Building August September 2015

real estate development

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construction

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architecture

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65 04

CONTENTS

what’s on BUILDING.ca

FEATURES

14 > Grexit Wounds /

How the Greek debt crisis impacts the dollar and Canadian real estate.

By Rahim Madhavji

READ > Best Tall Buildings: A Global Overview of 2014 Skyscrapers Routledge presents the latest edition of one of the most fundamental books on new building and construction.

18 > Unrolling the Sidewalks / Priced out of marquee cities, those attempting to locate in urban environs are turning to “18-hour cities” – a buzzword that describes a trend Canada is already seeing. By Rhys Phillips

16

22 > Bullseye missed, radars still blip / Despite the failure

of Target, Canada is still ranked one of the world’s top retail destinations.

By Peter Sobchak

WATCH > Energy Efficiency in Hospital Buildings IESO and Building hosted a roundtable to explore areas of energy savings in hospital buildings.

24 > A Watchmen’s Compass / New project monitoring guidance co-branded by RICS and CIQS will help fill the gap for lenders in Canada’s construction industry. By Tom Pienaar

26 > Tin Buckets and Cash Flow / Property maintenance may WATCH > Canary District in 60 seconds Time-lapse construction of the Canary District in Toronto..

be unglamorous, but it is an essential side of real estate investment.

By Richard Crenian

IN EVERY ISSUE

4 > Editor’s Notes 6 > Developments 10 > Market Watch 12 > Legal 30 > Viewpoint

ABOVE IMAGE:

Imagined as a mixeduse, amenity-rich, master-planned neighbourhood in Calgary’s downtown core, East Village will be home to more than 11,000 residents upon completion in 2027. (Image courtesy of CMLC)

building.ca

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Volume 65

04

04 Number

All Fun and Games Until…

Editor / Peter Sobchak

Kudos to Toronto for running what, by many accounts, was a successful event with the 2015 Pan/Parapan Am Games. HOV lanespawned traffic woes and a price tag in the neighbourhood of $2 to $3 billion aside, tourist spending went up in the downtown core, as well as Hamilton, Ajax and Milton; infrastructure was upgraded in some places; athletes got swanky new facilities; and civic pride was riding high. It appears money was made and a good time was had by all. Which is of course why Toronto immediately began moving on a 2024 Summer Olympic Games bid: basking in a post-coital glow and clearly choosing to ignore the mountain of evidence proving why this would be a horrible decision.

Of course boosters will point to a smattering of reports that suggest global megaevents like the Olympics can be an economic boon to host cities, and are even trying to rebrand them as no longer just sporting events, but now “urban” events: occasions for large-scale urban development and transformation. But those sources are dwarfed by the panoply of much-publicized evidence showing the negative after-effects, like overpromising of benefits; underestimating costs; and using public resources for private interest. When the dust settles, mega-events do little to stimulate growth, and while they might boost civic pride, can strain already-burdened government budgets.

Need proof? As Martin Muller of the University of Zurich persuasively writes in the Journal of the American Planning Association, since 1960, without exception, the Olympic Games have gone over budget on average by 179 per cent. The 2004 Summer Games in Athens cost at least 3.4 per cent of Greece’s GDP at the time and left a legacy of underused sports facilities and environmental destruction. In Rio de Janeiro, preparations for the 2014 FIFA World Cup and the 2016 Olympic Games exacerbated socio-spatial polarization, as authorities evicted and resettled tens of thousands of residents. It feels like medals should be handed out for cost overruns, schedule slips, oversized infrastructure and social polarization alone (with the gold going to the 2010 Commonwealth Games in New Delhi; initially estimated to cost about USD$50 million, but actually clocking in at USD$4 billion!).

It’s not just the massive price tag that comes with these events. They’re loaded with promises, but in reality “mega-event priorities tend to displace long-term urban development priorities,” says Muller. “Instead of the event becoming an instrument for urban development, urban development becomes the instrument for the event.” In the end, publicly financed sporting events do not create positive net economic benefits for the community, and instead typically comes at a significant cost to surrounding communities, in addition to long-term negative effects on both people and the environment. Member of I’ve warned before about the dangers of being seduced by a shiny new pro sports facility (Building, February-March 2013), and the scale of potential damage caused by a mega-event is much greater. With names like Sochi and London still floating in the air, many governments are beginning to wonder if such a large-scale event is worth it. Then there are those that have seen the writing on the wall, evidenced by the recent lack of potential cities vying for upcoming host duties, such as Boston withdrawing a 2024 Summer Games bid, and a number of potential hosts either not submitting or withdrawing a bid for the 2022 Winter Olympics (cases in point: I am heartened to hear that cities such as Munich, St. Moritz, and Krakow had to withdraw because, when put to a referenda, their citizens said “No, thanks.”). At time of print, Toronto had not officially submitted a bid, but it somehow feels inevitable. And foolhardy.

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

Richard Crenian, Richard Joy, Rahim Madhavji, Rhys Phillips, Tom Pienaar

Circulation Manager / Diane Rakoff 416-442-5600 Ext. 3551 Reader Services / Liz Callaghan Sales Manager / Faria Ahmed (416) 510-6808 fahmed@building.ca Production / Steve Hofmann Senior Publisher / Tom Arkell President, Annex Newcom LP / Alex Papanou Building magazine is published by Annex Newcom LP. 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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Peter Sobchak Editor We welcome your feedback. Send your questions and comments to psobchak@building.ca AUGUST SEPTEMBER 2015

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06 News

Canada’s skyline office inventory on the verge of overhaul TORONTO | The premiere office towers that make up the skylines of Toronto, Montréal, Calgary and Vancouver boast by far the most expensive office space to rent, costing 18 per cent more per square foot than non-trophy space in those markets in the first quarter, according to JLL. “After years of institutional investors monopolizing the skyline market, we are anticipating a shift,” said Brett Miller, president of JLL Canada. “With 7.5 million square feet of office space due to come to market there will be a flight to quality. Tenants will flock to the new buildings which offer quality, customizable, and efficient space. As a result, the current skyline buildings which have traditionally been in high demand will be left with available space, driving the skyline vacancy rates up.”

JLL’s 2015 Skyline Review tracks micro-segments of 47 city centres across North America, including what they call “Canada’s Quartet cities.” With a sizeable amount of new office space under construction in the Quartet markets, skyline inventory is set to increase by 14 per cent from 2015 to 2018.

As the cities prepare for a structural shift, tenants are seeking greater value from their real estate and taking full advantage of the current construction cycle by signing leases in new buildings that can better meet their evolving businesses, employee attraction/retention and sustainability requirements.

On average, existing skyline inventory is 22 years old and many landlords are investing in capital improvements across their portfolios. In fact, on average, including renovations, existing skyline buildings were constructed in the early 1990s and do not offer the same value to tenants as newer buildings. As a result, landlords of many of the older buildings in the existing skyline will find it increasingly difficult to meet tenant needs and will face the challenge of maintaining high occupancy rates. This is particularly noticeable in the areas of floor plate design and efficiency, energy performance and amenities offered.

A desire from tenants to modernize, optimize and rationalize has resulted in new construction across the Quartet Skyline, leaving large blocks of available space in the older buildings as existing tenants make the move to new towers. The Quartet availability rate has risen from 6.8 per cent in 2012 to AUGUST SEPTEMBER 2015

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The three most common methods of Alternative Dispute Resolution that were used during 2014 in North America were: party-to-party negotiation; mediation; arbitration.

MENTS

DEVELOP-

North American construction disputes decline in value but take longer to resolve HIGHLANDS RANCH, COLO. | Disputes relating to major construction projects in North America decreased in value to an average of US$29.6 million in 2014, according to a report from ARCADIS, a natural and built asset design and consultancy firm. At the same time, the length of time to resolve these disputes increased significantly to an average of 16.2 months.

For the second year running, the most common cause for disputes in North America during 2014 was errors and/or omissions in the contract document. Differing site conditions ranked second, while a failure to understand or comply with contractual obligations on the part of an employer, contractor or subcontractor ranked third.

“The industry has recognized that the cost of counsel, consultants and internal resources to proceed with formal litigation is extremely expensive. Therefore there is willingness on behalf of all the

9.5 per cent at the end of Q1 2015, while the total inventory across the Skyline has increased from 51.9 million square feet to 55.4 million square feet during this same period. The availability rate will likely continue to rise until 2018, fuelled by the completion of additional new construction.

Recent market conditions suggest a softening in trophy rental rates is around the corner, with markets such as Calgary and Vancouver already displaying downward pressure on rents across the skyline markets. A driving factor to the current construction boom is the absence of skyline properties for sale, which has prompted pension funds and other institutional investors to turn to new development in order to meet their real estate allocation needs.

Three of Canada’s largest pension fund real estate arms, Oxford Properties (OMERS), Cadillac Fairview (OTPP) and Ivanhoe Cambridge (CDPQ), currently have five office towers (totalling 3.3 million square feet) under construction in the Quartet.

Furthermore, with the spread in yields between existing skyline buildings and new towers at an all-time low, institutions are increasingly viewing development as being a more viable option on a risk-adjusted basis to purchasing when (and if) skyline properties come to market.

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Source: ARCADIS Global Construction Disputes: The Higher the Stakes, the Bigger the Risk

Global construction disputes – summary of results Dispute value (US$ millions)

Length of dispute (months)

2010 2011 2012 2013 2014

2010 2011 2012 2013 2014

Middle East

56.3 112.5

65.0

40.9

76.7

8.3

9.0

14.6

13.9

15.1

Asia

64.5

53.1

39.7

41.9

85.6

11.4

12.4

14.3

14.0

12.0

North America

64.5

10.5

9.0

34.3

29.6

11.4

14.4

11.9

13.7

16.2

7.5

10.2

27.0

27.9

27.0

6.8

8.7

12.9

7.9

10.0

Cont. Europe

33.3

35.1

25.0

27.5

38.3

10.0

11.7

6.0

-

18.0

Global average

35.1

32.2

31.7

32.1

51.0

9.1

10.6

12.8

11.8

13.2

UK

involved parties to try and try again to arrive at a settlement,” says Roy Cooper, ARCADIS U.S. vice president. The three most common methods of Alternative Dispute Resolution that were used during 2014 in North America were: partyto-party negotiation; mediation; arbitration.

Significantly, the number of projects going into dispute is also expected to rise during 2015, with projects accepted for lower margins during economic downturns and labour shortages in some markets likely to prove a catalyst for disputes. According to Cooper, it is no secret to anyone that the North American infrastructure system, much of it built in the 1950s, is in dire need of not just repairs but a significant overhaul. “With big projects ahead, the industry is now seeing a program of interconnected projects, rather than discrete projects. With big programs come even bigger risks and increased political and public attention. As owners consider these factors, failure and high visibility disputes are not an option. Owners have turned to alternate project delivery, increased project controls and early intervention to mitigate disputes to help manage that risk,” he said.

