Risk advice, rezoning multifamily, Vancouver/Victoria BC area

[Mike Lang]

Hey everyone,

Hoping to get some advice on a risk/reward scenario in BC Canada.

I have a property just outside of Vancouver and Victoria BC Canada. I am just completing the subdivision off of a parcel. 

In discussions with planners on what to do with the property, the idea of rezoning for a purpose built multifamily rental has come up. It would likely be in the 40ish unit range and would not be above 56 units. 

The cost to rezone could be around $150k. (CAD) There are 3 aspects of the rezoning process with the possibility that the re-zoning does not complete. If I were to give a percentage chance of failure to each I would say 20%, 30% and 35%. 

As for post-subdivision value of land there is essentially no other comparables and the area is notorious for the inability to rezone. There is one property that has been listed for 4.4M and has been sitting on the market for years. It has a disaster of a trailer park on it and the listing realtor openly says the value in the property is to build the allowed 28 single family homes on it. It is not zoned for a multifamily build and the height is limited to single story. The 2021 cap rate at that price was 3.5% though I expect lower now with issues and current expenses. The land size is almost the exact same as my new lot. (3.75 acres). 

My property is currently only zoned for a house, cottage and outbuildings and has a barn that is currently rented for $1300/month. 
If I were to list for sale as is, I could probably get $550k for it or $500k if I wanted to sell quickly. 

The cost to re-zone would be everything I have- and considering I have loans that exceed this -it would technically be leveraged. 

I have also gone as far as possible running numbers on completing a build, without actually having a building designed and priced out. At 39 units, using today’s rents and conservative values the cap rate could be as low as 4%. Increasing unit number or using less conservative, or increasing rent numbers or lowering vacancy rate could be close to a 6% cap rate.

The area is known as a tourist destination, is geographically constrained, has a massive housing crisis and isn’t expected to ever build enough housing to meet demand.

There may also be the opportunity to sell the property or a completed building to the local government. 

What do you think? If this was yours would you take the risk? 
I’m looking at it as a great opportunity but worried about taking on so much risk given where I’m at.