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63 05

CONTENTS

what’s on BUILDING.ca

FEATURES

20 > Suburbs as “Huburbs” /

Is transit-oriented development in the suburbs of major Canadian cities on the rails at last? By Rhys Phillips

26 > Running on Empty /

The high costs of old gas station remediation is a constant thorn in the industry’s side. By Camilla Cornell

READ > Diggin’ Deep Two engineers explain how to design a ground source heat pump that works.

28 > Extra-curricular thinking /

Falling enrolment often means school closures. But on the bright side, the buildings themselves are ideally suited to be preserved and repurposed as cultural spaces. By Peter Sobchak

31 > Apples to Apples /

READ > Moving Forward on Standing Still Results from a global parking industry survey reveals technology is transforming how we park.

How energy benchmarking can give real estate asset values a boost, both today and into the future. By Eric Chisholm

EXPLORE > Irène A Montréal urban housing project’s innovative use of perforated aluminium façade panels.

ABOVE IMAGE:

IN EVERY ISSUE

7 > Editor’s Notes 8 > Developments 14 > Market Watch 18 > Legal 34 > Viewpoint

building.ca

The Shaw Street School, a heritage building originally constructed in 1914, was declared surplus to the educational needs of the Toronto District School Board in 2001. In December 2010, Artscape purchased it and has converted it into a multi-use cultural hub. Photo by Gregory Edwards

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Volume 63

05 Number Editor / Peter Sobchak Art Director / Roy Gaiot

The signs are clear: Canadians everywhere are gravitating to the urbanization model. It’s not only extending into once-suburban swaths around Toronto, Vancouver, Calgary, and Montréal, but also smaller cities across the country. People are more and more choosing high-rise over house-andyard lifestyles, and while it may seem cliché to say aging Baby Boomers are tired of shoveling snow and Gen-Yers are attracted to the glamorous city life, one prevailing commonality is clear: everyone is tired of worsening traffic congestion, driving many of us to view mass transit as not just a transportation alternative but a backbone to how we live our lives. We already know that any location near mass transit stations significantly increases in value (reiterated by new research from Jones Lang LaSalle showing that office tenants in Toronto’s emerging business hubs are willing to pay a premium for the convenience of rapid transit access), which is why developers and the business community are calling for increased funding to expand or build transit systems that support densification. But even with capital flowing to urbanized locations and an increase in density, without proper infrastructure these locations will suffer, and developers correctly worry that most municipalities lack the resources to finance infrastructure projects adequately and need support from the federal government, which shies away from major outlays. But as plainly laid out in a report earlier this year by the Canada West Foundation, Canada’s governments should not hesitate to maintain a high level of investment in transit infrastructure. “Unlike other forms of government spending that create jobs and provide a short-term boost in GDP, renewing and building strategic infrastructure is an investment in the long-term productivity of the Canadian economy. If we don’t make these investments now—if we wait and let short-term pressures dominate—we risk undermining our economic prosperity. It is not just a matter of lost opportunities, it is also a matter of sliding backward due to failing or missing infrastructure.” The costs of sliding backwards—including economic (a 2008 study put nationwide congestion costs at roughly $15 billion), health (a German study says heart attacks are three times more likely in gridlock), and more—are adding up to a simple sum: traffic is killing us. A Toronto Board of Trade report earlier this year looked at commuting times in 19 major European and North American cities. Toronto’s ranking? Dead last: worse than New York, London, or Los Angeles. But other Canadian cities weren’t much better: Montréal 18th, Vancouver 14th, Calgary 13th, Halifax 10th. “The question of how much to invest in infrastructure relative to spending on other priorities is ultimately a question for voters and the people they elect to represent them,” says the Canada West Foundation report (echoing my earlier rant in the June-July issue). “The need for, and benefits of, strategic infrastructure investments are not in doubt, however, and they should be front and centre in this debate.” If we get infrastructure wrong — and believe it or not, that is entirely possible — the generational effects will be devastating. The development community, with so much to gain from intelligent strategic transit funding, should be taking an active role in helping explain to the public that as Canadian suburbs build in more compact ways—with higher-density development clustered in nodes or along corridors, and with increasing options for getting around without a car—reworking or rethinking transit infrastructure is essential.

Legal Editor / Jeffrey W. Lem Contributors /

Eric Chisholm, Camilla Cornell, William J. Ferguson, Carolyn Lane, Odysseas Papadimitriou, Rhys Phillips

Circulation Manager / Beata Olechnowicz (416) 442-5600 ext 3543 Reader Services / Liz Callaghan Advertising Sales / Faria Ahmed (416) 510-6808 fahmed@building.ca Senior Publisher / Tom Arkell Vice President, Publishing Business Information Group / Alex Papanou President, Business Information Group / Bruce Creighton Building magazine is published by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd. 80 Valleybrook Dr. Toronto, ON M3B 2S9 Tel: (416) 510-6845 / Fax: (416) 510-5140 E-mail: info@building.ca Website: www.building.ca SUBSCRIPTION RATE: Canada: 1 year, $30.95; 2 years, $52.95; 3 years, $64.95 (plus H.S.T.) U.S.: 1 year, $38.95 US, Elsewhere: 1 year, $45.95 US. BACK ISSUES: Back copies are available for $8 for delivery in Canada, $10 US for delivery in U.S.A. and $15 US overseas. Please send prepayment to Building, 80 Valleybrook Dr. Toronto, ON M3B 2S9 or order online at www.building.ca Subscription and back issues inquiries please call 416-442-5600, ext. 3543, e-mail: circulation@building.ca or go to www.building.ca Please send changes of address to Circulation Department, Building magazine or e-mail to addresses@building.ca NEWSSTAND: Information on Building on newsstands in Canada, call 905-619-6565 Building is indexed in the Canadian Magazine Index by Micromedia ProQuest Company, Toronto (www.micromedia.com) and National Archive Publishing Company, Ann Arbor, Michigan (www.napubco.com).

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DEVELOP-

News National household survey shows rising income but flat home ownership rates TORONTO | The final release of data from the 2011 National Household Survey ( NHS) shows rising fortunes for many Canadians. According to the 2011 NHS, median family income in 2010 reached $76,500—up 5.5 per cent from 2005 (though comparisons to 2005 data are only approximate). Although other data sources suggest much of the gain occurred before the 2008 recession, more than a third of all families reported incomes above $100,000, while 12 per cent had incomes under $30,000. And the data show that the families with the highest median incomes—between $90,000 and $100,000—are found in major metropolitan areas such as Calgary, Ottawa-Gatineau, Edmonton and Regina. The NHS findings show the wage gap between younger men and women is lower than for the older population. Although the median employment income for all men working full time for a full year, $53,000, is 26 per cent more than the $42,200 that women earn, that gap is 20 per cent for younger workers between 25 and 34 years old. The new data, the third and final in a series of NHS releases from Statistics Canada that began last May, focused on questions about income and housing, including shelter costs. In 2011, 69 per cent of Canada’s 13.3 million houseOCTOBER NOVEMBER 2013

holds owned their dwelling, which is roughly unchanged from the 68.4 per cent who owned their home in 2006. Nationally, Canadians pay an average monthly shelter cost of $1,050—$1,585 a month for owners with a mortgage, $511 for owners without a mortgage and $848 for those who rent. With housing costs an important part of overall expenditures, fully one-quarter of Canada’s 13.1 million households spend 30 per cent or more of their income on shelter, exceeding the Canada Mortgage and Housing Corporation’s “affordability threshold.” The new NHS data also show the increasing popularity of condo living. In 2011, more than 1.6 million households lived in condominiums—just over 12 per cent of all households. The increasing popularity of condos is reflected in the fact that fewer than 5 per cent of all dwellings constructed before 1971 were condos compared to 28 per cent of all dwellings constructed between 2006 and 2011. “The rise in condominium ownership can be attributed to younger people who can’t afford the cost of single-family homes and retiring Boomers looking to downsize their lifestyles,” says Dr. Doug Norris, senior vice president and chief demographer at Environics Analytics. Condos are especially popular in big cities, particularly Vancouver (where 31 per cent live in a condo), Abbotsford-Mission (24 per cent), and Toronto, Calgary and Edmonton (each 20 per cent).

This release of data from the NHS completes the initial release of all information from the 2011 Census program that includes the Census itself as well as the National Household Survey. Overall, the new data showed Canada continuing to increase in population size, diversity and education—with younger women leading the way in pursuing college, university and post-graduate degrees. In the years ahead, Canada’s population is likely to continue to increase, and the fastest growing segment will be people in their older ages as the large Boomer cohort moves into their sixties, seventies and eighties. “Clearly this large cohort is different than today’s seniors,” says Norris, “and businesses and other organizations in society will need to adjust their focus in order to meet their needs. In addition, an equally large cohort of Millennials will be moving into their forties and fifties, no doubt with values and aspirations that differ from the Boomers.”

One-quarter of Canada’s 13.1 million households spend 30 per cent or more of their income on shelter, exceeding the Canada Mortgage and Housing Corporation’s “affordability threshold.”