The report found that construction dispute values were the highest in Asia at $85.6 million where values more than doubled year over year, closely followed by the Middle East at $76.7 million. In the U.K., dispute values dipped to $27 million. Meanwhile, the global average time taken to resolve disputes rose to 13.2 months, up from less than 12 months in 2013. Significantly, all areas of the world saw the resolution process take longer, with the exception of Asia where the average dispute length took two months less.

According to Mike Allen, Global Leader of Contract Solutions at ARCADIS, “Governments and developers are commissioning large-scale construction programs with levels of investment reaching tens of billions. These programs are often highly complex and include a combination of

tender pricing made during the recession and low availability of resources.

In this scenario, disputes are not only much more likely but also potentially more costly.”

07

Standards WELL Building Standard coming to Canada

WASHINGTON, D.C. / OTTAWA | Green Business Certification Inc. (GBCI) and the CaGBC have formed an agreement to advance the WELL Building Standard in Canada, a performance-based system for measuring, certifying and monitoring features that impact human health and wellbeing, through air, water, nourishment, light, fitness, comfort and mind. “Just as LEED has transformed the building sector to address environmental accountability, WELL will further that vision by focusing deeply on the people in the buildings and providing developers and owners with a new way to account for health and human occupancy challenges,” said Mahesh Ramanujam, GBCI president.

Grounded in a body of medical research that explores the connection between the buildings where we spend more than 90 per cent of our time and the health and wellness of the people in them, WELL measures attributes of the built environment by looking at seven ‘concepts’ and over 100 ‘features’ that address behaviour, design and operations, thereby informing building owners and employers how well their space is supporting human health and wellness.

WELL can be applied across all building types and is currently optimized for commercial and institutional projects.

WELL is administered by the International WELL Building Institute and is third-party certified by GBCI. The new agreement between GBCI and the CaGBC will bolster the adoption of WELL in Canada by aligning the business and administrative processes used to implement WELL in the U.S. with the demands of the Canadian market.

New partnership will provide accessibility solutions to ORHMA members TORONTO | The Ontario Restaurant, Hotel & Motel Association (ORHMA) recognizes that its members are in need of assistance when it comes to accessibility retrofits and compliance with the Accessibility for Ontarians with Disability Act (AODA). In a partnership that will further enhance the value proposition to its 4,000+ members, ORHMA has building.ca

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signed an exclusive contract with Adaptability Canada to help solve issues related to building accessibility and/or meeting the requirements of the AODA. ORHMA and its members are working with Adaptability Canada to address concerns regarding the intricacies of the AODA and the many complex issues that must be dealt with to make front-line businesses like restaurants and hotels fully accessible. These concerns generally revolve around the code requirements of member buildings, and how best to improve and guarantee a quality experience for guests.

This strategic partnership is intended to both ease compliance issues for its members and provide cost-effective, expert advice on how to renovate properly or consider higher levels of accessibility at the beginning of new builds. ORHMA members will receive a discount on all of Adaptability Canada’s services.

09

Brian L. Curtner 1951-2015

People in the News In memoriam: Brian L. Curtner

Global coalition formed to unify construction standards OTTAWA | The Canadian Institute of Quantity Surveyors joined over 30 con-

struction and cost engineering professional bodies from around the world at the International Monetary Fund (IMF) in Washington D.C. to launch a major initiative which seeks to create international standards in construction. The International Construction Measurement Standards (ICMS) Coalition, established by organizations representing professionals in more than 140 countries, aims to create an overarching international standard that will harmonize cost and measurement definitions in order to enhance comparability, consistency and benchmarking in the construction industry. In an industry worth a staggering $8.5 trillion in 2015 according to Global Construction Output 2020, inconsistency in something as fundamental as construction measurement can create huge uncertainty and risk.

The ICMS Coalition has stated its ambition to make tangible progress immediately, and by continuing to grow as further organizations join the effort to align high-level principles, expects to formally launch international standards in the near future. The work to draft and consult on the new international standard will be delegated to an independent committee of experts, due to be appointed by the coalition in 2015. Industry and key stakeholders will be encouraged to contribute to and lead adoption of the new framework in their markets.

Toronto-based Quadrangle Architects announced the passing of co-founder Brian Curtner due to cancer on August 15, at the age of 64. As an architect, Brian has been widely recognized for exemplary designs that include the award-winning BMW showroom at the foot of the Don Valley Parkway, Corus Entertainment’s state-of-the-art headquarters on Toronto’s waterfront and 130 Bloor Street West in Yorkville.

“Equally important to his projects was Brian’s unique ability to build longterm working relationships and turn them into friendships that spanned decades,” said Quadrangle in a statement. “Balancing entrepreneurship and commitments to family and friends, Brian was instrumental in creating a highly successful architecture practice, combining business acumen with design excellence, technical expertise and client service which continue to define Quadrangle today.” b

Mergers WZMH Architects and pellow + associates merge TORONTO | On July 1, WZMH Architects and pellow + associates officially merged practices. pellow + associates is an award-winning architectural firm established in 1978 with experience and focus in retail, urban design and planning. Their retail portfolio includes the Shops at Don Mills, the Outlet Collection at Niagara, a mixed-use project accommodating George Brown College, plus major renovation work for Les Promenades Gatineau. WZMH Architects (formerly known as the Webb Zerafa Menkes Housden Partnership) was founded in 1961, and has a scope that spans significant projects across multiple building types.

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MARKE T A Positive Mess As downtown Montréal enters a cycle of major infrastructure overhaul, office space availability continues to increase. This is actually a good sign.

Spotlight: Infrastructure

or those companies seeking a more informal workplace or simply cheaper rents. And third, when relocating to new office spaces, tenants are reviewing their occupancy standards. Using space more efficiently can translate directly into reducing one’s space needs, and hence lowering occupancy costs over both the short and long term.”

NKF Devencore’s report also highlights the unprecedented construction activity that is currently taking place. More office developments and redevelopments are underway than at any time over the past 15 years (two major developments were announced this quarter in Montréal’s Central Core, including Ivanhoe Cambridge’s 471,200-sq.-ft.Tour Manuvie, and Rester Management’s 200,000-sq.-ft.

Desjardins building), a downtown condo boom is in full flight, and much-needed infrastructure work has been initiated, which is having a significant effect.

Infrastructure overhaul does not need to be a negative for downtown business

Like many Western world metropolitan areas, Montréal is finally addressing its major infrastructure issues such as road work, waterworks, bridges and tunnels.

For Montréal, this cycle of overhaul will be one of the most important infrastructure projects undertaken in over 50 years – and one of the most disruptive to downtown businesses, many are predicting.

This makes the results of a new study by Colliers International, which looked at the impact this construction will have on downtown businesses and office vacancy rates, so intriguing. In examining the recent major metropolitan construction phase, they found evidence that goes against conventional wisdom that extensive construction negatively impacts downtown business. The report, titled Metropolis 2.0, also suggests Most of Canada’s largest cities have seen increases in ofmeasures for office landlords to mitigate any negative imfice vacancy rates recently. In Calgary, where the energy pact on the downtown office market, and to maintain a low sector drives the local economy, the combined Class “A” vacancy rate during this oncoming wave of unprecedented and Class “B” vacancy rate in office buildings jumped construction. from 4.4 per cent to 6.2 per cent over the last six months of As a historical and statistical reference, and as a major 2014, according to Newmark Knight Frank Devencore. There metropolitan comparison, Colliers researchers examined were more moderate increases in vacancy rates in Toronto, Boston’s Central Artery/Tunnel Project (CA/T) known as Edmonton, Winnipeg and Halifax, while rates were essen‘The Big Dig,’ from the early 1990s to 2006. In a response tially unchanged in Ottawa and Vancouver over the same to growing and crushing traffic congestion, The Big Dig period. One of the factors affecting the rise in the country’s re-routed the main highway through the heart of the city, overall vacancy rates is the new inventory that continues to Central Artery (Interstate 93), into the 5.6 kilometre Tip be built: over four million feet of office space was added to O’Neill Tunnel. the market inventory in 2014 alone.

During the nearly 20-year timeline of The Big Dig, BosBut Montréal’s numbers appear startlingly higher, at least ton’s downtown office rates rose and landlords experienced on paper. In its Real Estate Market Study, NKF Devencore a marked drop in rental rates. However, Colliers researchreported that vacancy rates in downtown Montréal’s Class ers found that the Big Dig was not necessarily the main “A” and “B” office buildings continued to increase over the contributor impacting downtown business. “It was holes last half of 2014, and are now at 8.6 per cent, up from eight in the economy, not holes in the ground, which negativeper cent at the beginning of 2014. Availability rates — which ly impacted Boston’s downtown business,” says Andrew take into account the office space that may currently be ocMaravita, Colliers Montréal Managing Director. “By coincicupied but is available for lease or sublet — have increased dence, two of the major economic occurrences of the last 25 to 16 per cent. years, the tech bubble bust in 2001 and the international “There are a number of reasons for the high availability economic financial crisis in 2008, occurred during The Big rate,” says Jean Laurin, president and CEO of NKF Devencore.

Dig and shortly after the end of the project. This taught us “First, the new office developments coming onto the marthat bigger picture macroeconomic conditions had a greatket have boosted the total available inventory. Second, the er impact on the overall health of the office market than the ongoing redevelopment of industrial properties has attractconstruction did. It was these economic factors, even more ed a certain category of tenant — often the creative class,

AUGUST SEPTEMBER 2015

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than the infrastructure overhaul, which explained the rise in vacancy rates and drop in rents experienced in Boston during this period.” Indeed, few landlords in Boston would point to the Big Dig as the greatest problem that they faced at the beginning of our millennium. This being said, moving around Boston in those years was messy.

A similar mess is coming to La Métropole, and Montréalers are certainly not looking forward to it. In fact, things will get worse before they get better, and economic activity may suffer in the short run. But ultimately, this impending mess

is actually a positive sign for the Montréal economy, and speaks to both investor and developer confidence. “This will be a time of great significance to Montréal as it transforms itself from a classic 1960s-type metropolis to a more vibrant business and cultural centre,” says Maravita.

“Montréalers will need to endure a few years of construction work with numerous infrastructure upgrades, new condo towers as well as the new Champlain Bridge, but the result will be a significant improvement in the city’s future business competitiveness.” b

11

Louis-Hippolyte-La Fontaine Bridge-Tunnel 2015

2021

Notre-Dame Road 2014

2016

The Restoration of Sainte-Catherine Street 2015

2019

Source: Colliers International

The Ville-Marie Expressway 2014

2017

The Turcot Reconstruction 2015

2020

The Dorval Interchange 2009

2019

Montréal’s infrastructure projects

The Champlain Bridge Reconstruction 2015

2018

The Bonaventure Expressway 2013

2018

Honoré-Mercier Bridge Construction Work 2013

2016

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LEGAL A Tale of Two Cities All-out American style Eminent Domain has come to Canada and has been endorsed by our Supreme Court. Expect to see a lot more developments moving forward if municipalities start adopting this new power.

