Building December January 2015

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what’s on BUILDING.ca

READ > Net-zero energy homes capitalize on computerized construction How an Alberta company is vying to make solar a market standard.

CONTENTS

FEATURES

16 > Does Orthodox Urban Planning Kill? /

Chronic disease and the Healthy Cities Movement in Canada. By Rhys Phillips

22 > Urbanization is here to stay (and it’s clouding property lines) /

16

“Everyone wants prime properties, but in the Canadian market the bidding on those can be quite competitive, so the market has gotten very creative in finding ways to enhance value.”

By Hugh F. Kelly and Andrew Warren

27 > Sticks and Stones /

Proposed changes in Ontario’s Building Code clear the way for mid-rise wood buildings – but not everybody is happy.

By John G. Smith

READ > The Business Side of Creativity The authoritative guide to setting up and running a small creative organization is now updated and expanded.

ABOVE IMAGE:

EXPLORE > The Liyuan Library A rural Chinese library and winner of the inaugural Moriyama RAIC International Prize.

IN EVERY ISSUE

6 > Editor’s Notes 8 > Developments 12 > Market Watch 14 > Legal 30 > Viewpoint

Completed in September 2011 by Groupe IBI-CHBA, the redevelopment of Place d’Armes, in front of the Notre-Dame Basilica in Old Montréal, mixes numerous forms of transportation (pedestrians, cyclists, horse-drawn carriages, buses, cars) into a “shared zone” while also allowing for a playful and open ownership of the space. (Photo by Isabelle Messier-Moreau)

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Live

Volume 64

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Where we’re going

Editor / Peter Sobchak

October 28th was not a normal weekday. It was the morning after Toronto’s Mayoral election, and welcome results confirmed that we were saved from another embarrassing four years of Mayoral bumbling. A collective sigh of relief was exhaled at the Design Exchange by real estate professionals who had gathered to hear even more good news: the results of ULI Toronto’s 10th annual Real Estate Trends and Forecast, where findings from the Emerging Trends in Real Estate 2015 report, produced in partnership with PwC, were discussed. What became evident in the talking points of the panelists is that urbanization is now considered the ‘new normal’ rather than an emerging trend itself. Looking ahead into 2015, a common trend among all industry players will be the search for opportunities in and around city cores.

As Andrew Warren, director of real estate research at PwC, pointed out, urbanization is blurring industry lines as commercial and residential developers discover the opportunities that mixed-use properties bring. The convergence of commercial and residential development is driven by developers’ desire to control more aspects of a project and to add value to their property holdings. Urbanization is creating greater demand for offices in downtown cores, thanks mostly to younger workers. While the move to the core is more visible, selecting the proper location is critical for any suburban redevelopment, especially around transportation nodes.

Influencing the merge of commercial and residential development and the different real estate sectors overall is Canada’s changing demographics. Ben Myers, senior VP of Market Research and Analytics at Fortress Real Developments, spoke at length about Canada’s changing residential, pointing out that while industry experts worry about the impact of rising interest rates on the market for single family homes, a lack of supply of building lots and many Baby Boomers opting to stay in their homes rather than sell them, means the market for detached single family homes will continue to tighten.

Reiterating what anyone watching skylines already knows, the continuing urbanization trend and the high cost of single-family homes have fuelled the condo boom. However, the next phase involves young urban condo dwellers starting families and seeking affordable housing, and as Myers said, purpose-built multi-residential rental developments are starting to address this market need. “(Ours) is an incredibly competitive market and very hard to get into right now,” said John O’Bryan, chairman of CBRE Ltd. The report highlights Calgary and Edmonton as the top two real estate markets in Canada, scoring well for investment, development and housing. In the east, O’Bryan believes that in the wake of their election, Montréal is now experiencing a renaissance, supported by Rue Ste. Catherine attracting high-end Member of retailers, where experts foresee the avenue being transformed over the next five years.

This example highlights a detail in the retail landscape that O’Bryan reiterated. “Good locations will always be good locations,” he said. “After all, shopping is an experiential, not a digital, exercise.”

What will the future hold for Canadian real estate? As Chris Potter, partner at PwC and event moderator playfully noted, some would say we are 17 or 18 years into a seven year cycle, and wonder when the tide will change. Time will ultimately tell, but the report (expanded upon further in this issue) at least gives us some insight into what the industry thinks of its prospects, trends and issues it will face going into 2015.

Art Director / Roy Gaiot Legal Editor / Jeffrey W. Lem Contributors /

Hugh F. Kelly, Rhys Phillips, John G. Smith, Andrew Warren

Circulation Manager / Beata Olechnowicz beata@building.ca Reader Services / Liz Callaghan

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Sales Manager / Faria Ahmed (416) 510-6808 fahmed@building.ca Senior Publisher / Tom Arkell Vice President, Publishing Business Information Group / Alex Papanou President, Business Information Group / Bruce Creighton Building magazine is published by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd. 80 Valleybrook Dr. Toronto, ON M3B 2S9 Tel: (416) 510-6845 / Fax: (416) 510-5140 E-mail: info@building.ca Website: www.building.ca SUBSCRIPTION RATE: Canada: 1 year, $30.95; 2 years, $52.95; 3 years, $64.95 (plus H.S.T.) U.S.: 1 year, $38.95 US, Elsewhere: 1 year, $45.95 US. BACK ISSUES: Back copies are available for $8 for delivery in Canada, $10 US for delivery in U.S.A. and $15 US overseas.

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DEVELOP-

News First Moriyama RAIC International Prize goes to a Chinese library TORONTO | A modest library on the outskirts of Beijing, China, designed by architect Li Xiaodong, has won the inaugural Moriyama RAIC International Prize. One of the most generous in the world, with a monetary award of CAD$100,000, the Prize is awarded to a building that is judged to be transformative, inspired as well as inspiring, and emblematic of the human values of respect and inclusiveness. It is open to all architects, irrespective of nationality and location. It recognizes a single work of architecture, as opposed to a life’s work, and celebrates buildings in use.

The Liyuan Library opened in May 2012, in the hillside village of Jiaojiehe. “It is a lovely object in a dramatic landscape, a wondrous thing to use and be in,” the six-member jury wrote in their statement. Architect Li Xiaodong started working with the community before funding was in place in the hopes that a well-designed library would not only improve life in the village but also boost the local economy by attracting tourists to the scenic area. The library was eventually funded by a rural-development grant from the Lu Qianshou Trust in Hong Kong. The construction budget for the 175-sq.-m. library was CAD$185,000. “This project is about the relation-

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ship of a building to its surroundings and its role in serving the community, rather than a building as a discrete object,” Li wrote in his submission statement.

The jury’s emphasis on the consideration of the ‘building in use’ — not just finished but occupied for at least two years — differentiates this prize from architectural competitions that judge buildings when they are new and even unbuilt. And their deliberations went well beyond the videos and other materials included in the formal submissions. Conversations with users, research and selected site visits complemented the jury’s review of the documentation provided by the architects. Each project was evaluated according to a set of criteria that included its formal and spatial qualities, its response to site, climate and culture, its craftsmanship, environmental design and its record of experience in use.

New Projects Centennial College unveils new residence and culinary arts centre TORONTO | A new residence for 740 students and state-ofthe-art teaching facilities will come together in a unique building at Centennial College in Toronto. The project has broken ground and will open in September 2016. The eightstorey Residence and Culinary Arts Centre will be home to Centennial’s School of Hospitality, Tourism and Culinary Arts and a campus gateway building with a ground floor

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that has open views onto the culinary velopment, testing and compliance alarts program with seven kitchen labs, lowing partners to create new products eight additional classrooms, a teachthat will have a lasting impact on the ing restaurant and café. A conference community. The building is supported and banquet centre with capacity for by a $6.6-million Federal Economic 425 people will occupy the top floor.

Development Agency for Southern OnThe student accommodation is configured around a courtyard garden. The tario (FedDev Ontario) contribution, two- and four-bed suites will have daylight, views, a bathroom and kitchen, and matched by George Brown’s own inevery resident a private bedroom. Corner lounges on each floor are complemented vestment of $6.8 million. with additional amenity space including a yoga studio and screening room. “This unusual combination of living and Windmill to build first downtown learning will create a lively crossroads, both as an entry Ottawa office condominium point as well as a hub for the campus to engage students and the Scarborough community,” said Donald Schmitt, OTTAWA | Ottawa-based Windmill Developments has anprincipal at Diamond Schmitt Architects. nounced they are building Ottawa’s first and only Class “A” The 353,500-sq.-ft. Residence and Culinary Arts Centre downtown commercial condominium tower next to their is registered to obtain LEED Silver certification for susCathedral Hill residential condo building. Located in the heart of Ottawa Centre’s EcoDistrict on the edge of downtainable design. High efficiency glazing and highly insutown, the office condos will provide businesses and not-forlated walls and roofs will improve energy performance; the profits the opportunity to build equity with the money they building also has a green roof and water-saving features. would otherwise lose by paying rent for space.

