Building June July 2014 by IQ Business Media

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64 03

CONTENTS RIGHT:

what’s on BUILDING.ca

WATCH > Urban Ideas Competition: “Reconnecting the Waterfront” ULI Toronto’s competition encouraged visionary ideas and design proposals to reconnect Toronto with its waterfront.

Designed by Ottawa architect Barry J. Hobin and Associates for Morley-Hoppner, Westboro Station is a wedge-shaped, multi-phase condo development with street-level commercial units, designed to create a gateway into the bustling Ottawa neighbourhood of Westboro. Photo by Gordon King.

FEATURES

16 > Capital Crimes /

Can Ottawa drag its urban development into the 21st century? By Rhys Phillips

21 > Investors Check In /

Buoyed markets, low cost of debt and investor optimism spurred a stellar year for hotel investment transactions in Canada, putting memories of the global financial crisis in investors’ rear view mirrors. By Peter Sobchak

READ > Know When to Hold ‘Em, Know When To Fold ‘Em Matthew G. Swanson and Eric C. Little explain the choices between alternative remedies in a collapsing deal.

24 > Heads (with hardhats) Need Beds /

Natural resource development projects across Canada can generate a large amount of lodging demand that supports strong hotel performance. By Jason Wight

27 > Roll with the Punches /

Does a clear municipal vision provide a pathway to city resilience? By Kate Brown

EXPLORE > Monique-Corriveau Library Dan Hanganu + Côté Leahy Cardas architects enlarge and convert St-Denys-du-Plateau Church.

IN EVERY ISSUE

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

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Volume 64

Nourish the mind

03 Number Editor / Peter Sobchak

I had the honour and pleasure recently of participating as one of five jurors in Toronto’s 15th Annual CANstruction Competition. This impressive design/build charity competition, organized by the Society for Design Administration (SDA), challenged teams of professional designers, architects, engineers and students to build elaborate structures out of canned and packaged foods. This year, 19 “canstructures” were assembled in one night in the lobbies of the buildings that make up the TD Centre — such as an elephant made out of black beans, and a children’s slide made out of tuna cans – where after a short public viewing period they were disassembled and delivered to Daily Bread Food Bank, Toronto’s largest food bank. In all, 50,000 pounds of donated food led a short but memorable double-life as audacious, edible statues. I’m a big fan of design competitions that challenge the A&D community to put their considerable skills toward solving serious problems, but let’s be honest: they typically take the form of Autocad or Photoshoped renderings of newly-envisioned streetscapes shown to judges on foamcore panels or PowerPoint presentations. This is a competition language well-known to designers. What I love about CANstruction is that it makes designers flex their creative muscles in ways they are not usually asked to do, and for a cause that does not normally pop up on their radars. “CANstruction is a unique type of food drive and a way for the design community to collaborate in a creative way and give back to the community we build in,” says Helen Kabriel, co-chair of CANstruction Toronto. “Not only do they give back through food donations, but their structures attract an audience and provoke discussions on hunger and the challenges facing our city.” While the lead-up to Christmas is typically a high-donation time for food banks, as the weather gets nicer, contributions decline. CANstruction helps fill that gap. “It provides thousands and thousands of pounds of high-quality and nutritious food at a time of year when donations typically fall off,” says Gail Nyberg, executive director of Daily Bread Food Bank. Since the event started in Toronto in 1999, CANstruction has donated more than 790,000 pounds of food to Daily Bread Food Bank. “CANstruction is incredibly important, especially at this time of year, when people may not be thinking about the food bank as much. It helps us to keep our hampers full and nutritious throughout the warm months,” says Nyberg. “The real winners of CANstruction are the 60,000 people who will use our food banks each and every month.” The jury’s unanimous favourite came from Cannon Design, and was called Canpanion Planting. Using only cans of squash, beans and corn to form a sinuous Member of wampum belt, it told an evocative story of our region’s farming history when Native people cultivated those three companion plants in one field. Drawing attention to a cultural food illiteracy growing in the shadow of the Loblaws-type mega-grocery store is a form of courageous food drive that nourishes not only the belly but also the mind. The very nature of this food drive is where architects and designers can (excuse the pun), and in fact should, excel at -- building something in ways and out of material the public doesn’t expect in order to bring attention to things the public doesn’t want to think about.

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

Andrea Bogar, Kate Brown, Robyn Brown, Odysseas Papadimitriou, Rhys Phillips, Jason Wight

Circulation Manager / Beata Olechnowicz beata@building.ca 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). Association of Business Publishers 205 East 42nd Street New York, NY 10017

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59 per cent of Ontario homeowners 50-plus to downsize within five years TORONTO | With the kids out of the nest and retirement approaching, Ontario Baby Boomers are looking to simplify their lives and save costs by downsizing their homes, shows new market research commissioned by Harmony Village. The poll, which interviewed Ontario homeowners 50 years and older, found that six in 10 of those surveyed expect to sell their existing homes and buy or rent smaller living spaces over the next five years. Slightly more than half, 54 per cent, plan to use the surplus cash from downsizing to help finance their retirement. Eighty-eight per cent of the homeowners surveyed own a detached home, six per cent a semi-detached, three per cent a condo unit and two per cent a row or townhouse. Of the six in 10 homeowners looking to downsize, 78 per cent say this would be their final home. Half (47 per cent) would consider a condo or apartment unit. "This approaching wave of downsizing will further boost the condo market, especially for facilities that are offering the upscale comforts and lifestyle communities that Boomers will be demanding," explains Jack Pong, CEO of City Core Developments, one of two developers behind Harmony Village, which has two sites currently planned in Toronto and Barrie, Ont JUNE JULY 2014

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OTTAWA | The Royal Architectural Institute of Canada (RAIC) Foundation has officially launched an architectural prize worth $100,000, making it one of the largest of its kind in the world. Established by Canadian architect Raymond Moriyama of Torontobased Moriyama & Teshima Architects together with the Foundation, the Moriyama RAIC International Prize will be awarded every two years and consist of $100,000, along with a sculpture designed by Canadian designer Wei Yew. The prize is open to any architect, firm, or collaboration in the world for an outstanding building or project. It may also be granted to a non-architect for an exceptional contribution to architecture. The winner will be selected through an open, juried competition. In addition, three students of Canadian schools of architecture will each receive scholarships of $5,000. They will be chosen on the basis of a written essay. "It is not a lifetime achievement award," says Moriyama. “Anybody, young or old could apply and have a chance of winning." Criteria include design excellence, client satisfaction, and quality of detail. The idea first came to Moriyama in 1976 while on a three-month walk in the footsteps of Buddha through India and Nepal. More recently, he made a gift to the RAIC Foundation to create the prize. The Foundation, supported by donations, is aiming to raise a $5-million endowment for the prize. Submissions are due by August 1, 2014. The first award ceremony takes place in Toronto on October 11, 2014. — Raymond Moriyama, Moriyama & Teshima Architects

News

New architecture prize aims to raise stature of Canada

"My hope is that this prize will raise not only the stature of the RAIC internationally, but also the stature of Canada, and inspire Canadians and Canadian architects to aspire higher."

MENTS

DEVELOP-

Avison Young invades Europe

TOP REASONS FOR MOVING FROM THEIR EXISTING HOME Reducing maintenance work: Lowering the cost of living

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TORONTO | Avison Young has acquired London-based commercial real estate services firm Haywards LLP and open ed Avison Young's first European offices in London and Thames Valley in the United Kingdom. Established in 1992, Haywards, the U.K. member of NAI Global, provides full-service commercial real estate offerings that range from strategic planning and project implementation to acquisitions, dispositions, development and property and facilities management. Avison Young's new London-area offices represent their first outside of North America and a milestone step in the firm's ongoing aggressive global growth and expansion strategy. Over the past five years, Avi-

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son Young has grown from 11 to, now, 56 offices in 45 markets and from 300 to more than 1,500 real estate professionals across Canada, the U.S., and now in Europe. The acquisition brings 20 new employees to Avison Young and, effective immediately, Haywards partners Nick Cook, Tony Oxford, Iain Rackley and Sarah Cook have become principals of Avison Young.