By Jeffrey W. Lem

Perhaps one of the most dramatic statements in Canadian real property ownership rights was recently issued by the Supreme Court of Canada, to a collective yawn in the popular and legal press. Indeed the veritable sea-change in the law has gone largely unnoticed by the real estate development and construction world, even though these players have both the most to gain, and theoretically, the most to lose, from the new paradigm ushered-in by the Supreme Court.

The facts in this ground-breaking case involve the Toyota plant in Woodstock, Ont. that has actually seen much popular press of late for other developments.

Toyota makes cars. Lots of them. It is a world-class employer and it wanted to build more cars in Canada — more precisely, at a proposed plant to be built in Woodstock. But there was a small problem. A part of the land that was needed for the new plant was, well, owned by someone else (a local shopping centre) who was not willing to sell to Toyota at a price that would make the plant viable for Toyota. Rather than see this economic manna fall from the sky into the hands of another jurisdiction with suitable land to spare, the County of Oxford (in which Woodstock was situated) expropriated the necessary land from the local shopping centre, then promptly turned around and re-sold those lands, in a back-toA store transaction, on West back to Toyota, all at a substantial discount to what Toyota would Street in Goderich, have had to pay in the open market to that shopping centre owner. The owner of Ont.’s historic downtown before the the shopping centre and its lender complained — expropriating land for public tornado hit (above), use (e.g., a hospital, transit station, roadway or army barracks, etc.) was one the damage (right), thing, but what and in August 2013 the County of Oxford was proposing to do was to expropriate one (below) after the town’s private owner’s land for the benefit of another private owner! Now, nobody could rebuilding efforts. argue that having a Toyota plant in the town had enormous overall consequential economic benefit to the town, but the point remained that this expropriation by the government was done specifically to transfer the land from one private owner to another private owner, without the consent of the transferor.

Well, as people in dispute over real estate are wont to do, everybody went off to court. The shopping centre owner and lender lost at trial, where the judge concluded that the County had effected a proper expropriation — while the land was indeed forcibly transferred from one private owner to another private owner, it was nonetheless a legal expropriation since “a compelling valid purpose (promotion of economic development) drove Oxford’s decision to expropriate mall lands and sell this land to Toyota for the expropriation price. The fact that the mall lands were transferred to Toyota for the expropriation price does not AUGUST SEPTEMBER 2015

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...what the County of Oxford was proposing to do was to expropriate one private owner’s land for the benefit of another private owner!

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change the validity of the expropriation…” The shopping centre owner and its lender appealed, and lost again, at the Court of Appeal, which adopted the trial judge’s reasoning, lock, stock, and barrel.

Finally, the shopping centre owner and its lender appealed to the Supreme Court, which just recently refused to hear the appeal. Many followers, this author included, expected the Supreme Court of Canada to at least hear the appeal, since the whole idea of using expropriation to force lands from one private owner into the hands of another private owner, even if there might be ancillary economic benefits to the community, seemed, at least in theory, to raise the spectre of moral hazard and potential abuse by expropriating authorities, and furthermore, such concerns would be of national public interest. The Supreme Court of Canada disagreed, dismissing the appeal without detailed reasons.

Now, regular readers of this column should be experiencing an odd sense of judicial déjà vu. A few years before the Woodstock expropriation, the almost identical drama played out in the United States, a thousand kilometers away in a town called New London, Connecticut. There, Pzifer, the maker of those wonderful blue pills and other pharmaceutical products, was proposing to build a research centre in a part of New London, but some of the land that was needed for the new facility was owned by others (including a lady by the name of Susette Kelo, for whom the litigation would be named) none of whom were prepared to sell their homes. Like the County of Oxford after it, rather than see this economic manna fall into another jurisdiction with suitable land to spare, New London exercised its eminent domain rights (i.e., expropriation rights) and took title to Ms. Kelo’s property (and others’), then promptly transferred them all to a developer as part of a much bigger land assembly, which was then going to be developed into the Pfizer research facility.

In Kelo, the U.S. Supreme Court did actually review the case, and upheld the exercise of eminent domain, but only by the thinnest of margins. In a 5-4 decision, the U.S. Supreme Court upheld the notion that government can in fact use its expropriation powers to forcibly transfer land from one private owner to another private owner, so long as there was a compelling argument that such forced transfer would further economic development in the community.

A consistent theme in the arguments raised by the shopping centre owner/lender in Woodstock, and by Ms. Kelo and her allies in New London, was that, giving municipal governments (and other expropriating governmental bodies) the power to force land from one private owner to another through expropriation by merely projecting consequential greater economic development in the community, is fraught with risk of abuse of power by local political interests (especially since the science of economic development is often “voodoo math” at the best of times, and the model-

ling process is always fraught with assumption risk and is unconstrained by proportionality or quantum). Indeed, even the majority decisions in Kelo, which upheld the expropriations, were Jeffrey W. Lem is littered with qualification after qualifiEditor-in-Chief of the cation, all essentially warning that their Real Property Reports decision to permit the expropriation of and the Director of Titles Ms, Kelo’s lands did not make it open for the Province of season on expropriations abuse.

Ontario. The opinions Canadian municipalities, in particexpressed in this article ular, should be reading through the hisare personal to the tory of the Woodstock and New London author and not expropriations with some sense of cauattributable or referable tious optimism. Because the Supreme to the government of Court of Canada chose not to hear the the Province of Ontario. appeal, those extensive admonitions from the top court warning against abuse of power do not exist in Canadian law as they do in U.S. law — not that municipalities would ever abuse their powers, but it is just that they do not face nearly as many express restrictions on the use of their expropriation powers as do their counterparts south of the border (including a number of state passed legislative amendments following Kelo expressly banning such practices altogether). Canadian municipalities, in contrast, now have a seemingly freer hand to use expropriation techniques to facilitating economic development in their own communities.

Ironically, these attempts by municipalities on both sides of the border to further local economic development in their home jurisdictions have turned out quite differently. While both municipalities succeeded in their expropriations, New London’s project never materialized. The developer never got the necessary financing in place, Pfizer eventually merged with Wyeth, and the combined company eventually abandoned the idea of a new research facility in New London altogether. After all that drama, the Kelo home was expropriated and then left derelict. It has been an abandoned vacant lot for years and, apparently, remains so to this day. In contrast, Toyota finished the land assembly in Woodstock, the factory opened in 2008, and, together with both the Federal and Provincial governments, Toyota just announced a new expansion for Woodstock, together with plans for new investment of more than $420 million in the Woodstock plant (and others). A tale of two cities indeed. b

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Grexit wounds

By Rahim Madhavji

he issues with Greece are dominating headlines globally. To put the Mediterranean country’s financial woes into perspective, Greece’s gross domestic product would place it as Canada’s fourth largest province, but on the international stage represents less than 0.4 per cent of the global economy. Yet relative size notwithstanding, new developments in the Greek saga can be felt globally. Greek debt remains well in excess of €300 billion, held mostly by the International Monetary Fund, European Central Bank, and European Commission. Greece’s (now outgoing) left-wing Prime Minister, Alexis Tsipras, revolted against the austerity supposedly imposed on the nation by its creditors by putting their proposal to referendum, to which the Greek public responded with a resounding 61 per cent “no” vote. Following the referendum’s conclusion, Greece had a marathon negotiation with their creditors in a desperation attempt to reach an agreement. Tsipras’ plan to put additional pressure on Greece’s creditors failed miserably, as the new deal struck by Greece is even worse for the Greek public than the deal that was rejected in referendum.

Despite a temporary agreement, this Greek odyssey is far from a resolution. The new deal will implement heavily opposed reforms, such as pension cuts and value-added tax (VAT) hikes. Tsipras won a January election on the platform of anti-austerity, and has since been forced to unwind most of his election promises to the Greek public in humiliating fashion.

Although a Greek default has been moved off the table in the short-term, longterm systemic issues with Greece’s debt burden will continue to impact markets in the coming years. With the financial crisis of 2008 catalyzed by the default of a single firm (Lehman Brothers), the question on many minds is what would the impact of a potential Greek default be on the Canadian real estate landscape?

IT’S NOT GETTING BETTER ANYTIME SOON.

How the Greek debt crisis impacts the dollar and Canadian real estate

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IMPACT ON THE DOLLAR The direction the Greek debt crisis moves in the coming weeks will impact the Canadian dollar in a predictable fashion. The main reason the Greek debt crisis affects the world’s major economies so intimately is the uncertainty it causes. When there is negative sentiment about the Greek debt crisis, markets react commensurately to the increased uncertainty in the market. The inverse also holds true.

Recent talks on the subject of a potential Greek default have shown that European Union participants are comfortable letting a country exit the Euro should circumstances dictate that being a necessity. The precedent that would be set by a Greek exit from the Euro would have a widely felt impact, as debt problems for other European nations such as Spain, Portugal, and Italy become increasingly salient.

In the event of a Greek default, the Canadian dollar is likely to weaken relative to the U.S. dollar, and flows will move in to that safe haven. As global uncertainty around the ouzo-laced fallout increases, money will pour into government bonds, building.ca

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Greek bank

bo

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ks €2

€10.5

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er

nd

s

€4

8.

ce €4.3B

loans

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Bank of Gree

Other

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€56B

8B

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€42B

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Greek Debt €323B

€37B €246B International bailout funds

ITALY

€34B

OTHER EUROZONE

€32B IMF

€25B SPAIN

€20B ECB

Source: CNN Money, Open Europe, IMF, EFSF, Greek Public Debt Management Office, Money Morning Staff Research

lowering their yield. U.S. treasuries will be amongst the most highly sought after by investors, which will widen the spread between U.S. and Canadian government bonds. A perceived weakening global economy will also put downward pressure on commodity prices, which for a resource-heavy country like Canada, would further suppress the dollar, and this lower dollar will serve to cushion the recessionary impact by helping exports. We can therefore expect that the more uncertainty arising from Europe, the lower the Canadian dollar will be pushed.

IMPACT ON THE CANADIAN REAL ESTATE MARKET The debt crisis in Greece affects Canadian interest rates, which in turn have a multitude of implications for the Canadian real estate market. Since interest rates are intimately related to economic development (the Bank of Canada uses monetary policy to ensure inflation falls near its target rate of two per cent), any action that affects the Canadian economy has an impact on interest rates. Essentially, a crisis in Greece could lead to even lower interest rates in Canada, while a sustainable agreement would make stabilizing the economy a simpler task for the Bank of Canada. What does that mean for Canadian real estate?