The $85-million project is financed and will be managed “We spend a lot of time looking at

by Knightstone Capital Management. best practices and imagining better ways for people to live and work,” said New George Brown Green Rodney Wilts, partner, Windmill DeBuilding Centre supports sustainable construction velopments. “Giving professional practices and associations a way to build and engineering sectors future equity by owning space in one of the downtown’s most desirable areas TORONTO | In support of Canada’s is a win-win for us and the businessgrowing green and smart building es.” While other cities like Chicago, market, George Brown College has New York and Toronto have embraced opened its Green Building Centre, a the office condominium concept, the new applied research facility training 14-floor Cathedral Hill office tower students in advanced construction syswill be Ottawa’s first executive office tems, green energy and computer-encondo building. “As always, we are focused on high sustainability and performabled, efficient buildings while simulance goals with this project,” says Wilts. “We plan to use the best technologies taneously creating space for industry and materials to not only make this building healthier for the owners and their partners to conduct full-scale developemployees, but more efficient and enduring.” ment projects focused on construction practices that are environmentally responsible and resource-efficient.

Chinese-held company to invest in Montréal’s largest Located within George Brown’s Cenprivately developed residential project tre for Construction and Engineering Technologies, the facility will enable MONTRÉAL | Tianco Group, a Canadian company with majority Chinese sharean estimated 160 research projects holders, has joined Montréal-based Brivia Group in the development of YUL, downwith industry partners in its first five town Montreal’s largest privately developed residential project. Tianco Group is years, and has already created nearly also the first Chinese-held company to invest in the development of a high-rise 60 jobs. It offers industry much needcondominium project in the Province of Québec. The YUL development is being ed space for innovation, research, dedesigned by Menkès Shooner Dagenais LeTourneux, with completion expected in spring 2017 and will comprise two 38-story condo towers and 17 townhouses, at René-Lévesque West and Mackay Street, for an estimated cost of $300 million.

Brivia Group, led by Kheng Ly, has developed several real estate projects in the Montréal region, including Innova Condos, C3 Cavendish, and Le Condoval. Tianco

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Group, led by Steve Di Fruscia, is a Canadian company with Chinese shareholders, with projects already underway in Vancouver, and now Montréal.

Acquisitions Conergy launches acquisition campaign for Ontario solar projects EDMONTON/MIAMI | Backed by its ma-

jority owner, Miami-based asset management firm Kawa Capital Management, the Canadian subsidiary of Conergy, one of the world’s largest downstream solar companies, announced it will begin acquiring solar projects and portfolios in Ontario of between 100 kW and 15 MW in size, on roofs and open land, at all stages of development.

This decision follows the successful conclusion of a pilot project in Kingston, Ont. where the company acquired, from EDF EN Canada Inc., a unit of European utility Electricité de France SA, a planned 358 kW rooftop solar system on a warehouse owned by Toronto-based facilities manager Robinson Solutions and leased to Correctional Service of Canada for storage and distribution purposes. Conergy installed the system in June and sold it to a private investor from the U.S. in September, demonstrating that value could be retained in the asset.

The new owner of the system earns payments from the Ontario Power Authority’s (OPA) FIT scheme, which pays money to owners of renewable energy systems for clean electricity sold to the grid over 20 years. A typical mid-sized solar system in Ontario can earn annual revenues of up to $150,000, depending on the design, location and other factors. As of 2013, 1.2 GWp of

The Ontario government is forecasting 2.1 GWp in new solar capacity in the next six years.

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MENTS grid-connected solar has been installed in Ontario, Canada’s largest market for solar PV projects.* The OPA will offer 100MW of new FIT contracts in the coming weeks, and plans to procure more next year. Meanwhile a new process for large scale projects is also under development.

Lemay adds to its talent pool MONTRÉAL | With major projects already in Canada, Central America and North Africa, Lemay has now established a presence in the Caribbean with the acquisition of three Québec entities from Toronto’s IBI Group: DAA; Cardinal Hardy Architectes; and Martin Marcotte/Architectes. Concurrent to this, Lemay also announced the creation of a joint venture with IBI Group in China. With this acquisition and joint venture, Lemay brings together nearly 500 professionals and consolidates its position as the fourth largest integrated design services firm in Canada. From now until the brand architecture of the new Lemay is elaborated, the three acquired entities will operate respectively under the names Lemay+DAA, Lemay+CHA and Lemay+MMA. The name of the joint venture in China will be announced soon.

People Green building pioneer Stephen Carpenter receives the Order of Canada

— Jared Donald, president, Conergy North America

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“ The EDF project may be small in terms of kilowatts, but shows the way forward for the Ontario market. We are going to see huge amounts of capital arriving in the province, and the market will explode in the near-term.”

DEVELOP-

OTTAWA | Green building pioneer (and friend of this magazine) Stephen Carpenter was presented with the Order of Canada on September 12 at Rideau Hall in Ottawa. Carpenter was recognized for “his visionary leadership in the development and stewardship of Canada’s green building industry.” Realizing there were few Canadian firms that specialized in energy-efficient building design, in 1981 Carpenter founded Enermodal Engineering in Waterloo, Ont., focusing on developing Canada’s first energy modelling software. Carpenter “cracked the code” for the mathematical modelling of energy loss through building components such as windows, leading to sophisticated computer modelling tools for the design of energy efficient buildings. In the early 2000s, Carpenter became involved in creating the Canadian version of the LEED rating system. He was the co-author of the LEED Canada manual and was the first chair of the Ca GBC’s Technical Advisory Group. b

Stephen Carpenter (left)

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MARKE T Spotlight: South Korea

Opportunities in the ‘Land of Morning Calm’

By Peter Sobchak

We all know that urbanization is driving real estate growth on both a national and international scale. We also know that with domestic and foreign investors alike being so eager — in fact zealous — to pour their capital into new projects that competition in Canada has become intense. In fact intense enough that many domestic investors should be — and are — looking abroad for opportunities to increase their real estate holdings. Canada is already the largest non-American real estate investor in the United States, and many other markets abroad are looking more and more attractive as places to stamp with a maple leaf.

One such market to consider is South Korea. Over the past 60 years, South Korea has risen from the ashes of war to become one of the world’s top 10 economies in terms of foreign reserve and trade. It is seventh in exports at USD$559.6 billion and eighth in total trade at USD$1.08 trillion. South Korea has the reputation of being a stable nation both politically and economically, and has many fundamental traits going for it: it is the geographic epicentre of the rising Asian economic dominance, being smack dab between China and Japan; major Chinese cities such as Beijing and Shanghai are within 100 kilometres of Seoul (which itself boasts the largest concentration of commercial property in the nation); and since the global financial crisis, foreign direct investment (FDI) in Korea has been on the rise. In fact, the first half of 2014 attracted the highest levels of FDI on record.

Chatting with attendees at this year’s Foreign Investment Week in Seoul, several indicated interest in the South KoDECEMBER 2014 JANUARY 2015

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rean real estate market but said how, as in previous years, there can be problems getting capital invested. South Korea remains a very insular country in real estate terms, an issue that stems partly from cultural factors, partly from a shortage of suitable assets, and partly from the fact that there is already far more capital held by South Korean institutions— in particular local pension funds such as the state-run National Pension Service — than can be invested in domestic property assets.

The office market, however, is in fact very stable and typically a main part of foreign investment in real estate. According to some reports, cap rates for commercial property typically come in at about five per cent, with yields at the end of 2014 expected to be 4.4 per cent and return outlooks between 5.5 and 9.5 per cent. Product is out there, such as properties owned by public agencies in metropolitan areas that are becoming vacated as the agencies move to rural areas. Examples of this are the Korea Electric Power Corporation building in Seoul that was sold in September to Hyundai for KRW10.55 trillion. According to one presenter at Foreign Investment Week, there are currently nearly 50 such properties for sale, such as the Korea Cadastral Survey Corporation building and the Road Traffic Authority building. The reality, however, is that several limitations in this sector exist, such as notoriously high capital requirements and insufficient supply of product (though ironically, these chronic supply shortages means some of Seoul’s business districts carry some of the lowest office vacancy rates among Asian markets).

That said, a handful of foreign investors have been successful in making investments. One high-profile Canadian transaction was led last year by the Canada Pension Plan Investment Board (CPPIB), which acquired a 50 per cent interest in the Samsung SRA Private Real Estate Investment Trust No. 4, a single asset fund which owned a high-quality Grade A office development property in Seoul, for CDN$118.6 million. “This transaction represents our first real estate investment in South Korea and is an excellent opportunity to invest in a high-quality, newly-constructed building in an increasingly popular office sub-market with a blue chip tenant,” said Graeme Eadie, senior vice president and Head of Real Estate Investments, CPPIB. “We see this investment as an attractive entry point into the Korean market. As Asia’s fourth largest economy, South Korea is a key market with stable long-term growth prospects.”

