleasant on W 8th, and then we just broke ground on a rental tower at Renfrew and Broadway. Then we've got another three or four projects at various stages of entitlement.
Are all the project sites formerly car dealerships?
There are other ones as well. For example, we acquired our Renfrew project as a joint venture. Our office project in Mount Pleasant, we acquired that site as well. I would say, moving forward, you'll see a mix, but I would say probably more often than not, they will be non-automotive sites, although we do have a number of automotive sites that we will repurpose over the next decade or so.
Will OpenForm have a focus? For example, are you leaning towards rental or condos?
Our focus will be multi-family for sure. It will be concrete, but I would say whether it's a rental or condo really depends on the market dynamics. For example, we have two projects in Burnaby. Both of those were predominantly condo and we have started to pivot those towards rental just because we see a better opportunity and a stronger demand for rental in the current market, and we see that for the next few years before it perhaps pivots back to condominium.
One thing about Burnaby is that it was one of the first municipalities in Greater Vancouver that really embraced density and I think that's generally a positive thing for the city, but one of the implications is that the projects in Burnaby tend to be very large. Even our two projects, the genesis was a single tower and both projects have become multi-tower. That entails more risk, more pre-sales, more construction, more capital, and that's an interesting dynamic that developers in Burnaby have to contend with.
I think there's a lot of skills that transcend the two industries — automotive and real estate — but one thing that we have come to understand was the long gestation periods that are required in real estate with construction, financing, presales. As you know, it's not unusual for a real estate project to take four, five, six, or even seven years, and during that time things can change — technology, market sentiment, consumer taste, consumer preferences, and even government policy can change during the life of one of these big projects. And so, as a developer, we have to contend with some of those changes that occur.
The E15 project (left) and 288 W 8th project (right). / OpenForm Properties
Jason Turcotte
To start off with, why did you decide to leave Darwin and join OpenForm?
This was an amazing opportunity. OpenForm being still relatively young in its lifecycle, being an up and coming group, with the support and infrastructure and history and experience of the larger group of companies, OpenRoad, really made this a pretty unique opportunity. Normally coming into a smaller group like ours, you wouldn't have the good fortune of strong business and financial support from a sister company. So, for me, it was just such an amazing opportunity and wasn't one that I was going to pass up. I refer to the opportunity quite often, when people ask about it, as a unicorn.
Generally, what do you make of the trend of car dealerships being redeveloped due to "highest and best use?"
I would say that it's equally about land that's suited for highest and best use and also the changing landscape of auto retail itself. You have two converging influences of an industry that is switching from large acreages and hundreds of units of inventory and service bays on generally at-grade type development site, meaning surface lots and a single-storey building, towards a more retail-focused environment and detached service becoming more the norm. If you combine that with some of these sites being in the path of development, through community plans, there's kind of a logical conclusion there.
Zooming in on some specific projects, I understand you're revising the proposal for the Honda site in Burnaby?
Yeah, so we were several years into the rezoning process under the old framework with the City and elected to finalize it in December and actually see it through, knowing that there was a high degree of probability that we would in fact pursue the new framework. But we didn't want to forego the opportunity to develop under the old one, should the new one not work out. We have developed plans to pursue another rezoning, which would include two towers this time as opposed to just one. It'll be a 35-storey condo project and a 25-storey rental project. [They] will potentially be phaseable – independent of one another – but in all likelihood [will] get developed together, 'cause they do share a common parking entrance.
And this will be a new rezoning application, meaning it'd take another couple months to go from first reading to final adoption?
That's right. One of the purposes of the new framework is to provide an expedited approval process, so we'll see if that holds true, but we're being told that it is conceivable that we could have rezoning completed within this calendar year.
Are you also planning to revise the proposal for your Silver Avenue site in Burnaby as well?
We are. The difference there is we had actually tried to pursue the old framework and realized that we just simply weren't far enough along with it to be able to get it entitled before the new ACCs and DCCs bylaw comes into effect in June. So, it sort of precluded us from that even being an option, and so the consequence of that is that we have really no choice but to pursue a two-tower option [under the new framework]. The two projects will become quite similar in both use and number of units. The total units and GFA are actually really similar. This one is a 32-storey condo and 28-storey rental.
What do you make of the new framework?
My thoughts are that we continue to experience a major impediment in the upfront cost of trying to get entitlement on these projects. We're now in the realm of direct DCCs — not including application fees and taxes, just development cost charges — of just north of $65,000 a door, when you count for Metro [Vancouver] and the Burnaby DCCs and ACCs. And obviously, they're proposed only to continue to increase unless governments come help us out a little bit. So there's a concern, obviously, in just the sheer amount, but it's also an interesting dilemma in that the DCCs in residential being per door have started to draw smaller units — meaning studios and one-bedrooms — into question in terms of their viability, because you pay the same $65,000 per door, whether it's a studio unit or a three-bedroom unit. So, amortized over a much smaller square footage, it obviously becomes a huge impediment. We've done some analysis on our end as to what the implications are on our proforma of going to a larger unit mix to try and minimize that cost component. But of course that comes with the possibility that our revenue projections on a price per square foot also need to be adjusted, so we're going through that evaluation right now, and I'm curious to see how the broader market responds to that as well.
I know some municipalities use per door and others use per sq. ft. Is square footage generally always preferred for developers?
I think when we're talking about the magnitude of the numbers that we're at now, which of course is its own problem, to be imposing the same fee on a 1,000-sq.-ft three-bedroom unit as you would on a 400-sq.-ft studio, it does not really seem to be an equitable solution, right?
I understand you're launching 288W8. Is this OpenForm's first commercial project?
First commercial project as OpenForm. Through the auto side of the business, we've done lots of commercial-industrial construction and development work. This one is light industrial and office, being offered for sale. It's a rather small-scale building, which is one of its unique sale propositions and strategic advantages. We know that the office market in general is not super robust right now, but I think there is activity out there. But the fact that it's only 50,000 sq. ft makes that hurdle in terms of achieving pre-sale activity much more pallatable. It's actually really attractive to the buyers we're trying to target because they then can manage the building with a much smaller number of co-owners. From a management perspective, I think that's more attractive than being in a building with several dozen or even 100 strata lot owners and managing a commercial building.
Was there any debate about whether to go strata or leasing? I think perhaps some may be surprised that you're going strata at this particular time.
Not since I've been here. The project has been, from the moment I got here in July, down the path quite a ways as a strata offering. I would say, in this environment, the attraction to an ownership opportunity is stronger. There's a greater demand from an audience looking to buy than there is to lease at this point. We're seeing some lease activity downtown. The office market is starting to tighten up in Vancouver, which is a really positive sign, but that market in particular — in Mount Pleasant — is dominated by these smaller-scale strata office buildings, so it's sort of always been in that direction.
I understand you also recently completed E15 in Vancouver, a townhouse project. It seems like your team has a diverse range of projects, with high-rise and low-rise, residential and commercial. Is the plan to continue building a diverse range of projects?
We have an emphasis on unique and thoughtful design. And that's inside and out. That doesn't necessarily just speak to architecture. So, our focus is on buying and developing properties where that design approach is appreciated, whether that's a little boutique office building or a high-rise residential site across from Maywood Park in Metrotown, which I think is one of the greatest sites in Metrotown. Those are the reasons why we've ended up with a variety of product type. It's really about the location and being in a location where the market will appreciate that extra thoughtful design.
Responses have been lightly edited for both length and clarity.