RESALE HOMES GREXIT SCENARIO • For residential resale homes, a Greek exit from the Eurozone would trigger the Bank of Canada to cut interest rates through monetary policy as the economy suffers from suppressed commodity prices and potentially softer European exports. This also means a lower dollar, which would make home purchase in Canada increasingly attractive to international investors. The combined effect of these two factors would be home prices in Canada continuing to rise. Supressed oil prices create uncertainty surrounding real estate in Western Canada, as both home prices and construction usually fall when oil prices are low in regions heavily impacted by the oil industry. In Eastern Canada, home prices will continue to rise. Greater access to financing (lower interest rates), combined with lower oil prices (generally benefitting the consumers in eastern Canada) will make home purchase more accessible for eastern Canadians.

In the event the Greek debt odyssey is settled amiably through some combination of debt forgiveness and agreeable payback schedule, there would be an impact on Canadian residential real estate. The Canadian dollar would go back to trading on the basis of fundamentals instead of

STATUS QUO •

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Energy Efficiency in Hospital Buildings Powered by

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Sponsor’s Message

The Bottom Line on Conservation In many respects, Ontario’s businesses have led the way in creating a culture of conservation in the province. Companies, both large and small and across all sectors, are investing in energy saving and seeing the results in their bottom line. In 2014 alone, business conservation efforts through the IESO’s saveONenergy programs resulted in almost 600 GWh of energy savings.

The business case for conservation is pretty clear – it cuts costs. But conservation also delivers broader benefits for all Ontarians – reducing the need to build new infrastructure and lowering the wholesale price of electricity. We are helping to make our province more competitive for business while also contributing to a cleaner environment.

That’s why the province has moved to new a framework that puts conservation first before all other supply options. This opens up a myriad of opportunities for businesses that are able to shift or reduce their demand for electricity. Through the IESO’s saveONenergy programs, there are numerous opportunities for businesses to reduce their overhead costs through retrofits, energy audits, lighting and equipment upgrades and participating in demand response.

However, this success depends on business, industry, associations and public agencies working together and combining their strengths to increase our conservation and business competitiveness.

Over the past four years, businesses have stepped up their conservation efforts – not only to capture cost savings but also capture the strategic value that conservation offers their organizations.

Now we must push further. The province has set new, more ambitious conservation targets. Our research shows there are many opportunities for us to work with businesses to achieve these results. We need to develop more comprehensive solutions – including the embedding of sound energy management practices within the core of business decisions.

Building aims to further this conversation. There are many dedicated individuals with great ideas about how to enhance our province’s conservation capability.

To find out what conservation can do for your business, visit saveonenergy.ca.

Terry Young Vice-President, Conservation and Corporate Relations Independent Electricity System Operator

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Standing (L-R): Kurt Rohmann, marketing manager, Independent Electricity System Operator (IESO); Peter Rowles, principal, ICF Canada; Chris Cuthbert, manager, Co-Generation and Energy, Hamilton Health Sciences; Jeff Weir, national CS business leader, Trane Canada; Mary Ann Breitigam, redevelopment manager, St. Joseph’s Healthcare Hamilton; Steve Kemp, vice-president & partner, MMM Group Limited; Allan Dai, sustainability and environment program manager, Peter Gilgan Centre. Seated (L-R): John Maiorano, OISE / School of the Environment, University of Toronto; Predrag Majkic, program manager, energy management, Hospital for Sick Children; Peter Sobchak, editor, Building; Marion Fraser, president, Fraser & Company. Not shown: Brian Smith, chief conservation officer, Horizon Utilities; Christine Wickett, environmental sustainability coordinator, Sick Kids.

An Energy-Efficient Hospital D highest energy intensity of all publicly funded facilities, ue to the nature of their operations, hospitals have the

according to data from Natural Resources Canada. Moreover, most hospitals were built 50 years ago, when energy efficiency was less of a focus. Yet, the big picture for hospitals in terms of the importance of energy efficiency is, indeed, big. According to a 2015 discussion paper released by Greening Health Care, “Ontario’s hospitals can collectively deliver $100 million per year in utility cost savings, while collecting a similar one-time amount in utility company incentives.” The paper goes on to frame these savings as a compelling opportunity: “Over the next 10 years this redirected cash flow can help renew physical infrastructure while freeing up much-needed funds for front-line healthcare services.

What it takes to drive forward the energy performance of healthcare facilities Text and photos by David Lasker

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“I would want to encourage every CEO to understand that pretty big gains on energy efficiency are possible today within their organizations…that will pay for themselves.”

Jeff Weir:

Mary Ann Breitigam:

“I think there’s some education involved so that we can let the entire organization understand that energy savings can be reintroduced into patient care, so that we’re not decreasing and cancelling programs.”

14% have an energy policy

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36% have an energy manager

23% have an energy committee (though many have staff-led green teams)

10% invest energy savings into further energy efficiency projects

Source: Business Case for the Use of Green Revolving Funds in Ontario Hospitals

The Ontario hospital energy landscape

So how do hospitals save energy? To shed light on top strategies, Building, together with the Independent Electricity System Operator (IESO), convened a hospitals-focused roundtable in June comprising healthcare administrators, utility providers, consultants, engineers, researchers, equipment vendors and others. They discussed access to capital, setting baselines and the ability to accurately measure energy consumption, technological opportunities, and more. One question above all seemed to weigh on all the panelists’ minds: How do you get the CEO’s attention when electricity represents such a small percentage of a hospital’s overall operating budget?

“You need to have a champion who is going to be beating the drum constantly,” said Mary Ann Breitigam, redevelopment manager at St. Joseph’s Healthcare Hamilton. “From the frontline person all the way up…You have to have someone who knows their stuff [and] understands energy talking with the executive, talking with the managers.” Energy efficiency projects often compete for funding with expenditures for direct patient care, so Breitigam is working on a “culture change to identify that managing the facility efficiently is as important to patient care as the new equipment, the CT scanners and MRI cameras.”

Stories are emerging of Ontario hospitals making sizable reductions to their energy spend and these case studies can be effective tools for winning executive buy-in, she added. Other panelists pointed to the importance of leveraging a hospital’s broader role in its neighbourhood. “I really like the idea of… creating a green community,” said Peter Rowles, principal at ICF Canada. “We care about where we live so having leaders in municipal government and the local hospital—which the community will say is their hospital—[talking about conservation] would be outstanding.”

Breitigam agreed: “I think most hospital CEOs and the executive folks perceive the hospital as a part of the community.

As we apply to the Ministry of Health for funding for projects, we need to talk about how we’re serving our community…So it would behoove us to look at…how we are improving the environment for the community.”

It’s also important to position energy savings as an avoidable cost, added Jeff Weir, national CS business leader with HVAC supplier Trane Canada. “I would want to encourage every CEO to understand that pretty big gains on energy efficiency are possible today within their organizations…that will pay for themselves,” Weir said. “So it’s a redirection of their existing utility budget, which they know they’ve got to pay until that building is torn down—and a portion of that is waste.

So your team’s going to find that waste and use that to pay back the investments.”

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Powerful help: Incentives to bring ideas to reality In terms of drivers, panelists noted how energy efficiency awards seem to spur executive and employee engagement.

Trophies for augmenting energy efficiency bestow recognition, accrue bragging rights and “get better public relations for the hospital by being more green,” said John Maiorano, a researcher at the University of Toronto’s School of the Environment, who is working on his PhD thesis in energy efficiency in Ontario hospitals.

The Hospital for Sick Children, for instance, won the 2014 Green Healthcare Award through the Ontario Hospital Association. The executive team also has a solid grasp of the benefits of energy efficiency, said Predrag Majkic, program manager, energy management with Sick Kids. The hospital currently has two energy managers on staff to identify and push conservation efforts forward. “The upper management from the CFO, CEO, even the director of facilities, all of them have sort of an energy background in terms of projects that they have done before,” said Majkic.

“So for us, it was an easier task…to explain why we need some financing for some of the projects.”

Building the business case is an essential part of getting projects approved, the panelists agreed, noting the benefits of conservation run far deeper than dollar savings—improving patient and employee well-being and driving efficiencies across the organization. “These are the parameters that you can build into your life cycle business case,” said Rowles. “And it might be...avoided maintenance costs, it could be tax avoidance through accelerated [capital] depreciation. It could be allowances for externalities such as greenhouse gas emissions reductions, health and safety and community involvement…Then it’s not a question of waiting a year or two years to get budget approval…it’s got a green light.”

The group shared ideas and wins related to retrofits and upgrades, such as demand control ventilation, energy-efficient boilers, lighting sensors and other automated building systems, to reduce energy consumption. “Lighting has got some major improvements made with LED,” said Weir. “We just completely retrofitted an entire hospital to LED and the staff love it….it was actually really well received….It’s high impact, good, trustworthy savings for a long time,” he said.

One of the most significant energy innovations in healthcare is co-generation; also referred to as combined heat and power (CHP). CHP, according to a technical briefing by the Canadian Coalition for Green Health Care, captures energy that would normally be lost in power generation and uses it to provide heating and cooling. Kingston General Hospital (KGH), for instance, commissioned a 15-megawatt, $25-million cogeneration facility in 2006 with its affiliate, Queen’s University. Two

T

here are many reasons to focus on upgrading or modernizing systems for energy efficiency, ranging from reduced operating costs and increased sales to improved employee comfort and effectiveness.

Fortunately, there are also incentives and rebates available to encourage businesses to take advantage of opportunities to improve efficiency and competitiveness, as well as non-financial tools and resources. In Ontario, these incentives and resources can be accessed through the saveONenergy program.

Energy audits and engineering studies This is often a first step for businesses looking to improve efficiency. They are used to identify opportunities for improvements and provide business cases. They can: • Classify energy savings by potential project • Identify potential non-energy related improvements including productivity, safety, yield, sales, etc.

• Identify the capital cost of the projects • Summarize the return on your investment for each project and prioritize the projects based on capital cost, life cycle cost savings and non-energy related financial benefits. Use this to provide return on investment, savings to investment ratio, payback periods, etc.

• SaveONenergy can help cover the cost of audits.

Once opportunities are identified with an audit, more detailed engineering studies can define what exactly is required and provide more accuracy on the potential savings and costs.

Retrofits Once a business is ready to upgrade to high-efficiency systems for lighting, HVAC systems, pumps, motors, fans and other plant equipment, funding is available through saveONenergy.

Energy Managers Energy manager resources may be available through local utilities’ Energy Manager Program.

Energy Management Training Businesses can receive a rebate worth up to half the cost of certified Energy Manager, Commissioning Agent and Measurement & Verification training.