New Projects University of Windsor’s new front door

Next generation water park and event complex planned for GTA

TORONTO | With a horrible winter behind us, nothing signals summer more than a waterpark, and a new one is on the way. marbleLIVE has announced a massive indoor/outdoor water park and event complex being planned for the Greater Toronto Area (GTA). The $60-million facility is scheduled to begin construction in the spring of 2015 and be fully operational by the fall of 2016. The 100,000-sq.-ft. attraction will feature a retractable roof, making it operable 365 days a year. The development group behind the project, marbleLIVE, is led by Toronto entrepreneur John Barrack and marblemedia, a Canadian multiplatform content creator. Discussions are underway with city officials in Mississauga and Toronto about potential sites. "We now have a short-list of three locations. Our final decision will be based on our intricate design and operational needs, as well as visitor accessibility," said John Barrack, managing partner, marbleLIVE. In addition to marblemedia, the development group includes New Jersey-based Jerry Merola of Amusement Entertainment LLC and EFA Partners of New York.

WINDSOR, ONT. | The University of Windsor has awarded the design-build contract for a new Welcome Centre to Amico Design Build and Hariri Pontarini Architects with Architecttura Inc. Architects. This gateway building Buffalo, N.Y. to get a Diamond Schmitt building will become the front door and address for the University, creating a focal point that activates the campus and TORONTO | Diamond Schmitt Architects is designing a 12-storey, mixed-use encourages connections between the building to rise in downtown Buffalo, New York. The $80-million complex for school and the surrounding communUniland Development Company will feature more than 200,000 square feet of ity. Located at the southern edge of Class A office space, a 120-room hotel, hospitality and retail services. This buildcampus at the corner of Wyandotte ing will anchor a prime intersection bordering the Historic West Village District Street and Patricia Avenue, the twoand serve as an urban beacon at the crossroads of an expanding entertainment storey, 18,000-sq.-ft. Welcome Centre corridor. “Buffalo has an extraordinary architectural presence and this project is is intended to be a dynamic pavilion able to reference the past while providing a new landmark to energize the city,” that will be visible from every angle said Donald Schmitt, principal, Diamond Schmitt Architects. and accessible from multiple campus routes. Distinguished by a light and A curvilinear façade form will round gently arcing ribbon of milky glass that will weave its way around the site, the the intersection of Delaware and Chipbuilding will be a beacon within the landscape and form a lively backdrop for pewa Streets, and the main entrance campus activities. The building will house a range of departments including will be located at the centre of the curve, Student Admissions and Recruitment, Alumni Affairs and Donor Communicaa feature given emphasis and visual tions, the University Campaign, Public Affairs and Communications, and importance by recessing levels two Alumni and Donor Records. University of Windsor

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MENTS

DEVELOP-

Until recently, Busby was based in Vancouver. His award-winning portfolio embodies his philosophy of social responsibility and commitment to sustainable design. It includes projects such as the VanDusen Botanical Garden Visitor Centre in Vancouver, Dockside Green in Victoria, and the Vale Living with Lakes Center at Laurentian University in Sudbury, Ont. Since opening his Vancouver practice in 1984, Busby’s body of work has gained a reputation for design excellence and innovation, becoming a powerful catalyst in the growth of the green architecture movement in North America and abroad. After merging his firm with Perkins+Will in 2004, he became a driving force across the company stimulating its industry-leading sustainable design initiatives. In 2012, Peter relocated to be the Managing Director of Perkins+Will’s San Francisco office, directing teams in all of Perkins+Will’s West Coast offices working on local and international projects. “His pioneering work in sustainable design and his international influence in this regard has ensured a permanent place for Mr. Busby in Canadian architectural history, for both design and innovation,” the jury wrote.

Uniland Development Company, Buffalo, NY

People in the News RAIC honours Peter Busby

with 2014 Gold Medal

OTTAWA | The Royal Architectural Institute of Canada (RAIC ) has awarded Peter Busby with the 2014 RAIC Gold Caption Medal, the highest honour RAIC can bestow. “Mr. Busby was awarded the RAIC Gold Medal for his pioneer efforts in bringing sustainable design and development to the forefront of the practice of architecture,” the five-member jury wrote. “Through his on-going efforts, the importance of a more responsible approach to building and urban development has become part of the mainstream of archiPeter Busby tectural practice and education.”

Christopher J. Wein appointed new president of Great Gulf Residential TORONTO | Great Gulf Group CEO Jerry

— Peter Busby

through five. A four-storey atrium will include a biofilter living wall, and a grade level courtyard and rooftop terrace will provide additional landscaping. Taking inspiration from the existing heritage characteristics in the vicinity, the new building façades above the second floor will incorporate modern terracotta cladding made by a local manufacturer to create a visual bridge between the former century-old, two-storey building’s ornate terracotta façade and contemporary urban fabric. The hotel portion of the building is planned for levels two through five. The office section of the building will comprise levels six through 12. Completion is scheduled for summer 2015.

“I am deeply honoured to receive this very prestigious award. I share it with the many collaborators I've had the privilege of working with over the years on projects both in Canada and all over the globe.”

Patava is pleased to announce the appointment of Christopher J. Wein to the position of President Great Gulf Residential. Wein will be responsible for land development, low-rise residential and high-rise condominium. “On behalf of Great Gulf, we are delighted to welcome Mr. Wein to this new role which combines land, low-rise and highrise residential into one portfolio. We are very impressed with his background and experience and look forward to his input, energy and strategy in taking Great Gulf Residential to the next level,” said Patava. “We congratulate Mr. Wein on this well-deserved appointment.” In this new position, Wein will lead the senior executive management team groups for Low-Rise, Land, High-Rise, and Sales and Marketing. b

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MARKE T

Landlords rem prospects for much like the sta for optimism ma

off the market this quarter. New supply also helped to bolster the average asking net rental rate, which climbed $0.43 per square foot in the quarter to an average of $21.63 per square foot nationally for Class A space. The most active market was Calgary where the overall office vacancy rate fell 30 bps quarter-over-quarter to 10.6 per cent. Calgary benefited from the delivery of 8th Avenue Place West, a new 841,000-sq.-ft. building in the city’s core, which was fully leased upon completion. Energy sector tenants also committed to office space in the suburbs, causing the suburban vacancy rate to fall 230 bps to 11.7 per cent. Calgary recorded 855,930 square feet or 59.3 per cent of national office space net absorption in the second quarter. Most importantly for Calgary, existing tenants cancelled sublets causing the amount of sublet space to drop for the first time since the second quarter of 2013 to 33.9 per cent of vacant space. Toronto, Vancouver and Montréal also had more office space leased than was put on the market this quarter. In Vancouver and Montréal, office demand was focused in the suburbs, while 313,905 square feet of office space came off the market in downtown Toronto — the best performance for office space in downtown Toronto since the fourth quarter of 2012. “The uptick in demand for existing office space may be indicative of some broader strength in the office market, but more than likely, there were a number of businesses that could simply no TORONTO | The Canadian office market is exhibiting signs longer delay committing to office leases,” said Ross Moore, of life after a prolonged period of lackluster leasing activDirector of Research for CBRE Limited. ity. CBRE Limited’s National Office and Industrial Second Quarter 2014 Statistical Summary indicates that more While office demand increased this quarter, the 10.0 per office space was taken off the market than at any time in the cent vacancy rate threshold has been crossed in all sublast two years; however, it is too soon to say that this is the urban office markets with the exception of Ottawa, which beginning of a new positive trend. In contrast, the industrial is getting closer to that mark with a 9.4 per cent vacancy availability rate has decreased consistently over the same rate in the suburbs. Downtown office vacancy rates fell in two year period, resulting in a construction boom. six of the 10 office markets tracked. Calgary joined Winni“Landlords remain confident about the long-term prospeg, London, Waterloo and Halifax with a downtown office pects for the Canadian office market, but much like the vacancy rate at or above 10.0 per cent; however, Calgary state of football in England, reasons for optimism may not may not be in this group for very long given the impressive be immediately apparent,” said John O’Bryan, Chairman uptake of office space this quarter. of CBRE Limited. “The flight to quality and emphasis on Moore continued: “Should actual hiring remain lackluster, the office market will continue to exhibit an uneven perworkplace efficiency continue to move the market, but I’m formance from a statistical perspective. Workplace strategies more interested in hiring intentions. Intentions are improvand new construction are important factors, but business ing and so too could the demand for office space.” expansion would certainly minimize their impact.” The overall national office vacancy rate rose 10 basis points (bps) to 10.4 per cent in the second quarter of 2014. The Canadian industrial market continues its remarkable This marks the eighth consecutive quarter in which the narun and developers are responding by building new product. tional vacancy rate has risen; however, the vacancy rate The overall industrial availability rate fell 20 bps quaris now rising much more slowly. The slight increase in ter-over-quarter to 5.4 per cent, the lowest level since the vacancy this quarter is particularly notable as 2.0 million second quarter of 2008, half the industrial availability rate square feet of new office space came online. Much of the in the United States. Toronto, Calgary, Edmonton, and Winnew space was leased in advance and tenants were also nipeg have industrial availability rates below 5.0 per cent, leasing space in existing office buildings, which resulted and are among the tightest industrial markets in North in a total 1.6 million square feet of office space coming

