Building December 2012 January 2013 by IQ Business Media

real estate development

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architecture

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63 06

CONTEntS

what’s on BUILDING.ca

Features

16 > The Match Game /

Are condos a boon or blight for the urban art scene? By Leah Sandals

22 > Public Art & Private Developers /

Can the cost of contributing artwork to the community be justified? By Leslie C. Smith

READ > Finding Green in Brown Interim use of contaminated sites can still create community benefits.

25 > “A Market within a Market” /

“Canada came out of the global financial crisis better than any other industrialized country in the world. Every office building, every warehouse is effectively full. It’s a pretty nice place to be,” said one interviewee, echoing a prevailing sentiment in the 2014 Emerging Trends in Real Estate report by PwC and the Urban Land Institute. By Andrew Warren and Michael Shari

Read > The Art of Shaping the Metropolis A new book by Pedro Ortiz explores new thinking in global urban planning.

watch > 2014 Emerging Trends in Real Estate Contributors to the annual report provide insight on where the Canadian real estate market is heading.

22 ABOVE IMAGE:

in every issue

5 > Editor’s Notes 6 > Developments 10 > Market Watch 14 > Legal 30 > Viewpoint

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A new retail development on Toronto’s northern boundary includes a public art piece made of handformed steel with red overlay, called Toronto 360, that forms the word TORONTO in a palindrome. Photo courtesy of Baif Developments.

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Volume 63

06 Number Editor / Peter Sobchak Art Director / Roy Gaiot Legal Editor / Jeffrey W. Lem Contributors /

William J. Ferguson, Odysseas Papadimitriou, Leah Sandals, Michael Shari, Leslie C. Smith, Andrew Warren

Circulation Manager / Beata Olechnowicz beata@building.ca

Fear not!

Over the course of any given year, I receive the results of many different surveys that attempt to take the temperature of executives regarding how they feel about the current and future outlook of Canada’s overall real estate conditions, asset values, the availability of capital, and other related issues. At the dawn of 2013, prognosticators were convinced things were going to cool off, no doubt informed by a slowdown in the last half of 2012, and the Bank of Canada lowering its 2013 GDP growth forecast from 2.0 to 1.5 per cent. What subsequently happened? From Q1 on we saw asset prices make considerable gains, and while some were concerned about interest rate changes, debt was widely available (even with heightened underwriting requirements) and lenders were clearly eager to put capital to work. Yet despite these and other strong fundamentals, lingering uncertainties continued to temper optimism all year. The laughable inaccuracies of economists’ predictions are one thing, but industry sentiments often concern me, because it highlights that cancer of human emotions: fear. George Carras, president of RealNet Canada, eloquently pointed this out in his presentation at the 2014 Emerging Trends in Real Estate event in November (and which can be seen on our website). What is fascinating, he said, is that while some people look at certain market facts in a positive light, an equal number take the opposite view. Why? Because we are biologically wired to respond with fear to things we don’t understand. Yet while some fear is healthy, too much is deadly. Instead, we should “turn that fear into risk.” Fear starts in the area of ‘things you know that you don’t know,’ said Carras (lifting a few Rumsfeld nuggets). This fear takes your mind away from the proper side of things, namely, that there are a lot of knowns in the real estate industry. “When you know about something you can measure it, and when you measure it you can calculate its risk. And while you can do nothing about fear, you can manage and price risk,” he said. “Learned minds live in the ‘unknown knowns’ by realizing they can eliminate fear by learning about something they previously didn’t know.” Information is vital to having an educated opinion, but it takes an educated mind to understand – and not be frightened by -- information like industry stats and surveys. So what does information tell us about 2013? By Q3, $20.2 billion of commercial property traded hands across the country. Granted, total investment volume is down, but for the year, volume is only 9.2 per cent below the first three quarters of 2012. “Glass half empty types will look at 2013 and focus on the fact that total investment activity is lower than last year’s near-record pace, but the level of demand and pricing have rarely been better,” said John O’Bryan, CBRE Ltd. chairman in their 3Q 2013 Canadian Investment MarketView. “At the bottom of the market in the mid-90s, annual investment volumes in Canada totalled $4 billion — a mere fraction of what we’re going to see in 2013.” As I spoke to executives at the 2013 Real Estate Forum in December, this is what I heard: “I think we’re back to where we were in 2006 and 2007. Cap rates are even lower than they were. There is still a lot of capital chasing assets. The financial market is there and available. We’re seeing more and more high net worth individuals investing in Canada.” Sadly, “the human condition rarely allows us to enjoy what we have,” says O’Bryan. “But this is a good market for real estate investors and the past three years are likely to go down as some of the best in Canada.” So listen up: turn that fear into risk and go make money in 2014!

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December 2013 January 2014

ments

Develop-

OAA quantifies the cost of site plan approval process TORONTO | The Ontario Association of Architects (OAA) commissioned Bousfields Inc. and Altus Group to create a first-of-its-kind report that quantifies the cost of delays in the site plan approval process in Ontario and outlines the financial impact of the delays in site plan review on new homebuyers, commercial tenants, developers, municipalities, the local economy and jobs. In a review of almost 500 site plan applications across the province, the report points to a process that is often delayed six to 12 months with over 35 per cent of applications taking longer than nine months. Additionally, the report highlights reasons for such delays including lack of municipal expertise, objectivity and co-ordination between departments and unnecessary submission requirements. According to report findings, each additional month in site plan review costs: •R esidential developers $193,000 including additional taxes, financing, inflation on construction costs and materials for a 100-unit building. Over a six to 12 month period the additional cost of the delay can be $1.16 to $2.3 million. These costs can be passed on to new homebuyers through higher prices; • I ndividual new homebuyers roughly $2,375 including costs passed on through higher prices, lost equity by not beginning a mortgage sooner and added rent costs; • Commercial developers $113,000 including additional taxes, financing, inflation on construction costs and materials for a 50,000-sq.-ft. building. Over a six to 12 month period the additional cost of the delay can be $680,000 to $1.36 million; •C ommercial tenants $2.50 to $2.70 per square foot including costs passed on by applicants through higher rents; December 2013 January 2014

building.ca

The OAA is calling on the Province of Ontario to step in and provide clear direction and guidelines in conjunction with the Ontario Planning and Development Act to allow for consistency of application across municipalities and to eliminate redundancies.

majority of respondents cite a reported backlog increase of more than 10 per cent in 2012, as compared to the end of 2011; stable profit margins at the end of 2012, compared to 2011; and stability in 2013 volume of orders compared to 2012. While the survey shows optimism across the industry, there are still barriers to growth. The industry is heavily reliant on national governments’ infrastructure plans for future growth, with two-thirds of respondents citing this as the single most important market driver. Additionally, risk management continues to remains a challenge for the News sector. While heavy investments in risk management programs over the past decade are paying off with the majority of respon“Renewed optimism” across dents saying they have improved project performance, 77 per Canadian construction industry cent claim the existence of underperforming projects are due to project delays, poor estimating practices and failed risk TORONTO | The majority of companies in the global engineermanagement processes ing and construction sectors have fresh optimism and anticiThe global and Canadian landscape is enthusiastic about pate further growth across the industry, according to KPMG’s the industry but there is a sense of realism to forward planGlobal Construction Survey. After prolonged economic uncertainning with many feeling that growth may take several ty, companies are experiencing a general increase in backlogs and years. “A key theme we are seeing, particularly in Canmargins, showing an overall positive outlook in the industry. ada, is the focus on ethical practices and enhanced “Canadian respondents see stability, leading to cautious optimism. standards particularly over bid and tendering proThe survey results suggest that growth is going to be slow but there are cesses. Canadian respondents believe that effeca number of factors that will support steady activity, including demand for tive risk management is critical to future growth. new infrastructure projects in the mining and energy sectors, government As the sector looks forward, there will greater funding for public transit, and population growth. In the next few years, comaccountability for effective processes and panies will be tested on their ability to diversify, manage labour cost escalation, control over construction practices,” says and deploy human talent in remote areas,” says Augusto Patmore, partner, AdviLorne Burns, partner and national indussory, Global Infrastructure Advisory & Mining, KPMG in Canada. In Canada, the try leader, Real Estate, KPMG in Canada.

ft. concept branch in the City of Mississauga that is targeting LEED Gold certification through an aggressive strategy of sustainable design and construction practices. Built around a modular “kit-of-parts” scheme that utilizes panelized wall and roofing construction systems built in a warehouse and brought to site for assembly, this allows for less construction waste, greater quality control and less delays due to weather and site conditions (TD Globe and Mail Centre has an 85 per cent waste diversion rate as of August 2013). Demountable walls and furnishings make the branch easily adaptable for growth, and a raised floor system allows easy access to route mechanical services and cables, wiring, and electrical supply to accommodate that change. It also allows for a more flexible distribution of air and less material use in ducting. The branch is heated through a geo-exchange heat pump or ground source heat, and solar panels in the canopy and tower generate energy to help offset branch energy use. Responsibly sourced wood is a defining material in the branch, like the ceiling and feature wall that is made of locally-purchased FSC pine. The front entrance is a Canadian engineered product (Silva) from Western Red Cedar, kirei board is used for the ‘bars’ and ‘pods,’ and the wall-covering is made from renewable sugarcane. While currently a prototype, the concept branch represents another move the bank is taking to integrate environmental sustainability into its entire system. The concept can be worked into stand-alone branches or mixed-use settings like the ground floor of a condo, and while currently only one storey it is designed to support additional ones.