Find out more at saveONenergy.ca/business or get your local electric utility to contact you at saveONenergy.ca/get-started

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“I really like the idea of…creating a green community. We care about where we live so having leaders in municipal government and the local hospital [talking about conservation] would be outstanding.”

Peter Rowles:

natural gas-fired engines can supply enough electricity for the hospital and a portion of the university’s campus, according to the brief.

“The plant has provided the hospital with a reliable back-up power supply and savings from the project have offset operational costs,” said Chris Mackey, former director of facility engineering and maintenance, Kingston General Hospital, in the brief. “Co-gen allows KGH more assurance that patient care will not be impacted when electricity is not available for whatever reason—and we are able to do so in a more effective and energy efficient way.”

The roundtable group was also excited about technologies such as automatic fault detection, increasingly available in building automation systems, and its ability to continuously monitor systems at the local level for more efficient feedback.

“Between your boiler, chiller and HVAC, that’s a lot of energy.

And so it’s always looking at those HVAC systems and going, ‘Gee, you wanted it this temperature and you’ve got this outdoor temperature, so something’s not right with the damper linkage or the belt’. And it will actually calculate, on the spot, what that’s costing you per hour,” said Weir.

His comment tapped into one of the most significant calls to action for energy efficiency proponents in hospitals: getting

a reliable baseline on current energy consumption. Right now, energy costs are typically calculated per square foot, and it can be difficult to pinpoint areas where the greatest opportunities lie. “I think sub-metering would probably be the biggest single thing within healthcare you could do,” said Chris Cuthbert, manager, Co-Generation and Energy, Hamilton Health Sciences. “If each of the various silos within the hospital actually understood their consumption and was paying for it, instead of it all being just lumped into one big central budget then you would get that engagement.”

In a similar vein, the number one question for Allan Dai, sustainability and environment program manager at the Hospital for Sick Children’s Peter Gilgan Centre for Research and Learning, is how to convert the data from Sick Kids’ metering systems into useful business knowledge. “Every Monday, the first thing I do is open my metering interface. I’ve got six pages and each page has 40 meters; those meters feed me ratings at one-minute intervals. How do I translate this into business insight and into language that other people understand? There’s no software that can meet my requirement to collect the data, do the calculations, split them into department levels and translate into a dollar value. We’re probably pioneers.”

Turning data from sub-meters and other monitors into real business intelligence would help prioritize conservation projects and maintenance improvements, but it would also be potent for another reason—employee engagement. One panelist related the story of a university in the US aiming to raise awareness about energy efficiency. Administrators created a graphic display of a polar bear on an ice flow. As consumption of energy at the university increased, the polar bear would start to struggle in the water. The group agreed these kinds of visual dashboards can boost engagement around energy conservation.

The dashboard idea isn’t new, but some panelists noted it isn’t often used in hospitals. “But it only works on real time data from not just big picture, but also small areas, small silos…tiny little areas of energy usage,” said Peter Sobchak, editor of Building.

In addition to real-time empirical data, surveys and open-ended conversations with management and staff can collect valuable insight to help create baselines and goals, added Christine Wickett, environmental sustainability coordinator at The Hospital for Sick Children. “Secondly, review what the regulations are within the healthcare sector—and there are many,” she said. “They stem deeper if you really take the time to look at them, and some of them do require behavioral change and adaptation in your current workforce. Without looking at these regulations you’re not going to have as much [incentive] to go further with your executive team.”

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Like others at the table, Wickett emphasized the importance of recognizing top energy savers by department. Training and feedback can go a long way too, especially if the key message isn’t just about cost savings, but the positive impact on patient care. At the individual level, turning off computers at night is one example of a small change that can amplify in impact when combined with other behavioural shifts.

Those initiatives should be shored up by a deeper change within hospitals, like linking capital planning and energy and facilities management — two departments that traditionally operate separately. In hospitals, energy management proponents often don’t know about new equipment purchases until they arrive at the shipping dock, observed Breitigam. “We’re just in the midst of sort of a facilities transformation project where we’re actually aligning the capital planning development and the building services department. So it’s going to be really under one umbrella…so that we are building for the future and building for their sustainability.”

Breitigam and her team are also aware they don’t yet have an energy policy, and they struggle with a challenge common to hospital facilities teams—lack of resources for energy management. “If you’re the manager of building services… you’re fighting fires, fighting floods, running around all day managing the facility. So there was just no way that you could also take on the energy management piece,” she said. “Without an embedded energy manager you can’t even get the low-hanging fruit.” She has posted for the position of an embedded energy manager and at the time of the discussion, was in the process of starting interviews.

Encouraging developments also include burgeoning efforts to implement green revolving funds for energy management, said U of T’s Maiorano. In Business Case for the Use of Green Revolving Funds in Ontario Hospitals, Maiorano sounded a theme, heartily seconded by the other panelists, for the energy manager to retain energy-efficiency savings in the department’s budget and re-invest in further savings. “You go to management and say, ‘We just need this money once. And then you don’t have to worry about us.’”

Steve Kemp, vice president & partner at MMM Group Limited, agreed: “It doesn’t make sense to keep going back and asking for approval for small pots of money that don’t really warrant the time of the CFO,” Kemp said. “But you [should] go in and say, ‘I want you to earmark $10 or $20 million in a revolving fund that funds only energy efficiency.

I want that committed so that nobody can steal that money for other projects. And we’ll return 10, 15, 20, 25 per cent [cost avoidance]’.”

Industry incentives like saveONenergy also have a role to play, added Wickett, as hospitals face ever-increasing budget pressures.

“The cost of machines is going up, the costs of necessary medical instruments are going up and every hospital is suffering from that right now…So, if it’s going to be funded, it has to be funded through, for starters, government incentives…And then, after that, the savings potential from that work that’s being done.”

Some hospitals are looking to proven protocols such as ISO 50001 to galvanize efficiency efforts. Modeled after the ISO 9001 Quality Management System and the ISO 14001 Environmental Management System, ISO 50001, released in 2011, specifies the requirements for establishing, implementing, maintaining and improving an energy management system.

Standards such as ISO 50001 spur a commitment among hospital staff and the executive to continuous improvement around energy efficiency.

Though conservation requires focus, tenacity and the savvy to engage and motivate all levels of staff and management, the group at the roundtable discussion demonstrated hospitals can and are conserving, to the benefit of patients, employees and their broader communities.

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UNROLLING THE

P

By Rhys Phillips

AUGUST SEPTEMBER 2015

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Priced out of marquee cities, those attempting to locate in urban environs are turning to “18-hour cities” — a buzzword that describes a trend Canada is already seeing. rediction, as many an embarrassed economist can attest, is a mug’s game. But to professionals and the public alike, predictions are like catnip, and tomes such as the annual ULI/PwC-produced Emerging Trends in Real Estate are dissected and the meatiest parts devoured. In the 2015 edition, one of the choicest cuts centred on the significance of the “18-hour city” in America, while the Canadian coverage largely rephrased the trend as simply a movement to city living, perhaps because no emerging 18-hour Canadian cities were identified.

The Canadian section of the report begins with the bold statement that urbanization is “part of the new normal of Canadian real estate,” and identifies several characteristics of the 18-hour city (a.k.a. “second-tier cities”), such as thriving smaller and mid-size cities with growing live/work/play centres and lower housing costs and lower costs of doing business than larger cities. Other trends tie directly into the emerging 18-hour city, including urban-centred demographics; future labour shortages; technological impacts (including ones that effect retail form); the imperative for cost-efficient infrastructure renewal; and re-emerging but more diverse residential demand. The potential for 18-hour centres, however, stretches beyond reborn urban cores to include restructured “edge cities” and intensified, redesigned and walkable suburbia. building.ca

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Photos courtesy of Knightsbridge

THE SIDEWALKS Although these ideas are not exactly new, they do provide support from within the development industry for ideas on the “new normal” relationship between the rapidly emerging creative economy and successful cities. Vancouver-based urban theorist Charles Montgomery, in his eminently readable and heavily researched book Happy City (2013), reports we teeter between the status quo and radical change in the way we live. For the first time, growth in American cites outstrips that in the suburbs while recent polls find a majority of Americans prefer walkable live/work/play communities over typical suburbs.

The Myth of the 24-Hour City The idea of the 18-hour city is seen as a less intense version of the so-called 24-hour city, gateways such as London, Paris, Berlin, Mumbai, Tokyo and, of course, New York City, “the city that never sleeps” (even though evidence shows that New York does sleep). But Will Straw, professor at McGill

University and Head of the Urban Night Project, has built an international network of academics, planners and politicians examining the urban night, and asserts that outside of certain limited areas, these large cities are far from 24/7 hubs. In fact, most top 24hour cities are in developing economies with Cairo ranked first.

Conversely, almost all urban centres are 24-hour cities to varying degrees.

Nighttime office cleaners, taxi drivers, bakers, medical professionals, industrial shift workers, as well as various elicit professions work through most urban nights. Indeed, Straw says, industrial cities like Hamilton, Ont., when the steel industry was in full swing,

NYC does sleep!

New York does sleep. Not only is it ranked only 32nd of all so-called 24-hour cities, other studies indicate it is one of theearliest-to-bed international centres, averages reasonable hours slept and at 2:00 am fully 93% of its inhabitants are in bed.

Sources: Think Inc. / The Jawbone Blog / Fortune

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was very much a 24-hour working city supported quietly by many all-night support amenities. Downplaying these “hard” nighttime economies within the 24-hour city equation stems from a traditional focus on entertainment, particularly alcohol related. As a consequence, says Straw, far too little effort has been applied by politicians and urban planners to the very real needs of workers in the less glamorous components of the nighttime economy, such as public transit, nighttime safety and availability of social services.

In some ways, many major centres are only starting to catch up with industrial cities as commercial and financial services move into a globally connected economy operating across many time zones. Richard Joy, executive director of ULI Toronto, makes the point that in high cost real estate cities it can now be more productive to expand time rather than space, that there “are greater margins on either sides of the day to ensure greater productivity.”

Reconsidering the Complexity of the Long-day City Trend reports mostly avoid ascribing monikers like “24-hour” or even “18hour” city to Canada’s major metropolises, for varying reasons and to various criticisms. Yet what may be more useful is a nuanced and complex “longday/seven-day” city paradigm, wherein exist three basic typologies. First are the major, usually traditional and international cities that often escaped the hollowing-out process of the postwar period. Second are dynamic urban centres, usually regional, that are consciously consolidating their status as diverse, integrated urban entities exploiting their lower costs of housing and doing business. Third are the many sub-cities surrounding larger centres that are only starting to move toward more balanced urbanization.