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Cities in the making Korea is aggressively courting major multinationals to locate their Asian headquarters or major manufacturing facilities there, which means they will need the buildings to facilitate them. Siemens, BASF, Solvay and other multinationals all recently located their Asian Pacific headquarters or major R&D centres in South Korea. To encourage such investments, Korea is developing a myriad of specially designated investment zones designed to encourage foreign investment by relaxing regulations and setting up structures for tax breaks, financial support and other bene-

“We see this investment as an attractive entry point into the Korean market. As Asia’s fourth largest economy, South Korea is a key market with stable long-term growth prospects.”

—Graeme Eadie, senior vice president and Head of Real Estate Investments, CPPIB fits. There are currently six free trade zones and 89 foreign investment zones, but perhaps the most interesting are the eight free economic zones (FEZ).

All within various stages of development, a FEZ is in effect a mid-size city built from scratch that combines industry, commercial, residential and tourist components with the goal of forming an “international business town” over the course of 15 to 20 years and billions of dollars. And saying “town” isn’t a euphemism: many of these FEZs range in size from five to 50 square kilometres, with the largest, Incheon Free Economic Zone, measuring in at a whopping 169.5 square kilometres.

One Canadian entity getting involved in a FEZ is Dundee Corporation, which in September along with its whollyowned subsidiary, Dundee 360, announced that they have entered into a Framework Agreement with Gangwon Province to develop a leisure, tourism and commercial hub within the East Coast Free Economic Zone (EFEZ) in Gangwon-do. The Agreement will see Dundee 360 work with the province on planning and development of the Mangsang

Resort Community and Town Center, a year-round recreational and mixed-use real estate development on the Korean peninsula. The project is directly south of the 2018 Winter Olympic site of Gangneung and encompasses approximately 600 hectares of land that boasts 2.5 kilometres of beachfront on the East Sea. The project is anticipated to include hotel and resort development, residential units, ski and golf amenities, as well as commercial, medical and educational infrastructure.

“This Framework Agreement lays the foundation for Dundee and Dundee 360 to invest in South Korea. We strongly believe that our expertise in developing largescale ‘Town Centre’-based real estate projects will help to foster the ‘creative economy’ that South Korea’s leadership has so strongly emphasized as key to their country’s next stage of economic growth,” says David Goodman, Chief Executive Officer of Dundee. A special purpose company in the EFEZ will be created as the exclusive developer of the project, which Dundee and will work with on master planning, development/construction and various management agreements. “We have considered South Korea to be an exciting opportunity for our company, and we are very pleased that, after one year of preparation and dialogue, we can move forward in partnership with Gangwon-do and the EFEZ Authority,” said Ned Goodman, Chairman of the Board of Directors of Dundee.

Overall, while all the conditions might not be as attractive as some investors would like, the metrics show promise on this small peninsula. Reports indicate a real estate market that appears undervalued, and the need for more office supply is expected to increase as the South Korean economy transitions from a traditional manufacturing base into growing and maturing service sectors such as logistics, research and development and finance. Which means South Korea’s steady and strategic economic growth signals a bright long-term outlook for the real estate market. b

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Visit building.ca to take a closer look at the Saemangeum Industrial Complex FEZ, being built on South Korea’s west coast.

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LEGAL The Shadowy and Vague Boundaries of Modern Easements The lines of the survey are just the starting point in understanding the true boundaries of modern easements.

By Jeffrey W. Lem

Edgar Allen Poe once famously said, “The boundaries which divide Life from Death are at best shadowy and vague. Who shall say where the one ends, and where the other begins?” An apt quote, no doubt, for the master of the macabre, but one that Poe might equally have said about the boundaries of easements, at least in Ontario after the recent decision of the Court of Appeal in the Weidelich v. de Koning case. The Weidelich v. de Koning case has taken the surveying and real estate development world by storm and has been interpreted by many as a significant departure from what developers might intuitively have expected and, indeed, what had been the legal status quo then to date.

In the simplest of terms, an easement is a right of one land owner (typically a neighbour) to use another owner’s land in some way — most typically as a right-of-way for passage to and from the neighbour’s land. That was exactly the type of easement at issue in Weidelich v. de Koning. In this case, a neighbouring owner constructed a garage which protruded into a laneway over which the

Easement boundaries, even when precisely and accurately set out for the surveyor, are, for all intents and purposes, malleable and adjustable depending upon the specific purpose of the easement. neighbouring owner did not himself own, but over which he had a legal easement. In effect, by encroaching onto that laneway, the neighbouring owner narrowed (by just over a couple of feet) what was supposed to be a 40 foot wide laneway (making it, more or less, a 38 foot wide laneway at that point). A lawsuit ensued to enforce the 40 foot width, in effect trying to reaffirm the boundaries ascribed to the easement in the survey, and thereby making the garage an encroachment that would have to be removed.

Both the Superior Court and the Court of Appeal acknowledged that there was no error in the legal description at all. The survey described a laneway that was approximately 40 feet wide, and the survey monuments clearly confirmed this laneway on the ground. Furthermore, there was no doubt that the garage did in fact encroach onto the laneway by about two feet, and the Superior Court conceded as much by concluding that “...this case is not about defining the boundaries of the right-ofway. They are clearly delineated in the deed and are not in dispute. Nor is there any dispute that the [garage] encroaches over the boundary line onto the right-of-way.”

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This author would hazard a guess that a straw poll of developers would conclude that Weidelich v. de Koning constitutes a “slam dunk” trespass. All of the facts pointed to a clear 40 foot wide boundary and an equally clear two-foot encroachment over the boundary line by the neighbour’s garage. This is especially true since the Court of Appeal for Ontario had previously ruled, back in the 1921 case of Devaney v.

McNab, that a nearly identical threefoot staircase encroachment onto a 20 foot wide laneway was in fact a trespass and, therefore, had to be removed.

Instead, very much to the surprise of surveyors and real estate lawyers, the Superior Court took into consideration the actual purpose for which the easement was granted and adjusted the boundaries accordingly. On the deed creating the easement in Weidelich v. de Koning, the intent of the easement was specifically limited to “the purpose of vehicular ingress and egress.” The Superior Court went on to then consider whether vehicular ingress and egress through the laneway was in fact impaired by the encroachment and concluded that, while the laneway was indeed squeezed a bit at the point of the encroachment, such encroachment did not really impact vehicular ingress and egress in any material way. According to the Superior Court, “[T]he Encroachments caused by the Addition do not create a real or substantial interference with the use of the laneway for vehicular access: it remains as accessible and passable now as it was before the construction...it is still possible for vehicles (including delivery trucks) to traverse across...the laneway.”

The case was appealed to the Court of Appeal, which just released its decision upholding the encroachment and the “real or substantial interference” test advocated by the Superior Court. In other words, at least in Ontario, one can build over an established easement boundary at any time so long as the encroachment does not constitute a “real or substantial interference” with

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whatever the purpose of that easement was supposed to be.

In so doing, the Court of Appeal distinguished the facts in Weidelich v. de Koning from the facts in Devaney v. McNab by noting that the easement in Devaney v. McNab was actually drafted with a fairly broad prescribed use (i.e. “at all times and for all purposes”), whereas the easement in Weidelich v. de Koning was drafted with a very narrow prescribed use (i.e. “for the purpose of vehicular ingress and egress”). The staircase in Devaney v. McNab was a real and substantial interference with an easement that was supposed to be available at all times and for all purposes, but the garage in Weidelich v. de Koning did not constitute a real or substantial interference with an easement that was limited to vehicular traffic.

Weidelich v. de Koning is the authority for the proposition that easement boundaries, even when precisely and accurately set out for the surveyor, are, for all intents and purposes, malleable and adjustable depending upon the specific purpose of the easement. Developers should be keenly aware that they may now have rights to trespass or encroach onto an existing easement or, depending literally on what side of the fence they may be on, no longer have the right to stop a neighbour from trespassing or encroaching onto an existing easement.

Jeffrey W. Lem is Editor-in-Chief of the Real Property Reports and the Director of Titles for the Province of Ontario. The opinions expressed in this article are personal to the author and not attributable or referable to the government of the Province of Ontario.

Even though Devany v. McNab and Weidelich v. de Koning were both laneway cases, developers should also remember that modern easements go far beyond just shared laneways — in the modern era of urban intensification, mixed-use communities, and endless permutations of shared infrastructure and common elements, it almost seems as if everyone has an easement over everyone else’s property nowadays. It is common to see dozens of criss-crossing reciprocal easements in almost any development, and these reciprocal easements are often drafted with very narrow and specific purposes. After Weidelich v. de Koning, the boundaries of those criss-crossing reciprocal easements might no longer be as precise as they may appear on the surveys, blending instead into the world of the “shadowy and vague” foretold by Poe! b

15

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70 Leek Crescent, Richmond Hill Ontario L4B 1H1 (416) 499-4000 Ext.114 • (416) 499-8752 fax

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Does Orthodox Urban g Planning Kill? i l

16

By Rhys Phillips

Chronic disease and the Healthy Cities Movement in Canada

DECEMBER 2014 JANUARY 2015

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l?