• Local municipalities $159,900 to $241,600 in lost tax revenues and spending for a 100-unit residential building. Over a six to 12 month period the additional cost of the delay can be $959,000 to $2.9 million; • Local municipalities $4,100 to $16,000 in lost tax revenues and spending for a 50,000-sq.-ft. commercial building and delayed arrival of 250 new jobs and associated economic spinoffs.

New Projects Work begins on new home for “Canada’s national newspaper” TORONTO | Construction has begun on a new 500,000-sq.-ft. office tower in Toronto’s downtown east side that will house the Globe and Mail and anchor the St. Lawrence neighbourhood. Designed by Diamond Schmitt Architects, the 17-storey Globe and Mail Centre presents a sequential stacking of alternatesized floor plates interlaid with terraces that give the structure a distinctive profile. A high-performance building envelope, advanced glazing system and 10-ft.-high windows will supply the LEED Gold candidate tower with daylighting deep into the core and views to the waterfront and skyline. The tower occupies a site on the original 10-block grid of the founding Town of York, and artifacts and foundations discovered on an archeological dig from the 18th-century Berkeley House will be on display in the public areas to enhance this connection with the past. The flagship anchor tenant in First Gulf’s newest addition to its commercial real estate portfolio, the media company will occupy Levels 13 through 17 connected by a convenience stair. The building’s core design allows for flexible workspace configurations to meet current and future needs of a dynamic 24/7 work environment. Level 17 has 15-foot ceilings and floor-to-ceiling vision glass and a 300-seat multipurpose room with adjacent direct roof terrace access. Occupancy is scheduled for 2016.

TD takes its visual identity to a new level TORONTO | TD Canada Trust has embarked on a project that shows they feel “fresh green” is more than just a brand colour. The financial giant opened a first-of-its-kind 5,252-sq.building.ca

“Incentives for new construction helped us design and build new facilities that use less electricity and lower our operating costs.” Darryl K. Boyce, P. Eng. Assistant Vice President Facility Management and Planning, Waterfront Project, Carleton University

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ments

Develop-

European Active House model comes to Canada

Canadian firm wins prize for hurricane resilient house

TORONTO | Great Gulf unveiled the first Active House in Canada in the under-construction housing development of Rolling Meadows in the Town of Thorold, in Ontario’s Niagara Region. The Active House concept was initiated in Denmark and evolved from the efforts of a European consortium comprised of academia, scientists, architects, engineers, and building manufacturers from various European countries. Working in Copenhagen, this Alliance (now based in Brussels) developed a concept that supports the development of energy-efficient buildings which focus exclusively on the well-being and comfort of the residents. This is done by fully integrating “active systems” designed to deliver energy efficiency, low environmental impact and optimized climate control and ventilation. While the first Canadian Active House, designed by Toronto-based Superkul Inc., was built in Thorold — approximately 120 kilometers south of Toronto — Great Gulf claims the Active House systems can easily be reproduced in a new home of any design or reconstruction.

Awards In terms of accolades, it has been a good year for Mitchell Cohen. Earlier this year in St. James Palace, London, Cohen joined a delegation of 12 Canadian CEO’s and H.R.H. The Prince of Wales to discuss plans to advance the cause of socially responsible business in Canada. Cohen also received one of the 2013 Queen Elizabeth II Diamond Jubilee Medals.

Cohen receives Honorary Doctorate TORONTO | At Ryerson University’s Fall 2013 Convocation, Mitchell Cohen, president of The Daniels CorMitchell Cohen poration, was honoured with a Doctor of Laws degree for making “outstanding contributions to [his] field.” At the event, Cohen delivered a speech to Ryerson graduates where he reminisced about his own university graduation in the 1960s. “I had absolutely no idea what I wanted to do. What I did know was that, along with all of us who had come of age in the Sixties, I had an obligation, a responsibility in fact, to make the world a better place.” After earning a Masters degree in Social Psychology and a Bachelor of Science in Psychology, Cohen answered a helpwanted ad in the Montreal Gazette and was hired as a community development worker for the YMCA. This position led to helping a group of tenants create a better life through the creation of a non-profit housing co-operative, and launched a lifelong passion for Cohen. “Fast forward 40 years, and along with all of my partners at Daniels, I am still doing community development work, supporting a group of tenants who are creating a better life for themselves and their families through the Regent Park revitalization,” Cohen said. building.ca

TORONTO | Toronto-based Sustainable.TO Architecture + Building took the top prize in an international competition to design sustainable housing for disaster recovery zones. “Resilient House for New York” was designed specifically for the New York region ravaged by Superstorm Sandy. The competition, launched by the American Institute of Architects in collaboration with Architecture for Humanity, Dow Building Solutions, Make It Right, and St. Bernard Project, solicited designs for three disaster zones (New York; New Orleans; Joplin, Mo). This is the third award that Sustainable.TO has received in as many years for passive house design. In 2011, the firm won first prize for its “Low Cost, Low Energy House” for the Lower Ninth Ward in New Orleans. In 2012, it was recognized by CMHC for its design of the “Willowdale Passive Solar House.” Sustainable.TO’s house orients living spaces towards the sun, minimizes interior partitions, and structurally insulated panels create a tightly sealed and highly insulated enclosure. It is designed to resist storm surges with a flood-proof foundation and to rely soleResilient House

ly on the sun and wind for passive heating and ventilation, making it ‘liveable’ even without operating utilities in the event of power loss (a common problem in post-disaster regions). By using traditional construction methods and equipment, “Resilient House” could be built for less than $50,000 in material cost. b

market Drug Mart, and Sobeys buying Safeway, sources of new demand for retail space and portfolio restructuring efforts are already evident. “For smaller spaces, we continue to see a lot of activity across the country. Demand is strongest from retailers looking to enter Class A malls where available space is leased immediately and many high profile brands remain on waiting lists,” remarked Balkos. “It has been difficult to satiate the demand. There are few regional malls in this country that are not undertaking or planning additions and renovations. New retail concepts, especially outlet malls and urban formats, are also performing well and are likely to be replicated across the country.” Retail construction activity increased in the first half of 2013, with 12.5 million Demand spurs new retail construction, a department square feet under construction nationally. Toronto represents approximately 50.5 per cent or 6.3 million square feet of space under construction, while Vancouver store renaissance and and Montréal have 2.5 million square feet and 1.3 million square feet under conrent increases on Canada’s struction, respectively. All three markets have seen a marked increase in construchigh streets tion since 2012. Approximately 5.1 million square feet of new retail space will be completed across the country in the second half of 2013, the largest amount of new supply in a six-month period since 2009. “While construction numbers are encouraging, data from the first half of the year shows that many Canadians are recalibrating their spending habits,” said Ross Moore, Director of Research for CBRE in Canada. Canadian shoppers bolstered the economy during a period of uneven economic growth over the last few years; however, retail sales were only up 1.8 per cent in the first half of 2013 compared to the same period in 2012. This is a relatively mild increase and softer retail sales have been felt in malls where Toronto and Vancouver | Echoing a sentiment heard sales productivity grew a marginal 0.6 per cent on average in regularly at the International Council of Shopping Centres the first six months of the year. This is relatively unremarkable (ICSC) annual Canadian Convention in Toronto in September for a format that recorded a series of new record highs for – that Canada has been one of the most sought after and dysales productivity in recent years. namic retail markets in the world in recent years — CBRE Lim“There’s no doubt that choppy macroeconomic data and ited’s 2013 Mid-Year Canadian Retail MarketView indicates that fluctuations in the housing market have impacted retail retailers continue to have long-term confidence in the Canspending, but demand from retailers has not wavered. Vaadian retail market despite indications that consumers are cancy continues to average around 5.0 per cent overall in spending more conservatively than in years past. Canada compared to 12.3 per cent in the U.S., and construction activity indicates that landlords have long-term confi“Target’s arrival in Canada was not the bookend to a dydence in Canadian consumers,” said Moore. namic period for the Canadian retail market. In fact, quite the Investors are also exhibiting confidence in the market as opposite is true. The number of mergers and acquisitions the retail investment volume in the first half of 2013 reached that have been done in recent months combined with the in$2.8 billion, just shy of the $3.0 billion record that was set in flow of major brands, underscores Canada’s position as an the first-half of 2011. Private Canadian investors were the active and highly sought after market,” said Tom Balkos, sendominant purchaser of retail properties in the first half of ior vice president and a Canadian Director of CBRE Limited’s Retailer Services Group. 2013, while pension funds increased their share of investment “Never before in Canadian retail history has the department volume from 7.7 per cent in the first half of 2012 to 33.5 per store segment been the subject of so much focus or been so cent in the first half of 2013. Notable pension fund activity inheavily contested. Demand from European department stores, cluded the 50 per cent stake CPPIB took in Upper Canada Mall for $251.5 million, as well as the OPB interest in the Prinot just North American brands, will keep supply tight. Those maris retail assets acquisition. REIT/REOCs accounted for looking to enter the market will do so in the form of smaller pri22.5 per cent of retail purchases in the first half, compared vate label, store-in-store formats or by creating mall space with 30.6 per cent in the same period a year ago. with their own private brands and under their own banners. “Toronto ranked 17th in the world in terms of its ability to The next five to 10 years will likely bring a renaissance of the attract foreign retailers in 2012 and continues to be high on department store in Canada, and the outcome will be reministhe list of potential new locations for many retailers, especent of the European/international shopping experience.” cially those needing a launch pad from which they can esWith Hudson’s Bay Company purchasing Saks Fifth Avenue tablish stores in Vancouver, Calgary, and Montréal,” noted and planning a Canadian rollout, Loblaws buying Shoppers

Better shop around

December 2013 January 2014

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market 12

Balkos. “Zara Home opened its first North American store in Toronto’s Yorkdale Shopping Centre this past August, and additional stores have already been announced for Montréal and Ottawa.”