Mid-year hotel volume the highest since 2007 TORONTO | Overall trading activity in the hotel market in Canada has been healthy through the second quarter of 2013, according to Colliers International’s Mid-Year Transaction Report. There were 56 hotel transactions reported across the country amounting to approximately $810 million in volume, representing the largest mid-year transaction volume in the last five years (2007: $871 million). Year-over-year, transaction volume and the number of rooms sold have trended positively, up some 21 per cent and 47 per cent from 2012 respectively. Pricing on a per room basis has also exhibited healthy improvements, reaching $100,600 at mid-year, up some 6 per cent from 2012. Heightened activity over the $10 million mark has been largely driven by the availability of quality portfolios and substantial investment from real esbuilding.ca

tate companies, hotel investment companies, REITs/ C-Corporations, as well as private investors. The most active groups for 2013 have been Temple Hotels Inc., (the only active REIT/C-Corp buyer YTD with six hotels), followed by Morguard Corporation who purchased five Marriott focused-service assets in the Greater Toronto Area, and Vrancor Group following their purchase of two assets in downtown Windsor. The top 10 YTD transactions exceeded $480 million and represented approximately 60 per cent of total transaction volume for the period. The three largest trades of the first half of 2013 include the 600-room Hilton Toronto for $140 million ($233,300 per room), the 575-room Courtyard by Marriott Toronto Downtown for $76.25 million ($133,000 per room), and the 711-room Delta Centre-Ville Montreal for $51.3 million ($72,100 per room).

Project Announcements The Exchange

Perkins+Will handed the newest project in Ryerson’s growing campus TORONTO | Ryerson University has chosen international heavyweight firm Perkins+Will as the architects for a new project on their property at 300 Church Street. Being called (at least for now) The Church Street Development (CSD), it

— Herbert Meier, Credit Suisse’s Director of Real Estate Asset Management

VANCOUVER | The City of Vancouver has approved a development permit for Credit Suisse to construct what is being billed as one of Canada’s tallest sustainable office towers. The $200-million venture is the global financial giant’s first real estate investment in British Columbia and first ‘ground up’ real estate development in Canada. Swiss architect Harry Gugger, whose most notable work includes the Bird’s Nest Stadium in Beijing and Tate Modern Gallery in London, has been tapped for the design. The project, dubbed The Exchange, will be the tallest building in Credit Suisse’s portfolio and will target LEED Platinum by halving the energy load when compared to traditional office buildings of similar size. In addition, the neighbouring Old Stock Exchange building (circa 1929) will be renovated and restored as part of the development, and is aiming to be Canada’s first LEED Platinum heritage conversion. Construction completion is targeted for 2017. Credit Suisse is the seventh largest real estate investor in the world, with total real estate assets of CAD $42.35 billion. Its 260-building global real estate portfolio has been greenhouse gas-neutral since 2010.

“We believe in Vancouver’s economy and its future, [and] believe in supporting the City’s vision to become the world’s ‘greenest’ city by 2020.”

Vancouver green lights ‘green’ office tower

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will house the Daphne Cockwell School of Nursing, the School of Nutrition, the School of Occupational & Public Health and the Midwifery Education Program from the Faculty of Community Services, and a student residence. The ground floor of the CSD will enhance the streetscape and bring the energy and enthusiasm of thousands of Ryerson students to Church Street. The floors above will have classrooms, meeting rooms, state-of-the art clinical experience suites, shared teaching labs, clinical skills labs and modular labs for research initiatives. Students will also have dedicated spaces for formal and informal study, course union office areas, clinical skills practice and lounge areas. To help address the need for more residence space and to optimize density on the site, the building plans include approximately 250 student residence spaces in keeping with the university’s goal to provide an additional 2,000 new residence spaces by 2020. Ryerson is actively seeking a private sector organization to partner with to develop the residence portion of the project. The estimated cost of the academic portion of the project is $84 million, of which the Ontario government has provided a $56.4 million grant. The Ontario and Vancouver practices of Perkins+Will will be working together on the CSD project, with construction expected to begin later in 2015 and completion by fall 2018

IO begins Ontario Place reboot TORONTO | Infrastructure Ontario is moving forward on the development of an urban park and waterfront trail to revitalize Ontario Place and improve access to the waterfront. As such, a request for proposals has been issued seeking landscape architects with the expertise and capacity to design an urban park and waterfront trail along the east island of Ontario Place. The park and trail project will

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DEVELOPlink to a 780-kilometre waterfront trail system that includes parts of the Trans Canada Trail Ontario route and the Martin Goodman Trail, and overhaul a current parking lot, thereby providing public access to a section of Toronto’s waterfront for the first time in 40 years. Interested bidders will need to provide a statement of design intent, examples of similar projects, and an over-

MENTS

view of their firm’s proposed project team. Once the landscape architect is selected, the public will be invited to provide input as part of the design phase. The final designs will be unveiled in spring 2014. Infrastructure Ontario will also oversee the competitive procurement and construction of the park and trail, which will take place in three phases. Removal of the existing parking lot and site preparation are scheduled to begin in spring 2014, underground infrastructure and servicing in summer 2014, and construction of the park and its surface-level amenities in fall 2014.

“Just as the days of shopping via catalogues have gone by the wayside, today e-commerce is transforming yet again how consumers purchase and receive goods, and the resulting impact on commercial real estate could be far reaching,” said Thomas J. Bisacquino,

president and CEO of NAIOP. “ By addressing this dynamic now, designers are not only able

Awards Alberta firm wins award for vertical warehouse design HERNDON, VA | NAIOP selected Riddell Kurczaba, a design consulting firm located in Calgary and Edmonton, as winners of the 2013 Distribution/Fulfillment Center Design of the Future. In its second year, the competition invites concept plans for utilization trends, sustainability elements and new building technologies of a distribution/fulfillment centre to be opened in 2020. The winning concept, produced in partnership with California-based Ware Malcomb, features a 1.95 million square foot warehouse spanning five levels where the brains of its delivery system (robotic picking devices and a conveyor spine) are located in the centre of the building. Massive structural steel beams hoist office space to the top of five levels, overseeing central command operations. The exterior of the building features elements of sustainability hidden to the naked eye, including 56,000 square feet of green roof space, 300,000 square feet of solar panels and a horizontal projection The Swarm for rain water collection that wraps the building’s perimeter. Riddell Kurczaba sees the future of distribution fulfillment on the rise, literally, in the form of vertical warehousing. The firm’s concept, titled “The Swarm,” encompasses 800,000 gross square feet, of which 500,000 square feet is allocated for retail warehousing in the building’s central core and 300,000 square feet of residential and office space occupies the building’s perimeter. Intelligent networks with light rail transit (LRT) lines streamline delivery of consumer and materials goods throughout the building, and customers can still access street-level retail stores. building.ca

to showcase the creative talent of their firms, but also identify potential logistical challenges, technological needs and cost savings, all of which in the end affect the overall consumer experience.”

Two Canadian projects receive 2013 International Architecture Awards DUBLIN | The Chicago Athenaeum: Museum of Architecture and Design and The European Centre for Architecture Art Design and Urban Studies have selected 60 new buildings, commercial and institutional developments, and urban planning projects from 20 nations including: Australia, Burundi, Finland, France, Germany, Great Britain, Ireland, Japan, Lebanon, Norway, People’s Republic of China, The Netherlands, Qatar, Singapore, South Africa, South Korea, Spain, Turkey, Vietnam, and the United States. From Canada, the winning projects were Gathering Circle (2011), Thunder Bay, Ont., by Brook McIlroy and Ryan Gorrie (41st on the list); Vaughan City Hall (2011), Vaughan, Ont., by KPMB (45th on the list). b

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MARKE T 20 years and going strong Today, Canadian REITs are well-established and seen as stable investment choices. But getting to that point had its fair share of challenges. By Carolyn Lane Acronyms are everywhere in the real estate industry, but REITs (Real Estate Investment Trusts) are one that regularly dominates the headlines, often because of the money changing hands. Originally introduced in the United States in 1960 to provide individual investors with the opportunity to participate in different sectors of the real estate market, they were established in Canada in 1993 and have evolved to become a profitable investment class. Put simply, a REIT is a publicly traded organization that invests predominantly in income-producing real estate assets. REIT units are an equity investment, providing investors with attractive yields, plus the potential for capital appreciation. Income earned by a REIT flows through

