Building June July 2009 by IQ Business Media

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Hotels take a hit Buy when others are selling Eyes on the ceiling

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Project : Vancouver Convention Centre Products : Extensive Green Roof and Various Architectural Cladding Systems

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Volume 59 Number 3

june/july 2009

Editor

Peter Sobchak Legal Editor

Jeffrey W. Lem Contributors

Stephen Carpenter, Jonas Cohen, David G. Reiner, Bill Stone, Michael Stoyan Art Directors

Ron Taylor & Ellie Robinson Circulation Manager

Beata Olechnowicz Tel: (416) 416-442-5600 ext 3543 Reader Services

Liz Callaghan Advertising Sales

Jordy Bellotto Tel: (416) 510-6780 Fax: (416) 510-5140

Senior Publisher

Tom Arkell Vice President, Publishing Business Information Group (BIG)

Alex Papanou President, Business Information Group (BIG)

Bruce Creighton Building magazine is published by Business Information Group, a division of BIG magazines LP 12 Concord Place, Suite 800, Toronto, ON M3C 4J2 Tel: (416) 510-6780 Fax: (416) 510-5140 Email: info@building.ca Website: www.building.ca SUBSCRIPTION RATE: Canada: 1 year, $28.95; 2 years, $51.00; 3 years, $62.95. (including G.S.T.) U.S.: 1 year, $36.95 (U.S. funds) Elsewhere: 1 year, $43.95 (U.S. funds). BACK ISSUES: Back copies are available for $8 for delivery in Canada, $10 US for delivery in U.S.A. and $15 US overseas. Please send prepayment to Building, 12 Concord Place, Suite 800, Toronto, ON M3C 4J2 or order online at www.building.ca For subscription and back issues inquiries please call 416-510-3543, e-mail: circulation@building.ca or go to our website at www.building.ca Please send changes of address to Circulation Department, Building magazine or email to addresses@building.ca NEWSSTAND: For information on Building on newsstands in Canada, call 905-619-6565 Building is indexed in the Canadian Magazine Index by Micromedia ProQuest Company, Toronto (www.micromedia.com) and National Archive Publishing Company, Ann Arbor, Michigan (www.napubco.com). Association of Business Publishers 205 East 42nd Street Audit Bureau of Circulations New York, NY 10017

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Features 8. A rare epiphany / A HST reprieve for the new home building industry in Ontario. By Jeffrey W. Lem and David G. Reiner 10. Weakness can lead to strength / Although the current economic climate presents significant challenges for some businesses, it is an opportune time for well-managed and well-financed companies to consider a strategic acquisition that will position them for growth. By Jonas Cohen and Michael Stoyan

12. Look up, look way up… / Canada’s first LEED Core & Shell Platinum pre-certified office tower is emerging on Vancouver’s skyline. 16. RE: bank, birth, brand, build / Taylor_Smyth Architects turn the dated and worn office of the Auto Workers Community Credit Union into an elegant landmark in Oshawa. By Peter Sobchak

18. Battered and bruised, but not out / A turbulent market leads to a down-cycle in the Canadian hotel investment sector. By Bill Stone 20. Products: Ceiling Highs / These new ceiling products bring style to the space above your head.

Departments 4 Editor’s Notes

6 Upfront

21 Infosource

22 Viewpoint

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Glacier BIG Holdings Company Ltd. Customer Number: 2014319 Canada Post Sales Agreement #40069240

Cover: Auto Workers Community Credit Union. Photo by Ben Rahn/A-Frame Inc. Above images courtesy of: Ben Rahn/A-Frame Inc., Stantec Architecture, Big Ass Fans.

editor’s notes

Isn’t our right to parking written in the Constitution somewhere? It’s so much fun to kvetch about our parking woes. Let’s face it: everyone who drives complains about parking, both paid and unpaid public parking and monthly-unreserved parking at work. And in case there aren’t enough reasons to cavil about that spot for your car, here’s a really good one to get your goat: parking costs have increased nationwide for a sixth consecutive year according to results from Colliers International’s annual global parking survey. Recession? What recession? Apparently owners and operators of parking lots chose to ignore our so-called economic downturn, because monthly parking rates in Canada increased by 9.9 per cent or roughly $20 over 2008 levels. The average daily parking rate in Canada rose 9.89 per cent over last year to $17.78 daily, with an average monthly parking rate of $222.75, up 9.94 per cent from 2008. Here are some other tidbits from the survey: downtown Calgary has the most expensive monthly-unreserved spaces in Canada and is second only to New York (US$500 Downtown, US$550 Midtown) in all of North America with a median monthly rate of US$460. Calgary is followed by Toronto ($305), which is the second most expensive Canadian city to rent a space by the month, with Montreal ($280), Edmonton ($275) and Vancouver ($224) closing the top five destinations. Although Canadian cities such as Calgary and Toronto look very expensive, Canadian parking prices still pale in comparison to monthly parking rates in cities such as London (US$1,020), Tokyo (US$525), Sydney (US$588), Hong Kong (US$748) and New York. Sounds excessive, right? Well, maybe it’s not as excessive as

it should be. And here’s why. Parking regulations and design in most Canadian municipalities are based on a fundamentally flawed concept that in fact proves to have detrimental effects on economic development, among many other problems. Think about this logically: a large, convenient parking lot ties up tracts of extremely valuable urban land that could be better used for other projects, and tends to increase the investment returns developers then need from the remaining land. “Free” parking costs, and that cost is passed on to someone. For example, the Toronto Parking Authority estimates that parking costs between $20,000 and $40,000 in central parts of Toronto. In a new condominium development, for example, the result is that two required parking spaces add an extra $40,000 to $80,000 to the cost of the average unit. We’re not going to get rid of parking lots any time soon, and apparently not even lower the price of it, but there are still measures companies can take to encourage alternative employee transportation options. “Promoting car pooling and public transit, including subsidizing employee fares, and providing company car-share programs, telecommuting solutions, bike racks, showers and change facilities are all effective ways of reducing car-related carbon impacts, while reducing the costs of providing parking onsite,” says Nancy Searchfield, Canadian Leader of Brokerage Sustainability at Colliers and Vice Chair of the Green Building Council of Canada. Let’s face it, the real cost of parking – economically, environmentally, socially – is much higher than it would be if people paid for their parking directly. B

Peter Sobchak

Building welcomes your opinions. E-mail your comments to editor@building.ca

Watch Archetype Sustainable House / In a five-part series, various designers and builders describe the basics of the Toronto and Region Conservation Authority’s Archetype Sustainable House project. The two semi-detached units – one unit showcasing environmentally-sensitive methods of building currently available and the other showcasing the future of building green – will serve as an education facility for trades and builders.