T

he urban planning profession’s primary challenge is to undo the damage it has done over the last 80 years. Starting even in the early 1960s, with the catastrophic failings of urban renewal, the profession has faced significant critiques. Examples of alternative development approaches notwithstanding, however, change has remained largely marginal while most cities have continued fiscally expensive, car-defined but painfully congested and often architecturally barren sprawl.

Modern urban planning, of course, grew out of the oftenappalling health conditions of the new industrial city of the 19th century. The parks and Garden City movements, sewage infrastructures, use-zoning and so on often grew out of public health reforms initiated by civic organizations such as Britain’s Health of Towns Association rather than the medical community. But the massive economic and social influence of automobiles and the rise of large real estate developers in the 20th century became the basis for urban planning’s “scientific” justification of suburbanization, marginalization of public transit and the consolidation of car-based retail and services. As Mark Holland, landscape architect, first manager of Vancouver’s Sustainability Office and founding member of the not-for-profit Healing Cities Institute says, “the nature of planning has been driven by the rather low, narrow objectives of urban engineering, especially those of the traffic engineers.”

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Toronto 2000 workshop in 1984, British expatriate Dr. TrevNew Urbanism, smart growth, transit oriented developor Hancock, then Associate Medical Officer of Health for the ment and sustainability have won converts with appeals for city, and American psychiatrist Dr. Leonard Duhl, presented qualitatively better, less expensive and more environmentaltheir Healthy Community Model, quickly followed by a ly sound development but have been unable to generate a tipthree-day conference, Beyond Health Care, in the same city ping point. Even the economic prosperity argument of the rewhere Hancock presented to a broader international audilationship between city form and the creative economy has ence. A key recommendation asked the Canadian Public not yet brought about wholesale change.

Health Association to take the lead in silo busting by collabBy returning to planning’s roots, however, the Healthy Cities Movement is breaking down the historical barriers surrounding a wide range of disparate professional silos, perhaps priming real change. While the Movement builds on all the ideas underlying other alternative approaches, it has subtly introduced a darker, even brutal attention-getting argument. It starts by demonstrating how our current approach to the built environment decreases physical activity and connectedness, increases stress and social isolation, threatens the environment, air quality and food supply while homogenizing a shared sense of place and belonging.

It then posits, flowing from evidence-based research, these outcomes contribute significantly to an explosive rise in chronic diseases. Instead of cholera, tuberculosis and other infectious diseases of 19th century cities, surging rates of obesity, diabetes, heart problems, mental illness, allergies, asthma and even accidental deaths can be directly traced back to how we design our urban form, our workplaces, our homes and our public Above: Getting people out and moving during a cold Montréal winter is a key goal of the annual Luminothérapie spaces. In the language of a U.S.-style competition. One of the winners for this year is Prismatica by RAW Design, an installation comprised of 50 pivoting negative political ad, “Support the prisms that will transform the Place des Festivals into a giant snowy kaleidoscope. (Photo by Cindy Boyce) Status Quo and Doom Your Kids to Die Younger than You,” as some argue.

Even without such overt threats, however, the Healthy City orating with built environment professional associations wake-up call just may be having a transformative impact. to establish a national healthy cities agenda.

Attendee Ilona Kickbusch, WHO’s European Regional Officer for Health Promotion, took note and initiated discussions Canada as the Point of Origin within WHO’s European region that culminated in the launch Canadians, we like to think, define our national character in part by our universal health care system. Not surprisingly of the European Healthy Cities Project. This project continues perhaps, the revolutionary evidence-based approach to to play a major role in how over a thousand European towns health care and the design of health-care facilities originatand cities structure their growth policies with a health lens ed at Hamilton, Ont.’s McMaster University (Building, Auand resulted in WHO’s international program that now engust-September 2012). Less well known are the Canadian compasses over 7,500 cities in 20 regions around the world. roots of the modern Healthy Cities Movement.

Canada’s Lalonde Report (1974) was the first national polHealthy Cities — Complexity or Strategic Focus? icy to broaden the range of factors determining health. While Internationally, the concept of the Healthy City has developit continued to place major responsibility on individual ed as a complex, multi-layered, multi-disciplinary stratchoices and to acknowledge the role of traditional biomedical egy in which ensuring a process “conscious of health and determinants of health, Lalonde also singled out social and striving to improve it” is as important as results achieved. physical environments as co-determinants. Internationally, Not only are healthier cities a function of the built, transthe idea of a health lens applied to all public policies was conportation, natural/sustainable, urban infrastructure and solidated with the adoption of the Ottawa Charter for Health health care environments, they also encompass economic Promotion (1986) at the World Health Organization’s (WHO) equity, food security, social architecture and equitable access. “It is hard to narrow down this very broad field,” says First International Conference on Health Promotion.

Jennifer Dean, assistant professor in planning with a pubBetween Lalonde and the Charter, Toronto decided to belic health perspective at the University of Waterloo. “The come the “healthiest city” in North America. At its Healthy

17

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built environment is one important factor among many, but the area is so broad and complex that it is difficult to isolate a specific element.”

WHO Europe’s Healthy Cities approach “strongly emphasizes equity, participatory governance and solidarity, intersectoral collaboration and action to address the determinants of health (1998).” In other words, it encompasses the full socio-economic policy spectrum, an approach less entrenched in North America. This being said, both Vancouver and Toronto have adopted progressive strategies that do confront such issues as income distribution, homelessness and threatened food security. After adopting a healthy city policy in 2009, the latter’s Healthy Toronto by Design (2011) states, “Healthy cities are cities that are prosperous, liveable and sustainable.

They are cities with high quality culture, education, food, housing, health care, public transit, recreation, and built and natural environments.” Vancouver’s A Healthy City for All: Vancouver’s Healthy City Strategy 2014 – 2025, adopted in October of this year, is a sophisticated social blueprint that incorporates detailed sub-strategies with quantitative goals for housing, food security and homelessness reduction as well

search to replace received wisdom or so-called common sense. The market’s mythical hidden hand or “market preference” is replaced by dialogue, collaboration and collective decision-making driven by hard evidence from research in which the interlocking environments affecting our health are understood in sync rather than separately.

However, Dean believes a significant evidence gap remains. “In terms of evidence-based, what is happening on the ground is moving much faster than the supporting research,” she says. “Much of what we are doing is still more intuitive and educated reasoning than hard evidence-based.”

Both Dean and Milton Friesen, Program Director for Social Cities at the Cardus think-tank believes additional research is required on how attitudes toward city building are determined and how they can be changed. “Does urban form create these ideologies or do the beliefs determine or at least reinforce urban form?” Friesen asks.

Even the Urban Land Institute, a development industry advocate, has accepted many of the health implications of current growth patterns as well as – fortuitously – finding a strong business argument for healthy developments. In its pubLeft: We have physically engineered activity out of our lives. Healthy complete communities support walking, cycling, accessibility and transit use; providing access to an appropriate mix of jobs, local services and a full range of housing and community infrastructure. (Image courtesy of the Region of Peel)

as the built environment. While the difficult issue of socioeconomic form, particularly in a time of increasing wealth concentration remains vital, greater emphasis in Canada has been placed on built form, the natural environment and, to a lesser extent, cultural infrastructure and creating healthy food strategies. Equitable access, if not distribution, however, has remained a desired goal in play in Canada.

The Power of Evidence — Pathology, Cause and Solution A central objective of the Healthy Cities Movement has been breaking down professional silos to identify chronic diseases, their causes and the most appropriate remedies related to the urban and built form. As it did with medicine, an evidence-based approach relies on solid, interdisciplinary reDECEMBER 2014 JANUARY 2015

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lished endorsement of Healthy Cities, however, it too maintains, “A knowledge gap exists between research and implementation, with health and land use practitioners uncertain of how to apply the mounting body of evidence that shows the relationship between our environment and our health.”

Conversely, architect Tye Farrow, a senior partner at Toronto-based Farrow Partnership Architects who promotes and lectures frequently on a “create health strategy” that focuses on salutogenesis or the causes of health, believes too much reliance on detailed research can be counterproductive. “Often the evidence that comes out of extensive analysis and research can be got by simply sitting down and intuitively determining effects, causes and responses much more quickly and less expensively.” After all, he says, many of the advances in healthcare facility design, an area in which he has worked extensively, were available through good common sense reasoning. Farrow advocates a focus on diagnostic tools that are fully available to communities and allow their members to look at existing or proposed environments and understand what connects or fails to connect, what creates health or perpetrates pathologies.

And the evidence says?