20 Years of REIT Milestones

WATCH

to its unit holders without being taxed at the REIT level, giving regular investors similar flow-through income to that enjoyed by direct owners of commercial property. Just like a mutual fund, REIT investors benefit from enhanced buying power, diversification, liquidity and professional management. REITs are required to distribute virtually all distributable income to unit holders monthly or quarterly – usually with a tax-deferred component. Assets of a REIT do not deplete in the same way that, say, oil and gas royalty trusts might, so as long as the REIT has a track record for good governance and quality income-producing buildings and properties, they are a viable investment structure. In Canada, there are six types of REITs: Hotels; Nursing and retirement homes; Office buildings; Residential; Retail; and Industrial. Investors can also choose a single REIT that diversifies in some or all of these categories. Fundamentally, REITs give the average investor exposure to real estate investments. Without this investment vehicle, institutional pools of capital such as pension funds would have owned most Canadian real estate. REITs, which already existed in the U.S. and Australia, gained a foothold here during the recession and related commercial real estate bust in the early 1990s. Up until then, the precursors to REITs were open-ended mutual funds that made it possible to invest in real estate. As noted in Real Property Association of Canada’s (REALpac) Canadian REIT Handbook, investors could buy into these funds for as little as $100 and had the right to redeem their units for cash at any time. When the market teetered on the brink of collapse in the ‘90s, investors jumped in to cash out as property values sank like stones. The funds, forced to try to sell their assets into a weakening market to raise money, were so desperate they asked regulators to let them halt the run on redemption. “Those were dark days for real estate,” said Edward Sonshine, CEO of RioCan REIT, at a panel discussion on the evolution of REITs during the RealREIT Real Estate Forum held September 23 in Toronto. The panel was moderated by Michael Brooks, former REALpac CEO, who played a pivotal role in leading the charge for market and regulatory transformation in Canada, which ultimately gave rise to the REIT vehicle. “We had no options, no buyers, no lenders and tenants were falling like ten pins. Funds were useless. REITs gave us a way to recapitalize and move forward at a time when no one trusted real estate companies, ” added Sonshine. “It was an incredible creative time, but we managed to pull off the creation of REITs with the backing of regulators,” added Patricia Koval, partner at Torys LLP, another respected architect of REITs in Canada. “One of the biggest challenges in those early days was gaining retail investor confidence.” “To begin with there was a high distrust level from the industry. A lot went into creating good governance,” says Tom Schwartz, president and CEO of CAPREIT. “There were many milestones. When the limited liability was lifted, for example, this was a big moment as we stopped being sidelined by institutional investors and became more sophisticated. In some ways we all grew up in the 2000s.”

1994 – 1998 Growth of Canadian REIT Industry — 1995 was first internalized manag REIT; 1996 – 1997 installment receipts used; 05/1998 market caps of REITs in Cana impacts sector and wide economy; 1999 Mergers and acquisitions: RioCan acquisition of US commercial real estate REIT (IPC/US REIT). 2001 new generation of open-ended REITs suspends dividends; 2004 Alberta Income Trust Liability Act; 2004 Trust Beneficiaries legislation; January 26, 2005, REITs made inclusive of the S&P composite index; 2006 – on the existing REITs and restructuring. REITs to maintain 90 per cent of their revenue from

2011 New Accounting — introduction of IFRS standards in Canada; 2013 Tax Amendme OCTOBER NOVEMBER 2013

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Some of the most significant changes have taken place in the last 13 years, once the public market’s comfort level with REITs was well established. The sector was also transformed by what many in the industry refer to as “The Halloween Massacre.” On October 31, 2006, the federal government shocked the invest-

Stable Underpinnings REITs must adhere to stringent leverage and financial reporting criteria, leading to steady cash distributions, conservative portfolio management and transparent communication with investors. These include: Conservative Leverage: The Declaration of Trust sets out a maximum debt capacity for the REIT. Professional Management: Investors benefit from professional management of the portfolio and the underlying properties – often a hybrid of asset management expertise and industry-specific operational expertise. Regulatory Requirements: Similar to any public company, REITs are required to comply with securities legislation and the rules of the applicable stock exchanges including those of continuous disclosure, insider trading and the sale of units. Board of Trustees: In keeping with the principles of good corporate governance, the Board of Trustees governs the operations of the REIT, approving key decisions such as change in management, acquisitions and dispositions, the assumption or granting of mortgages and the granting of options under an option plan. Steady Distributions: REITs are required to distribute virtually all distributable income to unit holders. Monthly or quarterly distributions are intended to increase overtime as the REIT and its profitability grow.

ment market by announcing legislation taxing income trusts. However, as evidence that the government still wanted to encourage investment in real estate, REITs were spared on the condition that they would derive at least 90 per cent of their revenue from property sources. REIT assets, for example, have tenants where income trusts do not. While the financial crisis in 2008 took a toll on the sector, it was surprisingly short lived. Fueled by investor confidence and low interest rates, Canadian REITs experienced an unprecedented boom that has continued into 2013. Concerns about the growing scarcity of quality assets, rising interest rates and global economic instability have entered the picture, but given their 20-year track record of resilience and steady returns through many cycles and changes, investors have gained a strong confidence level in REITs and the ability of their leadership to manage risk and maintain growth. This year, as the industry celebrates the 20th anniversary of REITs in Canada, REALpac was pleased to see their advocacy efforts pay off when Bill C-48, the Technical Tax Amendments Act, 2012 received Royal Assent on June 26, 2013. These legislative changes will enable the further expansion of an already strong investment vehicle. Perhaps Kovel summed up the outlook for REITs the best: “As an asset class, REITs have done very well. Good management, good framework, good governance and quality real estate assets will keep REITs moving and successful as we go forward.” b

Carolyn Lane is vice president of Membership, Marketing & Communications for Real Property Association of Canada, Toronto (www.realpac. ca). Carolyn can be reached at 416-6422700 ext. 223 or clane@realpac.ca

1997 first senior care ada at 4.5 billion. Largest REIT at $750 million (RioCan). 1998 – 2000 Technology bubble burst, Realfund for $814 million and Summit REIT acquires Avista REIT for $198 million. 2001 exclusive (i.e. redemption feature); 2002 – 2005 Limited Liability and S&P — 2003 Legacy REIT ement of a REIT (Realfund, followed by RioCan, CREIT and Summit REIT);

Liability Act. Manitoba, BC and Saskatchewan follow shortly thereafter. Quebec already had

2010 The “Halloween Massacre”— 10/31/2006 tax fairness plan – The Rise of the Sift. Impact

properties, pay 90 per cent of taxable income in dividends and are RRSP and RRIF eligible investments; nts —

07/26/2013 Bill C-48, the Technical Tax Amendments Act of 2012 received Royal Assent. building.ca

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LEGAL Sky High Reform to Condos “Smarter disclosure” will change the landscape of Ontario condominium development. By Jeffrey W. Lem and Odysseas Papadimitriou

Canada’s Public Policy Forum, the independent, not-for-profit organization that has been tasked with coordinating the Ontario Condominium Act Review, just released their Stage II Report setting forth the major themes that the government will be pursuing in its “comprehensive approach to reform.” Now, to those who have been following the condominium law reform movement, there really isn’t anything shockingly new about the Stage II Report themes, but for those who haven’t been privy to the growing juggernaut of the condominium law reform, the Stage II Report should bring home to condominium builders and developers some very real changes in how they are going to bring their products to market. First and foremost, the Stage II Report is calling for fairly radical changes to the disclosure process. Euphemistically referred to as “smarter disclosure,” the Stage II Report has a large number of recommendations, all under the rubric of “consumer protection,” that speak directly to the disclosure process. Some of these recommendations are arguably cosmetic. So, for instance, one of the recommendations calls for the creation of project-specific searchable websites where the disclosure statement and other relevant documents would be posted. Most developers already have these, and a teenager could upload the disclosure document in a searchable format in the time it takes to finish reading this article. A store on Westof the “smarter disclosure” recommendations calls for the standardAnother Street in Goderich, ization of disclosure statements across all condominiums so that unit boundarOnt.’s historic downtown before the and repair obligations, and insurance requirements are uniies, maintenance tornado hit (above), form across the province. The implications of a one-size-fits all declaration are the damage (right), beyond staggering for the condominium development industry, but the Stage II and in August 2013 (below) after town’s some concessions to commercial reality by allowing developReport didtheinclude rebuilding efforts. ers to “add one or more schedules imposing additional duties or obligations on the condo corporation or on specific unit owners.” Alas, this saving exception is important. The right to add schedules to alter the one-size-fits-all paradigm will be seized by all developers as a way to have their constating documentation suit their projects. Indeed, the proposed reform, as currently drafted, will do nothing other than convert the drafting of declarations into the drafting of countermanding schedules -- what seems like a dramatic paradigm shifting reform might be nothing more than a word processing exercise. Some of the recommendations, however, reflect an absolute sea-change in the condominium development world. Many condo projects include amenities as powerful selling features of the building, such as one or more guest suites; exercise facilities; party or event rooms; lockers; bike storage area, etc. Almost all modern OCTOBER NOVEMBER 2013