Luxury brands growth pushes rent on Canada’s top retail strips The rebound of the global retail market, including its luxury segment, has pushed leasing rates upwards around the world. Canada’s high-end shopping corridors were not exempt, according to Colliers International’s 2013 Retail Report. While Toronto’s Bloor Street remains the most expensive haute couture destination in Canada with an an-

healthy. Increasing rental rates can be a sign of growing confidence on the part of retailers and their ability to sell goods; and even in some cases where rates have dropped, we could attribute this shift to backfilling of vacant units or larger space deals that have completed at lower rates per square foot – both of which can be a good thing,” says James Smerdon, vice president, Retail Consulting with Colliers International. “The influx of U.S. chains and luxury brands into Canada, specifically to the West, contributed dramatically to the spike in lease rates along the highly coveted retail locations in Western Canada,” adds Mary Mowbray, senior vice president, Retail, with Colliers International. “This trend, coupled with relatively low lease rates in Canada, com-

Rank Location

Average Lease Rate USD/SqFt

Toronto

$315

Vancouver

Montréal

$200

Vancouver

$150

Vancouver

$125

Halifax

Calgary

$65

Calgary

Montréal

$60

Bloor St.

Robson St.

Ste. Catherine St. W

Alberni St.

Granville St.

Spring Garden Rd. 4th St. SW

17th Ave. SW Green Ave.

Montréal

Rue de la Montagne

Canada’s top 10 priciest shopping strips

Top 10 global retail rents - USD/SqFt/Year $3,052 New York Fifth Ave. $2,087 Hong Kong Queen’s Rd. Central $1,994 Hong Kong Tsim Sha Tsui $1,994 New York Madison Ave. $1,223 London Old Bond St. $1,114 Hong Kong Causeway Bay $930 Zurich Bahnhafstrasse $871 Sydney Pitt St. Mall $836 Milan Via Monte Napoleone $834 Paris Champs Elysees nual lease rate of US$315 per square foot (1.6 per cent increase), it was Western Canada’s high-end retail strips that experienced impressive growth. Vancouver’s Robson (US$200, 33.3 per cent increase) and Alberni (US$150, 43 per cent increase) streets, Victoria’s Johnson Street (US$35, 18.6 per cent increase), Calgary’s 4th Street SW (US$60, 9.1 per cent increase) and Saskatoon’s Broadway Ave. (US$30, 11.1 per cent increase) all experienced a double or near double-digit increase in lease rates over the past year. These figures are in stark contrast to Eastern Canada, where many premium locations remained unchanged or even saw a decrease in lease rates such as Montréal’s Rue de la Montagne (US$60, 25 per cent decrease) and Halifax’s Spring Garden Rd. (US$60, 7.1 per cent decrease). “Canada’s major market high streets are generally pretty December 2013 January 2014

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pared to other high-end streets around the world, has not gone unnoticed by luxury brands and retail chains that are looking to set base and leverage our growing buying power while paying relatively low overhead.” The attractiveness of Canada’s high-end shopping strips can be illustrated by the marked difference in lease rates between domestic, top-ranked Bloor Street and other premium spots around the world that topped the Colliers International list this year. Retailers that set up shops in New York’s Fifth Avenue (US$3,052), Hong Kong’s Queen’s Road Central (US$2,087) and Canton Road, Tsim Sha Tsui (US$1,994), New York’s Madison Ave. (US$1,325) or London’s Old Bond Street (US$1,223) pay between four to 10 times the lease rate for the same floor space of premium locations in Canada. b

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legal A Spicy Decision The sweet smell of Sriracha in the morning – but not if it is a nuisance to adjoining owners. By Jeffrey W. Lem and Odysseas Papadimitriou

Irwindale is a sleepy little town in Los Angeles County in Southern California that is home to about 1,500 residents. In terms of industry, there is a Miller Brewing Company plant and, more infamously, a brand new, 650,000 square foot manufacturing facility for the world-famous Sriracha hot sauce (the socalled “Rooster Sauce” named after the logo) manufactured by Huy Fong Foods. This notoriously spicy Thai chili sauce is popular the world over. So popular, it was named the “Ingredient of the Year” by Bon Appetit magazine in 2009; there is now a Sriracha-flavoured potato chip; and, believe it or not, one of the most popular Halloween costumes this year was based on the distinctive Sriracha sauce bottle and rooster logo! And all of this Sriracha sauce, some 200,000 bottles a day, comes from the plant in Irwindale. That is, until the City of Irwindale sued the makers of Sriracha sauce for nuisance, complaining that the odours from the plant were making life unbearable for nearby residents. The Los Angeles County Superior Court ruled in favour of the city, finding that, while it was not quite convinced that the odours emanating

the newcomer, moving into the neighbourhood and building its massive, state-of-the art sauce facility near existing residential developments. What may come as a surprise to readers, however, is that, as a general rule, the same rules apply even if the nuisance use was there first, and the surrounding lands were subsequently re-developed for residential use. In other words, the downwind homeowners in Irwindale might still have been successful in shutting down the Sriracha plant even if those homeowners had been the ones “moving to the nuisance.” The English courts have always held that, even if the nuisance was there first, it does not allow the nuisance to continue if a neighbour complains. In the 1879 case of Sturges v. Bridgman, a doctor moved in to a home that was adjacent to that of a candy maker operating a candy factory out of the back of his house (zoning laws were a bit looser in those days). The doctor complained shortly after moving in, not so much about the smell of the candy, but rather about the sound of the candy-making machinery. The English Court of Ap-

Just because you were “first in time” will not always protect you in a defence to a nuisance claim. from the Sriracha factory were causing significant health risks to the neighbouring property owners, the pungent smells of chili and garlic emanating from the plant every day were nonetheless so intense that they were interfering with the A store on Westuse and enjoyment of neighbouring properties. reasonable Street in Goderich, The case highlights to residential builders and developers, as well as owners and Ont.’s historic downtown before the occupants of industrial, commercial, agricultural and some institutional properties, tornado hit (above), the high stakes risks and rewards of litigating land use through nuisance claims. the damage (right), municipal zoning by-laws will prevent cases like the Sriracha disand Typically, in August 2013 (below)from after the town’s pute ever arising in most well-planned communities, with manufacturing rebuilding efforts. facilities zoned far enough away from more sensitive uses like residential. However, that is not always the case. Sometimes, for one reason or another, residential development is permitted by zoning ordinances to be right beside (or at least very close to) competing uses that might otherwise constitute a nuisance. The interesting legal question becomes, if, for whatever reason, residential development exists in the vicinity of a competing nuisance use, will a court grant an injunction to force the nuisance to stop (or award damages to compensate the residential owners for the inconvenience)? Irwindale v. Huy Fong answers that question by confirming that existing residential uses will almost always win whenever the residential owners were the first owners to be there, and the nuisance use moves into the neighbourhood sometime after the residential uses are ensconced. In the Sriracha case, Huy Fong was clearly December 2013 January 2014

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peal held that, even though the doctor was the one who was “moving to the nuisance,” that did not allow the candy maker to continue to be a nuisance. The doctor had a legitimate right to force the candy maker from interfering with the doctor’s reasonable enjoyment of his property. A hundred years later, in a famous case that is taught in all law schools to this very day, Miller v Jackson, the English Court of Appeal again affirmed that, just because a homeowner is the one “moving to the nuisance,” the homeowner could still sue in respect of the nuisance. Actually, the guilty land owner in Miller v Jackson was neither industrial nor commercial – it was a cricket club, whose members kept hitting balls into the backyards of newly built houses at the edge of the cricket

grounds. The homeowners were clearly the newcomers, but it was again held that the cricket club was still being a nuisance by allowing cricket balls to fly into adjoining residential properties – the fact that the complaining land owners were “moving to the nuisance” was no excuse to allow the nuisance to continue. Interestingly, in Miller v. Jackson, the cricket club did not have to stop playing cricket, but they did have to compensate the homeowners for the loss of the enjoyment of the affected backyards. It is likely that the English line of cases is also the law in Canada, although there are a number of lawyers, mainly practicing in rural communities, who staunchly maintain that homeowners should not be allowed to move to the countryside and then sue to try and stop the sounds and smells of agricultural uses emanating from their neighbours. Of course, what constitutes nuisance in a given scenario will vary on a case-by-case basis depending upon the neighbourhood and will change over time. For example, what sounds and smells constitute a nuisance in Shaughnessy might not seem so out of place in the heavy industrial heartland of Hamilton. Of course, more aggressive developers and builders have always been quick to build near competing industrial, commercial, agricultural and even institutional uses, and

Jeffrey W. Lem is a partner in the Toronto/ Markham offices of Miller Thomson LLP and is Certified by the Law Society of Upper Canada as a Specialist in Real Estate. He can be reached at jlem@ millerthomson.com.