Read Linking Communities and Built Environments / In an excerpt from their new book, Laura Mamo and Jennifer Fosket discuss how the relationship between people and built communities showcases the social side of living green. A TOD Primer / Dr. Mir F. Ali explains why and how Transit Oriented Developments can improve the evolution of mixed-use and compact community development.

attend Healthy Buildings 2009 / September 13-17 / Syracuse, New York Public Sector Facilities and Infrastructure Asset Management / September 15-16 / Toronto IIDEX/NeoCon Canada / September 23-26 / Toronto Green Building Festival / September 23-25 / Toronto

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upfront

Remington Group unveils plans for the redevelopment of Market Village

TORONTO — The Remington Group plans to redevelop its current 352,000-sq.-ft. Asian-targeted shopping centre called Market Village located in Markham, Ont. into an 800,000-sq.ft. commercial and residential property called The Remington Centre, designed by Toronto-based Kohn Architects. With ground breaking projected in the next 24 months, the new billion-dollar property will be home to more than 360 retail stores, incorporating small-sized shops currently found at Market Village, and premium spaces for upscale boutiques and anchor tenants.

An additional residential/hotel tower adjoining the shopping centre will be constructed in the second phase of development, featuring over 20 storeys and including 475 units and luxury hotel suites, as well as a network of pedestrian pathways and private streets that will link the retail and residential environments. Existing issues such as traffic congestion that Market Village currently experiences will be handled in the new project by constructing new entryways, integrating The Remington Centre with the adjacent Pacific Mall to a greater extent, and building a parking garage of up to six levels, with a total of 3,500 parking spaces. Other features include a six acre outdoor public plaza with a pond that converts into an ice rink in the winter and a permanent stage with a cascading waterfall for weekly cultural performances. The centre will also feature a geothermal installation with radiant floor heating and cooling.

KPMB selected for renewal and expansion of Minnesota Orchestra Hall

TORONTO — Kuwabara Payne McKenna Blumberg Architects (KPMB) has been appointed to design a renewal and expansion of the Minnesota Orchestral Association’s Orchestra Hall in downtown Minneapolis. The renovation will be directed by Bruce Kuwabara, design partner, and Marianne McKenna, partner-in-charge. The $40-million project to revitalize Orchestra Hall will focus on a dramatic reinvention of its public lobby spaces, an updated exterior that better connects the Hall to the city outside, a refreshed auditorium and improved backstage facilities. KPMB was the unanimous choice of the six-member Minnesota Orchestra Architect Selection Committee and its profes-

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sional advisory panel, after a seven month international search. Known for its particular expertise with renovation projects and performing arts venues, KPMB has recently designed 11 major cultural projects, eight of them performing arts facilities.

Government of Canada invests in NRC Indoor Air Research Laboratory

OTTAWA — Canadians will have a better understanding of the impact of indoor air quality on their health, especially the health of children and adults with asthma, thanks to a new Indoor Air Research Laboratory at the National Research Council (NRC)’s Institute for Research in Construction. The lab will help contribute to better respiratory health by providing a state-of-the-art testing facility for ventilation systems. “Our government is investing in science, technology and research that improves the lives of Canadians, creates jobs and strengthens the economy,” said Gary Goodyear, Minister of State (Science and Technology). “The new Indoor Air Research Laboratory will give health experts and the construction industry an insight on how indoor air quality affects our health, while helping businesses develop highly skilled people and improve their competitiveness.” Researchers at the Indoor Air Research Laboratory will measure and evaluate the impact of various ventilation systems by configuring the laboratory’s flexible modules to duplicate specific room sizes and home designs, as well as simulate models of heating and air-conditioning systems and heat-recovery ventilators. The NRC Indoor Air initiative represents an $8 million investment over four years by the Government of Canada of which $2 million is dedicated to the NRC Indoor Air Research Facility. The initiative is a part of the government’s Clean Air Agenda, which commits money and resources for government, industry and communities to work together to improve air quality.

CaGBC recognizes 100th building and first two homes with LEED Canada certification

OTTAWA — The Canada Green Building Council (CaGBC) has both certified their 100th LEED Canada building and the first two homes to achieve a LEED designation. The 100th Canadian building to be certified under the commercial LEED Canada rating system is MintoMidtown, a dual-tower residential complex in downtown Toronto (pictured right). The towers together feature 876 residential suites, commercial office and ground floor retail space, and subway access. Achieving Gold certification under LEED Canada for New Construction and Major Renovations, MintoMidtown incorporates extensive energy and water conservation systems, among other features including: motion sensor stairwell

upfront

lighting; “all-off” in-suite lighting controls (that allow residents to turn off all fixed lighting at one master switch); a system of rainwater collection for outdoor irrigation; a recycling program; an initiative to create demand for green power; and indoor water conservation measures. Two private residences were also recently certified by the CaGBC under the new LEED Canada for Homes rating system. Discovery 3 House, in Red Deer, Alta., achieved a LEED Canada for Homes Platinum certification. Avalon Master Builder built this net-zero house, which produces as much energy as it consumes on an annual basis. This was achieved by using the latest in energy efficient construction techniques and equipment, and installing a renewable (solar) energy system. Discovery 3 also uses a greywater recycling system to reduce demand for potable water. Baston Home, in West Vancouver, B.C., was built by Leading Homes and certified LEED Canada for Homes Gold. The house includes a high performance HVAC system, high efficiency appliances and lighting to conserve water and energy, greywater and exhaust air heat recovery systems, 100 per cent water recapture, and a saltwater swimming pool that is heated by solar power. “Regardless of the building type, every LEED Canada certified project is proof of the industry’s commitment to the advancement of high performance and energy efficient buildings in Canada,” said Thomas Mueller, president and CEO of the CaGBC. “We congratulate the visionaries behind these latest LEED projects. The building industry is showing real leadership by voluntarily adopting rigorous new standards to reduce the environmental impacts from buildings, while realizing economic benefits through operating efficiencies and enhancing the quality of life for building occupants.”