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condominiums are structured so that these amenities are sold (or sometimes leased) back to the corporation after turnover, with payment deferred for five, 10 or even more years. This is almost always fully disclosed in the declarations and disclosure statements, and this approach to condominium pricing was approved by the Court of Appeal in the Lexington on the Green case [Lexington on the Green In. v. Toronto Standard Condominium Corporation No. 1930, 2010 CarswellOnt 8602]. The Stage II Report views the practice of selling or leasing back such assets as an unnecessary source of tension between buyers and developers and recommends a prohibition on developers selling or leasing back to the condominium corporation amenities and assets. Instead, the Stage II Report recommends that all amenities and assets will need to be included in the condominium’s common elements, such as: recreational amenities; guest suites, superintendents’ suite, manager’s office or any recreation administrator’s office; any lobby, stairwell, service or storage room/area; and any heating, cooling, plumbing, drainage, mechanical, ventilation and/or servicing equipment or other facilities needed for the proper functioning and day-to-day operations of the property (except certain prescribed “green energy equipment”). Almost every single condominium corporation that has come on stream recently has included some assets to be purchased by the condominium corporation from the developer. This law reform will radically change the way that condominiums are marketed. Not all developers will lament the restriction against sale backs and lease backs: some feel they distort pricing so that it makes it hard for customers to compare apples to apples, so to speak. Other developers argue that the practice is so well engrained in industry practice and so pervasive in the marketing of condominiums that consumers already reflect the cost of the acquisition of such assets in the cost of ownership and will

actually be confused by the sudden unit price increases to pay for the resulting expansion of common elements. Although not discussed in the Stage II Report, these authors fear that many developers will simply refuse to develop some amenities if they are not allowed to sell or lease them back to the corporations after turnover. This was largely the debate surrounding green energy equipment (environmentally friendly technology which will ultimately benefit unit owners and the environment, but which was expensive to install up front). Some progressive developers were willing to build this technology into their buildings, but only if they could be sure that the corporations would eventually be required to pay for the technology. If the law required the developers to include green energy equipment in the common elements (rather than selling it back to the condominium over time), that condominium project would have become un-competitively priced. Since developers are in business to make a profit, many would have been inclined to replace the green energy equipment with initially cheaper, but less environmentally-friendly, HVAC technology. Likewise, we fear that, if some amenities cannot be sold back to the corporation after turnover, such amenities would suffer the same fate as green energy equipment (but for its carve-out

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.

from the proposed restriction). Developers might simply not provide any such amenities or, more likely, provide pared down amenities in lieu of the more premium ones that they would otherwise have provided. The Stage II Report provides a plethora of additional recommendations that will impact developers, including amendments to the calculation of the initial reserve fund contribution in the first year budget (which amendments will almost certainly increase those initial reserve funds to reflect a truer cost of condominium ownership), as well as clarification of what will constitute a “material change” sufficient to trigger purchasers’ rescission rights. Developers who have not been following the condominium law reform process should pay attention to the changes coming down the pike that might really change their business worlds. b

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DESIGNING sustainable solutions for our communities

SUBURBS AS HUBURBS

Is transit-oriented development in the suburbs of major Canadian cities on the rails at last? By Rhys Phillips

he concept of transit-oriented development (TOD) has exploded over the last decade as the driving development principle for Canadian cities. Like the proverbial “instant star” in the entertainment industry who actually toiled for years before recognition, TOD has become an overnight success for politicians and planners after decades of more lip service than substance. Although transit-based development is now taking flight, Adrien Byrne, director of communications for the indusOCTOBER NOVEMBER 2013

try-backed Urban Development Institute of B.C. says the myth of “build transit and rational development will follow” has as often as not proven more myth than real. Considerable research has even demonstrated that transit investment without proper land use policies only increases urban sprawl by making development out past the last stop more inviting. There are, however, current Canadian examples where urban planners and politicians seem to understand that transit and land use planning must go hand in hand if transformative transit-oriented development is the objective. For example Calgary, Canada’s “super sprawl” city, has been relatively aggressive in developing LRT transit since the 1980s and has this year approved an ambitious 35 year transit expansion plan. A well-constructed TOD policy is and will continue to guide transformation from a uni-centred city form into one with multiple if smaller urban centres linked by transit. Back east, the City of Vaughan north of Toronto — which any visit will confirm is currently a bleak, car-congested “edge city” landscape — is working collaboratively to ensure that the TTC subway extension into the new Vaughan Metropolitan Centre will create a transit hub anchoring a dynamic, mixeduse, destination urban (and urbane) centre with linked sub-villages. Calgary: From Sprawl to Poli-centric Urban Form Many Canadians assume Naheed Nenshi’s election as mayor of Calgary in 2010 marked a radical shift for what was the country’s city of urban sprawl. Certainly, Nenshi has given national voice to the issue of transit infrastructure, telling The Globe and Mail in March 2013, “Canada remains the only industrialized country building.ca

Annual congestion costs for the country as a whole approach $15 billion, nearly one per cent of GDP (Source: Coyne 2011).

that does not have a permanent, predictable role for the federal government in providing transit.” Yet Calgary has a long history of forward thinking on rapid transit starting from the 1960s and supported by a decision not to slice freeways into and through the heart of the city. After a period with dedicated bus lanes and Bus Rapid Transit (BRT) a decision was made in 1976 to introduce light rail including a free-fare zone area in the downtown and traintimed traffic lights for the surface line through the centre. By 1987, CTrain’s two primary lines were in place and subsequently significant extensions pushed both lines out to the south, northwest and northeast. A major new

Two years later, work was mandated on a long-term visison for the next 30 years. The result, titled Route Ahead and approved by council on March 4, 2013, is a comprehensive $13 billion transit expansion strategy that will result in two new LRT lines to the southeast and up through the centre of the north part of the city. A yet-to-be-fully determined mix of bus transitways, BRT routes and perhaps additional LRT lines will establish an integrated grid interconnecting communities outside the core. Council had already approved $300 million in January for the SETWAY, a dedicated BRT that will eventually be converted to the southeast LRT as funding allows, while work has started on determining the best route for the north central LRT. The CTP and Route Ahead explicitly reference but do not spell out the objective of transforming Calgary’s urban form. The reason is simple: the integration of land use and transit BELOW: University City is an emerging multithat Byrne describes as so crucial has already been compretower condo project hensively articulated in the City’s Transit Oriented Policy, by Knightsbridge and Metropia Urban last amended in 2005. The principles in that document are Landscapes at the already informing the redevelopment of many existing LRT Brentwood station of Calgary’s LRT. stations as well as use around new stations proposed in ex2008

Photos courtesy of Knightsbridge

LRT Station

West line opened in December 2012. To insure appropriate development to accommodate another 1.3 million inhabitants over the next 60 years, council initiated in 2007 an integrated land use and transportation process called Plan It Calgary. The objective, says Ryan Hall of the city’s planning department, is to ensure a 50/50 split between intensification and greenfield development while moving from a single to multi-urban centres. The result by 2009 was both a new Municipal Development Plan and the Calgary Transportation Plan (CTP). The intent of the latter was to provide “a long-term plan for all transportation in Calgary, relying on expanded and more attractive transit service to achieve a more sustainable city.”

2013

LRT Station

isting neighbourhoods. Eventually, the policy will guide future development in greenfield locations as well. Many of the first type of stations currently exist in rather inhospitable commercial and industrial brownfields. While the CMHC has already called the 2000-2011 development at the Bridges “an excellent example of a large scale transit-oriented infill development,” progress has been slower than hoped. “In the past,” Hall says, “the idea of build the infrastructure and appropriate development will follow dominated; but despite encouragement, developers’ designs ended up looking like the status quo.” But, he continues, extensive community and industry consultation with visioning and 3D conceptual planning is taking place for stations such as Chinook, Banff Trail, Anderson, Sunalta and Westbrook. And this is beginning to bear fruit. The Brentwood Station on the NW Line, for example, services the University of Calgary and its research park, the Southern Alberta Institute of Technology (SAIT), single homes, a rundown shopping centre and large parking lots slashed by a freebuilding.ca

The average GTA commuter spends 82 minutes trying to get to and from work every day. Th

In Ontario, the insight and tools handed to politicians and planners by New Urbanism and TOD advocates like Peter Calthorpe was like — until recently — providing thimbles to hapless Titanic passengers. Markham, Ont.’s much-celebrated Cornell Village seemed more the exception than the rule as municipal councils continued to facilitate suburban sprawl. The result was increased congestion as emerging denser suburban form relied increasingly on cars with transportation infrastructure becoming ever smaller in the rear view mirror. By 2008, Ontario’s transit super agency Metrolinx published a detailed analysis of both the cause and economic cost of gridlock. It found that despite three decades of TOD talk, the number of car trips between 1986 and 2006 had grown by 56 per cent while population grew only 45 per cent. Reasons for this imbalance included years of under-investment, disconnected and varied transit services and the inefficient use of the existing road and highway system. In addition, “[d]ependence on cars is in part a result of how communities have been built in the GTHA. Lower density, dispersed development has resulted in a pattern of travel that is less and less focused on downtowns and other core urban areas, and hence more difficult to serve by transit.” And the cost to the southern Ontario economy, Metrolinx’s study reported, was as high as $6 billion per year. In 2012, an independent follow-up study by the CD Howe Institute expanded the number of quantifiable congestion costs reOCTOBER NOVEMBER 2013

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Vaughan: From Suburban Wasteland to Urban Transit Hub

Read an expanded version of this story at building.ca, which includes an analysis of an ambitious transit-based transformation currently underway in Coquitlam, B.C.