In fact, there is considerable evidence not just of the indisputable rapid increase of chronic diseases and their costs but increasingly how the built environment contributes towards pathologies and what changes we need and

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The Situation WE HAVE A BIG PROBLEM

Traffic congestion Commute time 2006

The negative impacts of our built environment are already being felt in multiple ways. With an expected increase of an additional 2.2 million people in the Greater Toronto-Hamilton Area, unless we change how we design communities, these negative impacts will become even worse.

Total transportation greenhouse gas emissions

Traffic related air pollution

Inactivity & obesity

millions tonnes/year

millions kg PM2.5/year*

Direct & indirect costs

by 2031

Causes

854 2006

14.3

.34

19

$4 billion/year

premature deaths

Inactivity

12,500

new cases of diabetes/year * PM2.5: small particulate matter

82min

109min Diabetes

Economic cost $ billions/year

6

15

by 2031

18.7

.44

million cases/year

2011

.66

$2.6

billion excess medical costs

can make. Holland suggests there are 20 major chronic diseases caused or exasperated by built environment conditions. The Canadian Medical Association’s Policy on the Built Environment Health (2013) provides one accessible summary of the rapid rise of many chronic diseases, the contribution of the built environment and some of the proven prescriptive remedies.

The obesity “epidemic” (coupled with the related precipitous decline in physical activity) and its causal relationship to high blood pressure, stroke, heart disease, mental health, type II diabetes and some cancers; the increased prevalence of asthma and other respiratory diseases as well as environment related illnesses such as cancer and heart disease; transport related death and injuries; and increased prevalence of illness and death related to heat exposure are well documented. In terms of causes, the policy cites the extensive evidence that “less walkable, auto dependent built environments have been correlated with higher body weights and obesity” as well as lower levels of physical activity and more toxic air quality. In terms of remedies, the policy cites walkable neighbourhoods with a mix of land uses and interconnected street networks as an option that increases by a factor of two to four times the likelihood of achieving minimum daily activity levels.

Similarly, B.C.’s Provincial Health Services Authority, as reported in the CIP’s Healthy Communities Practice Guide, finds walkable neighbourhoods with pedestrian-friendly streetscapes and good public transit are associated with more active travel behaviour, lower body weights, fewer traffic accidents and less crime. Increased density, it reports, is associated with less pollution (thus responding to respiratory and heart problems) while the built environment, par-

ticularly the immediate availability of 2027 nutritious food over fast food, affects nutrition, health and weight.

Multiple studies strongly indicate that communities with high public billion excess medical costs transit use are more active than cardominate ones. In terms of equity, however, a CIT backgrounder cites evidence that while children in poorer neighbourhoods are more likely to use “active transportation,” they tend to live in areas with higher pollution levels, greater risk of pedestrian-vehicle injury and greater distance to healthy food retailers.

The built environment, evidence suggests, has also contributed to mental illnesses through increased social isolation and the decline of interactive public space. Friesen points out the social isolation rate has increased three-fold over the last few decades and the risk of early mortality when socially isolated is about the same as smoking and twice that of obesity. Dean isolates the extensive work on therapeutic landscapes in evidence-based medicine as both a physical/ mental remedial tool. She and others argue that the state of and access to natural environments at various scales has a strong healing role to play. Holland points to studies suggesting access to the simple act of gardening can reduce dementia by as much as 30 per cent.

1.2

$4.5

The Movement Gains Momentum and Structure in Canada — at least until now While WHO picked up the ball at the international level, back in Ontario, Dr. Hancock was busy setting up the Healthy Communities Coalition that evolved into a broad coalition of provincial landscape architects associations. He would also building.ca

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play a key role in 2005 in promoting the establishment of the BC Healthy Communities initiative. Over the last decade in Canada, some, if not all of the relevant professional silos have been breached while research expanded on both causes and remedies. Stronger relationships between researchers, planners, architects, developers, public policy drafters and politicians have emerged. As Vancouver and Toronto’s healthy city strategies have demonstrated, there is an appetite for change even if the worth of the policy pudding still awaits the tasting.

Much of the coordination, collaboration and funding responsible for this progress has been the result of the Healthy Canada by Design CLASP Initiative. Started in 2009, it was funded by Health Canada through the Canadian Partnership Against Cancer’s Coalitions Linking Action and Science for Prevention (CLASP) program. The initiative brought together, says its web page “a partnership of public health, planning and transportation professionals, and non-governmental organizations, from across Canada that are working together to create healthy and sustainable communities that support and foster physical activity, active transportation and public transit.” Thus it linked such organizations as the Heart and Stroke Foundation and the Urban Public Health Network (UPHN) directly with the Canadian Institute of Planners as well as a network of regional health authorities.

Its core objective was “to respond to the pressing need to translate evidence into policy and then into action,” says Kim Perrotta, former Knowledge Translation and Communication Lead for the initiative. “The first need was to get researchers from multiple disciplines to understand how policy works and then feed this research into the planning process.” A very effective initiative, she continues, was to marry Public Health Commissions with a planner to show the former how they could better intervene in the planning process to ensure health outcomes and implications were understood and applied. For example in Halifax planners worked with health officials to develop a complete set of street design guidelines that subsequently found support from city council.

By 2012, the Healthy Canada by Design CLASP Partners had facilitated new research, state-of-the-art tools and supporting resources to ensure inclusion of health considerations into land use and transportation planning decisions.

Phase I was followed in 2012 by a second two-year strategy that included expanded communication and collaboration at the national level and funding for CIP to develop its Healthy Cities Guidelines for Practitioners as well as a series of evidence backgrounders. Phase II saw seven additional health authorities in the Atlantic and Prairie Provinces as well as Ontario receive support to work with planners, transportation engineers and other groups, to further healthy cities research, evidence gathering and DECEMBER 2014 JANUARY 2015

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policy drafting. A draft list of outcomes, as the second phase wound up this September, is contained in the Healthy Canada by Design – Product List.

Will We Snatch Defeat Out of the Jaws of Victory?

And what of the future? While the Health Cities Movement is having a significant impact on urban design and architecture, Perrotta endorses the findings of the CIT’s recent Healthy Communities Legislative Comparison Survey Report (December 2013). It found significant variations in legislative and policy support across provinces. “Without ongoing funding,” she says, “most provinces will have difficulty as silos still remain especially among transportation officials and engineers.” Similarly, Dean appears ambivalent about the planning profession’s ability to push the right values.

“There is a need for municipal politicians to establish the standards that give planners the tools and powers to require change to the approaches used,” she suggests. Although to be fair, the Canadian Institute of Transportation Planners (CITE) has provided important input to CLASP members on how transportation engineers/planners can help incorporate active transportation options into new developments.

While the 2014 World Architecture Day theme last October was “Healthy Cities, Happy Cities,” Canada’s architects’ organizations need to rise to Farrow’s challenge to For an expanded version of this article, visit building.ca

lead on healthy building design guidelines. This means not only addressing the direct physical health implications of building design, but also correcting the negative emotional impact on our well-being of our largely mediocre architecture. Unfortunately, when it comes to funding social policy initiatives, governments are notorious at snatching defeat out of the jaws of victory. Remarkably, there is no new funding for a phase III of the CLASP Initiative and whether or not the movement has reached a tipping point is very much up in the air.

The bright spots may be B.C. and Ontario. In both there is a significant official policy base for change and the movement’s organizational structure is stronger. In the former, the broad B.C. Heal thy Built Environment Alliance, supported financially by the B.C. government’s independent Provincial Health Services Authority, has been key. In the latter, provincial policy requires health to be a key lens when developing and implementing all policies and includes the impact of the built environment in its Public Health Standards.

What remains to be seen is whether the current review of the Ontario Municipal Board (OMB) will remove that body’s reactionary drag on progress.

The rise of health as a core quality of life issue may be the very heavy straw that finally breaks the back of the orthodox urban planning’s camel. Nothing quite mobilizes the political agenda like the threat of one’s premature death. b

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URBANIZATION IS HERE TO STAY (AND IT’S CLOUDING PROPERTY LINES) “Everyone wants prime properties, but in the Canadian market the bidding on those can be quite competitive, so the market has gotten very creative in finding ways to enhance value.”

No

shocks and few surprises. Looking forward to 2015, the Canadian real estate market appears poised for another steady year, as Canada’s economy continues to deliver stable, modest growth, creating an ideal low-risk environment for real estate developers and investors. This was the prevailing sentiment of the Emerging Trends in Real Estate 2015 report, released by PwC and the Urban Land Institute (ULI).

Urbanization has become one of the key forces shaping Canada’s real estate markets. Once viewed as an emerging trend, urbanization today is simply the “new normal.”

People are flooding into city cores to live close to both work and the lifestyle they crave. Now, companies and retailers are following them, and this is driving new office and commercial developments in the core. In turn, urbanization is

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Source: Emerging Trends in Real Estate 2015 survey.

by Hugh F. Kelly and Andrew Warren

Leader, Canadian Real Estate, Practice, PwC. “Residential developers have started to add retail and other services such as health care and education in a bid to attract buyers. Likewise, commercial developers are including residential components to their office and retail projects.”