Odysseas Papadimitriou is an Associate at Miller Thomson LLP, specializing in all aspects of condominium law.

then sue in nuisance to try and force those competing owners to stop their pre-existing activities. Likewise, cautious industrial, commercial, agricultural and institutional owners have often bought up otherwise prime residential re-development sites adjoining or in the near vicinity of their own sites, for no other reason than to forestall residential development and delay the potential nuisance claims that will follow. Time will tell if Huy Fong appeals the decision, but until then, fans of Sriracha sauce should probably start hoarding bottles now — the injunction is likely to severely curtail production of Sriracha sauce until alternative facilities can be located in neighbourhoods where the sweet smell of Sriracha in the morning is not considered to be a nuisance! At a million bottles per week, that might take a while… b

Jasper Place Library Edmonton, Alberta Potential LEED® Silver

DESIGNING sustainable solutions for our communities

The Match Game

Are condos a boon or blight for the urban art scene?

E By Leah Sandals

arlier this year, a sign appeared on the side of 952 Queen Street West in downtown Toronto—home to the Museum of Contemporary Canadian Art (MOCCA) —announcing that an application had been made to develop a 9-storey, 151-unit condominium tower on the site. To some observers, it read as the latest instance of an ongoing battle for space between the cultural scene and condominium developers in the Queen West area. In 2011, the nearby 48 Abell Street—a studio space since the 1980s—was demolished to make way for condominiums. Before its demolition, artists tried to call attention to its fate with a performance-art funeral and other tactics. Its site is now a massive pit where construction cranes dance and concrete mixers hum, and large new condo towers in various states of completion rise on its west, south and south-east sides. But in an indication of changing conditions in this struggle for arts space, MOCCA isn’t holding any funerals or calling for condo development to cease. It is actually hoping to find a new, permanent home in—where else?—a condo.

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Photos courtesy of Knightsbridge

“When we started looking at the next step for MOCCA, we never in a million years imagined a scenario where we would be partnering with a condo developer. We always thought of a purpose-built standalone building,” says Yves Theoret, MOCCA’s managing director. “But then you know what happened? TIFF Bell Lightbox happened. That building showed that if it’s done well, it can be a win-win for all involved.” Opened in September 2010, TIFF Bell Lightbox is a five-storey complex of cinemas, galleries, offices and classrooms at the base of a 46-storey condominium tower. It hosts TIFF’s annual festival as well as yearlong programming. “It [TIFF Bell Lightbox] is so well designed… you can’t even tell there is a condo tower up there,” Theoret says. “And there are tremendous economies of scale when you are working with a partner that is building a larger building. Even the loading docks or the elevators—all that [cost] is being absorbed by the building itself.” It seems that MOCCA isn’t the only organization inspired by the possibilities of putting more art spaces in condominium developments. This summer, the Toronto Arts Council (TAC) launched a pilot project called Space for Art that intends to offer affordable gallery and workshop spaces in Toronto condominiums. The first space, a 1,000-sq.ft. storefront, opened at 568 Richmond Street West on July 12, and three more Space for Art galleries are due to launch by the end of the year at condominiums in Toronto’s rail lands neighbourhood. Under TAC’s pilot project, groups or artists wishing to use these spaces only pay the condominium fee, hydro and other incidental costs, but no rent, and the project is operated on a cost-recovery basis. Applications are now being accepted on the TAC website. “The Toronto Arts Council is dedicated to helping the artists of Toronto get their work out there in the community,” says Peter Kingstone, acting visual and media arts officer. “The space is there for the community if they can figure out a use for it.”

Space for Art follows a March release regarding the Toronto Media Arts Cluster (TMAC), a 36,000-sq.-ft. facility for six artist-run organizations and festivals to be housed on the second and third floors of a condominium building at 2-6 Lisgar Street, just a few steps from the old 48 Abell site. Gallery TPW, InterAccess, the Images Festival, Charles Street Video, Canadian Filmmakers Distribution Centre and Le Labo will all own purpose-built facilities in the space, which includes shared resources like a 208-seat cinema and a studio apartment for visiting artist residencies. “Even in our own community, there has been some criticism and complaint— not about us, specifically, but about the development in the area because of local artists who may have been displaced from their studios,” says TMAC board president Laura Barazadi, who is also executive director of InterAccess. “Why we took this once in a lifetime opportunity is we want to ensure that the arts remain relevant in the neighbourhood, and this is one way we can stabilize our operating costs and continue to operate in that neighbourhood.” The projects by MOCCA, TAC and TMAC are in many ways the tip of the iceberg. In October 2012, David Mirvish and Frank Gehry proposed a three-tower development including a 25,000-square-foot space for OCAD University as well as LEFT: The TIFF an exhibition area for Mirvish’s own art collection. In a sepBell Lightbox arate process, OCAD University has secured 8,000 square houses cinemas, feet for a professional gallery in a Richmond and Duncan galleries, offices and classrooms condominium. The Epic, the new condo building being conat the base structed on the 48 Abell site, also has space reserved for a of a 46-storey gallery and workshop. And in other arts sectors, Crow’s Nest condo tower. Theatre has partnered with Streetcar Developments to open a 200-seat theatre in a Leslieville condo in 2015. All these planned projects join existing condo-art-space endeavours in Toronto like the Artscape Triangle Lofts, which opened in 2009 to provide affordable rental and below-market purchase live/work spaces for artists at the base of a LRT Station condominium across from the old 48 Abell site, and Daniels Spectrum, a multiarts facility that opened in Regent Park in fall 2013.

Confluence of Factors

Other Canadian cities have condo-based art spaces too. The Contemporary Art Gallery in Vancouver moved into its purpose-built space on the ground floor of a condominium in 2001. The City of Ottawa recently proposed that its Arts Court facility, which includes the Ottawa Art Gallery, be relocated in part into the base of a yet-to-be-built 23-storey tower. And plans for the Telus Sky residential and commercial skyscraper in Calgary advertise a 5,000-square-foot public gallery. But a variety of factors are contributing to a particular surge in these types of projects in Toronto. Factor one is the extremely high rate of condo and commercial tower construction in Toronto at the moment. According to Canadian Business magazine, no other city in the Western Hemisphere is building more high-rises than Toronto. Last October, the city had 147 of them under construction, about twice as many as New York, it wrote. As of June 30, the Toronto Star building.ca building.ca

also reported that across the Greater Toronto Area there are a record 251 new condo projects being built. “I’ve been in this city for 25 years and this is the biggest condo boom I’ve seen,” concurs Lynda MacDonald, a planning manager with the city of Toronto. MacDonald helps manage a second factor in the trend: the city’s planning processes and priorities. Almost all of the art spaces being created or proposed for condominiums in Toronto are made possible through Section 37 of the city’s planning act, which allows the city to authorize increased height or density for a given development in exchange for community benefits. Section 37 community benefits can range from a playground or daycare to parkland and affordable housing. But space for arts is a growing Section 37 area, says MacDonald. “Places we have felt [dedicating Section 37 spaces to arts] made sense were in communities where there was a lot of concentration of creative industries or creative employment, and a lot of those areas are gentrifying,” MacDonald says. “One of our concerns was that these non-profit [arts] organizations are moving to other neighbourhoods, even to other cities.” MacDonald’s observations are echoed by City Councillor Adam Vaughan, who touts 20,000 square feet of Section 37 art space in his ward. Councillor support is also key to getting Section 37 condo-artspace deals approved. “A neighbourhood without artists isn’t a very interesting neighbourhood,” says Vaughan. “And a neighbourhood with artists has all kinds of capacities and all kinds of opportunities to grow. Artists have been part of Toronto’s downtown for a long, long time, and we want to make sure that those things that have created a really great downtown continue to have space to create a really great downtown.” A third factor is the increased openness among arts organizations of finding a permanent home in a condominium—and the exhaustion that many organizations have experienced from having been frequently on the move, some of them for decades. “This [TMAC at the Edge] opportunity is the only way that organizations like ours, which are artist run-centres, can own space,” says Barazadi. “Most organizations like ours rely on government funding and arts councils, but those don’t provide opportunities to buy into space. So what happens over the years is organizations like us will move into space, make significant improvements, change the neighbourhood, and be priced out. This [TMAC agreement] means we can maintain relationships with members with the community and set affordable rates for members and the larger public.” A fourth factor is the development of specialized organizations that try to repurpose urban developments for the arts, like volunteer group Active 18 and non-profit developer Artscape. Active 18 initially tried to save 48 Abell from demolition and now focuses on creating a “livable city” out of the proposed developments in the Queen West Triangle. Artscape began with renovating older buildings in 1986 December 2013 January 2014