sulting in a new annual cost estimate of between $7.5 and $11 billion for the GTHA. Not factored into either report are the significant hidden public service costs of suburban growth patterns (Building, June/July, 2010). Whether one considers it closing the barn door after the horse has bolted or a case of better late than never, the provincial government’s 2006 Growth Plan for the Greater Golden Horseshoe mandates future development will be focused on “mixed-use, transit-supportive, cycling- and pedestrian-friendly communities.” This was supported by the imposition of a green belt around Toronto/Hamilton to choke off sprawl coupled with the government’s Move Ontario 2020 transit plan announced a year later. Metrolinx followed in 2008 with its own 25 year, $50 billion (in 2008 dollars) Regional Transportation Plan, now known as The Big Move. Its first articulated strategy focuses on constructing a comprehensive regional rapid transit network but with the crucial recognition that “the critical link between land use planning and transportation planning” must be understood and implemented. Ontario’s minority government is currently struggling to identify long term funding sources amenable to a fickle public that believes in having its cake (no new taxes) and eating it too (extensive, efficient rapid transit services). But there is evidence of progress. The extension of the TTC’s Yonge-University-Spadina subway line into the heart of the planned Vaughan Metropolitan Centre (VMC) is one of The Big Move’s big-ticket items. In response, Vaughan is aggressively pursuing appropriate land-use policies and plans for a very urban VMC but also with a finer grained transit system integrating the Centre with a series of planned mixed-use, transit-based satellite communities. The VMC is the centerpiece of Vaughan’s ambitious plans. A massive 442-acre site of largely low-scale commercial brownfields, it is divided into four quadrants by the east/west Highway 7 and north/south Jane Street arteries and is tucked into the elbow formed by Highways 400 to the west and 407 to the south. A comprehensive mixed-use secondary plan was approved in 2008, revised last January and an urban design review panel is in place. But, as John MacKenzie, Commissioner of Planning for Vaughan says, the document continues to evolve as major implementation work progresses. By 2031, the VMC’s current dreary, “nowhere” low-scale commercial landscape is planned to be an urban showcase with 25,000 people living in high and mid-rise residential towers set on street-oriented podiums. Integrated into this diverse, dense and design-oriented urban setting will be at least 11,500 employed with room to grow in business, retail and hospitality as well as cultural and educational institutions. Black Creek will have evolved from a mean ditch to a clean urban waterway while an extensive and integrated system of parks, squares and pedestrian plazas will be in place to facilitate walking and a truly public realm of engagement.

Jon

way. Based on a renewal plan developed with George Dark of Urban Strategies, Knightsbridge and Metropia Urban Landscapes is completing the first two of five mixed-use condominium towers next to the station. “It took some work to get the local community on side,” says Knightsbridge CEO Joe Starkman, “but eventually the associations endorsed the project.” Such developments, he continues, must be mixed-use with a supporting employment base. Fortunately Brentwood has the University, research park, SAIT, retail outlets, two major hospitals and, coming soon, offices. With many “creative jobs” nearby and, he says, the Millennial cohort more open to condo living, the colourful new towers have attracted buyers wishing to live and work in the emerging “village.” Calgary has established ambitious goals to transform its 20th century form — one that Hall bluntly states is not economically sustainable — into a series of vibrant interconnected urban villages where using public transit simply makes more sense.

e: number will grow to 109 minutes if the status quo is maintained. (Sourc

Highway 400

VIVA Rapid Bus Transit

Bus Terminal Highway 7

TTC Subway

Pedestrian Tunnel

g lle

Images courtesy of SmartCentres and the Toronto Transit Commission.

)

Furthest along is 100 acres of the northwest quadrant owned by SmartCentres. Better known for big box power centres, the company purchased the land 15 years ago to build a traditional shopping centre, with a Wal-Mart and Lowes soon following. But thankfully, times are changing. “For some time, there was talk of putting in place a higher order transit system” says Paula Bustard, SmartCentres’ senior director for land planning. “Such systems are often spoken of but never come to pass. But the expansion of the subway line has actually proceeded to implementation and it really constituted a game changer in terms of the most appropriate usability of these lands.” Long-term plans had to be re-thought and what emerged, with the help of Urban Strategies, was an initial holistic and comprehensive master plan for the hundred acres. “One of the defining things we constantly stressed,” Bustard continues, “was that instead of a block-by-block plan focusing on very small parcels of land, we had to take advantage of the fact that we had 100 acres centred around the emerging rapid transit hub. Such an opportunity for large scale planning and transformation seldom exists in urban centres like Toronto.” Diamond Schmitt Architects along with Montréal landscape architect Claude Cormier were engaged to hone the most appropriate street grid with block sizes and configurations creating, she says “a place of identity where people would really like to be.” This included putting in place as the defining feature an eight-acre central park that ensures a strong, open green space to make the new place different from other cores emerging in the region. Both the City’s Secondary Plan and SmartCentres’ master plan are configured around the new subway station that

Vaughan’s future downtown, the Vaughan Metropolitan Centre (above), includes multiuse office towers, residences, and urban squares over 442 acres, anchored by several transit stations including the northern terminus of the TTC subway expansion by Arup Canada Inc. with Grimshaw Architects (below).

building.ca

will function at the heart of the latter’s lands. In addition, two stations for the VIVA BRT line along Highway 7 will abut the south side of the project. Just to the north of the subway station will be the York Region Bus terminal. SmartCentres, says Bustard, rejected York region’s first proposal for an interim station, “as it would lack the aesthetics to act as a catalyst for development.” As a result, Diamond Schmitt has also designed a state-of-the-art permanent terminal to be connected to the subway station by an underground all-weather tunnel, creating

More than two million automobile trips are made during the peak hours each morning in the GTA. That number is forecasted to reach three million by 2031, with an average vehicle holding 1.2 people. (Source: Jones Lang LaSalle)

a VIVA/subway/terminal transportation hub. The developer and the Region are working to align exits from Highway 400 into the west side of the site given the VMC’s unique positioning within the region’s highway system and the fact that cars are not about to disappear. Going against the problematic usual practice of first condo towers with a hope and a prayer that commercial development with employment will follow, Donald Schmitt’s 16-storey, 370,000-sq.-ft. KPMG office tower with retail at grade will be in the ground next January, ready to open with (and directly into) the subway station. “It is going to be a great catalyst and the positioning of the building, essentially at ‘centre ice’ of the green commons and linked to the subway, the regional bus terminal and VIVA, will make it a regional showcase,” Bustard says. SmartCentres is not a residential developer but it will work with other development partners to ensure a mixeduse, high-density urban development. The master plan currently shows roughly 16 million square feet of built space with 10 million dedicated to residential. Nearby residential is already under construction by the Cortel Group in the VMC’s northeast quadrant. Their Expo City condo project,

says MacKenzie, “follows the secondary plan’s objective of creating real streets defining manageable urban blocks.” A couple of VIVA stops to the west on Highway 7, Liberty Developments’ Centre Square includes two residential towers on podiums (by Kirkor Architects) providing over 250,000 square feet of office and retail space. “Liberty also wants to do a similar urban-type centre around the co-located Concorde GO station and VIVA BRT stop, an area undergoing an intensification master plan,” says MacKenzie. The envisaged Concord GO Centre will be a smaller local urban centre incorporating a 400-metre radius of the intersection of the rail line and Highway 7. It is one of eight such potential urban villages identified in the Vaughan Official Plan 2010 as requiring Secondary Plans. “Developers,” says MacKenzie, “are picking up on transit investment and are coming forward with proposals that try to leverage advantages from these investments.” To facilitate this process, and unlike in the past, the City has put in place from the outset a process to ensure collaboration. The politicians, developers and various provincial agencies, he explains, operate within a governing structure that brings all key actors together. “We have a joint

2013

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coordinating committee called the Vaughan VMC Implementation Committee that involves provincial ADMs and Director level officials within the different agencies that have a role to play here,” says MacKenzie. Bustard agrees. “On the overall infrastructure and vision there is a lot of co-operation under the City of Vaughan’s highly successful and perhaps unique VMC subcommittee that is very well attended by all the landowners.” A willingness to co-operate and collaborate on more compact, multi-use urban form centred on transit, MacKenzie says, is also being driven by a realistic assessment of the finite supply of land. At the same time, most regional roads are operating at capacity, which makes increasing nodal splits difficult without denser development.