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L TO R: The David Braley Health Sciences Centre is a new $84.6-million addition to the McMaster University campus in downtown Hamilton; across the street, the Bella Tower

by Vrancor is one of several new condo projects dotting the skyline; in Calgary, the New Central Library by Snøhetta + DIALOG is currently under construction; and a $6-million repurposing of the 1912 Simmons Building by McKinley Burkart into gastroretail has just been completed.

All three types face similar issues, although at different levels. Some include: • Transportation: Both taming the car and ensuring connectivity through public transit into and through the night is a challenge. Most existing and developing long-day cities in North America continue to grapple with severe congestion and appalling pedestrian landscapes. At the same time, most struggle to invest in transit infrastructure capable of handling both daytime commutes and increasingly demanded service throughout the night.

• Conflict, Regulation and Safety: Dense, mixed-use development contributes increasing conflict when noise from nighttime entertainment and traffic disrupts residential neighbourhoods that increasingly house young families and older professionals. Conflict over gentrification, says Straw, has moved from opposition to the closing of old shops to who owns the night. He cites the rise of informal and formal “night mayors” in such cities as Paris and Amsterdam as well as European centres with official “night offices” as a means to handle this conflict. While improving the quality and safety of the urban night has initiated a revolution in how and how much we light the night, this has raised the negative implications of overwhelming light pollution.

• Density: Beyond generalities about the need for high density and intensive mixed-use development, the real unresolved debate for large to smaller centres is appropriate building form. Against developers and some planning departments who never found a building too tall to support, are arrayed those from Denmark’s widely influential Jan Gehl, to Helsinki’s legendary planning department, to the research in Montgomery’s book, that find height a deterrent to successful, healthy and sustainable cities.

• Urban Form: Even existing long-day cities continue to wrestle with balancing the competing demands of automobiles, pedestrians and cyclists as well as designing dynamic public spaces and public services that work late into the night. How to design well-scaled, interactive and comfortable urban streetscapes for day and night remains a major weakness for most developers and their architects.

• Public and Private Services: In Asia, says Straw, night markets closing only after the last customer leaves has a long tradition. Now, in North America we see commerce from supermarkets to drug stores, from banks to personal services rapidly extending availability into and often through the night. building.ca

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Images courtesy of: Sean Meister, Department of Family Medicine / Planning and Economic Development, City of Hamilton / CMLC

Canada and the Long-day City In Canada, those few cities that fall into the first long-day typology, including Toronto, Montréal and Vancouver, were relatively successful in holding their traditionally integrated balance immediately following World War II, and witnessed healthy, sustained residential, office and cultural expansion in their cores through the last decades of the twentieth century (and in some cases exploded into the new millennium).

The third typology includes municipalities around Toronto and Vancouver that are at various stages of urbanization initiatives. Joy believes that to be competitive and economically vibrant, suburban municipalities will have to transition to 18-hour cities. “In talking with officials in Brampton, Ont., they are desperately seeking ways of attracting economic growth by attracting the millennial demographic. Right now they are not succeeding, unlike Hamilton,” he says. In B.C., limits to sprawl imposed by agricultural reserves, along with Vancouver’s strategy of not facilitating easy vehicle access to its core has placed municipalities like Richmond City and Surrey at the forefront of this transformation (Building, June/July 2010).

There are several Canadian cities that fit in the second group, but two in particular are now past the tipping point of being long-day cities and deserve closer inspection. represents a traditional regional city emerging as a long-day city supported by both living and business cost advantages. Frequently ranked the top Ontario location for real estate investment, a recent Colliers International Report found that Hamilton offered lower rent, taxes, development charges, and cost of living for employees as well as shorter commute times over the Greater Toronto Area (GTA). It also boasted highly skilled labour, robust industrial and office redevelopment opportunities, strong city incentives and well-entrenched lifestyle amenities. Michael Marini, marketing coordinator in the Hamilton Economic Development Agency agrees. He bristles at the suggestion that Hamilton lies outside the Toronto/Waterloo “Innovation Corridor.” Instead, like Waterloo Region, a wide spectrum of creative professionals and their businesses find that Steeltown offers both clear cost advantages as well as top level post-secondary institutions.

While no major corporate offices have chosen to relocate (yet), he points to a CBC report that found Hamilton had the most diverse economy in Canada.

This is supported by McMaster University’s heavy investment in the city’s centre including its Continuing Education Program and the David Braley Health Sciences Centre. The latter brings the university’s world-renowned family medicine program to the core while adding an impressive architectural component. The city’s

HAMILTON

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Innovation Factory offers a wide range of support for small and medium-sized tech firms while The Forge, located on historic James St. North and managed in conjunction with McMaster, operates as an accelerator program and physical space that takes start-ups and fast tracks them to the point of investment and sales validation.

Concurrently, the downtown is well past the tipping point into being a live/ work/play centre. Building permits again exceeded $1 billion this year and 2,000 condominiums are under construction. In addition, say both Marini and Joy, Hamilton has a rich, developed cultural scene supported in terms of urban form by a significant endowment of extant built heritage, something lacking in other ‘905’ centres.

Hamilton is also taking a proactive role in developing the potential offered by the West Harbour area on the edge of the core. The city purchased a huge swath of land around this waterfront and is working toward well-scaled mixed-used development based on mid-rises. An eight-storey limit will preserve views, says Marini, and a spar line of the east/west LRT will hook the city into the Harbour-located terminal for the regional GO Train. Major harbor development is expected in 20172018 based on partnerships with the private sector. For these reasons and more, Hamilton is well on its way to becoming one of Canada’s top regional creative economy cities with an established long-day lifestyle.

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CALGARY’S underlying complexity debunks its stereotype of unending free market sprawl. For a start, the city sustains a very dense and successful business core with over 160,000 wellpaid workers. Notwithstanding the current oil crisis, the city is continuing to add approximately 10 million square feet of new office space. Statistics from the Calgary Economic Development Authority demonstrate considerably “more diversity than there used to be; so that even with the low oil prices we are

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Bullseye missed, radar’s still blip

Despite the failure of Target, Canada is still ranked one of the world’s top retail destinations

AUGUST SEPTEMBER 2013 2015

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By Peter Sobchak

he effects of Target’s departure from the Canadian retail landscape are still being felt, and the jury is out on when the waves caused by the ripple effect will die down. Reports have been released detailing that even six months after filing for bankruptcy protection in January and closing all 133 of its outlets, the American retailer is still having a hard time finding buyers for its leases, causing some pundits to speculate that this reflects a softening of the retail real estate market.

Yet despite the aftershocks of Target and other significant shuttering of major retailer locations, according to a recent report Canada still remains a top destination for global retailers. In the eighth edition of How Global is the Business of Retail? CBRE tracked the movement of the world’s top 334 retailers in more than 160 cities in 2014, and found that Canada is one of the top 10 destinations for retailers looking to expand and Toronto is the most targeted city in North and South America.

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EXPANSION BY SECTOR INTO THE AMERICAS 26% 20% 14% 13% 12% 9% 3% 2% 2%

% OF RETAILERS EXPANDING FROM AN INDIVIDUAL COUNTRY

U.S. retailers were the most active in 2014 with 26%

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Retail sales productivity show divergence in performance There is no question that large scale store closures can leave a dark cloud over the Canadian retail landscape, however, without taking away from the sizable impact retailer failures can have on a property, Canadian shopping centres continue to post reasonable growth as indicated by retailer sales per square foot. Recent data from the International Council of Shopping Centers (ICSC) shows sales at Canadian shopping centres averaged CAD$673 per square foot over the last 12 month, up 5.8 per cent year-over-year. Canadian mall space is on average 12 per cent more productive (adjusted for currency) than U.S. centres, with comparable U.S. sales per square foot at USD$475 per square foot.

Individual retailer performance varies from the low hundreds to over $7,000 per square foot amongst Canada’s leading retailers. The latest data from the Centre for the Study of Commercial Activity (CSCA) shows extremely high sales per 26 square foot at retailers such as Apple and Lululemon, while other groups such as The Weston Group, Canadian Tire and Roots report more modest sales numbers. The variance in sales productivity demonstrates the considerable divergence that currently exists in the Canadian marketplace.

Select retailer average sales per sq. ft. in 2013 Apple Store Lululemon Athletica Costco Sephora, Louis Vuitton Rexall/Pharma Plus Whole Foods Future Shop/Best Buy Shoppers Drugmart Mountain Equipment Co-op Roots Metro/Food Basics Wal-Mart Ikea Simons The Gap H&M The Home Depot Rona Staples Chapters/Indigo Canadian Tire/Mark’s PetSmart Dollarama Sears Target

Source: CSCA 2014

After falling out of the standings in 2013, Canada ranked eighth when comparing new retail entrants on a national basis. A total of 31 new retailers set up shop in Canada for the first time in 2014, while Japan led with 63 new entrants.

An analysis of specific cities revealed that Toronto attracted 25 new retailers, ranking 12th in the world. This is the highest ranking for a Canadian city in the CBRE survey and Toronto recorded more new retail openings than any other city in North and South America last year. Toronto also outpaced fast growing, emerging markets like Manila and Istanbul.

“This result should bolster the confidence of landlords and retailers in Canada who faced some tough questions in the wake of the failed Target rollout,” said Ross Moore, Director of Research for CBRE in Canada. “While competition in the Canadian retail market is fierce, major global brands have opened some of their most profitable stores in Canada.

Many of these openings were planned well in advance of recent events, but it’s only natural that other retailers will try to replicate that success. We are already tracking 27 retailers who intend to open in Canada in 2015.”

Cities in Asia remain a priority for retailers, with Tokyo, Singapore and Taipei amongst the top five most targeted cities in the world; however, Toronto was one of five new entrants on the list along with Doha, Manila, Stuttgart and Istanbul. As global economic growth continues to ramp up, retailers will be more willing to venture into new markets and pursue areas of opportunity. “Toronto is unique in that it appeals to a wide variety of retailers due to the diversity of the population, relatively stable economy and high disposable income,” Moore noted. “Toronto remains the gateway city for retailers looking to establish a Canadian presence and residents of Vancouver and Montréal can expect major brands to expand into their markets thereafter.”

The Luxury and Business Fashion sector led retail expansion efforts in North America, followed by Mid-Range Fashion and Specialty Clothiers. Versace, Nordstrom, Muji and Agent Provocateur are just a few of the retailers that opened stores in Canada last year. Bloor Street and Yorkdale Mall have maintained their appeal with major brands looking for their first location in Toronto; however, the redevelopment of other regional malls in the Greater Toronto Area has increased the number of options for global retailers. Overall, Canada’s retail vacancy rate remains low and retail sales growth rebounded in February according to Statistics Canada.