High rise hopes as office demand increases

JUNE JULY 2014

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ds remain confident about the long-term cts for the Canadian office market, but the state of football in England, reasons sm may not be immediately apparent. America. Montréal continues to surprise on the upside, posting the lowest availability rate since 2005 at 7.1 per cent. The combination of oil and gas activity along with a lower Canadian dollar and improving export picture bode well for industrial markets across the country. The amount of industrial space under construction across the country rose 2.2 million square feet to a total 15.5 million square feet, the highest amount since the fourth quarter of 2008. Many of the buildings under construction are modern logistics facilities, which tenants are having difficulty sourcing in many markets. Increasingly, developers

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LEGAL Finally, it is the renters themselves that are increasingly attracted to condominium buildings, whether it is because of their prime locations or because of the ever improving and ever more exotic amenities being built into modern condominium buildings (features that just don't seem, for whatever reason, to be included in purpose-built apartment buildings). Regardless of the causes, the irrefutable trend has been for condominiums to become the principal source of rental stock in the province (especially in and around Toronto). It is not clear when exactly this trend changed from a trickle to a torrent, but The politics of rent control may have the trend is here to stay, with many of the condominium projects being constructed today at well over 50 per cent rental dire consequences for condominium right from the start, with some condodevelopers, investors, and owners. minium projects being as much as 80 per cent rental. Many developers have By Jeffrey W. Lem and Odysseas Papadimitriou found new ways to capitalize on investor demand. For example, more and more developers are creating “rental pools” whereby all rental units in the An interesting confluence of trends is affecting an almost forgotten segment of project are managed by a single entity, the Toronto real estate market. For the longest time, Toronto enjoyed a vibrant usually an affiliate of the developer, for and robust "pure" rental market — entire neighbourhoods of apartment buildan annual fee. Such “rental pools” are ings purpose-built to be leased for residential uses. While there remain quite a also appealing to foreign investors, who number of these pure rental apartment buildings in the City, they are almost all may not have anyone else on the ground "mature stock" — most of these apartment buildings were constructed in the Sixto manage their investment properties. ties and Seventies. There are very few such purpose-built apartment buildings Somewhat lost in the hoopla of the being constructed today. ongoing municipal election race and Even factoring in the phenomenon of new apartment buildings being orgathe recent Provincial election are a counized as condominiums for realty tax purposes, it seems as if few buildings are ple of Toronto City Council decisions purpose-built just for residential rental purposes these days. Instead, the provrelating to the Residential Tenancies ince's rental stock is gradually being replaced by rental condominium units Act that might take a serious bite out of (buildings that are purpose-built for condominium freehold ownership, but condominium rentals. In one such reswhich happen to then be rented out by individual investors — the difference being olution adopted by Council in 2013, that a condominium rental building will have a variety of different landlords, inthe City asked the province to cancel stead of one single landlord for the entire building). the exemption from rent control curThere are a number of reasons for this trend away from traditional apartment A store on West rently available for most condominibuildings towards rental condominium units. A part of it has to be Ontario's condoStreet in Goderich, ums. Since most of Ontario's condominium legislation itself, which does not restrict the number of units in any given Ont.’s historic downtown before the minium buildings were built after 1991 condominium building that may be rented out. While the legislation is certainly tornado hit (above), (the effective date of rent control in this part of the explanation, it does not entirely explain the trend away from apartments the damage (right), province), it means that, if implementtowards condominiums. A part of this trend is attributable to the attractiveness of and in August 2013 (below) after the town’s ed, almost all condominium rentals in Canadian real estate as an investment asset class generally (especially for offshore rebuilding efforts. the province will become subject to rent investors), and how much easier and how much more liquid it is for investors to control, levelling the playing field bepurchase individual condominium units (sometimes entire floors at a time), than it tween rental apartment buildings and is for the same investor to buy, alone or in groups, whole apartment buildings. rental condominium units. Furthermore, almost all condominiums in the province are de facto exempt In a similar 2014 motion, the City from rent control. Legally, condominiums are no different than rental apartasked the Province to cancel the proviments for the purposes of rent control, but the determinant is chronological sions in the Residential Tenancies Act (rental stock first introduced before 1991 being subject to rent control, and all that permit a residential landlord to rerental stock thereafter being exempt from rent control). It just so happens that coup necessary capital expenditures most of the apartment buildings in the province were built before 1991 and most from tenants through "Above the of the condominium buildings in the province were built after 1991. This makes Guideline Rent Increases" and requircondominiums far more attractive to investors relative to rental buildings with ing, instead, that all landlords mainstatutorily capped revenues.

Rent Control, Condo Collapse?

JUNE JULY 2014

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tain a 10 per cent reserve (out of their own rent revenues) for future capital expenditures. Currently, even where a rental unit is subject to rent control, a landlord can, with approval, still charge rent up to 3 per cent above the statutorily permitted cap in order to gradually recoup the costs of needed capital improvements to the building. According to Daryl Chong, president of the Greater Toronto Apartment Association, if these City initiatives are actually adopted by the province, "this would seriously hurt condo investors." Chong further predicts that, if rental revenues are crimped by rent control and capital expenditures can no longer be recovered through Above the Guideline Rent Increases, condominium investment might feel the crunch, depressing demand and possibly even causing a sell-off of existing condominium investments. While it is fairly obvious to these authors why the condominium development industry and condominium investors would oppose these City initiatives, Chong explains that the issue goes much further, explaining that "…if [investors] divest their units, the entire market will lose value, so even condo owners that occupy their units will feel a huge devaluation of their home’s value..." In one of the more ironic twists of fate, the City resolutions come at the same time that Council is contemplating almost doubling the development charges that it currently imposes

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.

on new building permits. The overwhelming share of the revenue from these development charges would have come from new condominium development in the City, the same condominium development industry that might crumble if changes to the Residential Tenancies Act requested by the City are actually acted upon by the Province. Of course, municipalities pass resolutions all of the time asking the Province for a variety of statutory reforms. These municipal resolutions have no legal weight vis-a-vis the Province, and there is no suggestion that Toronto is proposing a municipal level rent control regime of its own. That said, we all know that politics makes strange bedfellows, and with a municipal election coming in the fall, and a now majority government in the Province, it stands to reason that anything can happen when it comes to reform of the Residential Tenancies Act. b

Environmental Abatement Council of Ontario Did you know that a designated substance assessment is required on all projects before they commence? – Do you want to make sure you understand where hazardous materials are before you start construction? When you are considering your next environmental project, call EACO for assistance in developing your standards. EACO members are: trained, insured and experienced. Whenever abatement work is required, make sure you hire an EACO member. The Environmental Abatement Council of Ontario (EACO) is a contractor based organization serving the environmental abatement industry. Our members represent our industry as a whole including contractors, consultants, engineers, suppliers, government officials and others with an interest in the environmental abatement industry.

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For more information on EACO please visit www.eacoontario.com or contact us at: Environmental Abatement Council of Ontario. 70 Leek Crescent, Richmond Hill Ontario L4B 1H1 (416) 499-4000 Ext.114 • (416) 499-8752 fax

14-07-03 3:48 PM

pital Crimes Capit Capital Crimes Can Ottawa drag its urban development into the 21st century?

By Rhys Phillips

he City of Ottawa approved its new 20-year Master Plan in November 2013 -- two decades that will prove pivotal. Because even though governments seem firmly intent on seeing the economic future backwards through the lens of an analog, fossil fuel and resource-based economy, the rapidly emerging Third Industrial Revolution -- framed by the digital/green/creative triple helix -- is making the form of evolving “city states” significant determinates of success. How a city directs its urban development, including how its physical form supports the synergy between entrepreneurs, knowledge institutions, government, citizens and a host of non-government/non-business organizations will greatly determine prosperity. Ottawa has many attributes that should allow the region’s economy to be more than just a seat of government augmented by a decent tourist industry. But past urban planning failures have made the city miss its potential in a way that may ultimately undermine its future. The new Plan touches many of the right buttons, as have previous unfulfilled plans, but it also falls well short of providing a compelling vision likely to stir the city’s conservative residents. Fortunately, there are a few emerging initiatives that might provide a tipping point.