Build green with us

Of course, the future is never a given. One wonders why Vaughan chose to build its striking new city hall away from the VMC (Building, February-March 2012). Many of the revisions to the Secondary Plan last February saw “shall” changed to “should.” And the province seems far from securing a funding formula for its ambitious transit investment. It will take at least two decades to see if Vaughan can bring about a fundamental shift toward becoming a viable and memorable urban centre in its own right. Down the Road…and Rail The imperative to transform urban forms are compelling given mounting negative fiscal implications of past patterns of growth mixed with mounting and costly traffic congestion and the evolving role of attractive “city states” in the new creative economies. On the plus side, the development industry is slowly coming on side, some key politicians are grasping the need for change and urban planners may be on the verge of seriously re-inventing their profession on sounder practices. On the downside, there is a lack of long-term infrastructure investment strategies, tight prescriptive regulations by provinces and cities are missing, and our largely suburban population has limited understanding and interest in the forces at play other than their tax rate. What happens to our city/ suburb form over the next 20 years is likely to determine the quality of city life and the sustainability on all levels of our economy b

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Running on The high costs of old gas station remediation are a constant thorn in the industry’s side

mit for demolition, development, or rezoning, the MOE gets notification. By Camilla Cornell “That’s one powerful trigger that we have in the law,” says McCammon. The bandoned gas station sites have long been “the poster child of brownfields,” says Alan McCammon, manager of brownfields and remediation assurMOE follows up with a letter to the staance for British Columbia’s Ministry of the Environment (MOE). Environmental tion owner requiring an environmental risk assessment. Owners of highconsultants estimate that approximately 90 per cent of gas stations built prior to risk sites must take steps to clean them 1970 are contaminated. Given that cleanup costs for gas stations can range from up, but “if it’s not high risk, we don’t $100,000 to several million dollars, and land values (particularly in rural areas) pursue it,” says McCammon. Given can be as low as $25,000 per hectare, the sites are often left to languish, fenced and full of weeds, for decades. “Many owners prefer to keep the MOE’s limited resources, “we can their heads down and just pay the property tax,” rather than only afford to chase, prod, push, direct and manage files go through the expense of cleaning them up, says Barbara that are in the high-risk category.” Daly, brownfields co-ordinator for the City of Edmonton. Last year the B.C. MOE upped the ante even further. The Typically the provincial ministries of the environment original legislation dealing with service stations dated from have the authority to regulate gas station clean up, as opthe 1990s and imposed no time frame on owners to get risk posed to the feds, says McCammon. There are, he says, pros assessments done. Not surprisingly, most simply ignored and cons to that system. “Presumably you get a made-inthe requirement unless land values were high enough to waryour-province approach, but for multinational companies rant remediation and redevelopment. Now, the MOE stipulike big oil retailers, they have to puzzle through a different lates that risk assessments must be launched within a year set of rules across the provinces,” says McCammon. “It’s a of a service station closing. In the case of ongoing concerns, conundrum for them.” service station owners seeking municipal approvals are blocked until they’ve reached specified milestones in the asThe regulatory approach sessment and cleanup of the property. British Columbia boasts some of the strictest legislation in the country regarding gas station cleanup. B.C.’s MOE Flaws in the system Such processes may work well with service centres owned by tracks service centre sites closely. When a service station is big oil companies, but as Markham, Ont.,-based petroleum shutting down, or when the owner needs a municipal per-

AUGUST SEPTEMBER OCTOBER NOVEMBER 2013

building.ca

industry consultant Al Durand points out, smaller ‘ma-andpa’ service station owners often don’t have the money to remediate. “The MOE can write all the orders they want, if people don’t have the ability to pay, it’s not going to happen,” he says. Even worse, regulators face the possibility that if they push too hard for cleanup, owners of unused sites will simply quit paying their taxes, forcing the local government to take ownership of the site. Says Durand: “They’ve just inherited a huge liability.” Redevelopment of those sites can be a hard sell as well. “You can see why,” says McCammon. “We have rules on liability that are totally conservative from the position of the public purse. We’re going to go through the land title from the beginning of history and we’re going to find someone who has had a finger on this site who is going to pay for the cleanup.” Faced with the possibility of future liabilities, developers aren’t chomping at the bit to acquire and redevelop a former contaminated property. Says McCammon: “That’s the downside of having that spelled out so clearly.”

al assessment; $80,000 for a Phase 2 assessment; and up to $200,000 for remediation expenses. How successful has the task force been? Of the original 50 stations in Edmonton, 25 have been sold and redeveloped, 12 are in long-term remediation and the rest “I have spotty information on,” says Daly. A few more have come out of the woodwork that weren’t on the original list. “You can’t necessarily give the city full credit,” says Daly. “It could have been just good timing or the sudden attention. But our grant program has helped five projects so far and we have at least that many in the application stage, so there’s lots of uptake.”

The state of the technology René de Vries, a Toronto-based environmental geoscientist and president of Canadian Projects Group Inc., has been dealing with contaminated service station sites for 25 years. The remediation of choice was, and still is, excavation of contaminated soil and landfilling, which he estiExtending a carrot The City of Edmonton’s approach to managing abandoned mates occurs in about 90 per cent of these projects. The gas station sites has focused more on extending a carrot than reasons are simple, says de Vries: a) it’s certain; b) it often wielding a stick. After years of phone calls to councillors fits well with construction plans that require excavation; about the problem, the city developed a targeted Service Sta- and c) it’s cheap. Certainly other solutions are available, including biotion Task Force in 2010. First, the team inventoried the city’s abandoned gas station sites, tracking them down through remediation, vapour barriers, hard and soft caps and vapour business licenses, tax rolls and various planning records. extraction processes to name just a few. But “we can still dig They came up with a list of 50. But when Daly tried to find out and dump soil, including transportation, in Ontario for $40 what was preventing owners from moving forward with as- per tonne,” says de Vries. “And to come up with any alternasessment and cleanup, they ignored her calls. The prevailing tive for that price, be it in situ or ex situ, is very difficult.” In jurisdictions that have mandated that contaminated soil can’t attitude, she says: “Keep your head be disposed of in landfills (Québec for one), you at least see “extensive recycling of down. Don’t call that lady from the city soil going on,” says de Vries. In fact, Québec alone lays claim to 27 soil washing faback.” Undaunted, Daly hired a comcilities, but most provinces have no such stipulation. munications consultant who had betAbout four years ago, de Vries implemented a soil washing pilot project at ter luck and compiled a summary rethe behest of Waterfront Toronto. But he admits, the price tag was about $50 to port detailing barriers to cleanup, the $70 per tonne of soil. “It requires an owner or developer to have an altruistic sorts of incentives that would be most view,” he says. “You won’t find that many altruistic companies. It’s always the likely to work and the services and inbuck that rules.” formation needed. That became the basis for the city’s strategy. In praise of risk assessment Daly became the single point of conIn Durand’s opinion, the single most valuable and cost-effective tool when dealtact, offering service station owners ing with hydrocarbons is the risk assessment, which has become much more support tailored to their specific propwidely used over the past few decades. While Ontario is still finessing its aperty, with “no surprises.” She reaches proach, other provinces have a long history. “Atlantic Canada has been using out to various city departments as the RBCA (Risk Based Protective Action) approach for a very long time,” says needed, acting as a liaison and ensuring that “the right hand knows what Durand. Given their lower land values, “they didn’t have redevelopment going the left hand is doing.” And she tries to on so they needed a tool to assess the sites and redevelop them cost-effectively.” work with developers and environRisk assessment methods have greatly improved over mental consultants who may be able the last decade, Durand contends, and include modelling to persuade service station owners to tools that predict what will happen to a site over time. “The This article originally move forward. Daly can also direct inmechanisms that are available now in order to do risk asappeared in terested owners to a potent tool: a City sessments are becoming more predictable and also acEnvironmental of Edmonton grant program offering cepted by financial institutions and regulators,” he says. Consultant. www. up to $5,000 for a Phase 1 environment“They want definitive answers.” b enviro-consultant.ca building.ca

By Peter Sobchak

here are few building types that come as loaded with deep emotional resonance as schools, particularly elementary and secondary schools. We all went to school, and for many of us it was in those buildings that we had the best times of our lives. So it is no surprise that few events are met with such volatile reactions in a neighbourhood as the closing of a school. But this is a reality many municipalities are facing today. Due to declining student enrolment — Ontario elementary schools decreased by 15 per cent between 1997 and 2009, and secondary schools by 14 per cent between 2002 and 2009 — and the budget constraints that come with it, many Ontario school boards are consolidating and unloading properties to maximize revenue and access provincial funding for new schools, as well as to obtain capital grants to renovate older facilities. On the front lines of this is the Toronto District School Board (TDSB). With the amalgamation of seven former boards in 1998, the TDSB became the fourth largest public school board in North America, the largest in Canada and the owner of the largest real estate portfolio in the City with 600 schools serving more than 250,000 students each year. Yet because of declining enrolment, the TDSB does not receive sufficient funding through the Ministry of Education’s enrolment-based funding formula to renew, renovate and improve its aging existing school buildings or build new schools or additions in growing neighbourhoods. So in an effort to accelerate this “disposal” and revenue generation process, in 2008 the TDSB created the Toronto Lands Corporation (TLC), a real estate subsidiary with a mandate to sell surplus land and squeeze more revenue out of dozens of school sites that are leased to community groups and private academies. Not surprisingly, that initiative met stiff resistance from parent and community groups concerned that private developers would set their sights on valuable land for less-than-ideal intentions. The TLC portfolio currently includes 131 properties (not all properties are closed surplus schools: they also include administrative buildings and vacant lands), and since their inception have sold 58 properties generating more than $338 million dollars for the TDSB. “Close to 60 per cent of those properties were sold to property developers,” says Shirley Hoy, TLC’s CEO. “The remaining 40 per cent were sold to OCTOBER NOVEMBER 2013

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other school boards, the City of Toronto and provincial ministries who are given first opportunity to buy school property before it is offered to the private sector.” If the City of Toronto, the three other school boards and a list of public agencies and governments don’t submit an offer (they have 90 days to do so), the TLC is authorized to list the property on the open market.