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and has since moved into partnerships with new developments like the Daniels Spectrum as well. To create a space like TMAC, Active 18 took “at least two or two and a half years” going to weekly and bi-weekly meetings with “the developer and engineers and planners and city culture department and architects,” says Michelle Gay, artist and Active 18 member. Out of these meetings it also was able to advocate for a nearby art park and $1 million in support for a new Theatre Centre home. Last but not least, developers like Urbancorp—which is building the condominium where TMAC will be housed and has made a $10 million contribution towards the facility in exchange for a density bonus—also see benefits from these arts-condospace arrangements. (Urbancorp was also involved in the creation of the Artscape Triangle Lofts, and it is also constructing the Epic and is contributing to the Theatre Centre move. Additionally, it is the company that put forth the development proposal for MOCCA’s current site at 952 Queen Street West.) “There are both cultural and community benefits to us, as well as economic benefits,” says Urbancorp vice president David Mandell. “We are a for-profit business and we feel that both [cultural and community Section 37 projects] effect our bottom line. Cultural impact to the area certainly affects our ability to sell and develop in a ‘hip, cool’ place, and additional density yields additional profits.” Mandell notes that several of Urbancorp’s developments have been in the Queen West and King West area, and that working on cultural projects for Urbancorp’s Section 37 agreements also allowed it to offset some of the destruction of artist spaces that they were enacting there. “We may be demolishing a warehouse full of artist studios,” Mandell says, “but we are giving back to that cultural segment through arts-based not-for-profit groups.”

Problems Persist

Yet there are downsides to the condo-artspace boom. Chief among the critiques is the fact that the new developments can’t maintain the level of creative vitality and community that the old neighbourhoods did. “I’ve never seen any of these manufactured ideas of neighbourhoods or communities ever work out,” says artist Michael Toke, who lived at 48 Abell for 20 years before it was knocked down. Artist Mark Laliberté, who also lived at 48 Abell, concurs. He is concerned that some new art-condo developments are “just square footage and a concrete floor that is suddenly

Above: The magically supposed to fill up with good art.” He also notes Daniels Spectrum the irony of the Queen West area being labeled an art and in Regent Park is design district when “there was an exodus out of that area” home to several in terms of the arts community due to development presarts and community sures. While Toke does have some friends at Artscape Triorganizations, and is connected angle Lofts, he says the condos there “seem way too expento the Paintbox sive” for most artists. condo tower. Indeed, while some might find the Artscape lofts affordable, others may not. The development is a mix of affordable rental units and below-market ownership units. Rental rates are established at 80 per cent of Canada Mortgage and Housing Corporation average market rent, and currently range from $607.20 to $884.80 (plus utilities) for units 500 to 835 square feet in size. To buy a below-market ownership unit, an artist pays 75 per cent of the market price, and also pays condo fees. For example, for an 835-sq.-ft. unit that would normally retail for $350,700, the purchaser only pays $267,200, while Artscape picks up the rest. When condo fees and utilities are added in, however, monthly costs can rise to $2,000 for a 1,000-square-foot unit. Also, when an owner sells their unit, the sale price is set at a “fair market value” as determined by an independent third-party appraiser. Condo fees might also make Toronto Arts Council’s Space for Art project untenable for some artists. The condo fee and utility costs for one month at 568 Richmond are $1,200. Some Artscape Triangle Lofts residents also feel ambivalent about the way the new spaces were created. “I really feel badly for people who are forced to vacate spaces that are larger and less expensive. But that’s the reality, and I don’t know building.ca

how to resolve that,” says artist Ed Pien. Pien bought one of Artscape’s live/ work units, and says he mainly enjoys having a newly built space to work in after many years of dealing with dusty, smoky and sometimes dangerous older buildings. He also enjoys the location compared to Brampton or Brantford, where he once thought he may have to relocate due to cost and space factors. “Toronto is crazy,” he surmises. “There are certain challenges you have to confront and one of them is the cost of living and working in this city.” Artist Nicholas Pye has lived in Toronto since the 1990s and has rented one of Artscape’s apartments for the past year. He calls the experience “totally positive,” but he also hears where some critics are coming from. “I do understand the feeling of nostalgia for these kinds of old buildings that are being taken down and the animosity around buildings being put up relatively fast, and with sometimes poor quality,” Pye says. “But it’s like, you have to adapt, or else you move to Hamilton. That’s it, basically. There is no real option otherwise.” Active 18’s Michelle Gay, who has invested large amounts of time into creating TMAC, Artscape Triangle Lofts and related developments, says the art-condo model is not a panacea for what ails the art community in the Queen West Triangle neighbourhood, or elsewhere. “We call [what has happened to the neighbourhood] ‘the Triangle disaster,’” Gay says. “The stuff that we got going, like TMAC and the Artscape under-market value live-work spaces—they just take some of the pain away of the overbuilt, overcrowded, too-tall buildings.” Gay says she is also cautious about the condo-artspace model being extended to other districts. “It worked as a kind of model here… but is it the model you want to use all over the city?” she asks. She is, however, resigned to the idea that this may be the only option left in the local context. “If you look at land and building in downtown Toronto, there is just nothing left.”

Above: Plans for MOCCA’s Yves Theoret is also cauthe TELUS Sky tious when it comes to working with tower in Calgary new developments, to a certain extent. include a 5,000-sq.“MOCCA doesn’t want to be used as a ft. public gallery. reason for bad planning. All parties have to agree that makes sense for MOCCA, for the city of Toronto and for the residents in the neighbourhood [the development will be in],” Theoret says. “One of the key challenges is the sustainability of the operation in the long run. It’s about more than just a building. If we’re talking about increasing the size of MOCCA threefold, we don’t want to build a white elephant.” Indeed, a condo artspace isn’t always the right fit for an arts organization. Art Metropole director Corinn Gerber says that Art Met recently turned down an offer of condo space in part because it wasn’t the right location, and “we are actually really happy where we are right now”—in a rental storefront on Dundas West. Gerber notes that the condo option also didn’t seem a good fit for Art Met because it would have required dedicating the coming years to fundraising. ”It’s still, for us, a huge investment,” Gerber says. “Even if it [the space] is offered below market price, it would involve a real capital campaign, for which there needs to be a meaningful reason.” December 2013 January 2014

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The condo-artspace trend, like the condo boom itself, shows few signs of slowing. Theoret says that by the end of 2013, he hopes to have a better sense of whether the particular arrangement MOCCA is working on with a condo developer will work out. “We are hopeful,” he says. “We have done a lot of studies and explored a lot of options, and if it does work out, it will be a great addition to the landscape of Toronto.” For its part, TMAC, which recently received charitable status, is in the beginning stages of a capital campaign for its new facility, planned to open in early 2014. “There has been a lot of rapid growth in the city of Toronto and that means a lot of rapid change to neighbourhoods,” says Berazadi. “This will allow us to stay and adhere to our mandates and allow us to serve publics we have been serving for 30 or 40 years. I think these private-public partnerships are really beneficial and I hope the city continues to support it.” Some artists are also appreciative of what Section 37 agreements have brought to them. In a public-art piece on the construction hoarding at the old 48 Abell site, artist Corwyn Lund traces his mixed feelings about development in the area and his negative experiences with moldy, leaky live/ work spaces in older buildings elsewhere. “When the demolition of 48 Abell Street began in November 2011,” Lund writes, “I was able to watch from the balcony of my new third-floor live-work apartment. I felt like I was witnessing the closing of a chapter in Toronto artist housing and the beginning of a new one. That I now live in the most secure, stable, suitable, well maintained, and reasonably priced space I have had in my 13 years as an artist in Toronto can be attributed to the efforts of community activists and developers who reached a Section 37 agreement with the City of Toronto to build new space for artists and arts organizations in the Queen West Triangle.” On that note, Michelle Gay of Active 18 says it is crucial that even more people become involved in the development process, whether for art spaces or otherwise. “I guess the trick is for community groups to actually know that they can have a voice in these negotiations,” Gay says. “The worry for me is that people think, when they see those development notices posted, that things are a done deal,” Gay explains. “There is an This article is reprinted apathy that comes out of that: ‘Oh well, with permission from another condo, what can I do?’” The anCanadian Art, which swer is simple, she says: “Get in there originally posted it on and start negotiating!” b August 6, 2013.