23

Commercial and Residential Development Converges

Good

Fair

Not good

Abysmal CMBS LENDERS/ISSUERS

ARCHITECTS/DESIGNERS

REAL ESTATE CONSULTANTS

INSURANCE COMPANY REAL ESTATE LENDERS

COMMERCIAL BANK REAL ESTATE LENDERS

COMMERCIAL DEVELOPERS

HOMEBUILDERS/RESIDENTIAL LAND DEVELOPERS

REITS

REAL ESTATE INVESTMENT MANAGEMENT

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Excellent

Based on Canadian investors only

REAL ESTATE BROKERS

building.ca

Real Estate Business Prospects for 2015

PRIVATE LOCAL REAL ESTATE OWNER

blurring industry lines, as commercial and residential developers explore the opportunities that mixed-use properties bring.

Fueling all of this development is abundant investment capital and funding. Domestic and foreign investors alike are eager to pour their capital into new projects. Loan amounts are rising as banks become increasingly active—but no less discerning—lenders to high-quality commercial and residential projects. Pension funds and other institutional investors are looking to increase their real estate holdings.

There are concerns, however, especially when eager but inexperienced lenders or investors team up with equally inexperienced developers to bring projects to market.

From a regional perspective, western Canada continues to be the country’s economic engine. Alberta markets are strong, propelled by Calgary’s office boom and significant development—from offices to condos to museums and an NHL arena— in Edmonton’s core. Vancouver, on the cusp of an economic resurgence, has several office developments coming onto the market, while foreign investment continues to pour into its robust housing sector. Saskatoon is enjoying record housing sales and long-awaited growth in industrial space.

In the east, Toronto’s condo market remains strong and stable as people continue to flock downtown. And retailers are following, eager to deliver the services and amenities that core-dwellers demand. In Montréal, the office market will coast along while condo development slows as the market continues to absorb the new inventory—yet retail is expected to undergo significant development and change. Halifax’s office market is looking bright, offsetting reduced confidence in the housing market.

Looking ahead, what are the likely best bets in Canadian real estate? Western Canada will remain the place to be, buoyed by strong performance in Calgary and Edmonton. Commercial and office space on the edges of the urban core looks promising—as long as it’s the right price. Speculative industrial appears strong in Alberta and the western part of Greater Toronto. Those focused on Toronto opportunities would do well to explore retail opportunities as well as multi-residential opportunities along transit corridors. And in a country with an aging population, seniors’ housing—well managed and in good locations— offers attractive potential.

“In the Canadian market, the bidding on prime properties can be quite competitive. In response to this competition, the market has become very creative in finding ways to enhance value. The convergence of residential and commercial development is a way to illustrate this value,” says Frank Magliocco, National

MULTIFAMILY DEVELOPERS

Source: Emerging Trends in Real Estate 2015 survey.

Urbanization has become part of the new normal of Canadian real estate, rather than an emerging trend itself. Now, urbanization is sparking new trends that are blurring the lines between residential and commercial developers. An interviewee summed it up thusly: “Business overlap will increase and will drive behavioral changes—growth by intensification.”

As many urban dwellers have discovered, services and amenities haven’t kept up with the pace of downtown development—not only in terms of retail, but also health care, education, and other areas. In response, residential developers have begun to add retail and other services to their projects in a bid to attract buyers.

At the same time, many commercial developers are adding a residential component to their office and retail projects. A major retailer, for example, recently signed a deal to develop land near one of its shopping centers into a high-rise residential complex. Other commercial property owners, including some real estate investment trusts (REITs), are redeveloping or intensifying existing properties to reflect mixed uses—usually with a residential component.

This convergence of commercial and residential development appears to be driven by a desire for developers to maximize upside by controlling more aspects of

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2015 Forecast Economic Indicators Total employment growth

Unemployment rate

Personal income per capita growth

Population growth

Total housing starts

Retail sales growth

Halifax

3.4%

2.2%

5.7%

3.7%

Vancouver

3.3%

2.6%

6.0%

3.5%

0.9%

2,017

4.9%

1.7%

18,040

4.9%

Calgary

3.1%

1.9%

4.7%

Edmonton

3.0%

1.9%

4.8%

2.8%

2.1%

13,547

5.3%

2.9%

1.9%

12,559

5.1%

Saskatoon

2.9%

0.7%

Toronto

2.9%

2.4%

4.3%

1.1%

2.6%

3,210

4.5%

7.2%

3.1%

1.9%

34,576

4.2%

Winnipeg

2.8%

Montreal

2.5%

1.9%

5.4%

3.1%

1.4%

4,266

3.5%

1.7%

7.6%

3.4%

0.9%

14,855

4.2%

Ottawa

1.9%

1.6%

5.9%

3.3%

0.8%

6,478

3.5%

The real impact of this new supply on the office market involves the space left behind as tenants move into their new space. Some older buildings will likely be upgraded to a project, to add value to their property holdings, and to grow. better compete with the newer spaces, while others will inSome developers may encounter challenges as they cross over stead choose to compete on price, positioning older buildinto less familiar ground, but we expect this trend to continue. ings as a lower-cost alternative for tenants who want a deLooking ahead, we can expect to see more and more retail sirable location but who don’t need all of the amenities and services along the streets of Canada’s city cores and along offered by the new space. An interviewee put it well with the major transit arteries, especially where new developments following quote: “Tout le monde veut aller au ciel, mais perpredominate. Major brands are likely to move into these new sonne ne veut mourir.” Translated, everyone wants to go to spaces, too—though with new formats and smaller footheaven, but nobody wants to die. A number of office tenants prints. If done correctly, the addition of retail, services, and want new office space, but may not be willing to pay the perhaps office space will create a positive synergy where each higher rents required. The result is that there is going to be use provides customers or tenants for the other. a period of adjustment in these markets, when more space competes for changing composition of tenants.

Office Tenants Demand New Space While the interest in leasing the new space indicates Office tenants are demanding new amenities from builders that the market will welcome the new office space, there is in order to deliver the workspace configurations and features no getting around the fact that it will cause some uncerneeded to attract and retain today’s talent. New supply will be tainty in the affected office markets. Vacancy rates may indelivered in a number of markets as a result. Market demand for this space is crease and market rent is likely to become dynamic in a number of areas. One obvious, as a significant amount of this interviewee, a top real estate service provider, offered up his opinion on market new space is preleased. Tenants appear rents: “There are really about four different market rents today. It all depends on quite willing to pay for the higher-qual- the situation and the current status of the space.” Different lease rates are being ity space in many markets, so the new quoted for first-generation space, turnkey sublet space, vacant sublet space, developments make good, long-term and renewal rates. economic sense from the developers’ perspective. Part of the economic deci- The Rise of the “Superprime” Asset Class sion is related to using less space per So-called superprime assets continue to attract capital looking for safe returns. worker. Tenants may be paying more Superprime assets are defined as those whose location is considered irreplaceper foot for the new space, but the im- able. The use in these locations may change with market demand, but the actual pact on real estate costs is not a one- physical and perhaps historical position of the property is unique. Since this type for-one exchange. of asset is in short supply, the competition to purchase it can be intense. The level The leasing of the new space is no of competition leads to very aggressive pricing. An increasing number of investlonger simply a real estate decision. ors are sitting on increasing levels of capital and are eager to put it to work in the The human resource department also perceived safety of these premium properties. is now often involved, as the quality In Canada, the “flight to quality” has compelled investors to trade these irand location of new space are seen as a replaceable assets at the lowest cap rates. The search for high-quality assets is very important tool to attract and re- likely to continue; but with a limited supply and owners typically looking to hold tain talent. for a longer term, future activity will be limited. They just don’t trade very often.

DECEMBER 2014 JANUARY 2015

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500,0

400,0

300,0

200,0

100,0

Source: Canadian Conference Board

24

Real GDP growth

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-100,0

The Pursuit of Assets Remains Intense—and Increasingly Global

Net Migration by City 2014–2018

Competition for high-quality Canadian assets is poised to intensify over the next few years. Some real estate players are concerned that an influx of new foreign investors could drive Canada’s already lofty valuations even higher and give rise to an asset bubble. However, Canada has one of the lowest proportions of foreign real estate investment in the world, and the domestic market is dominated by pension funds, insurers, and REITs. These domestic players have ample resources and a clear desire to increase their real estate holdings to secure strong returns in a secure environment. One interviewee put it this way: “Pension funds are pounding down the door to get into the pipeline for mixed-use projects.” In addition, these players’ knowledge of local markets may continue to give them the edge in winning key Canadian assets.

While valuations on prime assets are being pushed up by this competition, it’s not a trend that’s causing much concern in the market. Interviewees noted that the premium being paid for the best assets is not spreading to lower-quality assets in less desirable locations. The higher perceived risk is being appropriately reflected in cap rates.