A City with Many of the Right Attributes Until recently, Ottawa (along with its estranged cross-river twin, Gatineau) was comfortably tucked in behind Toronto, Montréal and Vancouver as Canada’s fourth largest metropolitan area. While never considered on an urban par with the big three, the nation’s capital long ago shed its reputation as a city with few good restaurants, an absent local art scene and a one-trick pony economy tied to the federal government. When Chef Mark Lepine recently walked away with the top prize at the 2014

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pit s

Canadian Culinary Championships, it symbolized Ottawa’s Poised for Greatness… or Disappointment emerging culinary maturity. Similarly, behind Ottawa’s nonIt would seem that Ottawa’s highly educated workforce, backstop world-class summer music festivals is an eclectic and on-track tech economy and strategic location augur well for healthy music and arts scene. its future in the new economy. And some, certainly MayEconomically, despite three jarring setbacks, the National or Jim Watson, believes the city more than meets the urban Capital Region’s high-tech economy is on the move once more. standard demanded of the new successful city state. “We conCertainly, the bursting of the dot com bubble followed by the tinue to best our Canadian peers in surveys in areas such as catastrophic collapse of Nortel prior to the onset of the 2008 best cities to live in, most sustainable cities, most connected financial crisis significantly imploded the Region’s boast of cities and most affordable cities,” he bragged in a speech last being “Silicon Valley North.” But recently, the region has seen October on Ottawa’s Economic Outlook. Moneysense magaits high-tech employment base return to within shouting zine agrees, recently ranking Ottawa number four in quality distance of its 2000 heyday. Statistics Canada’s April jobs reof life while the international HR firm Mercier placed it beport found 68,300 IT jobs spread over 1,800 tech companies hind only Vancouver in North America and 14th in the world. in the Region, a whopping increase of 20,000 over the previYet there remain nagging doubts. Last year, veteran jourous April. As Ottawa Citizen financial reporter James Bagnall nalist Janice Kennedy wrote a scathing op-ed in the Ottawa stated, while this is somewhat less than Toronto’s addition Citizen. “Where the only change in a tired environment is deof 31,000 similar workers, it represents more than double terioration, where the operating mantra is to be satisfied with in terms of growth rate. In addition, he adds, “for all the talk the lackluster, the second rate, the cheapest – there is, well, about Kitchener-Waterloo becoming Canada’s entrepreneurHooterville.” In addition to Prime Ministers that have conial hotspot, the National Capital Region has four times as sistently refused to invest in the city’s National role, provinmany tech employers.” cial and municipal governments have “been pragmatic and Six months prior, CIBC’s The Hottest Technology Comcautious, obsessed with tax reduction instead of initiatives to enhance the life of the city…” Kennedy could have pointed out panies in Canada report identified Ottawa as on the remuch more than penny-pinching governments and “yesterbound. Nortels’ negative impact on technology investment day ugly” bush-league architecture with the latter reaching may remain substantial and government “has not helped its nadir in the Place de Portage federal complex across the in the last two years,” but Ottawa’s tech employment resurriver from the Parliament Buildings. gence appears based on the emergence of smaller, innovaFor example, the admired but flawed tive start-up firms, suggested by the fact the capitalization of public tech com1950 Greber Plan turned the banks of panies remains well behind Kitchener-Waterloo, the GTA and Montréal. the Ottawa River and the Rideau CanStarting with a defense of Ottawa’s cultural reputation and slipping into a al into “parkways,” better understood summary of its recovering tech economy based on small, innovative and nimas commuter expressways. These alble start-ups is no simple caprice. There is a powerful reciprocal relationship most completely strip Ottawa of dybetween success in attracting investment in the new economy and the existing namic waterfront living. and developing quality of place in which this investment will take place. Ottawa’s In addition, for two cities so close population already boasts an inordinately high education attainment level (most together and sharing an intertwined PhDs per capita in Canada and second only to Boston in North America), strong economy, the level of collaboration beEnglish and French universities and technical colleges, high-income levels and, tween Ottawa and Gatineau suggest most importantly, geographic positioning smack in the middle of the Buffalotwo solitudes. Journalist Mark Sutcliffe to-Québec City “creative cluster.” As the 2009 report Canada’s Creative Corridor calls them more “like courteous, de– Connecting Creative Urban and Rural Economies within Ontario and the Mega Retached neighbours than close siblings” gion puts it: “Location, Location, Location - Eastern Ontario is in the heart of the that act as competitors rather than partMega Region that is the 12th largest in the world, 5th in North America; it repreners. In addition to a poorly integrated sents 50 per cent of Canada’s GDP.” transit system, one egregious result is And as Richard Florida argues, capital investment now moves to where creative human capital congregates. For these workers, the quality of life defines where they will settle. “Despite all the hype over globalization and the ‘flat world,’ place is Bright Lights on a Shadowy Stage actually more important to the global economy than ever before,” he writes in his BOMA’s OMB challenge, a plethora of big box second book Whose Your City? Successful cities of the future will critically assess to “power centers” and some truly awful concrete condos on central Rideau St. suggest whom and by what means they should structure their built and cultural form. DirKennedy’s Hooterville mentality is alive and ector of Project for Public Spaces, Phil Myrick, notes, “Cities and regions that thrive well. There are some signs, however, that the city may trip into more appropriate 21st century in the 21st century will be differentiated by their lively neighbourhoods and busiurban planning, at least within the city core. ness districts, cultural and recreational attractions, great sense of place, protected At the same time, a stable of smaller developers natural areas, and deep pride in local character, products and foods.” is emerging with a finer grasp of urban design.

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the failure to build a properly placed truck bridge across the Ottawa River. Thus convoys of transport trucks clog once-elegant King Edward Boulevard before chugging down Rideau Street within half a kilometer of the Parliament Buildings. There is also a strong case that the recently downsized and increasingly marginalized National Capital Commission (NCC), originally created to implement the Greber Plan, has done more harm than good. Its biggest failure arguably was the brutal eviction of thousands of working class residents from LeBreton Flats below Parliament Hill in the early 1960s that left a desolate eyesore. 50 years later, with the exception of the stellar War Museum, little has changed save for a painfully slow-to-emerge, architecturally bland condo village, the result of a botched “developer competition” that ended up with but one contender. Finally, there is Ottawa’s significant cultural infrastructure deficiency. The city’s impressive Art Gallery collection is housed in a few rooms (albeit plans are pending for a new gallery/condo tower combo); its summer music festivals lack a venue commensurate with their reputation; there is no discernable entertainment district; and city council adamantly refuses to invest in a central library worthy of a major city, such as Halifax’s marvelous new facility or Calgary’s planned building by Snøhetta.

Urban Planning - Three Decades of Great Hope and Dashed Expectations While the current Master Plan suggests a revitalized approach to urban design and planning, Ottawa has tried to get it right in the past…but failed. In the early 1990s a well-funded public engagement process produced a progressive vision of a contained city, building on the emerging theories of new urbanism and transit-oriented development (TOD). The resulting plan called for a dynamic, increasingly denser urban core augmented by new, animated and walkable “urban villages” centering Orleans, Barrhaven and Kanata outside the Greenbelt. Instead, the South Keys development of a prime piece of undeveloped real estate close to downtown became the harbinger of the pervasive, single-use, big box developments that would proliferate both along major streets within the Greenbelt and in the outlying communities. Under a new name, the 2000 Smart Growth Summit, the next master plan process was likewise a comprehensive collaborative exercise. However, subsequent suburb-dominated council reneges and Ontario Municipal Board (OMB) appeals overturning development boundaries unleashed unparalleled suburban sprawl. Frenetic big box development ensued – and continues – including the massive Rail Yards, cheek-to-jowl with the city’s core and a key transit station. Currently, the engineer-led planning department seems willfully blind to the bizarre contradiction between blanket approvals of super-low density big box malls and spot zoning for super high condos justified by the mantra of “urban intensification.”