RAIC 2009 Best Architectural Firm winner

MONTRÉAL — Saucier + Perrotte architectes has received the 2009 Award of Excellence for the Best Architectural Firm, from the Royal Architectural Institute of Canada (RAIC). Founded in 1988 by Gilles Saucier and André Perrotte, Saucier + Perrotte architectes has gained international renown for its institutional, cultural, and residential projects. The firm represented Canada at the Architecture Biennale of Venice in 2004, and has been honoured with numerous awards, including five Governor General’s Medals in Architecture and an International Architecture Award. While continuing to add to its body of significant built work in Quebec, Ontario and Alberta, Saucier + Perrotte has designed projects for Japan, China, Malaysia and the Middle East.

New creative cluster planned for downtown Montréal

MONTRÉAL — Groupe Dayan has unveiled a plan dubbed “New Chabanel … design unlimited” which will unite five buildings situated along Chabanel Street in Montréal where a group of fashion and design companies are already established. The “New Chabanel … design unlimited” scheme will combine commerce, creativity and lifestyle in 99, 125, 225, 333 and 433 Chabanel Street, by bringing together coffee shops, boutiques, office spaces, lofts and a variety of multi-purpose areas.

Residential construction on the rise, says CMHC

OTTAWA — The seasonally adjusted annual rate of housing starts increased to 128,400 units in May from 117,600 units in April, according to Canada Mortgage and Housing Corporation (CMHC). “The increase in May is broadly based, encompassing both the singles and multiples segments,” said Bob Dugan, chief economist at CMHC’s Market Analysis Centre. Housing starts are expected to improve throughout 2009 and over the next several years to gradually become more closely aligned to demographic demand, which is currently estimated at about 175,000 units per year. The seasonally adjusted annual rate of urban starts increased 11.1 per cent to 107,800 units in May. Urban multiple starts increased 11.1 per cent to 60,900 units, while urban single starts also moved up by 11.1 per cent to 46,900 units in May. May’s seasonally adjusted annual rate of urban starts increased 22 per cent in Ontario, 16.8 per cent in the Prairies, 7.3 per cent in Atlantic Canada, and 3.3 per cent in Quebec. Urban starts declined five per cent in British Columbia. Rural starts were estimated at a seasonally adjusted annual rate of 20,600 units in May.

The City of Montréal and the Ahuntsic-Cartierville Borough are contributing to the revitalization of Chabanel with an investment close to $20 million, of which the first phase has already been initiated. “Despite the economic difficulties presently experienced in the real estate industry, we are convinced of the value of the “New Chabanel” project and of the positive impacts it will have on Montréal,” said Albert Ezerzer, Groupe Dayan vice president of Operations. Montréal-based Groupe Dayan manages $150 million in real estate investments divided over five million square feet in the heart of Montréal, including the W Hotel, 4446 St-Laurent Boulevard and 355 Sainte-Catherine West. building

june/july 2009

legal

By Jeffrey W. Lem and david G. reiner

A rare epiphany

A HST reprieve for the new home building industry. The senior co-author of this column enjoys going to Ed, the barber (to be perfectly clear, a barber, not a hair stylist) every other week. It is an unnecessary luxury because, as everyone can tell, I hardly have enough hair to warrant monthly, let alone bi-weekly, visits to Ed. In the Spring budget, the Ontario government proposed a sales tax harmonization that would render some purchases (mostly services) that had historically been exempt from provincial retail sales tax (PST), subject instead to a new umbrella 13 per cent harmonized sales tax (HST). If this HST is implemented, my haircuts will, starting about this time next year, become subject to HST, and I will thereafter effectively be paying a PST on my haircuts. While the extra tax on my vanity that Ed would have to collect from me every other week will prove annoying, I have an inelastic demand for my haircuts, and Ed will have little to worry about. Alas, the same cannot be said for HST’s impact on other industries. Of pertinence to readers of Building, the HST would have had near ruinous implications for the new home construction industry and homebuyers in the province. According to a report on the subject commissioned by the Building Industry and Land Development Association (BILD), the overall tax burden currently imposed by GST and PST on the purchase of a typical single family detached home in the City of Toronto ranges between 5.3 per cent and 6.9 per cent of the median price of such a new home – a combined sales tax load of just short of $50,000. After the Spring budget’s proposed sales tax harmonization, however, the total sales tax on the same City of Toronto single family detached home would soar to over $96,000

in HST, a whopping $46,000 increase in the cost of Toronto new home ownership! The same impact would occur in almost any large metropolis in Ontario where house prices routinely exceed the $400,000 threshold. The real culprit, of course, was not in the harmonization per se of the collection of these two levels of sales taxes. Most fiscal theorists agree that a co-ordinated and streamlined collection protocol is, at almost every level of analysis, preferable to the existing bifurcated provincial/federal remittance procedures. However, as a bi-product of harmonization, some line-items that had historically been exempt from the eight per cent provincial retail sales tax would now become subject to an umbrella 13 per cent harmonized sales tax instead – in effect, imposing a de facto eight per cent provincial retail sales tax where before harmonization there was none. For the most part, these new taxable line-items, like haircuts, are services, most of which had been PST exempt prior to harmonization, but would become subject to HST (including a built-in PST component) after harmonization. The one notable non-service item that would also have been swept into the HST tax increase was new home construction (and this includes residential condominiums as well) on units costing more than $400,000. While new homes sold at less than $400,000 enjoy a total GST rebate (which rebate would also extend to the HST after harmonization), the March budget contemplated that newly built homes sold for more than $400,000 post-harmonization would not only attract GST (as they now do), but also the built-in PST component of the HST!