TOP AND FAR LEFT:

Formerly an elementary school, the new Artscape Youngplace will provide production, rehearsal and exhibition

Photos by Gregory Edwards

Keep it local Without question, “school closures can be politically charged and have significant social and physical neighbourhood impacts, especially if properties are expected to be sold on the open market,” says Simona Rasanu in a paper titled The Acquisition and Redevelopment of Surplus Schools in Toronto, Ontario. But the reality (and something many neighbourhoods don’t understand), is that “school boards and municipalities are separate agencies in Ontario that often make independent decisions.” So while the City faces public and political pressure to keep sites in public ownership, they have only bought 10 between 1998 and December 2011, which leaves many up for grabs. Some neighbourhoods not happy with that scenario therefore take it upon themselves to more forcefully dictate the future of their beloved school, which is exactly what happened in the West Queen West neighbourhood when their Shaw Street School, a Edwardian-era heritage building originally constructed in 1914, was declared surplus in 2001. With the school’s operations transferred to the adjacent Givins/Shaw Jr. Public School, the Shaw Street School was vacant for nearly a decade. In 2006, responding to significant pressure exerted by the community, TDSB hired Artscape to conduct a feasibility study of its potential reuse. When the study demonstrated strong community support for repurposing the site as a centre for arts and community programming, Artscape purchased the 75,000-sq.-ft. school in December 2010 and began a multi-year, $17.6 million renovation to turn it into a cultural hub that will provide production, rehearsal and exhibition space for individual artists and organizations. Artscape Youngplace (taking its name from lead donor the Michael Young Family Foundation) is the latest in a portfolio that includes Artscape Wychwood Barns, Artscape Gibraltar Point, Artscape Distillery Studios, the Parkdale Arts and Cultural Centre, and Daniels Spectrum, among other projects (Building, October/November 2010 and April/May 2013). “But because of the scale, the age of the building and the fact that it is zoned non-residential but is in middle of a residential community, this is really in many ways a first for Artscape,” says Celia Smith, executive vice-president of Artscape. The first step was to re-zone it, to which there was no opposition (undoubtedly because all political parties involved are under pressure to “save a school” in some fashion). In truth, opposition to for-profit development of the property was so fierce from the community that it would probably dissuade many building.ca

space for individual artists and organizations in former classrooms. LEFT:

The 9,350 square

feet of hallway and stairwell space over three floors will be used as gallery space.

Shaw Street School Space Useage Showcase for Artistic Creation Learning Labs Art & Design Studios Creation Labs Social Areas

Basement

Ground Floor

Second Floor

Third Floor OCTOBER NOVEMBER 2013

To do anything on this scale would require you to have a “big story.” A small selfinterested story won’t work. A big story that has multiple public benefits and engages the community to support what you’re doing. — Celia Smith

private development companies from trying to buy the property. Coupled with the fact that the Shaw Street School is in an area already steeped in an arts environment, and Artscape has had a presence in the West Queen West area for decades, in many ways the conditions couldn’t have been better for Artscape.

No longer evictees

However just because Artscape projects are built with the support of local communities, they are not what might be called “blue-sky” exercises. Artscape projects must function as self-sustaining social enterprises. In Artscape’s model, funds raised from public and private sources are leveraged to make the one-time capital investment required to open a new project’s doors to the public. Once operational, Artscape facilities are sustained through planned revenues generated from below-market rents, memberships and user fees. Long-term debt is kept to a minimum and ongoing operating subsidies are not required. Youngplace is unique in that while this is the second Artscape project that offers ownership opportunities — the live-work condo Artscape Triangle Lofts is the first — this is their first commercial condo. They’ve sold 25 per cent of the space (both atand below-market) to professional artists who will use the space as their studios. Artscape achieves its below-market purchase price on ownership studios by providing a 25 per cent no-interest, payment-free second mortgage. The rest is rented below-market to artists and community organizations through two occupancy models: long-term studio rentals and a short-term space rental program called Flex Studios, which offers a pay-as-you-go space-sharing program with hourly rates. In many ways, the occupancy models “turn the idea of artists as victims of gentrification on its head, instead making them owners in this neighbourhood,” says Smith. Extensive renovations by Teeple Architects and The Dalton Company were done to the century-old building, included upgrading all mechanical, electrical and plumbing systems; replacing all windows with double-paned, new woodframe windows; installing a new roof; making substantial structural reinforcements; restoring the exterior sandstone; landscaping; and ensuring the entire site is fully accessible with the addition of a new elevator. When finished later this fall, the building will have approximately 30 tenants and hundreds of bodies passing through its halls every day, just like it used to. Decades ago, schools in neighbourhoods like this one were overflowing with children from immigrant families. But times have changed — many newcomer families have since moved to the suburbs, and many homes in this area bought by or rented to DINKS (dual-income, no kids) have not picked up the slack. But just because the city’s Official Plan calls for increased population growth in the core, that doesn’t mean we can suddenly unlock the doors of mothballed schools, as various groups have suggested. Yet a neighbourhood’s personality is defined by its buildings, and schools are by their very nature in the heart of a community, so to tear one down is to rip out the heart of that community. If handled correctly, converting an empty school into one that features public-serving and community-enhancing functions — arts, childcare, parenting centres, indoor recreation, seniors’ activities, after-school activity centres for teens, community education and Adult ESL classes — can not only turn a building that is in the heart of a community back into being the heart of that community, it is also the ultimate form of recycling. b building.ca

ApplestoApples s builders, architects and owners know, energy simulation is used to predict performance of new buildings as compared to local building codes and industry standards like the Canadian Model National Energy Code for Buildings. But with actual performance becoming more trusted (for obvious reasons) than predicted performance, how do you know what ‘normal’ performance is for the building type in question? On redevelopment projects, energy benchmarking is key, allowing builders and owners to track and report improvements in energy consumption to compete with neighbouring sites. Equipped with the right data, builders and real estate owners can get more from high-performing assets, differentiating their building from others, attracting and retaining tenants, and increasing their asset’s value. Energy Normalization Relative building energy efficiency performance is determined through energy benchmarking. Through this process, a facility’s energy use is normalized (adjusted to align with standard weather and occupancy) and compared to its peers. Normalization is typically done in one of two ways: using either industry-wide analysis tools or custom normalization. It will come as no surprise that a building’s size is the greatest variable impacting its energy use. To compare buildings regardless of size, a building’s Energy Use Intensity (EUI) measures energy use per unit area. It is often reported in kilowatt-hours of energy per square foot of building gross floor area (kWh/ft²). However, this does not always allow for an “apples to apples” comparison. Weather, occupant density, vacancy, hours of use, and facility type all influence a building’s EUI, and most of these cannot be controlled by a facility owner or manager. (Imagine telling an accounting firm during tax season they must leave the office by 5 p.m.) Unless these variables are addressed, EUI results can be misleading when comparing the performance of multiple buildings. To adjust for uncontrollable factors, we use a process commonly called “normalization,” the goal of which is to define a typical condition for each uncontrollable factor and adjust the energy use intensity of each benchmarked facility accordingly. Consider a facility in Edmonton which is benchmarked against a facility in more temperate Vancouver. Given iden-

How energy benchmarking can give real estate asset values a boost, both today and into the future.

tical system performance, the Edmonton facility will have a higher EUI because the colder climate requires more heating to keep occupants comfortable. For example, in 2012, Vancouver experienced 50 per cent fewer “heating degree days” (a common measure of how cold a climate is) than Edmonton. If By Eric Chisholm the Vancouver climate defined the typical weather condition, then normalizing the Edmonton facility’s energy use might cause its declared heating energy to decrease by 50 per cent. At this point, the energy performance of both facilities can be compared side by side. Vacancy normalization is not as well understood as weather normalization, but the process is similar. First, one must determine how much energy the building occupants use. Then one must define the typical vacancy condition, and, finally, apply a normalization adjustment. This may be highly relevant if your redevelopment project is expected to boost occupancy significantly. Take, for example, a facility which is currently 50 per cent vacant; redevelopment is expected to reduce vacancy to 10 per cent. To compare the energy performance of this building before and after redevelopment, you need to normalize for vacancy. Industry-Wide Benchmarking Programs The need for normalization without the challenges of a custom program has caused industry-wide benchmarking programs to arise. The two most notable used in Canada today are Energy Star’s Portfolio Manager and REALpac’s Energy Benchmarking Program. Energy Star Portfolio Manager is a tool that incorporates a normalization process. In calculating a facility’s score from 1 to 100, it shows where that facility falls on a bell curve of energy performance. A score of 75, for example, implies that a facility’s performance is in the top 25th percentile. The 1 to 100 score adjusts for common uncontrollable factors and is easy to communicate. This widely accepted normalization method is accessible to the public and is based on a statistical regression analysis of key independent variables considered across thousands of buildings. What’s more, the tool already includes a building.ca