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Recently, the OMB overturned a City approved zoning amendment to permit a pair of 16 and18-storey towers in a neighbourhood of single-family homes. The surprise was not just that the usually developer-friendly OMB sided with the community opposing the change; it was the harsh critique of the city’s Planning Department arguments supporting the re-zoning. The problem, stated panel member Mark Denhez, was not that the rationale provided by the city was unconvincing; it was that a rationale was completely non-existent. In other words, he seemed to be saying, the city planners supported the change because the developers wanted it. Ken Gray, past editorial editor of the Ottawa Citizen’s City Page and now editor of the influential Bulldog online blog, wrote tongue-in-cheek last February on the merits of simply abolishing the city’s planning department and outsourcing its responsibilities to the local development industry. He hinted that the controversial public/private partnership redevelopment of Lansdowne Park (Building, February/March 2013) indicates this may have already happened. The OMB decision exposed Ottawa’s ad hoc approach to urban planning unsullied by any guiding vision or even minimal appreciation of sustainable, 21st century urban planning principles.

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Bayview Station - An Urban-based Knowledge Economy?

Transit: Resting On Its Laurels Too Long In the 1980s, Ottawa opted for a dedicated east-west bus Transitway, now augmented by a repurposed heavy rail line to the south. As a consequence of rejecting a tunnel under the city core, a massive jam of hundreds of buses trying to slice down two streets in the heart of the city happens twice daily. Despite this problem and less-than-love for bus transit, however, Ottawa’s transit ridership is one of the highest in North America. Unfortunately, this led the city to delay the inevitable move to light rail with a downtown tunnel and now a troubling trend of declining users. Gigantic “moles” are now well into digging a tunnel, and the new Confederation Line along a core section of the Transitway will commence in 2017. However compared with Calgary, a city of similar size (and sprawl), Ottawa is decades behind. The new line will bring Ottawa up to perhaps Calgary circa 1990 (Confederation’s western terminus is a hike from the downtown and will require suburban commuters to now make an extra change). The Mayor fortunately has proposed an almost immediate rapid expansion to be completed by 2022 (with apparent provincial support) that should bring the city up to Calgary’s 2006 level. Meanwhile the latter has already embarked on an ambitious 30-year expansion plan with firm TOD principles in place (Building, October/November 2013). Equally important, the original Tran-sitway was appropriately considered an instrument for TOD. But like other cities, the crucial connection between transit and land use development was poorly understood. Effective instruments to require development around stations never materialized. As a result, many of the stations inside the Greenbelt have little surrounding them. Those outside never developed the appropriate density when developers flatly refused to create the new urban centres suggested in the Official Plans. If anything, the Transitway resulted in the now well-understood defect of many “efficient” transit systems; it increased sprawl by making housing attractive even further from the city core.

When tech success story Shopify outgrew its offices in the funky downtown Byward Market, it was forced to move into a bland concrete tower in order to remain downtown. The next such enterprise may be able to find a home in the proposed high density mixed-use Bayview District. Located just west of the broken dreams of LeBreton Flats and made up of privatelyowned, underutilized City Centre lands plus an equally significant site owned by the city, this dual brownfield site sits at the axis of the new light rail line and the south-running O Train. Based on a District Community Plan, this is one of the few areas where the Master Plan includes a relatively detailed Secondary Plan (which no doubt has contributed to BOMA’s nightmares). Centred on the proposed Bayview station for the LRT/O Train, the development will, says the Secondary Plan, “become the new western urban gateway to the city’s downtown…an LRT mobility hub [of] high-quality, mixed-use urban environment that supports a creative and diverse range of new employment and residential opportunities [based] on high quality architecture and urban design.” A key component will be the conversion by the design collaborative PrototypeD of an extant 1940s industrial building into a $30 million innovation center. It should be noted, however, that the paltry $15 million “in kind” put up by the city, a fraction of its annual snow clearing budget, pales in comparison with such investments as Cleveland’s recently opened $500 million downtown center for promoting biotechnology.

The Isles – A Tipping Point? The crucial climax for pushing the Region over the edge to sustained quality urban design, however, may come not from public leadership but from Windmill Development Group’s rapidly progressing plans for the Chaudière Falls’ historic industrial lands. This iconic 37-acre site, also clearly visible from Parliament Hill and a dramatic part of both cities’ central landscape, stretches along the Québec bank of the Ottawa River and across two Ontario islands sliced by channels and industrial canals lying below the falls and its hydro dam. The planned zero carbon, mixed-use community envisages 3,500 residents and a similar number of jobs geared toward the knowledge economy. Through broad collaborative consultations and by working closely with municipal governments and the NCC though a unique joint design review panel, Windmill partner Rodney Wilts says the company has already been able to roll out, to almost universal excitement, detailed development plans from architect Peter Busby. Unlike Bayview’s dry material, the richly textured conceptual images of The Isles provide the public and politicians with a tangible “see and feel” for the quality of space to be provided. Also unlike Bayview, the new community will engage actively with the riverscape.

A 20-year Blueprint Last November, Ottawa approved its new Master Plan to guide the city’s development over the next 20 years. Unlike the two previous initiatives, the process was relatively low key and driven without any shared aspirational vision of the future. Despite a “Planning Summit” kick-off in November 2012, the process unfolded largely under the public radar, perhaps in response to the ongoing, often-acrimonious fights with communities over building.ca

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the city’s makeshift spot zoning approach to towers. As a result, there is no clarion vision statement of the future, no stunning visuals to capture the public’s imagination and no suggestion that we are at a defining moment for establishing the new economically successful city-state. At the summit, Mayor Watson set the basic agenda that is clearly reflected in the Master Plan’s Strategic Direction chapter: it has to contain urban expansion; get serious about promoting TOD; and focus on how suburbs should be built and retrofitted while pursuing planning initiatives that contribute to a stronger economic engine in a climate of greater predictability and certainty. This the new plan does, not with a bold, new and prescriptive vision but with the sound of unfilled principles found in the previous two plans. Indeed, even the failed, outside the Greenbelt TOD-based City Centres of the 1990s plan, minus its lively graphic renderings, reappear as priorities.

A New Breed of Developer The Isles is the most encouraging sign a new breed of smaller but creative developer is emerging in the Capital. The rapidly intensifying, mixed-use urban villages of Westboro and Wellington have been assisted by smaller developers intervening with attractive, low-to-medium rise residential buildings with street-based retail. Both are “linear villages,” originally tied to Ottawa’s east/west tram foolishly abandoned in the 1950s. An illustrative transitional moment for Westboro was the construction of the two acre Westboro Station mixed-use condos by developer Morley-Hoppner. Designed by Ottawa’s Barry J. Hobin and Associates, the three modern mid-rise towers provide a strong western gate to the community. According to Ken Hoppner, the site-owning Bourque family made an early decision to avoid an oversized project, preferring to make “a contribution to the neighbourhood.” The project sold out in three months. Ironically, the promised return of LRT nearby has also helped. Crucially, a number of the city’s major actors, such as Minto and Ashcroft are getting into the act. Collaboration on clear rules and predictability, says Hoppner, are required to avoid constant battles with affected communities. JUNE JULY 2014

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The question, putting aside the potential debilitative ability of the OMB to override city plans, is: will there be a willingness on the part of council, absent in the past, to uphold the Plan’s key principles and are there the instruments readily in place to direct both council and the planners? In an interview, city planner John Smith maintains there are appropriate tools this time to ensure a proper correspondence between transit and land use development, something he admits had not happened in the past. Most important, he says, will be proactive programming, easier approval processes, pre-zoning, much more detailed secondary plans, more clarity and certainty, as well a better ability to engage developers and communities. Surprisingly, however, council has just recently repealed its existing lower development fees for TOD-based developments, thus deleting a major existing incentive. The new plan ensures “an agenda of certainty,” says fellow planner Marica Clarke. Both she and Smith make it clear success will rely on developers being more open to proper TOD-based planning and well-structured, intensified mix-use developments. Yet while they believe the industry is increasingly coming on side, Ottawa’s Building Owners and Management Association (BOMA) has already appealed the entire plan to the OMB, calling it too confining. This challenge comes despite considerable fluidity in the plan’s language. A close reading of the Strategic Direction chapter suggests persuasion instead of prescription will be the central tool. While in a few cases the city will require admirable practices, such as laying out road networks to facilitate transit routing and ensure reasonable walking distances to transit stops, considerably less prescriptive actions such as lead discussions, consider, negotiate, will consider are the norm. “Shoulds” vastly outnumber “shalls. In addition, detailed Secondary Plans for individual communities will be critical tools for the realization of the finer details of development, but only a few in the core area have been completed. Notably, admit both planners, most of the work still needs to be done on the very complex and contentious issue of restructuring only recently completed (and still sprawling) suburbia. As the plan concedes, almost two thirds of residential growth will take place outside the Greenbelt, which will result in almost half the population by 2031 living in areas currently lacking any semblance of humane urban centers. While residential/employment intensification goals per gross hectare for town centers, “main streets” and transit stations both inside and outside the Greenbelt have been set for 2031 and beyond, most are only 25 to 50 per cent of the urban core goal of 500.