Images courtesy of Tom Arban / The Daniels Corporation / TELUS

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Can the cost of contributing artwork to the community be justified?

ow do you quantify quality of life? Can a spreadsheet measure human amusement, introspection, inspiration? Is a building just a building, or can it be something more? These are the type of questions that arise when you ask a variety of stakeholders if commissioned public art has an impact on a developer’s bottom line. The short answer, according to Paul Minz, president of Toronto’s M&R Holdings, is no. “Absolutely not. It adds no direct, tangible, proven addition to your earnings.” Minz says. “However, from a business perspective, public art makes you more notable, a more distinctive developer.” Contributing art to the urban landscape is new to his family-owned firm. Even though M&R has been in business for 50 years, it was not until the 2013 completion (in conjunction with Baif Developments) of a retail plaza on Toronto’s northeastern edge that they actually took the plunge. Because of the site’s positioning on the otherwise indistinguishable boundary between the cities of Markham and Toronto, they decided to commission a 16-foot-high sculpture spelling

AUGUST SEPTEMBER DECEMBER 2013 JANUARY 2013 2014

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out Toronto’s name in a huge, palindromic circle of red-overlayed steel. The creation of the Cundari Group’s Dean Martin and Stephen Richards of Streamliner Fabrication, “Toronto 360” now acts as a gigantic signpost. “The gateway idea gave it a sense of purpose,” Minz continues. “It’s so big, it can be used as wayfinding and also as a meeting spot for people.” He says he is pleased with the final effect. “Particularly when it comes to retail, so many stores have a predetermined, formulaic look. You get the same mix of tenants, the same look all over. Something that defines your place as different gives it more of its own identity, makes it stand out in the crowd.” Although he is only speaking of a single retail plaza in a single city, Minz’s words could be extrapolated to include every urban space on the planet. Today’s business travellers know the “if it’s Tuesday, it must be Belgium” feeling of being unable to distinguish

By Leslie C. Smith

one city from another. London, Los Angeles, Calgary, Montréal — wherever you go, you find interchangeable shops, offices and condo towers. The element of surprised delight as you turn any given corner can only come from a chance encounter with which will really call attention to their the uniqueness that is art, whether this is represented by a projects in a new way. Many developers statue, a troupe of performers or a visible interior installaare proud of what they do. They want to tion. Cities understand this and actively use art to distindo something that will have impact, but guish themselves. Over 300 North American cities, starting it’s often way out of their experience.” with Philadelphia in 1959, have instituted programs to genFor such neophytes, the best way to erate public art and other amenities from private development go about sourcing public art is either to funds. For the most part, these programs suggest developcontact a city-controlled arts advisory ers voluntarily contribute a minor fraction — usually one per committee, or to pair up with a local art college or gallery. As well, in larger cities, freelance art consultants are available cent — of their gross construction costs; in practical terms, and skilled at finding the perfect match between developnecessary city rezoning or amendments to official plans may ment projects and artistic expression. well hinge on how willingly developers participate. Greenberg cites a number of instances where privately Genteel blackmail or no, architect and urban designer funded urban art has what he calls “a memorable, transKen Greenberg, principal of Toronto’s Greenberg Consultforming impact.” Among these are the statues of a giant ants and former Director of Urban Design and Architecture bird and another recalling a ship’s hull for the city, views such programs as vitally important to all that stood outside the Olympic Athletes’ concerned. But the process must involve serious commitment. “The Village in Vancouver. Then there are cities that do it well,” he says, “have some kind of peer-review procedSaskatoon’s various art parks, which exure to suggest or select the artists, which gives you more interesting hibit local works on a temporary, conresults. If public art is reduced to a perfunctory gesture where somesignment-style basis; those that prove body feels obliged to spend X amount of dollars and put a statue in a hit with citizens and critics alike are front of a building, it’s useless. The smarter developers realize this is blessed with permanent installation. not a burden but can actually be a great opportunity to do something Another success story is Saskatchewan artist Joe Fafard’s 1985 sculptural grouping of seven lifesized bronze cows grazing on a patch of grass outside the TD Centre, in the heart of Toronto’s financial district. “You have to look beyond the obvious,” cautions Greenberg. “Public art can become trivial if it just stays in the realm of the sentimental, the obvious, mere decoration. On the other hand, an artist and a company with real creative content gets everyone engaged and excited.” For this reason, larger developers often retain art curators on staff – not only to oversee the company’s private art holdings but also to have someone on hand who understands individual project needs as well as the broader corporate philosophy. Debra Simon, vice-president and artistic director of Arts Brookfield at Brookfield Office Properties, New York, is one such person. After starting off with a career in performance, Simon switched gears to become head of marketing for the Wall Street Business Improvement AssociLEFT: Toronto 360 is an instillation ation. A self-proclaimed “voracious conpermanently located sumer of art,” she says her combined on the border between artistic and real estate knowledge make Toronto and Markham. her uniquely qualified for her presentCreated by Dean day position. Martin and Stephen Richards for Baif Canadian-bred Brookfield has played Developments, the a long role in fostering artistic talent five16-foot steel letters across the spectrum, from permanent spell TORONTO displays to temporary installations and on an orbicular performances in film, theatre, dance, concrete stage. building.ca

left: In the lobby music, photography, painting and sculpof Oxford Properties’ ture under their Arts Brookfield banCentennial Place ner. A recent press release celebrating in downtown Calgary the program’s 25th anniversary quotes is a large 1,200-sq.-ft. Mitch Rudin, president and CEO of U.S. sculpture constructed of laminated glass Commercial Operations, as saying: triangles by artist “Free public art enhances a city’s vitalChristian Eckart. ity… Arts Brookfield embodies Brookfield Office Properties’ vision of creating progressive workplaces and our commitment to developing thriving communities.” To mark the occasion, Arts Brookfield has just launched Art Set Worldwide. “We believe that art helps Free, a global art showcase that offers create a positive and welcoming enestablished, emerging and amateur artvironment that’s part of the whole packists a chance to display their work to age for our tenants,” he says. “It’s highly millions of viewers online and on-site. competitive out there, so having a great Debra Simon believes that, along employee workplace to offer is very imwith the excellence of a development’s portant to our customers.” design, art is one of a handful of variOxford has just unveiled its latest ables that can lead to the continuing installation in the visible-from-thesuccess of a project. “I think of it as not street lobby of downtown Calgary’s just building a building, but building a Centennial Place, which itself debuted community. Art’s something we feel in 2010. The picturesquely titled “Diis important to give our tenants. A key component in our chroic Glass Hexagonal Perturbation Triptych — HAT Trick, corporate culture and mission is giving back to the areas in 2010 – 2013” is the work of internationally renowned, which we operate. Working with artists in these communCalgary-born sculptor and painter Christian Eckart, who ities, allowing them opportunities for their work to be seen also contributed a piece to the company’s new Ernst & by a wider group of people – it’s how we actually form a Young building in the same city. His latest creation — a community.” 1,200-sq.-ft. wall sculpture built of laminated glass triThe idea is particularly impactful in today’s global econangles that reflect a kaleidoscope of liquid, luminescent omy, she stresses, where people are working longer hours colours as the lighting and viewing angles change — can be and many businesses operate on a 24/7 basis. “Public space viewed as an abstract representation of its site, both statand seating create a collaborative experience, and nothing ic and motion-filled at the same time. engages there as well as art. It gives people something to “The art needs to be contextual. Every building is a little think about, talk about, a kind of a time-out, and a spark for bit different. Hat Trick suited the project, which is very their own creativity and innovation. modern and built to LEED Gold standard with a glass ex“I think the criteria that we have for success is the belief terior and now glass inside. The feedback from customers that what we do is an enhancement of our space, which has been unbelievable, they really appreciate it. It’s so helps the bottom line. Like having a fantastic restaurant striking, it starts to form part of the fabric of the downor beautiful architecture, a lively and town community,” Routledge explains. “First and foreengaging arts program is part of the most, art allows us to animate spaces. It also contributes to brand loyalty, and story. It’s an amenity.” it brings us into the community in a very positive way. The college of art, for inWords like “amenity” and “communstance, sends students to study pieces like this.” ity” crop up as well when you speak Routledge says his company doesn’t follow the one per cent mark, preferabout public art to David Routledge, ring instead discretionary spending on its own terms, and usually going vice president of real estate manageabove and beyond what’s mandated. He admits that such ment, Western Canada, for Oxford Propthings as high LEED standards or artwork designed to erties Group, a division of OMERS stand the test of time require fairly significant resources but feels these help make a project successful. “The employees are proud and the customers are satisfied,” is his conclusion. “Centennial Place is 100 per cent leased today. And that’s the bottom line.” b

December 2013 January 2014

building.ca

Photos courtesy of Baif Developments Limited / Oxford Properties

28 24

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A Market within a Market “Canada came out of the global financial crisis better than any other industrialized country in the world. Every office building, every warehouse is effectively full. It’s a pretty nice place to be,” said one interviewee, echoing a prevailing sentiment in the 2014 Emerging Trends in Real Estate report by PwC and the Urban Land Institute.

he stability of the Canadian real estate market continues to attract positive attention from domestic and international investors. These market participants range from sovereign wealth funds to experienced local market investors. While the overall market could easily be described as “healthy,” the current real estate and capital market environment requires that each investment be carefully evaluated on its own merits. As one fund manager puts it: “The real estate market must be looked at ‘as a market within a market’—submarkets within cities must be reviewed to locate prime/central markets, all of which have different dynamics. The averages [e.g., cap rates, vacancies, IRRs (internal rates of return), etc.] can be meaningless within cities. The challenge is to understand the submarket in each area.” Canada’s real estate market avoided the worst of the 2008 global financial crisis, and due to steady economic growth and a lack of oversupply it remains in a good position. The current level of economic growth will support the expansion of the real estate market across all property types. The Canadian real estate market could also get a boost from improvement in the U.S. economy, spurring economic activity between the two countries and benefiting multiple industries across Canada. The strength of the Canadian real estate market has made it very appealing to domestic real estate investors, but these investors are not limited to local investment. Canadian real estate investors are now the largest non-domestic investors in U.S. real estate. Canadian investors purchased $10.7 billion of U.S. properties over building.ca