“For some, the bloom may have come off the rose, but it’s still a rose and Canada’s retail market is strong by most standards. Canadian cities will continue to appeal to a broad range of global retailers,” said Moore. b

Luxury & Business Fashion Mid-Range Fashion Specialist Clothing Other Coffee & Restaurants Value & Denim Consumer Electronics Homeware & Department Stores Supermarket

7,241 2,961 1,490 1,224 1,030 1,000 800 790 770 576 530 492 487 485 407 367 360 343 339 325 283 276 238 213 98 (Not a full year)

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ending institutions often do not have the formal knowledge or capacity to analyze and track the construction process for multiple projects, which can create potential vulnerabilities due to a lack of transparency and increased risk. This is where an effective project monitor should step in: they are the ones that increase transparency and reduce risk, and in the process can help identify potential issues with contract compliance, schedule and budget earlier in the process, protecting the lending institution’s position in the project. One challenge in the marketplace is to ensure that when a lending institution employs a project monitor, they are working to standard terms of engagement, covering all the key risks and following appropriate due diligence.

In Canada the industry has been seeking assistance with this challenge for some time, and the need for guidance was identified through discussions with quantity surveyors (who deliver project monitoring services) and construction

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finance heads from Canadian banks. They collectively identified that across Canada there was no accepted standard of practice for independent project monitors undertaking oversight of commercial construction loans. As a result, the Royal Institution of Chartered Surveyors (RICS) and the Canadian Institute of Quantity Surveyors (CIQS) have developed a guidance note, to be launched later in 2015.

“As the Canadian real estate industry seeks global lenders and developers, it is of paramount importance for project monitors to conduct the appropriate level of due diligence in a consistent manner with the highest standards,” says Naren Chande, senior executive vice president for cost consulting at Toronto-based Altus Group, and chair of the working group that is developing the guidance. “Our goal with the guidance is to establish a standard within the industry so that lenders can be confident they are receiving a high-quality project monitoring service, and better understand what

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// to expect from RICS members and other service providers.”

When the guidance is published, “project monitors will have a common platform that can be used as reference for their work,” says Chande. “This document will act as a definitive resource to help lenders and project monitors better service the requirements of the development industry.”

CIQS’ lead representative on the working group says the guidance should boost both consistency and quality in project monitoring. “In recent years in Canada, we have observed substantial variations in the level of detail and quality of project finance monitoring among different quantity surveying firms,” says Matthew K. Weber, vice president of the Concosts Group of Companies in Burnaby, B.C. and CIQS’ current vice chair and treasurer. “This has led to clients being uncertain about the level of service they will receive when they engage a professional quantity surveyor or chartered surveyor to monitor a real estate development. Furthermore, this has resulted in inconsistent proposal bidding and a race to the bottom on fees for professional services, which directly impacts the quality of deliverables. When owners, lenders and developers experience a lack of quality – real or perceived – our legitimacy as a necessary and respected part of the industry is eroded.”

A senior official with a major lender cites several reasons project monitors are valuable, and not just to the bank. “On a project of just about any size, we like to have a project monitor,” says Rod Hunt, managing director for real estate lending with the Royal Bank of Canada. “In addition to protecting the bank, project monitors are valuable to the client: they’re another set of eyes to make sure that the budget and schedule are reasonable, and that a project is being carried out per the planned budget and schedule from month to month.”

“If there’s a problem (such as a cost overrun, for example), a project monitor can identify it early and give the client a chance to remedy it sooner rather than later and hopefully keep it a small problem,” Hunt continues. “In addition, project monitors will see an item in a project budget that doesn’t make sense – for example, the cost listed is too low or high – and question it if necessary. Then, the developer can go back and question his contractor to make sure that the costs are in line.”

“Project monitoring is part of due diligence expected of us internally and externally, and it’s just good business to get a hopefully objective third party opinion on the status of a particular project. As confident as I am in lenders, they’re not engineers or involved on day-to-day basis in construction projects, so we want to get an assessment from an expert in that field,” says Garth Stoll, vice president of HSBC’s Real Estate Group in Vancouver.

Core project monitoring services After providing background information as well as key elements of a project monitoring contract, the guidance defines the scope of the core services a project monitor should provide, divided into three categories: Regulatory Review, such

When owners, lenders and developers experience a lack of quality – real or perceived – our legitimacy as a necessary and respected part of the industry is eroded.

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// as verifying permits and regulatory compliance and checking for factors such as easements; Financial Review, including analyzing, reviewing and monitoring financial aspects such as the loan agreement, purchase agreement, leases (if applicable), budget and budget variances, construction schedule, site progress (verified by site visits) and change orders; Technical Review, which includes the consultant’s quality control reports, commissioning reports, geotechnical and environmental reports, and the project manual.

RICS’ Canada chair, who is a developer and has a significant track record in project monitoring, believes the guidance should help considerably. “After nearly 19 years of undertaking project monitoring in Canada on behalf of lenders and now being in the position of hiring project monitors as a development manager, I am very happy that the industry has collaborated to undertake and complete this guidance document,” says Steve Elias, managing partner with Vancouver-based redM Group.

“For such an established process in Canada, the lack of uniformity in the requests for the scope of work and cost consultants from various lenders has been challenging at times over the years,” Elias adds. “This document now clarifies the scope of work for the cost consultant, the lender and the developer who is paying for the service. The guidance will minimize disputes and allows all three parties to know exactly what is being reviewed during the project to facilitate the flow of construction funding each month.”

The development of this industry guidance has been directly related to the relationships, input and feedback from the lenders -- the ultimate clients of the profession. This initiative will provide a step forward in terms of industry benchmarks, but this is perhaps not the end of the campaign. In Washington D.C. earlier this year, a group of key construction industry associations from around the world gathered together to discuss the need for International Construction Measurement Standards. Representatives from these organizations are continuing discussions on global industry standards that would Tom Pienaar leads the normalize the understanding of key RICS Corporate Affairs cost factors in a construction project, Team in the Americas, enabling more accurate cost measurefocusing on developing ment, and further developments are exmutually beneficial pected to be announced later this year relationships with or potentially into 2016. b industry stakeholders.

During his six years with RICS, Tom has worked in Europe, China and Brazil.

He can be reached at Tpienaar@rics.org

RICS and CIQS will issue the final guidance, “Project Monitoring for Real Estate Lending: Canada,” later this year, and will be available at www.rics.org and www.ciqs.org

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28 26

Tin Buckets and Cash Flow

Property maintenance may be unglamorous, but it is an essential side of real estate investment

By Richard Crenian

W

hen thinking about glamorous real estate deals, mental images of ribbon cuttings at the foot of sparkling new towers while flashbulbs illuminate freshly manicured mansions often come to mind. It’s the sexy side of the business, one in which the desire for a dazzling show matches the desire for a future sizeable return on investment. These not-so-common unveilings are aimed at the front pages and centre spreads of glossy magazines, but how often do they actually happen?

When it comes to planning for real estate investment, the scenarios noted above are not the everyday situations facing investors, asset managers and property managers.

While it’s the dream of many to execute glamorous deals, reality is more about air conditioning fan belts, pavement cracks in a parking lot, peeling paint and regular water AUGUST SEPTEMBER 2015

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droplets diving from a ceiling into an awaiting bucket. All of this falls into the umbrella of property maintenance, the unsexy but compulsory side of real estate investment.

Discussing property maintenance can be about as appealing as waiting for a fresh coat of paint to dry, but remember, that new paint is an important part of increasing or maintaining the value in a property. Therefore, planning for property maintenance and how to properly finance it is a key to real estate success.

CAPITAL RESERVES

When it comes to property maintenance, capital reserves are a common point of discussion among investors and managers. It often generates plenty of back and forth dialogue

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about how to approach this fund, which is viewed by some as essential and others as a nuisance. There is no sweet science when approaching reserves, and it’s generally dependent on an individual or group of investors. Whether it’s viewed as a rainy day fund or part of the greater investment, capital reserves are an important consideration and one that should be a key element of the equation.

Having reserves for property maintenance is often mandatory when applying for mortgage loans, however, maintaining reserve capital is a good practice even when it is not required. Like personal financial planning, it’s prudent to be prepared for the unexpected. And like personal financial planning, there’s not necessarily a standard amount that should be in reserve (two months of living expenses, as an example), although there are regulations with strata corporations. Having a reserve is important so that there isn’t a scramble for funds to deal with an urgent issue.

These reserves can either be held in investors’ private accounts, in designated operating accounts or, in many cases, held in escrow by the mortgage lender. It can be used to cover a wide variety of cash flow shortfalls or expenses that arise with property maintenance, as well as vacancy, replacement of major appliances, loan payments and legal costs. The requirements of mortgage lenders frequently change depending on the market and the details revolving around a particular project. Normally, reserve requirements can range between three to six months of operating expenses per property. While some investors feel this is outrageously expensive, others agree that it is just common sense.

IDLE VS. LIQUID RESERVES

The big issue for most investors is keeping this amount of cash liquid and parked on the sidelines. This is especially true when expanding a portfolio. It is crucial to have access to fast cash in a crunch, but too much idle capital can drag down overall portfolio returns.

Some alternatives may include keeping the bulk of these funds in interest-bearing or investment accounts, which can be accessed relatively quickly. Others may find it more beneficial to use a substantial line of credit to cover immediate short-term expenses.

Substantial planning is required in relation to property maintenance so you are able to plan for cash flow. Have a contractor or engineer thoroughly review the property to determine whether specific components will need full replacement or steady maintenance over a period of time. If property maintenance can prevent an unexpected failure, there is room to budget for a replacement or overhaul at a later date. As it is in any business, one of the golden rules in real estate is prevention is almost always the most cost-effective option.

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TOLERANCE LEVELS

Depending on the type of property, there will be different levels of tolerance regarding property maintenance, which can dictate the amount of funds placed in a reserve. Those living in a residential property will have the lowest tolerance for any repairs and maintenance since it’s their home and disruptions in daily life are not met with much patience. For example, malfunctioning elevators are a great way to annoy tenants.

Tenants in office and retail properties are next on the ladder of tolerance, but depending on the level of public traffic throughout their space, the threshold may not be much higher. Here, it’s the potential disruption to business operations that will frustrate tenants. Heating units going out in the winter will not only exasperate employees, but keep clients and customers away.

Industrial or commercial properties with limited public interaction will have the highest level of tolerance in relation to property maintenance. They may be patient with putting off the repair of a leaky roof and placing a bucket below it until the scheduled maintenance date, as long as it keeps operational costs lower.

All of this is to suggest that appropriate property maintenance and having available reserves to act on repairs or fixes in a timely manner is part of a sound retention strategy. Generally, all parties want operations costs as low as possible, but that desire needs to be balanced with the considerations of whether the disruptions are affecting the personal and business lives of the tenants.