A Future Uncertain Ottawa is not an urban disaster, but it has failed significantly to realize its potential despite being the country’s most planned city. The NCC has largely eschewed the insights of progressive urban design, squandered public goodwill through arrogance, lack of transparency and collaboration, or simply failed to deliver, as is the case with LeBreton Flats and the truck bridge. Federal governments have pandered to the dislike by many Canadians of their own capital rather than invest in cultural institutions on par with similar national capitals. While the city has on several occasions produced appropriate, if not poetic, visions and supporting plans, defeat has invariably been snatched out of the jaws of victory. Whether or not the current muted technocratic Master Plan and emerging work by some in the private sector constitutes a true tipping point remains to be seen. b

Photo by Tom Arban

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Investors check in

anada’s hotel investment market experienced one of its strongest annual performances in a decade, according to the 2014 Canadian Hotel Investment Report by Colliers International Hotels. Buoyed markets, easy access to capital, investor optimism and demand for hotel properties propelled deal activity by 72 per cent year-overyear. 115 transactions were recorded in 2013, surpassing $2 billion in volume, significantly higher than the $1.2 billion and $1.1 billion in deal volume recorded for 2012 and 2011 respectively. The Colliers International Hotels’ report also forecasts a robust 2014 with a solid level of deal activity ranging between $1.25 billion and $1.75 billion. “As previously forecasted, 2013 proved to be one of the strongest years for Canadian hotel investment in a decade,” says Alam Pirani, executive managing director with Colliers International Hotels. “In fact, in terms of absolute deal volume, 2013 ranks in the top three as the highest year on record following only the pre-recession 2006 and 2007 era. Positive domestic economic conditions, coupled with attractive yields for hotels versus other real estate classes as well as the availability of high-quality product are some of the elements that draw local and foreign investors to Canada’s hotel market.” According to the report, foreign investment in Canada last year grew to the highest levels since 2007 and account

Photo by Tom Arban

ed for approximately $857 million in volume stemming from nine hotel transactions. “When the right product becomes available, Canada is on the radar for international investors. Foreign capital sources are attracted by the opportunity to diversify as well as the long-term stability our country offers,” says Tom Andrews, senior vice president with Colliers International Hotels.

Transaction Volume by Region

HOTELS ROOMS

$ % PRICE / VOLUME VOLUME ROOM

West

5,558

$826 M

41%

$154,700

Alberta

3,189

$494

24%

$156,300

British Columbia

1,985

$310

15%

$164,400

Manitoba

293

$15

$52,300

Yukon

N/A

East

10,802

$1,197

59%

$122,500

Ontario

8,499

$1,009

50%

$125,100

Quebec

1,531

$90

$50,900

Nova Scotia

548

$84

$153,200

Newfoundland

127

N/A

New Brunswick

$35,100

Total

115

16,360

$2,023

100%

$133,000

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2010-2013 Volume over/under $10M $2000

12%

285

Under $10M

2013 Volume by segment

16%

focused service

Over $10M

limited service

1500 full service

291

1000

242

500

200 214

475

2010

2011

1738

72%

888 2012

2013

Price per room by segment

2013 Buyer composition % of volume

17% 12 deals

67 deals

16%

2012 real estate company private investor

2013

8 deals

17% 19 deals

public company

limited service

focused service

$182,100

$ 96,100

$109,900

$114,700

$ 57,800

$ 59,700

hotel investment com. institutional & other

9 deals

42%

full service

Hilton Toronto

Barney River Investments

Ivanhoé Cambridge

600

$140.0

$233,300

Canada

The Fairmont Chateau Laurier *

Capital Hotel Ltd. Partnership

Ivanhoé Cambridge

429

$120.0

$279,700

Canada

Courtyard by Marriott Toronto Downtown

Groupe Jesta

Highgate Hotels

575

$76.3

$133,000

Canada

Delta Centre-Ville Montreal 1

Beaumont Partners JV Campus Crest

InnVest REIT

711

$51.3

N/A

USA

Acclaim Hotel Calgary Airport 2

Temple Hotels Inc.

Private Investor

225

$42.0

$186,700

Canada

Metropolitan Hotel Toronto 3 Bayview Hospitality Group

Liverton Hotels International Inc.

428

$40.0

$92,800

Canada

PROPERTY

SELLER

ROOMS

PRICE ($M)

PRICE / ROOM

BUYER ORIGIN

BUYER

Top Portfolio Transactions in 2013 The Westin Canadian Portfolio 4,7 *

PSP Investments

2,925

$765.0

$261,500

Middle East

Centennial Atlantic Temple Hotels Inc. Canada Portfolio 5,7

Starwood Capital Group Global, L.P.

Centennial Hotels Limited

549

$87.5

$159,400

Canada

Toronto Area Marriott Morguard Select-Service Portfolio 6,7 Corporation

Concord Hospitality Enterprises

632

$70.6

$111,600

Canada

1 The hotel has closed and will be converted to student residences. 2 Leasehold Interest. The property originally had 123 rooms and an additional 102 rooms were added in mid-2013. 3 The hotel has undergone a substantial renovation and branded as DoubleTree by Hilton. 4 Five property portfolio with hotels in Toronto, Ottawa, Edmonton, Calgary and Vancouver. 5 Three property portfolio with two hotels in Halifax and one in Sydney, Nova Scotia. 6 Five property portfolio with hotels across the Greater Toronto Area. 7 Cap rate calculated as an average for the entire portfolio. * Strategic transactions typically involve at least two of the following conditions: 1) a pricing premium is paid; 2) the asset is located in a high barrier to entry market or within a geographic hub of an owner’s principal business; or 3) the opportunity allows for an extension of the company’s brand or portfolio.

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Source: Colliers International Hotels

Top Single Asset Transactions in 2013

LOOKING FORWARD

Source: Colliers International Hotels

Top 10 reasons to be optimistic about the Canadian hotel real estate market in 2014. Robust transaction environment

$1.25 - $1.75 billion

estimated for the year given favourable market conditions and deal pipeline channel checks.

Growing operating metrics

4.1% RevPAR is forecast to grow by

in Canada for the year, according to PKF Consulting, significantly higher than the 10-year running average of 2.9%.

Favourable debt conditions

Default risk is low

Borrowers will continue to be pleased with the ample supply of mortgage capital available for hotels, which forces lenders to be more aggressive on both underwriting standards and pricing.

Canada has benefited from a significantly smaller amount of lender-driven scenarios than the U.S. This trend will continue into 2014 as we expect to see even less distress than last year’s meagre $65.0 million in dollar volume.

New supply remains at all time lows

Institutional capital is checking in

New supply of guest rooms will remain below historical norms (2.0%-2.5%) and should average 1.5-2.0% in 2014. Activity should pick up stream into 2015/2016.

Acquisitions for alternate use

This theme peaked in 2011 as optimism in the Canadian housing market was high. Although this has decreased, there are select opportunities where the asset has reached the end of its lifecycle as a hotel. Appetite for conversion to student residence and redevelopment to residential exist.

Interest rates & FX

The Bank of Canada is reported to keep its prime rate at ............ through 2014 and perhaps much of 2015. Coupled with a Canadian Dollar, which is forecasted at 90 cents U.S. for the year (per BMO Capital Markets), this should generate continued interest from cross-border capital.

The availability of rarely offered prime city centre hotels in Canadian gateway cities will continue to attract institutional capital.