Intercity International Interprovincial

500,000

25

Scarcity of Multiresidential Rental Assets Gives Rise to Development/Redevelopment Trend

400,000

Everyone, it seems, wants to be in the multiresidential rental sector—and the desire to hold on to these precious properties has resulted in a distinct lack of product on the market. With few opportunities to buy, companies are focusing instead on creating value from within their existing portfolios, often through development or redevelopment. These projects may well include purchasing existing assets to hold for potential redevelopment at a future date.

Developing multiresidential versus acquiring may also be an opportunity in this market. An interviewee mentioned that the combination of low interest rates and the potential for a reduced construction premium might make development returns more attractive than those that can be earned by acquiring high-priced assets. These opportunities may be limited, but could be worth exploring in 2015.

Due to the age of the existing rental stock, the end result could be a portfolio of newer assets than what could be acquired in the market.

300,000

200,000

Matching Lenders with Borrowers The continuing flood of new capital into the Canadian real estate market, whether debt or equity, has also brought with it new and, in some cases, inexperienced lenders. There is a lot of competition to place capital, and this is being reflected in narrowing spreads and more favorable terms being reported by some of our interviewees. On the positive side, builders who are having trouble getting financed by traditional lenders may very well have alternative sources to consider.

However, this may well put some of these new lenders in situations where they may find themselves involved with inexperienced developers. One interviewee remarked, “If a builder can’t get bank financing, there is still capital available, but it does make you wonder about the potential viability of the project when you have two inexperienced parties involved.” The resulting new product may not in fact be good for the local market, particularly in the condo sector.

100,000

-100,000

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EDMONTON

CALGARY

SASKATOON

HALIFAX

OTTAWA / GATINEAU

WINNIPEG

VANCOUVER

MONTREAL

The Continuation of Office Compression

TORONTO

Source: Canadian Conference Board

0

Workplace location and quality are key tools that companies have used to attract and retain high-quality talent, and in recent years many companies have embraced open, collaborative work environments in order to engage younger workers. The result is more collaborative and flexible space along with examples of no building.ca

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Downtown Class A Office Space: Q2 2014 Downtown

26

Under construction Space sq ft

Preleased

Market vacancy rate

Proposed development sq ft

Toronto

5,000,000

56%

5.7%

5,700,000

Calgary

4,900,000

75%

2.5%

3,300,000

Vancouver

2,100,000

60%

5.9%

3,000,000

Montreal

1,100,000

58%

9.4%

4,800,000

offices, just work locations. But as the millennials get older and a new generation enters the workplace, will their tastes change—and will today’s open, densely populated offices be what the market demands? The rise in workspace flexibility could help deal with any change in space demand per worker. Today’s new flexible workspace could be adjusted to meet new worker configurations.

Municipal Issues

Municipal government policy plays an influential—and, in many cases, frustrating—role in real estate development across Canada. Interviewees noted that limited land being made available as well as increasingly lengthy and costly Rising Construction Costs: Hindrance or Benefit? approval processes are areas of concern with municipal governments. As residents and businesses alike strive to make The ongoing battle for talent between the real estate contheir voices heard at the municipal level, it may well be time struction sector and Canada’s booming natural resources for the real estate industry to do the same, especially around industry continues to drive up labour costs. At the same urban issues. Interviewees commented that a great opportime, continued Asian demand for construction materials is tunity exists for real estate industry associations to play an boosting real estate input costs. Many industry watchers important advocacy role on many urban issues, especially fear this could slow down the pace of development—or even around planning, zoning, and transit. A prime example stop projects from getting off the ground. Yet others see riswould be encouraging more multiuse zoning, to allow deing costs as a means to avoid overbuilding. velopers to combine residential, retail, and other services (e.g., medical clinics) and create the vibrant urban cores people demand.

– Western Canada—especially Calgary, Edmonton, and Vancouver—will likely be the place to be in 2015.

– Retail in Greater Toronto and the Calgary urban core— especially where potential exists for income growth and redevelopment.

– Industrial in Calgary, Edmonton, and the western edge of Greater Toronto—in particular, properties designed to support distribution.

– L and for both single-family home development and speculative industrial.

– Commercial and office space on the fringe of the current urban core—as long as it’s at the right price.

– P urpose-built multiresidential in Greater Toronto, especially in core and transit corridors.

– Seniors’ housing in good locations and managed by solid, trustworthy firms.

DECEMBER 2014 JANUARY 2015

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Is Consolidation in the Cards for Canadian Real Estate Owners?

With Canada’s limited stock of investable properties—and the market flooded with capital and low-cost debt—is some industry consolidation in the cards? It could become increasingly difficult for all market participants to continue to grow. Will smaller players be able to access the capital and find investment opportunities to support continued growth? Or could we see firms opt for growth through a merger with or acquisition of other market participants? Consolidation may be a way for real estate companies to expand their opportunities for growth by expanding into new areas of expertise or getting access to new development projects.

2015: A Recap Canada’s real estate market remains steady as the industry looks ahead to 2015.

Economic growth in western Canada will continue to drive significant opportunity in Vancouver, Calgary, Edmonton, and Saskatoon in the residential, commercial, and office sectors. Toronto’s housing market continues as a solid performer, while office and industrial sectors remain strong. Montréal looks to revitalize its treasured retail district to boost an increasingly condo-driven core. In Atlantic Canada, Halifax will build up commercial and office space while hoping for the residential market’s sluggishness to end. And everywhere, industry players will search for opportunities in and around the city cores—capitalizing on the trend of urban migration that shows little sign of abating. “The real estate industry of Canada’s large urban centres continues to be an engine of stable economic growth for the country. It has proven itself to be a low-risk business environment for developers and investors,” says Richard Joy, Executive Director, ULI Toronto. “The market shift toward urban cores and transit supportive communities is a unique opportunity to maximize the value of new public infrastructure investment in major cities across the country.” b

Photography by naturally:wood, Brudder

Best Bets in 2015

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Sticks

27

Proposed changes in Ontario’s Building Code clear the way for mid-rise wood buildings—but not everybody is happy.

hings are looking up for those who prefer to build with wood. Ontario is poised to follow British ColumBy John G. Smith bia and Québec with Building Code changes that will allow wooden mid-rise structures to reach as high as six storeys beginning in January 2015, compared to the four-floor limits which exist today. More than 250 such structures are already in design or construction in Canada’s westernmost province, which introduced its changes in 2009. Another handful of projects are underway in Québec, following changes to its Charte du Bois (Charter of Wood) in 2013. The remaining provinces are expected to adopt similar changes to the national code, coming late in 2015.

“The truth about building with wood is that it is safe, costs less, is versatile, meets code and has a lighter environmental impact,” said Michael Giroux, president of the Canadian Wood Council, when unveiling the group’s WoodFacts promotional campaign. “It is incredibly important for Canadians across a wide spectrum to understand these facts, particularly as we find the construction industry evolving and incorporating new and exciting wood technologies into buildings.”

Several lobby groups representing builders, including the Ontario Home Builders’ Association, the Building Industry and Land Development Association (BILD), and the Residential Construction Council of Ontario, have all lined up to support

Photography by naturally:wood, Brudder

T

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Caption Ilibus. Cesti in re ditatemqui tempore sed undentia BLD Dec-Jan 2015.indd 27 saperum et explicias andus

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the taller heights. For its part, BILD commissioned Unlock­ ing the Potential for Mid-Rise Buildings: Six Storey Structures, which concluded the taller buildings would help Toronto-area cities prepare for the 100,000 people and 50,000 jobs that arrive every year. This would largely be made possible by allowing commercial or retail uses on lower floors, promoting wooden structures as an option along arterial roads and for in-fill projects.

There are limits, of course. The Ontario changes would restrict building heights to 18 metres from the first floor, and ensure the top floor is within 20 metres from a fire access route, reflecting the height of fire ladders and hoses.

The “made in Ontario� model will also require 10 per cent of the perimeter be within 15 metres of a street that provides fire service access. Under the proposals, a six-storey midrise wood building with residential space will be capped at 1,500 square metres, or 25 per cent of the size allowed for DECEMBER 2014 JANUARY 2015

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a non-combustible building. Those without any residential space can be as large as 3,000 square metres, or 42 per cent of the building area for a non-combustible option.

Several other proposed Building Code changes are specifically included to address fire risks. Non-combustible stairwells will need a fire-resistance rating of at least 1.5 hours, while enhanced sprinklers will need to cover balconies and decks. Even though the sprinkler heads are outside, the risk of freezing is addressed by keeping the pipes empty before the water is actually required. There will also need to be access to more water for firefighting, while fifth and sixth floors will need to be clad in non-combustible material, and 25 per cent of exterior perimeters must face a street. Changes to the 2015 Model Fire Code are to include related changes such as the need for fencing to prevent unauthorized access, and controlled storage of combustible material and ignition sources.