Inflation and Interest rate changes the last 12 months. This represents 28 per cent of all non-domestic investment in U.S. real estate. Canadian institutions, pension funds, and private investors are also active in Latin America, Europe, and Asia. The move to non-domestic investments is not due to any dissatisfaction with the local market, but reflects the sophistication of these investors as they search for diversified investment opportunities. Yet there are signs that Canada’s real estate market will reach a plateau in 2014. “Canada is in a holding pattern,” says an interviewee. “Going into the downturn, there was very little construction. We were already seeing rents at near-record levels, and seeing vacancy rates at rock-bottom levels. So it is very difficult to see substantial improvement in fundamentals.” This year will be the year that investors in Canada look to the fundamentals of commercial property for “pure” yield in the form of cash flow, rather than relying on capital markets to boost real estate values. “Things will be tougher next year, but not a pitfall. It will be more of a ‘normal’ cycle. We’ll have to work the assets, [and] focus on fundamentals and adding value,” says an interviewee. “While there will still be opportunities to acquire older properties and add value, competition for good assets will get tougher in 2014 along with increased competition for capital.” Economy in Full Bloom Some interviewees doubt that job growth in Canada will be sufficient to support continued demand for commercial real estate. Canadian jobs are tied largely to prices for commodities such as oil, potash, and precious and semi-precious metals like gold and copper—prices which have come down with a slackening of demand in China. Though the country has more than replaced all of the jobs it has lost since the recession, an average of only 12,000 jobs were created per month during the first half of 2013. Canadian real estate December 2013 January 2014

2013

Increase substantially

Next 5 years

Increase moderately

Remain at current levels

inflation

short-term

Long-term

Commercial

rates

mortgage rates

(1 year treasuries)

(10 year treasuries)

investors hope to get a boost from the U.S. economy in 2014. “We are waiting to see if the recovery in the U.S. is real. If it is, we will almost certainly benefit, and we will ride that tailwind,” says an interviewee. Canadians will benefit not only from the knock-on effect of U.S. economic growth, but also from the resulting rise in U.S. property values. Canadian investors who regard prices as climbing too high at home will invest in the United States, where they remain the largest foreign buyers of real estate. Market Will Remain Strong in 2014 The Emerging Trends survey indicates that participants expect Canada’s real estate market to improve in 2014. The average “buy” rating is projected to slip slightly, from “modestly good” to “fair.” While this may seem to reflect falling confidence, it actually indicates that strength in the market has pushed up prices for the last two years to a level where investors are beginning to approach each transaction with a heightened level of caution. The 2014 “sell” recommendation for the Canadian market remains in the “modestly good” range, suggesting that 2014 will be a year when investors could try to sell select properties. The combination of the buy and sell rankings suggests it may be a year when the market will function efficiently enough for investors to sell properties if they so desire. Finally, the “hold” rating nudged upward slightly, indicating that 2014 will still be a “modestly good” time to hold properties. This survey result would appear to reflect the general mind-set of most market participants. These indicators are consistent with sentiments expressed by our interviewees, many of whom felt that 2014 would still see a good number of transactions, but volumes will likely be down from last year. Buyers could be more discerning, paying top dollar only for the best properties. With prices strong, many interviewees also view this as a good time to reposition portfolios. It is timely to sell assets that may not be in line with current investment objectives. Profitability Scenario without Losers An efficient market across the full spectrum of property types in all major Canadian cities would clearly be good for business in 2014. The outlook for the profitability of companies will build on strong performance in 2013, with 69 per cent of survey respondents predicting “good” or “higher” prospects for profitability. Even more impressive, more than one-quarter of the respondents see the prosbuilding.ca

Source: 2014 Emerging Trends in Real Estate

Emerging trends barometer 2014 pects for profitability as “very good” or “excellent.” There would appear to be no losers in this scenario, with only 10 per cent of respondents seeing profitability prospects as “modestly poor” or “lower.” Such confidence is a strong indication that Canada’s real estate market will benefit from a wide range of market participants, from lenders to fund managers to developers. In particular, the outlook would appear to be good for anyone who benefits directly from real estate investment. Local operators scored the secondhighest rating for profitability, which reflects a transition in the market from dependence on capital market movements for returns to more traditional asset performance. These Canadian investors indicate that they will continue to work with local partners as they explore new opportunities in search of higher returns. The business prospect outlook for other types of market players is somewhat mixed. Commercial/multifamily developers are expected to have “slightly better” prospects than homebuilders. The outlook for lenders ranges from “strong” for banks to “lower” for insurance companies and commercial mortgage–backed securities (CMBS) lenders. Among lenders, banks that are positioned to take advantage of higher interest rates have “slightly better” prospects than insurance companies and CMBS lenders as spreads on debt start to widen across the board in expectations of higher interest rates. The ability of banks to attract low-interest deposits that can be put to work at higher rates will boost their profitability. But CMBS lenders, who operate in a higher-risk loan environment, will be challenged by rising rates.

Top Trends for 2014

Capital Continues to Balance Based on 2014’s survey respondents, the availability and cost of capital for real estate investment are coming more

good

27 sell modestly good

hold Buy

fair

modestly poor

Poor 2008

2009

2010

2011

2012

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into balance and the competition for capital will be robust. “There is debt and equity capital available. People will accept slight yield reductions,” says an interviewee. At the same time, there will be more “institutionalization of real estate” in deals that are likely to be structured with an eye toward managing loan-to-values by being conservative with the loan proceeds and valuations. Equity capital for investing from a variety of sources is considered by over 38 per cent of the respondents to be in balance. This percentage is up from 32 per cent of respondents in 2013. While a rising number of respondents see the market as in balance, what may be even more significant is the percentage of respondents who view the amount of capital available being oversupplied has declined to 37 per cent from nearly 50 per cent two years ago. A balance of capital in the market will keep pricing more dependent on individual fundamentals and less on excess capital influence. REITs Recede as Buyers, but Others Eager to Take Their Place In 2014, Canadian REITs, which represented about three out of 10 buyers as recently as July, may choose to be more selective about the assets they pursue. One of the reasons for their previous dominance in the acquisition market was that the number of REITs in the market increased significantly over the past three years. “They are no longer the dominant buyers,” says an interviewee. The reason is that REITs are sensitive to rising interest rates. “Their cost of capital has gone up so much, from about 4.5 per cent to 6.5 per cent. They were buying at cap rates of 5.25 per cent to 5.5 per cent, but now it’s hard for them to be accretive.” The now-reduced role of REITs as acquirers is quickly being filled by pension funds, which “never really went away but now are in full position,” an interviewee says. At the same time, private buyers, which historically were not as aggressive as REITs and not as exposed to interest rate increases, are becoming more active as acquirers, tending to operate in different markets. Pension funds, which are driven by actuarial assumptions and are thus not forced to confront the impact of interest rates until year-end, were competing directly with REITs to buy the highest-institutional-grade properties. Well-capitalized REITs will not have trouble accessing additional capital, but may choose not to due to the expected higher cost. Any additional capital raised must be redeployed at an expected rate that is accretive to unit-holder (i.e., shareholder) value. If REITs have decided to be more selective in the assets building.ca

Real Estate capital market balance forcast for 2014 they pursue, they could need less capital in 2014. Consolidation could occur among small and mid-sized REITs, but consolidation will need to add to unit-holder value. There is some concern about the potential impact on REITs if valuations soften in 2014. “Weaker REITs may not have a choice, and will have to sell into a softer market to make distributions,” says an interviewee. Retailers Spinning Off CRE Holdings as REITs In what could emerge as a secular trend, some publicly listed retailers are spinning off their commercial real estate holdings as separately listed REITs in the hope that the value of those holdings will be realized in the form of higher securities prices on the stock market. The first such deal was struck by Loblaws, which in July raised $400 million in the REIT IPO while raising another $600 million in bonds. In October, Canadian Tire raised $253 million in an IPO. While retailers that are in a position to launch such IPOs represent a limited universe, it will be interesting to see if similar deals are cobbled together by Canadian companies in other industries that have sizable real estate holdings across the country. Projects To Remain Well Funded Development is likely to be well funded, with 45 per cent of respondents seeing debt capital for 2014 development on the rise. In an indication that any project that receives development financing will still need to meet reasonable underwriting criteria, 40 per cent of the respondents see this category of debt capital as “undersupplied.” It should be noted that capital is expected to be available for high-quality projects that meet stricter lender requirements for both the project and the borrower. For example, high-rise condominium projects are now getting a higher level of scrutiny from traditional lenders. The December 2013 January 2014