Cap rate stability (& compression)

It is tempting to say cap rates should trend upwards, but we see the market being stable overall with continued compression in gateway markets. more capital great outlook more competition

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••• •• ••• ••• •••• •••• ••• ••• •• ••• ••• •••• •••• ••• ••••• ••••

Four portfolio transactions were completed in 2013 totaling close to $930 million, accounting for 46 per cent of total volume and 28 per cent of total rooms sold. Foreign investment in Canada grew to the highest levels since 2007 with close to $857 million in volume from nine hotel transactions. The most notable was the five-property Westin Canadian Hotel Portfolio, comprising 89 per cent of foreign activity. Purchased by an affiliate of U.S.-based Starwood Capital Group and backed by Middle Eastern investors, this transaction had a significant impact on overall pricing and met rics for the year given its size and scope. The report also reveals significant improvement in deal metrics and operational performance. Average price per room increased by 60 per cent year-overyear to $133,000 and average deal size grew by 73 per cent to $17.6 million. Unlike 2012, transaction activity in 2013 was noticeably split between West- ern and Eastern Canada. While Western Canada topped the chart in terms of average price per room ($154,700) led by British Columbia and Alberta, Eastern Canada took the lead for deal activity (68 transactions) and volume ($1.2 billion) with Ontario leading the pack with 51 transactions totalling just more than one billion dollars. “The high level of activity in Ontario, Alberta and British Columbia is reflective of the rarely offered institutional grade portfolio and large single-asset hotel product that was brought to market and met with a diverse mix of domestic and international buyer groups,” adds Robin McLuskie, vice president with Colliers International Hotels. The Greater Toronto Area (GTA), crowned as the most active sub-market in Canada in 2013 with transaction volume more than doubling year-over-year to $647 million (125 per cent increase), accounts for almost a third of the national volume. Other sub-markets with noticeable activity over the past year include Ottawa ($279 million), Calgary ($264 million) and the Greater Vancouver Area ($226 million). b

Action behind the scenes

We have witnessed a substantial market for partnership buy-outs, refinancings and new joint ventures. These efforts do not register as market transactions but will be significant and further representative of a healthy market.

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Heads (with hardhats) Need Beds

Natural resource development projects across Canada can generate a large amount of lodging demand that supports strong hotel performance.

By Jason Wight

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Resource-driven lodging markets are a potentially lucrative investment opportun-

ity, but to invest wisely one has to understand how these unique markets function. A “resource market” can be generally defined as an area where the economy and business activity is highly correlated to the development and/or processing activity of a natural resource. With Canada’s abundant supply and the strong global demand for these resources, billions of dollars are being spent on resource extraction and processing, which stimulates a significant increase in demand for lodging facilities in the regions surrounding these developments. The availability and quality of the lodging supply varies among resource-driven hotel markets, and there can be development and/or acquisition opportunities, depending on the market.

Massive resource investment = Heads that need Beds

The labour requirements resulting from the investment into the resource development is ultimately what drives the majority of lodging demand in these areas. For the most part, it is geologists, survey crews, engineers, project managers, and construction workers that generate lodging demand. In order to extract, process, and transport any natural resource, companies are required to make substantial investments in facilities and infrastructure, such as new roads, power generators, storage facilities, mine shafts, machinery, and processing plants. Depending on the scope and size of a project, the cost can run from millions to billions of dollars. In addition, it is often the case that multiple projects are simultaneously proposed for a given area. The labour capital required for these projects is immense. In the mining sector, initial exploration and mine planning can take between five and 10 years. During this period, a significant amount of lodging demand is generated by key stakeholders in the potential development, including geologists, government agencies, and other consultants. Once the planning is complete and the project has been approved, the construction of the mine facilities and supporting infrastructure gets underway. It is at this point that lodging demand flourishes and reaches peak levels. Construction workers, contractors, engineers, and project managers are needed to prepare the mine site, build the facilities, and assemble the equipment. As most of the labour is brought in from elsewhere, a considerable amount of lodging is required. Some projects will set up temporary work camps at the site, but even then only the construction workers typically use the camps. The project managers, engineers, and consultants still generally use hotels for their lodging. Overall, the development and operation of the facilities and infrastructure for resource production provides a favourable operating environment for the lodging sector throughout the lifespan of a project. Lodging demand starts from virtually nothing prior to the project, then rapidly rises until reaching peak levels during the construction period. Once the construction of the infrastructure and facilities is complete, lodging demand tapers to a more stabilized level until the end of the production life of the facility.

A Snapshot of Canada’s Natural Resources

From coast to coast, Canada has a vast variety and quantity of natural resources, including natural gas in British Columbia, oil in Alberta, potash in Saskatchewan, nickel and gold in Ontario, diamonds in the Northwest Territories, and even more oil off the shores of Newfoundland. Alberta ranks third in the world for proven crude oil reserves, after Saudi Arabia and Venezuela. The investment into mining projects in Canada is expected to amount to $140-billion over the next decade, and this does not account for the spinoff investment that will result from the mining developments. • British Columbia is currently a hotbed of resource-related activity. Mineral exploration is taking place north of the city of Terrace. Despite low natural gas prices, the shale gas formations around Dawson Creek and Fort St. John are still seeing some activity. In addition, many pipelines and LNG plants are proposed for the region, which is producing lodging demand throughout northern B.C. A number of new hotels have opened there over the past few years, and more are proposed, including such brands as Microtel, Holiday Inn Express, and Best Western. • Alberta is a world energy powerhouse, with an estimated 170 billion barrels of oil reserves of which approximately 168 billion barrels are recoverable from oil sands. There are three major oil sands deposits in Alberta, with the largest being the Athabasca deposit, located in the Regional Municipality of Wood Buffalo, with nearby Fort McMurray the main population centre. The Athabasca oil sands is attracting billions of dollars of investment to both extract oil and construct the necessary upgraders and pipeline infrastructure. The Fort McMurray hotel market is having an incredible year —the market-wide occupancy was 78 per cent at an average room rate of $184 through the first seven months of 2013. With

Transient workforce produces demand

these strong numbers, new supply is expected

Many resource markets are located in underpopulated areas, far from high density metropolitan areas or even small towns. Since resource development activity requires a large number of workers with specific skills, the neighbouring cities and towns with small populations simply lack enough people with the necessary qualifications. As a result, workers have to be brought from elsewhere in order to get the projects completed. In a resource-based lodging market, resource development can account for up to 80 per cent of market-wide lodging demand. After the construction phase of the project is completed, lodging demand levels moderate. It is at this point that the permanent operation jobs are filled, and

to enter the market between 2014 and 2016 in the form of a new Microtel, a Best Western Plus, and an airport terminal hotel. • In Saskatchewan, the major potash mining companies have been investing billions of dollars to expand mines and increase production, and two new potash mines are currently under construction. In addition, there has been strong oil

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the transient workforce is no longer required. Nevertheless, these facilities still require periodic maintenance. The length and frequency of these scheduled shutdowns vary by the type of development but tend to be scheduled every two to four years. During these times, special contractors and crews are required to complete the maintenance projects, which results in a spike in lodging demand.

to the huge amount of lodging demand these projects are generating, developers are building new limited-service and extended-stay hotels and represent a mix of international brands,

The character and quality of the existing hotel supply can vary from market to market, depending on the amount of resource development that has taken place proximate to a given market. Prior to the development of a resource in an area, the lodging supply is usually minimal and typically includes older independent hotels and motels. The design and quality of many of these properties do not meet the expectations of today’s guest. Once the projects get underway, many of these hotels are able to achieve high occupancy levels and charge higher rates than the quality of the facilities would normally support, simply because there is no alternative for accommodation. As the projects progress and the market starts to benefit from the activity, branded limited-service properties begin to enter the market. The new hotels that open become the first choice for guests in the market, and the older properties start to rely on excess demand that cannot be accommodated by the new properties, as well as guests that are highly rate sensitive. The strong demand base, the ability to charge relatively high rates, and the affordability of land are the key aspects that encourage new hotel development in these markets. The high amount of unaccommodated demand in these markets appeals to developers, because it can result in high occupancies in a short period of time. In addition, the opening of a new branded hotel presents an opportunity to charge higher rates than the existing hotels in the market. The towns and small cities that are near the resource developments typically have lots of available land for development, and the local planning departments are keen to have new businesses open in the area. Because of this availability of land, prices tend to be significantly less than a site located in large urban or suburban markets. The combination of these factors provides an optimistic outlook for the viability of proposed hotel projects.