Hypotheitical office building data

large data set of peer energy use so individual facilities don’t need to collect and analyze SIZE data for anyone else in order to Office Space 2 benchmark their own perform200,000 ft ance. And, since the required Enclosed parking: 2 level of input detail is flexible 50,000 ft (users can apply defaults if LOCATION exact occupancy or operating Edmonton hours are not known), users OCCUPANTS can refine their score over time 800 instead of committing to a sigCOMPUTERS nificant upfront data collection 800 investment. Portfolio Manager has a TarOCCUPANCY get Finder module which de65 hours per week velopers can use to set performVACANCY ance expectations early on, 10% ensuring the asset value is apELECTRICITY USE IN 2009 propriately strengthened. A (Jan 1 to Dec 31) new building’s benchmarking 4,000,000 kWh module can be used by designNATURAL GAS USE IN 2009 ers and developers to predict (Jan 1 to Dec 31) how a proposed building will 2,500,000 kWh stack up against existing ones nearby. The new module relies on building energy simulation model results created during Energy use based the design stage. For these reaon different systems sons, Portfolio Manager has the ENERGY USE INTENSITY greatest market penetration: (not normalized) Programs like LEED for Exist33 kWh/ft ing Buildings and Toronto’s CUSTOM ENERGY USE INTENSITY (normalized) Civic Action Race to Reduce use 27 kWh/ft the tool to evaluate facility energy performance. REALPAC USE INTENSITY While the tool has success24.3 kWh/ft fully benchmarked hundreds ENERGY STAR of Canadian facilities, until rePORTFOLIO MANAGER SCORE cently those facilities were still 72/100 being compared to peers south of the border. That changed on July 10, 2013, when Natural Resources Canada launched a Canadian version of the Energy Star Portfolio Manager tool. Now, all Canadian buildings are compared to Canadian peers. Last updated in 2009, the bell curve used to generate a score is based on a data set of thousands of Canadian buildings. Still, the Canadian tool currently provides scores for only office buildings and K-12 schools. Other building types are expected to be added over time. REALpac’s Energy Benchmarking Program. In September 2009, REALpac, in collaboration with the CaGBC and BOMA Canada, announced an energy consumption tar2

OCTOBER NOVEMBER 2013

building.ca

get for office buildings of 20 equivalent kilowatt-hours of energy use per square foot of building area per year (20 ekWh/ft²/year), to be achieved by 2015. For short, the program is known as “20 by ’15.” Shortly thereafter, REALpac again collaborated with CaGBC, BOMA and various energy experts to develop a publicly-accessible tool to help the commercial real estate industry understand their energy use and measure it in a meaningful way. The first annual REALpac Energy Benchmarking Survey (2009) provided an up-to-date look at how Canadian office facilities perform. A custom normalization methodology was developed and applied. An online tool is now available to benchmark 2012 data against peers. Normalized results are available immediately, and a peer-to-peer comparison is released once per year in REALpac’s Energy Benchmarking Report. While interim reports are not available, REALpac’s reports tend to have the most recent data available across the industry. Occupancy Rates and Energy Costs – Partners in Asset Value As in any other business, real estate value is tied to expenses and income. An asset is more valuable if utility bills cost less. Lower expenses increase the asset’s Net Operating Income (NOI) and, consequently, the asset value itself. The U.S. Environmental Protection Agency (EPA) points out that at a capitalization rate of 8.5 per cent, a $0.50/ft2 annual reduction in energy costs would result in an asset valuation increase of $5.90/ft2. In Canada’s current lower capitalization-rate climate, even larger asset value increases are implied. While energy benchmarking allows asset managers and owners to reduce and report lower expenses, the leading driver of stronger asset values is actually the leasing power of proven high performance buildings. According to the U.S. EPA, managers of REITs with large portfolios confirm that both tenant comfort and building occupancy are higher in buildings benchmarked and labeled with their Energy Star program. Higher occupancy increases the asset’s NOI and thus the asset value as Eric Chisholm, P.Eng, well. The dual benefit of high occuLEED AP, is a project pancy rates and low energy costs creassociate at Halsall Associates in Toronto. ate the winning case for building He is a Certified Energy energy benchmarking. Manager registered with the Association of Energy Engineers, and can be reached at echisholm@halsall. com A slightly modified version of this article originally appeared in the May 2013 issue of Canadian Consulting Engineer.

Saving Energy: Beyond Benchmarking While benchmarking verifies and reports success, benchmarks alone don’t save energy. Once a building’s performance is determined, it is important to act to improve that performance. As such, benchmarks are most effective when tied to conserva-

tion policies and targets so owners and managers can take action to improve. In large organizations and government groups, choosing a single benchmarking method allows everyone — from owners to builders to shareholders — to consistently measure success. This shared language helps distributed decision-makers reach common goals. Mandatory public disclosure of facility energy use is rapidly gaining in popularity. While not yet mandated in Canada (but already policy in several U.S. cities), it is on

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.

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the horizon. In 2012, Healthcare of Ontario Pension Plan (HOOPP) launched Canada’s first public building energy and carbon emissions label. ASHRAE released the Building Energy Quotient (bEQ) program; and CaGBC launched the Green Up program. Recognition of these programs is expected to grow rapidly, and by comparing apples to apples, builders, owners and managers can understand how their buildings are performing relative to the market and achieve the asset value boost associated with a higher performing building. b

ENVIRONMENTAL PRODUCT DECLARATION — ANOTHER FIRST AT OWENS CORNING As a leading global producer of residential and commercial building materials, glass fibre reinforcements, and engineered materials — we are committed to balancing economic growth with social progress and sustainable solutions. Our new Environmental Product Declaration is a component of our stated goal to provide life cycle information on all our core products. www.owenscorning.ca

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V I E W Michael Cooper: Leadership requires honesty and integrity By William J. Ferguson

When people act consistently and congruently with their principles, the result is far more likely to be long-term success and happiness. When they don’t, their lives can quickly spiral downward. Being honest is simply about being consistent with reality. To be dishonest is to be in conflict with reality and therefore self-defeating. You have to say what you mean and mean what you say, especially if you are going to be in a business such as real estate, which involves other people’s money. When you are not straightforward with your lender, partner, buyer, tenant or those who provide goods and services, you are going to eventually get caught in your own tangled web. What about the developer who tries to backfill a shortfall on one project by borrowing against another asset that is already pledged? When people compromise their personal integrity instead of facing the facts and dealing with the reality of the situation, their professional standing is placed in perilous jeopardy. Michael Cooper, managing partner at Dundee Real Estate Asset Management and CEO of Dundee REIT, finds it amazing that some people would be willing to take serious and excessive risk simply because of ego. Instead of admitting that their project just didn’t work out, they choose instead to do something wrong and end up destroying their lives; lack of integrity is a fatal character flaw. For Cooper, the biggest disappointments in his career have been the times he misjudged people and was disappointed when they failed in their responsibilities and things went wrong. It isn’t about being a really good judge of character. The issue, in Cooper’s opinion, is whether to be open, trust people, and establish a great team with which to work, or whether to be closed, not trust people, and hope that people do their best work. The problem with being more open is there are times when it is not going to work out. Even the most astute leaders end up making terrible mistakes when it comes to putting their trust in the wrong people. While it is true no one consciously hires someone who is unethical, it is impossible to know for sure what people are going to do in five or 10 years when there is money, status or power involved. The hardest part about being a leader is to know OCTOBER NOVEMBER 2013

building.ca

when to step in and prevent something bad from happening, or to keep it from becoming worse. Leaders know that red flags must be heeded. The best way to ensure the integrity of the team is to lead by example. At Dundee, Cooper has established a mode of operation which calls for everyone to behave as if everything they do were being witnessed by the world. He admits that this is not easy, especially when he makes a mistake; however he has found that stopping, admitting the mistake, and immediately doing everything in his power to correct it, have actually strengthened his position as a leader. This is a far better approach than allowing oneself to fall into the trap of expending energy to avoid facing up to the mistake. When the other members of the organization know the leader is honest about not being perfect, they become more open and honest themselves. The result is a team that is forgiving and looks out for each other, and is more open to learning from the mistakes that others have made. In Cooper’s opinion, as long as mistakes William J. Ferguson is are not fatal, they can actually make the chairman and CEO of entire organization stronger. Ferguson Partners Ltd. He shared a personal example from and co-chairman and early in his career to illustrate that it is co-CEO of FPL Advisory possible to recover from errors in Group. The preceding was judgement. In 2007, Dundee sold a an excerpt from his new significant amount of its assets at a book Market Discipline, very good price and distributed the The Competitive proceeds to shareholders. The remainAdvantage: Lessons from ing properties were all in Calgary, the Canada's Real Estate centre of Canada’s oil-producing reLeaders, published by the gion. Then oil went from $145 a barrel REAL Property Association to $33 a barrel and Cooper fell from of Canada (REALpac), grace overnight. It took two years of available at realpac.ca very hard work to make up the losses. It was a hard lesson, but one from which he learned a valuable lesson on portfolio diversity. Today, Dundee is in great shape and well regarded in the marketplace. b

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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.