Equity capital for investing

2.6%

21.8%

38.5%

24.4%

12.8%

55.3%

15.8%

6.6%

61.8%

14.5%

5.3%

Debt capital for acquisitions

3.9%

18.4%

Debt capital for refinancing

1.3%

17.1%

Debt capital for development

8.0%

32.0%

45.3%

12.0%

2.7%

Substantially undersupplied

Moderately undersupplied

In balance

Moderately oversupplied

Substantially oversupplied

best projects to the best borrowers will get capital, while those that do not meet these criteria will need to look for capital from alternative sources, typically at a higher cost. Borrowing Strategies The expectation that borrowing will become more expensive does not appear to discourage real estate investors. Interviewees say they expect Canadian interest rates to increase 100 to 200 basis points by 2015. “Changes in the economy will likely result in change to the cost of debt,” says one. The increase in rates, however, is not expected to lower demand for debt capital. “If you have a good strategy for longterm growth, regardless of the cost of borrowing, debt at today’s rates will still have a positive impact on the bottom line,” says an interviewee. In response to higher rates, one interviewee believes that investors “should consider utilizing as much debt as possible” to lock in low interest rates while they still can. “There are signs that some pension funds are now taking this precaution,” he says. This is an opportunity for lenders to segregate borrowers more aggressively, using credit quality as the main distinguishing factor. “To make sense of aggressive pricing, you need to have aggressive debt financing,” says an interviewee. “There is aggressive debt around for the right borrowers, who are easier to stratify in Canada than in Europe, where the difference between a creditworthy borrower and the next tier is almost indistinguishable.” Capital Plays Hard to Get Although survey respondents see both debt and equity capital as being available in 2014, they don’t expect capital to be easier to obtain. Our interviewees expect that owners of capital will only be looking to invest in the best projects and that they will be risk-adjusting their return expectations more so than in the last few years. “There is lots of cash available, but there is no place to put it. Mortgage lenders building.ca

Source: 2014 Emerging Trends in Real Estate

er and the next tier is almost indistinguishable.” Capital Plays Hard to Get Although survey respondents see both debt and equity capital as being available in 2014, they don’t expect capital to be easier to obtain. Our interviewees expect that owners of capital will only be looking to invest in the best projects and that they will be risk-adjusting their return expectations more so than in the last few years. “There is lots of cash available, but there is no place to put it. Mortgage lenders are going crazy,” says an interviewee. “Lots of cash is available for good projects, but banks are increasingly lending only to established builders with good balance sheets,” says another. It is unclear whether equity underwriting standards are getting stricter in Canada. In 2014, 44 per cent of re-

Prospects for major commercial property in 2014 INVESTMENT PROSPECTS

RETAIL APARTMENT OFFICE HOTELS DEVELOPMENT PROSPECTS INDUSTIAL/ DISTRIBUTION RETAIL APARTMENT OFFICE

EXCELLENT

HOTELS FAIR

Non-bank Financial Institutions to Become Active Lenders Except for government-sponsored entities (GSEs), all active providers of debt capital are expected to remain at least as active in Canada’s real estate market in 2014 as they were in 2013. Non-bank financial institutions and mezzanine lenders are expected to see a small increase in activity due to improved market fundamentals, which will allow them to move toward higher risk/return strategies that can be enhanced with leverage in the form of debt and also as a response to tighter lending by banks to high-rise condo builders. Traditional players, such as securitized lenders, mortgage REITs, and insurance companies, will be as active as they were in 2013 or show a “slight increase,” according to the survey. The level of debt provided by commercial banks is expected to stay the same. GSEs are expected to provide “slightly lower” levels of debt capital as private players become more active.

Best Bets in 2014

INDUSTIAL/ DISTRIBUTION

ABYSMAL

spondents expect equity underwriting standards to remain unchanged, while 44 per cent expect them to become more rigorous, which would keep capital from flowing into ill-conceived transactions. But it is clear that debt underwriting standards are getting tougher. The survey reveals that debt capital will be at least as difficult to obtain in 2014, with 50 per cent of respondents predicting that debt underwriting standards will be “more rigorous” and with 90 per cent of respondents predicting that they will be either “the same” as a year earlier or “more rigorous.” Financing for new condominiums is a case in point. In general, Canadian lenders will not approve a new project until it is at least 70 per cent presold. The buyers are usually investors, and presale requirements are rigidly enforced. But in 2013, the stakes were raised even higher as banks started favoring established builders with track records and healthy balance sheets. Smaller developers—even ones that have established track records and were able to borrow as recently as two years ago—are increasingly being forced to seek alternative lenders. One interviewee predicts that banks will wait until the end of 2014 or mid-2015 to “loosen up” construction lending for condos. “They are concerned that it will be two to three years before the existing pipeline is absorbed, even though there is no real concern on absorption as rental demand is strong and rents are increasing.”

Urban and Infill Retail Development. The outlook for retail is strong nationwide, but urban and infill retail could be exceptionally attractive in 2014. Retailers go where the customers are, and with the continuing trend toward urbanization more of those customers are moving to the urban core. Urban residential growth in multiple markets is well ahead of urban retail development, creating a shortage of retail to serve a population that increasingly wants to live without using transit. Retailers see this as a growth opportunity not unlike the opening of the suburbs. As they develop formats to meet the demands of the urban market, retailers will need to find attractive locations, likely to be a combination of new development and redevelopment of existing properties. Build mixed-use downtown. Mixed-use projects are soaking up investment dollars in one of the most rapidly-emerging investment opportunities in Canada’s major urban downtown areas. Combine condominiums with offices and retail stores to take advantage of a growing preference among reverse migrants and Millennials to live within walking distance of downtown areas. Invest in commercial/multi-family developers. This group of developers is expected to have “slightly better” prospects than homebuilders in 2014. Multi-family developers may see more attractive opportunities in neighbourhoods that are seeking to increase the density of development within the urban core. Lock in or refinance at low rates. Borrowers are locking in low interest rates on building.ca

v i e w Peter Sharpe: Leadership shows in how people are treated By William J. Ferguson

Growing the bottom line may get someone toasted at the next shareholders’ meeting, but it is no guarantee that person will be viewed as a great leader. Someone could be the best in business at closing deals, negotiating the best terms and getting results, but that still says nothing of their leadership. Leadership is defined by the actions people take on a daily basis: consistent actions that are just and fair to all. A great leader understands that everyone has a job to do and knows that if people fail to perform to the best of their ability the entire organization could be put at risk. Great leaders also know what every person in the organization is supposed to be doing, and why and how their jobs are supposed to be accomplished. They don’t micromanage; empowerment of individuals is very important. But they have a deep understanding of the fact that the people who work for them will perform to the best of their understanding and training, not their capability. Therefore, great leaders practise two basic management tenets. The first is to praise in public and correct in private. When the boss tears into a subordinate for a mistake and humiliates the individual in public, it damages two people. The person who made the mistake is embarrassed, and his willingness to extend himself in the future could be checked. Moreover, the trust he has placed in the leader has been betrayed and diminished; anger and resentment take root. The second person damaged is the boss. The loss of control over his emotions undermines authority. Trust is broken, and there is no sense of fairness or justice. Doubt creeps into the corner of every thought about the boss and their ability to lead with integrity. The second management tenet is to praise what is right and train to correct what is wrong. People do not normally make mistakes on purpose. They normally want to perform in a manner that garners positive reinforcement. If employees are not performing up to the leader’s expectations, then one must provide them the necessary tools and training to help them match that expectation. It costs far less to grow a subpar employee into a confident producer through training than it costs to replace that non-performer with a new employee. By providing the training, mentoring and opportuniDecember 2013 January 2014

building.ca

ties that employees need and deserve, one can establish fair and just performance — tracking and reviewing processes that employees will buy into. Then the organization’s goals will be transformed into an opportunity for meaningful improvement and personal achievement. Being a leader is not about being the smartest guy in the room, according to Peter Sharpe, retired CEO of Cadillac Fairview. Leaders must be willing to surround themselves with very intelligent and talented people. The truly great leaders whom Sharpe has known over his stellar career have shared one very rare but common thread; they always hired people who were more than capable of replacing them. Surrounding oneself with very smart people makes the leader’s job exponentially easier because intellectually engaged and curious people are easier to train. One of the hallmarks of managing in a fair and just manner is recognizing the contribution of everyone on the team, from the executive ranks to the project team to the support staff. The truly great leader knows the names of the reWilliam J. Ferguson is ceptionists, custodial staff, security perchairman and CEO of sonnel, and the junior analyst who dug Ferguson Partners Ltd. out a few key pieces of information for and co-chairman and the last project – realizing that each of co-CEO of FPL Advisory these is a necessary component in the Group. The preceding was smooth functioning of the organization. an excerpt from his new It takes very little effort on the part book Market Discipline, of leaders to build loyalty with those The Competitive who work for them. Leaders can generAdvantage: Lessons from ate amazing productivity and loyalty Canada's Real Estate from their employees because they creLeaders, published by the ated an environment that is just and REAL Property Association fair and where everyone is treated with of Canada (REALpac), respect. People will establish a beachavailable at realpac.ca head, storm a castle and walk through fire for a leader who demonstrates by his consistent actions that he believes each and every member of his team is the winner and the achiever they always thought they could be. b

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“With these tax incentives, it’s like we already filled 10 units.” People who know Real Estate, know BDO.

The Real Estate Practice at BDO Real estate markets globally are undergoing a period of virtually unprecedented turmoil. Now more than ever, it is crucial to have proactive financial guidance to help you address these issues. BDO’s Real Estate practice combines in-depth knowledge of the industry with a truly global network of support. All through a single point of contact. Assurance | Accounting | Tax | Advisory www.bdo.ca/real-estate BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.