Other technical changes include everything from structural

Photography by naturally:wood, Brudder

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Photography by naturally:wood, Brudder

design changes to account for factors such as settling and shrinking; anchor clips for exterior maintenance like window washing; and increased structural loads.

Some groups feel the restrictions do not go far enough. A war of words involving press releases and legislative briefs has emerged between the wood industry and those representing other building products. Among those arguing that the taller heights are premature are the Canadian Institute of Steel Construction, the Canadian Steel Producers Association, Canadian Welding Association, Canadian Concrete Masonry Producers Association, St. Mary’s Cement, Ready Mixed Concrete Association of Ontario, MasonryWorx, and Cement Association of Canada. A brief they collectively prepared through the Ontario Coalition for Fair Construction Practices placed a particular focus on safety, citing high-profile fires which included the helicopter rescue of a crane operator in Kingston, Ont. “The tragic loss of senior citizens in January 2014 [through the massive fire at a L’Isle-Verte, Que. nursing home] demonstrates how dangerous these buildings can be in operation, and how many lives can Previous page and be put at risk as a result,” they said. left: The six-storey “Political interference in the estabWood Innovation and lished code development process is an Design Centre in Prince George, B.C., designed unnecessary and potentially dangerous

by Michael Green route,” they added, citing private memArchitecture, built by bers bills by Nipissing MPP Vic Dedeli PCL Constructors and Thunder Bay MPP Bill Mauro. “We Westcoast and understand that governments want to completed in October, showcases the design support domestic forestry interests, and construction but there are other appropriate ways of possibilities of accomplishing this. All construction large-scale wood materials should compete in a fair and buildings, for example open marketplace. We do not believe it in its use of charred western and untreated is the government’s role to favour one red cedar cladding on type of building materials over others the façade. in public construction.”

The group also raised the risk of “building envelope breaches” which can open a path for water, mould and mildew. “In British Columbia, it is estimated that the wood frame course of construction insurance rates run significantly higher per month [depending on fire protection] in comparison to concrete construction rates,” its brief noted.

“Even when completed with a fully functional sprinkler system, it is noted that the rates are still considerably higher for wood frame than for concrete.”

Collectively, they are pushing for the changes to be deferred until after the 2015 changes to the national building code. “Bill 13 represents a blatant aim to boost the wood industry at the expense of citizens’ safety,” the coalition insists.

“There needs to be discussion about what risks Ontarians are willing to be exposed to when it comes to the construction standards set for the buildings that we live and work in.”

“Sticks and stones,” said Giroux, referring to attacks ques-

tioning the safety of wood as a building product. His association went so far as to issue a press release that called the arguments a “cheap shot.” The opposing arguments were somewhat diluted this February by the release of research into the fire risks associated with different building types. The University of the Fraser Valley in British Columbia’s Fire Outcomes in Residential Fires by General Construction Type found no real difference between steel, concrete or wooden structures in terms of fire, death or injuries when the buildings were equipped with sprinkler systems and smoke alarms. Increasing awareness of the Fire Code, which informs how provinces adopt and enforce such rules, will help to improve the safety practices on construction sites, Giroux adds.

As popular as the buildings could become in urban areas, opening new markets for pre-panelizers and modular builders, there are limits to where the wooden mid-rise structures will appear. Just because the Code guides such projects does not mean that they will be sprouting up in every community. “Killaloe, Ont., population 800, is not going to build one of these,” Giroux says, noting how a tiny, isolated community would likely lack the construction equipment to create one. “It’s a new construction choice for cities and areas within cities that are on transit routes, where urban intensification is important.”

Concrete, steel and other options also remain. “You have people that have preferences to other materials,” Giroux admits. “At the end of the day, it is the discretion of each municipality to make decisions that are best suited for their communities.” That said, wood is an attractive option in several ways. A mid-rise building made of wood can be constructed for 10 to 15 per cent less than the cost of a concrete and masonry alternative. There is also a move to persuade policy makers to look at wood as the first option when creating such buildings under public works projects.

Taller mid-rise wood buildings are not the last of a move to promote taller heights, either. The Canada Wood Council’s taller building program is drawing attention to the potential for projects up to 20 floors high. Countries such as Australia, Germany, Italy, England and Norway, have found ways to use Cross Laminated Timber (CLT) to reach its tall heights.

A nine-storey apartment building was created in London in 2009, adding to a seven-storey structure in Sweden, and a 10-storey version in Australia.

In Canada, the tallest version is the University of Northern British Columbia’s new Wood Innovation and Design Centre in downtown Prince George. At 27.5 metres, created with CLT floors and ceilings, it is even the tallest contemporary wood structure in North America. The staircase from the ground level to the mezzanine is made with Laminated Veneer Lumber (LVL). “We have the products and building systems now. It is just a matter of introducing the innovation into the Canadian market,” says Giroux. The possibilities continue to grow. b

29

This article originally appeared in the Nov.-Dec. 2014 issue of Contractor Advantage Magazine.

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30

POINT

V I E W Walk with Joy ULI Toronto’s Executive Director reflects on the positive and negative potentials of land value capture and Tax Increment Financing while walking in New York City.

By Richard Joy

The Urban Land Institute’s massive annual Fall Meeting was held this year in New York City, and while attending I took the opportunity to stretch my legs and witness firsthand the monumental undertaking that is the Hudson Yards development site. Located near the northern end of the justifiably famous High Line walking path, the Hudson Yard project is billed as the largest private real estate redevelopment in U.S. history. It boasts more stunning facts and statistics than can fit a column, not the least of which is that its co-developer is Toronto-based Oxford Properties.

But it was a different Toronto connection that put the Hudson Yards project into local news stories. To finance the projected US$2.4 billion public transit infrastructure investments required to make this project work, New York is relying on significant “land value capture” revenues from Tax Increment Financing (TIF), the very same financing approach favoured by Toronto’s new mayor John Tory to fund his SmartTrack transit plan. Introduced in 2005, the Hudson Yard TIF has shown early signs of faltering, as projected assessment increases have not yet materialized. In a nutshell, TIFs are public financing plans for public infrastructure investments that bank on long-term windfall property tax assessment (development) increases over and above what might otherwise have been the “natural growth” of assessment had such infrastructure investments not to be made.

Whether Mayor Tory’s made-in-Toronto TIF plan is fiscally sound or not will be a matter of debate for years. But the uncertainty over the long-range development potential of the lands in the vicinity of SmartTrack will ensure that the potential TIF value of this proposal is highly speculative. This is problematic given that Tory is promising to have TIFs contribute one third of the Smart Track’s estimated $8-billion cost.

That the Province supports the idea of electrifying the GO Rail system through its emerging Regional Express Rail plan is in Tory’s favour. But SmartTrack seeks to electrify portions of two GO lines (Stouffville and Kitchener) that together only account for around 15 per cent of the system’s current passenger volume, compared with the two Lakeshore GO lines that DECEMBER 2014 JANUARY 2015

BLD Dec-Jan 2015.indd 30

D E P

carry over 55 per cent of its passengers (also candidates for electrification).

Heavily reliant on convincing the provincial government to prioritize SmartTrack over myriad other Toronto Regional transit infrastructure priorities, Tory needs to make his current proposal more financially attractive and secure. Unlike the Hudson Yard TIF, he might wish to establish more certain guarantees of local contributions that demonstrate the viability of his plan. Tory might look to other famous international land value capture models such as London’s Canary Wharf or its current Crossrail project for inspiration. In these examples, landowners who stand to benefit from public transit infrastructure investments have agreed to upfront, non-tax, contributions to support the case for prioritized public investments.

Locally, it is well known that developer First Gulf, owner of the 30-acre former Lever Brothers soap factory at the foot of the Don Valley Expressway, is very interested in courting a new electrified GO train station to its commercial site (which is adjacent to two GO lines, including the proposed SmartTrack route). It is also known that Great Gulf are in discussions with Metrolinx and other government stakeholders regarding non-tax sources of funding for a transit station adjacent to its site, including private sector contributions. If successful, Mayor Tory may have an ace up his sleeve as he courts senior govRichard Joy is Executive ernment funding partners.

Director of ULI Toronto.

Do other opportunities exist across Previously, he served as the region to secure upfront private Vice President, Policy and sector financial contributions to pubGovernment Relations at lic transit infrastructure investments? the Toronto Board of There is a much more important story Trade, and was the associated with Manhattan’s Hudson Director of Municipal Yards than whether its TIF plan will Affairs and Ontario deliver on its promise or not. Watching (Provincial Affairs) at the construction of this massive deGlobal Public Affairs. velopment stretching over top of 30 Follow him on Twitter active train tracks is feat of urban in@RichardJoyTO or email tensification that the Toronto region is at Richard.Joy@uli.org likely a long way from realizing. But as a lesson in land value capture, TIF plans such as the Hudson Yard project are likely not the basket that Mayor Tory should put all of his financial eggs into. b

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