Jeffrey W. Lem, B.Comm. (U of T), LL.B. (Osgoode), LL.M. (Osgoode), practises in the areas of commercial real estate and finance with the law firm of Davies Ward Phillips & Vineberg LLP, and has been called to the bar in Ontario, England and Wales. He is an executive member of the Real Property Section of the Ontario Bar Association and is editor-in-chief of the Real Property Reports, published by Carswell Thomson Professional Publishing. David G. Reiner, B.Comm. (Concordia), LL.B. (Osgoode) is an associate practising in the area of commercial real estate at Davies Ward Phillips & Vineberg LLP and is called to the Bar in Ontario. This article provides general information only and is not intended to provide specific legal advice. Readers should not act or rely on information in this article without seeking specific legal advice on their particular fact situations.

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legal

It is that extra PST component that would have created a crushing blow to new home builders constructing homes and condos with sale prices in excess of $400,000. On June 19, 2009, after relentless lobbying efforts by Toronto area homebuilders, industry associations like BILD, and development law mavens like Harry Herskowitz, of Delzotto, Zorzi, the provincial government abruptly cancelled the PST portion of the HST above $400,000 by extending the existing GST rebate mechanism to include the PST portion of the HST on all new home purchases, regardless of sale price. The full rebate was also extended to all new residential rental housing as well. The impact of the government’s epiphany is nothing short of astounding. On a $500,000 new house, condo or rental unit anywhere in the province, the savings on the PST portion of the HST will be $24,000 per transaction! Based on Ministry estimates as to volume, the elimination of the PST portion of the HST could “cost” Ontario coffers upwards of a quarter of a billion dollars per annum. Of course, it is a quarter of a billion dollars per annum that Ontario never had before sales tax harmonization, and, more importantly, it would have been “found money” that otherwise would have come out of the new home building industry. Of course, the elimination of the PST portion of the HST on new home sales will do nothing to eliminate the increased incidental costs payable in a typical real estate transaction as a result of sales tax harmonization. Ontario’s real estate buyers (whether buying housing stock or industrial, commercial or investment properties, and whether buying new or resale real estate) are all going to have to pay a 13 per cent HST on legal fees, surveyors’ fees, appraisal and home inspection fees, title insurance premiums, and real estate commissions, all of which, like the cost of haircuts, have historically been exempt from PST. All real estate deals will still suffer indirectly because of these increased ancillary costs associated with adding a de facto PST to all real estate related services. The decision by the government will come as a particular relief to Toronto homebuyers. Toronto has the simultaneous distinction of being the municipality with: (i) the most new homes and condos being sold above the $400,000 price point (estimates vary from between 40 to 50 per cent of all Toronto new home construction to be above this price point); and (ii) the highest

Of course, the elimination of the PST portion of the HST on new home sales will do nothing to eliminate the increased incidental costs payable in a typical real estate transaction as a result of sales tax harmonization. condo builders throughout the province, this amended HST policy is far more enlightened and much better tax policy than the March budget version that it replaces. Now, if we could only

lobby the government into granting a rebate for the PST portion of the HST to be charged on haircuts… B

land transfer tax rates in the province after the implementation by the City of Toronto of its own municipal land transfer tax last year. In fact, had harmonization gone ahead as originally contemplated in the Spring budget, the total tax load payable by a typical Toronto new home or condo buyer after July 1, 2010 (the proposed harmonization implementation date) would have been a whopping 17 per cent (13 per cent in HST and 4 per cent in combined land transfer taxes) From the perspective of the buying public and home and building

june/july 2009

Weakness can lead to

strength

Although the current economic climate presents significant challenges for some businesses, it is an opportune time for well-managed and well-financed companies to consider a strategic acquisition that will position them for growth. By Jonas Cohen and Michael Stoyan There are a number of companies on the market for sale, and while there may be many attractive deals, carefully assessing a potential acquisition is critical. When it comes to the building and construction industry, risk is a part of the equation. The hallmark for this sector has traditionally been that the greater the risk, the greater the reward. However, with today’s volatile market, investors should reassess this historical mantra. While there is no simple formula for approaching a potential acquisition in a distressed market, the following five steps should be considered when investigating an acquisition.

Understand your risk tolerance It is critical to understand your company’s risk tolerance to ensure you obtain the appropriate risk/reward balance. Conducting a thorough internal assessment of your management strengths and operations will allow you to determine all available options. You also need to be aware of external factors such as availability of capital, cost of capital, and local, national and global industry trends. You should also analyze your current capital structure and consider either raising debt or raising equity capital in order to build financial positioning to execute on the transaction. The key to both options is to ensure you are not taking on more risk that could negatively impact your core business. When assessing options you must also consider the impact on ownership dilution. Acquiring a distressed company often demands quick decision making, and thus reduces the time allowed to perform the appropriate due diligence. When that happens, you must weigh the potential risk that goes along with rushing the transaction. If the purchase price or terms and conditions in the agreement cannot be adjusted for the related risk, sometimes the best move is to simply abort the transaction. It is also important to have a full understanding of your own growth limitations. If, for example, your road to future success lies

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in expanding geographically, but the capital commitment and time commitment of setting up your own operation is too high, then an acquisition strategy may be the ideal approach.

Find the right opportunities for profit During tough economic times, many tend to view acquisitions as the practice of acquiring a business in distress — this is far from being the case. In fact, the “bargain basement” approach often carries with it more risks than rewards over the long term. With a well-defined strategic plan, and a keen eye for the right opportunity to complement an existing business model, an acquisition can prove to be the deciding factor in overcoming any growth hurdles a business may be encountering. Acquiring the right distressed and discounted assets can prove to be a beneficial strategy that can accelerate your path to growth. For example, you can obtain greater market share by purchasing a competing property at a great price. This strategy can also allow you to diversify assets if you are seeking to expand your portfolio either geographically or by asset mix (e.g. commercial, retail, and residential.)