There can be a point when it’s not worth it to continue with the property maintenance strategies and tactics that are being employed, but it’s not an overnight occurrence. Thinking about highest and best use, there may be a period when tenants will leave for another place – albeit not all at once – because those properties may be better suited, including the property maintenance. At that point it may be time to consider other options Richard Crenian is the for the property. founder and president of One of the looming controversial ReDev Properties, a questions is: should capital reserves be Canadian owned and recognized as a deduction from net opoperated commercial real erating income when valuing properestate asset ties? It’s the tail wagging the dog here. management company.

If it’s a soft market, a buyer may sugFounded in 2001, ReDev gest providing a five per cent capital reProperties has grown serve to get a discounted price. When using a long-term appraisers look at net income, they want approach and now to be conservative and always deduct manages over 25 the capital reserve at three to five per commercial properties, cent. Answering this question is deprimarily in Western pendent on a number of factors and one Canada. He can be that will be up for debate with a number reached at www. of market considerations in play. b redevgroup.com building.ca

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To Grexit or not Grexit?

headlines, the economic uncertainty in Europe would dwindle, and global commodity prices wouldn’t be artificially supressed. We would see interest rates begin to rise over the medium-term, which would raise the cost of borrowing and financing new homes. The effect on the Canadian residential real estate market would likely remain status quo, depending on the rate of interest rate hikes, as an improving economic picture will increase the wealth of Canadians, and rising interest rates making financing increasingly expensive.

NEW BUILDS AND CONSTRUCTION

The macroeconomic effect of a Greek exit from the Eurozone profoundly affects the demand side of the equation for construction and new builds. With interest rate cuts becoming a common theme for Canada in 2015, access to financing has become increasingly easy. Construction of residential homes would see a boost in Eastern Canada as demand for housing will increase, with international purchasers and greater access to financing helping to contribute. However, supressed commodity prices will influence construction in Western Canada, especially with respect to investment in oil infrastructure. Lower interest rates will soften the pernicious impact of low oil prices, but it’s likely that the construction industry in Western Canada will continue to struggle.

GREXIT SCENARIO •

STATUS QUO • With Greece remaining in the EU, global market uncertainty will decrease, leading to a smoother recovery for

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Unrolling the Sidewalks

seeing now, we still have fairly healthy growth,” says community planner Tom Mahler. One result, he adds, is that all the historic downtown department stores are fully occupied.

Just east on the Stephen Avenue Walk is the City’s concentrated Cultural District. “The cultural sector here is quite strong and vibrant, particularly in theatre,” say Mahler, while pointing out that a few years ago a national report showed Calgary had Canada’s highest per capita expenditure on culture. The Calgary Film Centre, National Music Centre and King Edward art incubator are all part of an increasingly sophisticated professional arts community. The striking $168-million Music Centre by Allied Works Architecture will be kitty-corner to Snøhetta’s delightful $245-million library, both under construction.

But does this ensure Calgary’s core is really a long-day city? Yes, says Mahler. “Calgary never truly lost its inner city communities [and over] the last 10 years there is a very strong trend for residential development within the neighbourhoods surrounding the downtown core. The Beltline AUGUST SEPTEMBER 2015

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the global economy. Interest rates will rise at a faster pace, which would taper demand for housing in Canada at the expected rate. Like the Canadian residential resale market, construction of residential real estate would remain status quo. Global commodities will be given a chance to recover once the Greek debt crisis is resolved, which will further help construction in Western Canada rebound.

HOW CAN YOU PREPARE? In the event that Greece is able to reach a sustainable agreement with its creditors, there will be very little impact on the Canadian economy. We would see economic recovery take place as usual, in which the Canadian economy should recover in tandem with the U.S. economy, as U.S. economic recovery will greatly help Canada’s exports.

Contrastingly, in the event of a Greek default, there are a number of factors you should be prepared for. You should make sure you’re sufficiently hedged against fluctuations in the dollar, which are inevitable. Bidding contracts that require internaRahim Madhavji is the tional sourcing could become more expresident and co-founder pensive. Additionally, financing terms of Knightsbridge Foreign could change in the event Greece cataExchange Inc., an online lyzes a pseudo-recession, as rates go currency exchange lower. Persistently low interest rates company. He is a will bring the cost of borrowing down frequent financial guest even lower, meaning that investing in on BNN, CTV News and in new developments becomes increasa variety of print media. ingly affordable for both the residential He can be reached at and commercial real estate. b www.knightsbridgefx.com

[immediately south of the business core] in particular has dramatically increased in population.” Many of the buyers are younger professionals, he says, but there are also empty nesters and retirees moving to rentals and condos downtown. Other communities like Inglewood, Bridgeland, and Hillhurst (among others) have increasing populations but also a diversity of retail, commercial and entertainment options, for example the 2.5-million-sq.-ft. mixed-use redevelopment underway of the downtown Eau Claire Market site by Regina-based Harvard Development.

Eau Claire Market

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And forget eastern stereotypes of a strictly free market Calgary. In 2002 city council approved its own plans for The Bridges, a 14.9 hectare redevelopment of the Calgary General Hospital grounds and surrounding municipal-owned land just north of the Bow River. While the subsequent implementation of the award winning plan has experienced fits and starts, “the population is now growing again, there is a strong retail mix and what I would call local restaurants are increasing,” says Mahler.

Equally dramatic was the 2007 creation of the Calgary Municipal Land Corporation (CMLC). Its activist mandate is to revitalize the Rivers District, in particular the city’s original heart known as the East Village neighbourhood. Eight years down the road, progress has been remarkable. With $357 million of infrastructure now in place, the massive 19.8 hectare East Village development between the business core and Fort Calgary is well into implementation.

Working from the 2008 international competition-winning plan by British firm Broadway Malyan, the CMLC has built public squares, overseen commercial adaptation of a major historic building and constructed RiverWalk (including the striking redevelopment of St. Patrick’s Island).

The last is a major, high-end design investment along the Elbow and Bow Rivers that links Fort Calgary, inner city communities and the business core through multiple pedestrian bridges, walking/bike paths, and memorable riverside gathering places.

To date, $2.4 billion of private sector investment has been committed, which will result in approximately $725 million flowing to the city from the Community Revitalization Levy (CRL). The first of numerous mixed-used condominium projects, hotels and other commercial buildings are well into construction, many along the Riff pedestrian street that cuts diagonally across the full site’s traditional street grid.

A Long Day’s Journey into Night The number of Canadian cities with cores already far from dead by 6:00pm is not insignificant, even if, as Frank Magliocco, partner at PwC Canada and advisor on the Emerging Trends report maintains, they are not yet attractive to major “institutional investors.” Victoria, with its spectacularly rehabilitated harbour neighbourhoods and growing tech sector; Winnipeg with its steady growth, cultural strengths and actively urban University of Winnipeg (Building, August/September 2011); and Waterloo Region (Building, February/March 2015) are a few creative examples. Whether speaking with Magliocco or Joy from the private side or with Mahler and Marini from the public sector, improved collaboration will be crucial. The public sector as developer-partner will likely also be a given. Rather than simply a trend, the “long-day city” is an imperative for the future if strong diverse economies within healthy sustainable cities are the objective. b

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V I E W Walk with Joy ULI Toronto’s Executive Director tackles an open sore on the Toronto Region cityscape – the Gardiner Expressway

In the wake of this spring’s bruising civic debate over the future of the crumbling eastern section of Toronto’s Gardiner Expressway, I decided to take a contemplative walk under this famous stretch of elevated highway connecting to the Don Valley Expressway. Almost two decades since its amalgamation, how was it that the city is once again polarized by such irreconcilable differences between urban and suburban values? Then it struck me — the Gardiner East debate is really a symptom of a much greater challenge facing the city.

Carefully picking my way through the civic no-man’s land of debris-strewn muddy pathways and the narrow paved edge of the Lakeshore Boulevard under the towering highway above, I wondered how many key advocates of the Gardiner’s reconstruction have taken such a walk. What other global city would steal its most prime central waterfront real estate development opportunity to simply rebuild and reskin its most ugly urban underbelly?

But this is Toronto, the most gridlocked city in North America. After decades of underinvestment into our transportation infrastructure, is it reasonable to take away from what little we have? Sure other global cities have removed similarly sensitive elevated highways, but those cities could absorb the displacement of traffic — especially by way of mass transit. Toronto simply cannot.

This is why the Gardiner East debate was symbolic of a greater urban malaise. Neither option was acceptable. But we needed to choose because of the broader neglect of our regional mobility crisis that threatens to loom well into our future. The obvious question: is there another option?

The most obvious and well-discussed option is for the Toronto Region to invest heavily in transit infrastructure.

And while there has been some movement in this direction over the past decade, the scale of investment required far exceeds the funding plans to deliver. Most relevant of them all is Mayor John Tory’s parallel transportation alternative proposal, SmartTrack, which still has no municipal funding source. Ironically, a key idea to generating new city funds is to cash in on the incremental increase in land value that SmartTrack could create. But the approved rebuild of the AUGUST SEPTEMBER 2015

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Gardiner would wipe out some key opportunities for this.

Another critical area for the city to tackle is the lack of residential and commercial intensification around existing (and proposed) transit infrastructure. Curbing sprawl has proven to be only half the battle to achieving responsible utilization of urban land in the Toronto Region. Most of our population increase over the past decade has been located within close walking distance to high order transit, thus perpetuating the pressure on our roadways.

Finally, an idea we need to embrace is how we can better utilize the road infrastructure we have, especially our urban expressway. The Pan Am Games experiment of expanding high occupancy lanes this summer is just a start. To really tackle peak gridlock, Toronto needs to look at what other major global cities have accomplished with road pricing.

It’s a discussion that the Toronto Region Board of Trade (supporters of the Gardiner East rebuild) has advanced, noting that the region can expect to lose upwards of $14 billion in lost productivity simply due to gridlock. We are the only major city Richard Joy is Executive in North America to see its economic Director of ULI Toronto. productivity decline and can ill afford Previously, he served as to exacerbate this by sitting in unnecVice President, Policy and essary traffic.

Government Relations at The Gardiner debate is not over. the Toronto Board of There is time yet to engineer another Trade, and was the option that will open up Toronto’s eastDirector of Municipal ern waterfront to connect it to the PortAffairs and Ontario lands and beyond, while ensuring ade(Provincial Affairs) at quate traffic capacity to Canada’s most Global Public Affairs. important economic hub. But the GarFollow him on Twitter diner debate, and others like it, will nev@RichardJoyTO or email er be fully resolved until we finally take at Richard.Joy@uli.org charge of the broader mobility crisis facing our region. As other cities have proven, increased urban mobility is a value that brings cities, its people and its politicians together. It shouldn’t tear them apart. b

Photo: Roy Gaiot

By Richard Joy

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