Develop a plan Every deal you are considering should start with a coherent and definite plan that will show how the transaction would generate value to your existing business. This plan is referred to as the investment thesis and clearly sets out the understanding of how profit will be generated and outlines how adding the asset(s) to your portfolio will make your business more valuable. This value creation is typically defined as the ability to increase cash flow beyond the level of cash the owner requires to compensate for the risks the business presents. Sustainable value creation can only be achieved by distributing enhanced value over all key stakeholders including owners, customers, employees and suppliers.

Perform due diligence Building sector professionals know that before you close any deal, you need to perform some level of due diligence. But what does due diligence entail? What are the best practices? Can you do it yourself or should you hire a firm that specializes in buy-side advisory services? Risk exists everywhere and sound due diligence can help protect you by providing the necessary information and enabling you to make informed decisions. Although you may have an in-house due diligence team, consider engaging professional advisors to better assess the risk for major acquisitions. Due diligence is customized to each individual transaction and takes a focused look into a number of areas including the quality of earnings, quality of assets, potential tax exposures and liabilities. You must always keep in mind that although the asset(s) itself may be strong, if the capital structure is weak it could place you in a distressed situation.

Design a solid acquisition structure to prevent tax implications How you structure your proposed acquisition from a tax standpoint is an important consideration. You could structure your acquisition through a corporation, a partnership, an individual purchase or as a trust. Each of these structures has different rules on how and at what rate the income from the investment will be taxed, and each has different benefits or consequences depending on your needs.

Before you determine what structure works, consider implications such as whether the income will be taxed at personal or corporate tax rates, will start-up losses be trapped in a corporate structure or can they flow through a partnership? If you are financing the purchase, how the debt is structured will affect how the profits are taxed. Depending on your goals, there may be alternative tax structures, such as a family trust, that can be used to minimize taxes. Also bear in mind that how a property is purchased will have tax implications when you sell. A professional services firm specializing in real estate will know how to structure the transaction to your specific benefit. In today’s uncertain economic climate — or even when the financial landscape is thriving — no acquisition is without risk. However, with a well thought out strategy and the right expertise on hand, healthy businesses can significantly reduce those risk factors to drive stronger, more profitable results. B Jonas Cohen (left) is vice president of Toronto-based Fuller Landau Consulting Ltd. and specializes in mergers and acquisitions, corporate finance and due diligence. Michael Stoyan is a Partner leading the firm’s Real Estate specialty group. They can be reached at jcohen@ fullerlandau.com and mstoyan@fullerlandau.com respectively.

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building

june/july 2009

No Equal.

Canada’s first LEED Core & Shell Platinum pre-certified office tower is emerging on Vancouver’s skyline

Look up, loo Images courtesy of Stantec Architecture

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Although unbuilt, the Metrotower III in Burnaby, B.C. can cut an impressive notch in its belt: it is the first Canadian project to be precertified for LEED-CS (Core and Shell) by the United States Green Building Council (USGBC). When completed in the summer of 2011, this third and final addition to the Metrotower Office Complex will add nearly 400,000 square feet of ‘AAA’ Class office space over 29 storeys, bringing the total square footage of the complex to one million square feet of rentable space. Metrotower III will feature floorplates of almost 16,000 square feet on average, and tenants will have panoramic views of downtown Vancouver, the North Shore Mountains, the Gulf Islands and Mount Baker, as well as retail and a 8,000-car parking structure. LEED-CS covers base building elements such as structure, envelope and the HVAC system, yet there exists a unique opportunity for building owners and developers to pre-certify their project. LEED-CS pre-certification is a formal recognition by the USGBC given to candidate projects for which the developer or owner has established a commitment to develop a LEED-CS building. Once pre-certification is granted, the owner can market the building’s proposed green features to potential tenants and financiers. Official certification is granted upon submission of required documenta-

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building

tion once the building is completed. Metrotower III is pre-certified at the Platinum level, and is also registered with BC Hydro’s High Performance Building Program for its energy efficient design. “LEED Platinum pre-certification is recognition of our commitment to sustainable development in designing and building Metrotower III,” said Gordon Wylie, director of develop-

ment at Ivanhoe Cambridge, the owners, developers and managers of the complex. “For example, we are working closely with our partners to manage construction waste and divert much of it from disposal. We will also use regionally sourced and recycled materials where appropriate.” LEED-CS is designed to complement the LEED-CI (Commercial Interiors) rating system, and as Vancouver-based Darren Burns, the project coordinator at Stantec Architecture (the firm that designed the $170-million Metrotower III project) notes, this pre-certification will be attractive to tenants who have an interest in, and commitment to, sustainability. “The building is configured such that a tenant can achieve a commercial interior LEED Silver certified status with no additional capital cost. This is because so many of the energy savings features are already built in, such as electricity and water conservation features, daylighting strategies, and tenant submetering which allows them to control their own power consumption.” Stantec also developed tenant design guidelines which detail what tenants can and cannot do within leased space, relative to sustainability. This investment in pre-certification underscores how committed the client was to attaining a sustainable building for future tenants. “Without our client’s endorsement of this process and outcome, it wouldn’t be possible to achieve this level of sustainability in the context of a traditional commercial development,” says Burns. Other aspects of the sustainable design include reducing the amount of powered light used by installing innovative window glass, and incorporating low-emitting materials like paints and carpets for healthier interior surroundings. These features have proven environmental benefits and will also likely result in cost and energy savings for tenants in Metrotower III. The tower complements Metrotower I and II on the site, although with significantly updated features and materials since the original towers were built in the 1980s. This new tower is elevated and situated on the site of an urban “vest pocket” park, and incorporates this green landscape into its base and lobby design. Metrotowers I and II are currently leased to capacity, and tenants include Bank of Montreal, TransLink, Clarica/Sun Life Financial, KPMG, Rogers Communications and various Crown corporations. “The Metrotower Office Complex has proven that it can draw major blue chip tenants who believe in this location as a central place to do business,” said Kim McInnes, Executive Vice President and Chief Operating Officer at Ivanhoe Cambridge. “AAA Class office space in downtown Vancouver is in short supply, and we’re confident that the success of the existing two towers, combined with our history of maintaining high occupancy rates makes this an ideal time to build Metrotower III.” B

Project: Metrotower III Developer: Ivanhoe Cambridge Architect: Stantec Architecture Ltd. Construction manager: Ledcor Construction Ltd. Landscape architect: PWL Partnership Inc. Consulting engineers: Read Jones Christoffersen Ltd. (structural) / Cobalt Engineering (mechanical) / Nemetz (S/A) & Associates Ltd. (electrical)

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bank birth brand build

Let’s be honest: these days when you see these two phrases in the same sentence – auto workers, credit – you immediately think sinking ship. And you can’t be blamed, since the fortunes – or lack thereof – of former automotive giants General Motors and Chrysler have dominated the news for the past few months. But the tide change in that industry didn’t happen overnight, and many of those within the fold saw a need to start altering the way they attract business. The Auto Workers Community Credit Union (AWCCU) were like that, and although the timing of a total revamping of their headquarters in Oshawa, Ont. may seem a little suspicious given the aggressive reinventions being undertaken by GM and Chrysler, in reality the AWCCU began to investigate an image overhaul as far back as 1998. Faced with an aging membership and longstanding uncertainties of the local automobile industry, the Board of Directors concluded that a fresh image was required to catch the attention of new members in the wider Durham Region and to welcome them as part of the co-operative family. Toronto-based Taylor_Smyth Architects was selected to revitalize

Taylor_Smyth Architects turn the dated and worn office of the Auto Workers Community Credit Union into an elegant landmark in Oshawa. By Peter Sobchak Photos by Ben Rahn/A-Frame Inc. the original 19,000-sq.-ft. building, constructed in 1965 and now appearing woefully passé and uninviting. “Our design was intended to not only update the structure, be also be a contrast to the current trend of depersonalizing the banking experience,” says partner-incharge Michael Taylor. To achieve this, starting in 2006 they gutted the interior and substantially re-configured and re-clad the exterior. To improve awareness of the credit union, much of the design team’s efforts were spent on increasing the building’s presence facing oncoming traffic on a busy one way street, primarily through the use of bold signage elements such as the low concrete wall that projects from the base and evokes the gesture of an arm reaching out to customers. This motion of embracement is amplified by the new street façade that slides out from the mass of the

Before

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Previous page & right: Originally mostly solid, the elevation facing oncoming traffic is now a luminous composition of channel glass and clear glazing that embodies the openness of the AWCCU to the larger community.

building as a perforated aluminum plane. More than just a backdrop for their logo, this assertive new skin serves as the brightest symbol of the co-operative’s forward-looking goals. Impressions of greeting and community are punctuated by moments of what Taylor call “drama and wow,” particularly in the extensive use of transparent and translucent glazing and emphasized in the all-glass west façade. This recurring motif of clearness and openness comes to life at night when the building becomes a glowing lantern of windows and channel glass and the perforated metal sign gets lit from both the front and behind. Inside the banking hall during the day, those warm feelings are continued through the extensive palette of rift cut oak in a language that reinforces the overall sense of quality and thoughtfulness. “The biggest challenge of the project was phasing construction to allow uninterrupted service to members,” says Taylor. Tellers

were relocated three times within the building during construction, since “the costs of temporary relocation off-site were determined to be more detrimental to members’ perception than the disruption from a series of moves within the building, as well as being more expensive.” Although not out of the woods yet, their new headquarters has left AWCCU feeling energized. “The new building has changed staff attitudes and made them proud of our company, and not feel shy about telling people in the community where they work,” says David Bobnar, marketing manager at AWCCU. “We have had a number of new members join specifically because they have seen the new building and it attracted them to come in.” In these delicate times, and especially in relation to anything connected to the automotive industry, getting positive customer feedback can be like a shot in the arm. B Above right: One of the most striking elements is the discovery, as one moves along the street façade, of the void framing a view of the sky between the body of the building and the perforated metal sign. Left: Staff is now all on one floor in an open, visually accessible environment, at the centre of which sits an elliptical composition bisected by an oak screen, containing the reception desk on one side and a waiting/reference area on the other.

Architect: Taylor_Smyth Architects Mechanical & Electrical Engineers: Enso Systems Inc. Code Consultant: Hine Reichard Tomlin General Contractor: H.M. Brooks Limited

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june/july 2009

Battered and bruised, but not out

A turbulent market leads to a down-cycle in the Canadian hotel investment sector.

By Bill Stone The global credit crunch and the recession that followed have hit the Canadian hotel real estate sector, which experienced a 77 per cent decline in investment activity in 2008, falling to $1.1 billion. Entering 2009, first quarter transaction volume declined further, totalling just $50 million (versus $407 million for the same period in 2008), signalling a cyclical downturn from the peak experienced from 2005 to 2007. RevPAR, the industry measure of revenue per available room and calculated by the product of occupancy and average rate barely grew in 2008 at 0.6 per cent and is expected to pull back in 2009, but not nearly as drastic as the some 14 per cent drop predicted in the United States. The Canadian hotel market, however, it is in a good position to weather the length of this cycle. While the market retracted in response to global economic instability and a credit catastrophe, the value of hotel assets are not expected to plummet as greatly as other international markets. This is due to Canadian hoteliers’ improved capitalization structures, stronger management and controlled supply levels in most markets.

cating the strength of the commodity driven markets in Western Canada, particularly during the first half of the year.

2008 transaction analysis With difficult and often unpredictable economic conditions in the later half of the year, annual hotel investment slowed with an estimated 92 hotels trading. While transaction volume was some 77 per cent lower than the historic high of $4.6 billion in the year prior, 2008 was the fifth strongest year of activity on record. Coming off times of strong liquidity, plentiful and attractive financing and strengthening lodging performance, the latest peak attracted a diversity of buyer groups seeking exposure to large portfolios and a platform of prime hotel assets and management companies across the country. The market changed mid-2008 with the lack of credit choking leveraged transactions, which headlined the investment market just a short time ago. The credit fiasco, which originated in the U.S. in late 2007, spread globally by spring and quickly paralyzed global capital markets. The average price per room of all transactions declined from $154,200 in 2007 to $116,500 in 2008, attributed in part, to the absence of premium full service, four and five star assets trading. Excluding strategic acquisitions, traditional per room pricing was $84,300, 13 per cent below the peak in 2007. On a regional basis, 36 traditional transactions occurred in the Western provinces, 34 in Ontario and the balance in Quebec and Atlantic Canada. Pricing (excluding strategic trades) was highest in Alberta at $137,700 per room, registering a 23 per cent increase from 2007 levels. Ontario posted the lowest overall pricing at $65,100 per room, a 26 per cent decline from 2007. Divergence in pricing was evident with the West enjoying per room pricing 70 per cent higher than the rest of Canada at $112,400 versus $66,000, indi-

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Thirteen hotels traded over $20 million, including seven strategic sales. The largest single asset sale was the Grand Okanagan Lakefront Resort and Conference Centre (now branded as the Delta Grand Okanagan Lakefront Resort and Conference Centre) in Kelowna, B.C. that sold in August for $131 million to the British Columbia Investment Management Corporation (“bcIMC”). This was followed by the Delta Portfolio, also acquired by bcIMC, which transacted in January totalling $200 million and comprised assets in Calgary ($120 million), Saskatoon ($40 million) and the Toronto Airport ($40 million). Other notable single asset trades included Swedish hotel investment company Pandox AB’s acquisition of the Hyatt Regency Montreal in May ($58.5 million) and the Capri Hotel, Trade and Convention Centre in Red Deer, Alta. by Temple REIT in December ($40 million).

Buyer profiles Private investors acquired 66 hotels, dominating 72 per cent of total trades. Hotel investment companies were also some of Canada’s most active participants, including Fortis Properties Corporation, Vrancor Group of Companies and Northland Properties Corporation, among others, continuing expansion plans of hotels with value-add and repositioning opportunities. All but one hotel was acquired by Canadian entities, with the Hyatt Regency Montreal purchased by Pandox AB. In recent years Canadian buyers have made up approximately 90 per cent of the total transaction market.

A palpable gap in buyer and seller pricing expectations contributed to the slowing of overall transactions by the third quarter of 2008.

This was evidenced by just 30 per cent of hotel trades representing some 41 per cent of total volume occurring in the second half of the year. As expected, sellers without strong “sell” motivations or pressures opted to pull assets from the market with intentions to hold until stability returned to the economy.

occupancy and 1.2 percent drop in rate. This has caused RevPAR to decline by 7.9 per cent compared to the first quarter of 2008. Supply grew at an annualized rate of 2.4 per cent in 2008 with the opening of 80 hotels comprising approximately 8,900 rooms in Canada, representing the peak of the hotel development cycle. It is now estimated 72 new hotels will open across the country in 2009, and due to a number of large projects, room-night supply is forecast to increase by 2.5 per cent. With the cost and limited availability of debt, the hotel development pipeline is expected to slow substantially in the medium term, with those projects yet to commence construction likely to be placed on hold until evidence of sustainable economic growth and the return of credit. B

Economic and financing conditions Economic indicators confirm Canada is in the midst of a sustained recession, demonstrated by contracting demand that has shaken consumer and business confidence. The Conference Board of Canada estimates the economy grew at an anaemic pace of 0.6 per cent in 2008, and has recently forecast real GDP of minus 0.5 per cent for this year. This decline, however, is optimistic compared to recently revised projections by the IMF and OECD of minus 2.5 per cent and minus three per cent respectively. Canadian banking economists also have agreed that a drop in output of 2.5 per cent is realistic. Other advanced world economies are anticipated to post GDP declines of over four per cent this year. Funding acquisitions has become the leading hurdle in completing transactions, a sharp contrast to buyers that had no difficulty lining up adequate and affordable debt just a short time ago. Financing in today’s market generally involves established relationships with lenders, albeit with loans at higher spreads and considerably lower loanto-value ratios than in the past. While financing assets under $15 million is possible, larger deals particularly above the $50 million threshold are difficult to transact given current constraints in the marketplace. In-place or seller provided debt will continue to be needed for most transactions for the balance of the year.

Operating environment and new supply According to PKF Consulting, Canadian RevPAR grew a meagre 0.6 per cent in 2008, compared to growth of 5.7 per cent and 4.3 per cent in 2006 and 2007, respectively. This stalling is largely attributed to flattened demand, which was apparent in the fourth quarter and demonstrated by the drop of annualized occupancy in markets such as Richmond/Vancouver Airport (-4.3 points), Toronto Airport (-3.8 pts) and Montreal Airport (-2.8 pts). On a national level, occupancy fell approximately 1.5 points, to 63.4 per cent in 2008. Rate provided much needed support with a three per cent gain overall, but was largely due to advances in the West with Edmonton (+7.3 per cent), Winnipeg (+7.6 per cent), Regina (+8.5 per cent) and Saskatoon (+12.0 per cent) which led growth. First quarter 2009 results for Canada include a 3.8 point drop in

Bill Stone is Executive Managing Director with Colliers International Hotels, an international real estate investment advisory company specializing in the lodging industry. As the most comprehensive hotel brokerage firm in Canada, Colliers International Hotels has represented over 250 hotel transactions across all asset types nationwide. For more information visit: www.colliershotels.com

2009 FOrEcast • Limited lender-driven sales anticipated. • Focus on deals with assumable in-place debt. • Further slowing of transaction activity with an absence of strategic and portfolio acquisitions. • Owners will focus on existing operations, including implmenting additional asset management, captial investment and repositioning strategies. • Financing deals will remain a challenge and the availability of seller financing will be critical to executing transactions. • Domestic private investors and hotel investment companies will continue as the most dominant buyers. • Debt to remain scarce and relationship based. • The attractive Canadian dollar and lower gas prices will likely not be enough to entice U.S. travel to Canada. • The pace of the new supply pipeline will slow, with large scale capital-intensive projects not yet started to be put on hold until signs of market recovery. • Overall cap rates to average 10 per cent to 12 per cent.

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june/july 2009

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CurvGrid Curvilinear Metal Ceilings from Chicago Metallic Corporation are now available with EZ-Flex Panels, which feature integral tabs that allow on-site assembly without special tools, an installation feature that can reduce installation cost by as much as 50 per cent. CurvGrid suspension systems, perimeter trim and panels are 100 per cent locally recyclable and comprise 70-to-100 per cent recycled content but do not contain fibrous materials or volatile organic compounds and will not support mold or mildew. www.chicagometallic.com

Hunter Douglas Contract introduces Techstyle E ceiling panels, the next evolution of its successful Techstyle Acoustical Ceilings. Retaining the same aesthetic and noise-reduction features of the original model, Techstyle E panels offer an improved environmental index and a simplified mounting system for easier installation and disassembly. Techstyle E panels meet the more stringent fire testing of the European market and are GREENGUARD Children and Schools Certified. The panel’s cellular construction provides excellent acoustical performance across the entire frequency spectrum and a Noise Reduction Coefficient (NRC) of 0.85. www.hunterdouglascontract.com

Reflections CertainTeed Corporation expands their Designer Series of ceiling systems with the new Adagio panel, a hybrid design that combines the sound absorption of highdensity fiberglass with the sound containment qualities of mineral fiber, eliminating the need for full-height wall partitions that can add complexity and cost to construction. Its Overtone finish enhances light reflectance, and recycled content of 38 to 59 percent contributes toward LEED certification. www.certainteed.com

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viewpoint

By Stephen Carpenter

Do Green Buildings Really Save Water? In my last column I examined whether green buildings actually use less energy than their conventional counterparts or if they just look good in terms of predicted energy savings. Based on data collected from our LEED certified buildings, we found that green buildings were saving 40 per cent of the energy of new conventional buildings. While energy savings are a key focus of LEED buildings, it is not the only benefit claimed for going green. Water conserving measures are commonly used in LEED buildings to preserve this vital supply. Despite being essential to our survival, fresh water is a scarce and threatened resource, and Canadians use an average of 390 litres of water per day, about twice as much as the average European. Predicted water savings are also an important aspect of receiving LEED certification. However, much less information is available on actual water savings as building owners are generally more concerned with the more significant financial savings associated with lower gas and electric bills. Additionally, water use varies significantly from building to building based on type, function, and occupancy making it hard to compare water consumption numbers between buildings. Recently, though, Enermodal received the opportunity to put a LEED building’s water savings to the test by comparing the performance of duplicate buildings with the same use and occupancy, but differing in their selection of plumbing and irrigation systems. Enermodal was the LEED, Energy, and Commissioning Consultant on the 11,840-sq.-ft. Vaughan Fire and Rescue/York Region EMS Station #7-9, which received a LEED Gold certification in 2007. The architectural design for #7-9 is based on the same drawings used for an earlier non-LEED facility, #7-8. The only thing that changed from one building’s design and construction to the other was the addition of LEED measures. The major changes in the building’s design as a result of the LEED requirements and goals were: improved window performance; slightly larger windows and a skylight; ventilation heat recovery from exhaust air; CO2 controlled ventilation; occupancy sensors and daylighting sensors; materials with high recycled content; low off-gassing paints, adhesives, composite woods, and carpet. Depending on the metric used to adjust the construction costs between the two buildings, the incremental cost of all the additional green features is somewhere between 2.5 and 5.5 per cent or between $6 and $13 per square foot. However, that cost will likely be recouped over the long run due to savings in electricity, gas and water utility costs. The really interesting news, though, has to do with water — the less studied resource. The LEED upgrades that could affect water usage in #7-9 were the installation of low-flow plumbing fixtures, such as waterless urinals and low-flow toilets, showers, and faucets, and the elimination of an irrigation system by using

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native, drought-resistant landscaping. The figure above shows the monitored water use for the two fire/EMS stations. The amount of water saved in Station #7-9 by eliminating irrigation water is striking, much higher than we would have thought given the relatively small site areas. The conventional facility used its irrigation system from April through September with usage peaking in late August at eight cubic metres per day. Decreasing the amount of water use for irrigation is important as the biggest peaks in water usage during the year occur in the summer, when about half to three quarters of all municipally treated water is sprayed onto lawns, according to Environment Canada. Assuming the monthly water use for Station #7-9 is the same over the winter as in the summer, the simple replacement of conventional plumbing fixtures with low-flow options resulted in a 20 per cent decrease in indoor water use over its conventional counterpart. On an annual basis the LEED building had 68 per cent lower water consumption. Considering the residents surrounding the Great Lakes use a million litres of water a second, all of which is treated, pumped and when used sent to water treatment plants, this reduction in water use can save municipalities millions of dollars in infrastructure costs. While this is obviously only one case study, it clearly shows the potential for green buildings in the area of water savings and indicates the importance of seemingly small choices, like landscaping plant species and low-flow fixtures, in significantly decreasing building water usage. And these changes do not require expensive or wholesale transformations to conventional building designs as they can be implemented in existing buildings and new designs today. B Stephen Carpenter is president of Enermodal Engineering and one of Canada’s leading sustainability consultants. He is a LEED trainer and serves as the chair of the Technical Advisory Group for the Canada Green Building Council. Enermodal is Canada’s largest firm exclusively dedicated to sustainable buildings, certifying over 40 per cent of all LEED Canada NC buildings.

The Painters and Allied Trades Labor Management Cooperation Initiative’s comprehensive new Project Management Program provides the skills to compete in todays marketplace. Project Managers play key roles in the finishing industries. Project Managers are responsible for the planning, execution, and successful completion of specific projects. You need the best trained, most skilled Project Managers available, we’re here to make that happen. In an increasingly competitive global business environment, an organization’s ability to attract, develop, retain and effectively deploy talented Project Managers is vital to the success of your business. The training and skills you need to succeed can be found at www.LMCIonline.org or by phone toll-free at (888) 934-6474 or (202) 637-0798. The Painters and Allied Trades Labor Management Cooperation Initiative programs are the result of a partnership with the Finishing Contractors Association and the International Union of Painters & Allied Trades.

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