The outlook is bright and opportunities abound

Overall, the outlook for resource lodging markets across Canada is positive. Global economic growth is expected to accelerate in 2014 and 2015, which will encourage more resource development projects to proceed, resulting in the creation and growth of lodging demand. Hotel development in resource markets are typically undertaken by individual property owners or regional hotel companies that are already familiar with the markets. With the projected growth in resource development across the country, hotel development opportunities exist for investors willing to explore new markets. For many of these markets, branded limited-service and extended-stay properties are the most appropriate types of hotel to build because they provide a guestroom product and the amenities that project workers require. These guests expect a complimentary breakfast, as well as the ability to prepare their own meals in their room if they choose. Limited-service properties must have a minifridge and a microwave, while extended-stay properties require full kitchenettes to cater to long-term guests. Jason Wight is Vice With demand for Canada’s resources expected to remain President at HVS Canada, strong in the long term, the development of resources is exa hotel consulting and pected to increase, which will ultimately have a positive imappraisal firm with offices pact on hotel demand growth and create opportunities for hoin Vancouver and Toronto. tel development across the country. b www.hvs.com

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in southeastern Saskatchewan. In response

in towns and cities near these resource areas,

Existing hotel supply

JUNE JULY 2014

development activity in the Bakken Oil Field

independent properties, and regional brands such as Canalta. • Northern Ontario has been known for mining for over a century. Even after a long history of mining activity, the Sudbury Basin still has a high level of exploration taking place, and the mines in the area have continued to invest in the expansion and modernization of their facilities. In addition, the discovery of chromite in a 5,000-sq.-km. region called the “Ring of Fire” has generated a lot of excitement for potential mine development, and exploration activity is generating lodging demand in northern Ontario markets. The Government of Canada estimates there is between $30 and $50 billion worth of mineral resources in the area. A number of new hotels have opened in northern Ontario over the past few years, including such brands as TownPlace Suites, Holiday Inn Express, and Microtel. • Newfoundland is expected to experience a strong lift in the amount of offshore drilling activity with the development of the Hebron offshore oil project and expected development in the Flemish Pass Basin. In addition, the $2.8-billion Vale Long Harbour Nickel Processing Plant is nearing completion and is expected to begin production by late 2014. As a result, Newfoundland has the strongest hotel market of any province in Canada with a RevPAR of $103 through the first seven months of 2013, which compares to Canada’s RevPAR of $81 during the same period. St. John’s, the largest city in Newfoundland, has benefitted from its location proximate to the Grand Banks oil fields and the Atlantic Margin reservoirs. Several international oil companies and over 350 supply and service firms are located in the area. With the high level of lodging demand generated by the offshore oil industry, new hotels are beginning to enter the market. A Fairfield Inn & Suites recently opened in St. John’s and a number of other hotels are proposed for the city, including such brands as Hampton Inn & Suites, Residence Inn, Hilton Garden Inn, and Sandman.

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Roll with the punches

Does a clear municipal vision provide a pathway to city resilience?

Resilience is a topic increasingly discussed as cities begin to feel the disruption associated with climate change, ageing populations, degrading infrastructure and globalization; changes which are likely to have a profound impact on the built environment. How can cities minimize the impacts of these unprecedented challenges and channel growth to address them? Global property group Grosvenor realizes that its future success is tied to the sustainable growth of the cities where it has a presence. We know that a city’s long term success cannot be measured on annual volatility and returns alone. We need to evolve our approach to go beyond normal investment metrics of risk — standard deviation, vacancy rate and rental growth — to a much more holistic measure of risk. This leads us to resilience. MEASURING CITY RESILIENCE

“Resilience” is defined as the ability of cities to continue to function as centres of production, human habitation, and cultural development despite the challenges posed by climate change, population growth, declining resource supply, and

Global City Resiliency 100

By Kate Brown other paradigm shifts. Grosvenor undertook a three-year study to rank 50 global cities by environmental and social resilience. In April we published the findings in a report titled Resilient Cities, seeking new ways of measuring cities’ long-term resilience and identifying the world’s most resilient cities. For the purposes of the study resilience is measured as a product of the city’s environmental and social vulnerability and adaptive capacity. Vulnerability is a city’s exposure to shocks in terms of magnitude, frequency and impact. Shocks may be due to changes in the climate, environmental degradation, shortage of resources, failed infrastructure or community strife due to inequality. [That most cities have survived for the last several centuries or, in some cases, millennia, indicates a long period of stability in the pattern of urban growth. Recent population growth and industrialization, despite many benefits, are destabilizing planetary systems and making previously safe places more vulnerable than they ever were before.] Yet cities, like societies, are adaptable. Just like societies, they vary enormously in their adaptive capacity due to governance, institutions, technology, wealth and the propensity to plan. So resilience increases when cities have more adaptive capacity and decreases when they are more vulnerable.

80 Adaptive capacity score

Vulnerability score 60

Dhaka

Cairo

Jakarta

Manila

Mumbai

Mexico City

Rio de Janeiro

Delhi

Guangzhou

Shanghai

São Paulo

Tianjin

Beijing

Moscow

Seoul

Buenos Aires

Milan

Taipei

Madrid

Singapore

Hong Kong

Osaka

Dublin

Tokyo

Brisbane

Vienna

Paris

Munich

Houston

Los Angeles

Sydney

Brussels

London

Frankfurt

Detroit

San Francisco

New York

Melbourne

Seattle

Amsterdam

Atlanta

Zürich

Washington DC

Boston

Pittsburgh

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Stockholm

Calgary

Chicago

Toronto

Vancouver

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Ottawa

have confidence. To establish this, institutions are needed at the city level, such as a government agency that holds the municipal vision and a program that drives its delivery. This central organizational role is key, as it leads to an image of cleanliness and competence, from which can grow security, trust and transparency — all key elements in attracting and retaining investment. There is clearly an important role of the Mayors to provide strong leadership towards more sustainable growth. The relationship between global cities, having more in common with themselves than their nation states, is increasing this importance and means we have to change our way of thinking. Organizations such as C40 are harnessing this and connecting peers in public office so they can learn from one another what has worked, from Case Study: Vancouver flood levees to smart grids or congestion charges. This is particularly valuOut of our 50 cities, Vancouver is second to Toronto as the most resilient city. In terms of vulnerability, able for less resilient cities. Vancouver ranks in the top five in each category except climate vulnerability, where it is in the bottom WHAT DID THE RESEARCH TELL US?

Our research found that Canadian cities are the most resilient, with Toronto, Vancouver and Calgary taking the top three positions, respectively. They have low vulnerability to long term threats of climate, community, infrastructure, resources and environmental, and have a high capacity to adapt to arising challenges through strong governance, planning systems, funding structures, technology and institutions. Alarmingly, we found cities with the highest population growth rates to be the least resilient -- being the most vulnerable to long term threats such as climate change and not having the institutional capacity, financing, leadership and expertise to adapt.

10. Its low-lying coastal location makes it relatively vulnerable to sea level rise. In response to these vulnerabilities, British Columbia’s Ministry of Environment has undertaken re-

HOW CAN THE RESEARCH BE APPLIED?

The research has met with great interest as it provides a clear and systematic Vancouver the greenest city in the world. way to evaluate long-term investment The Canadian government has been working to enhance transparency through proactive disclorisk. It now forms part of our investsure, contributing to high levels of accountability, in governance. Over 35,000 people participated in ment risk analysis and has clear imthe development of the Greenest City 2020 Action Plan through a variety of communication channels. plications and opportunities for organThe city has a mayor, Gregor Robertson (Vision Vancouver party) and is governed according to the izations with a fiduciary duty to guard Vancouver Charter, a provincial statute which allows the City Council to pass bylaws on certain topics. the value of their investments over the Vancouver has excellent adaptive capacity scores, especially in governance and planning systems. long term—including pension funds, Vancouver also scores well in terms of funding structures, with a favourable country credit rating and insurance companies, sovereign wealth good access to financial services within the city. funds, trusts, and others. The insights provided can help longterm investors create portfolios that optimize returns to minimum vulnerability scores or maxTHE IMPORTANCE OF A MUNICIPAL VISION imum adaptive capacity. We are not, however, suggesting As the Vancouver case study indicates, cities that perform that you shouldn’t invest in those cities that place lower well in the resilience rankings are those that are well planned down in the rankings. But the research highlights the risks and governed. Key to this is a central municipal vision. For that those cities face and therefore enables more informed example, New York City topped the rankings for ‘Adaptive decision making. capacity’ due to a long-term city vision ‘PlanNYC.’ Having The research can also be employed by government authis co-ordinated response has enabled city leadership to thorities to judge their own performance, assess future make strategic investment in the public realm, making the risks and prioritize strategic investment. Cities that invest city more liveable. The plan also specifically addresses cliin public infrastructure, planning systems, and support for mate resilience with many mitigation and adaptation stratemployment growth can increase their resilience signifiegies that were put into practice in the wake of Hurricane cantly, thus improving long-term inSandy and enabled the city to get back to business quickly. vestment prospects and their capabIn emerging cities this clarity is often lacking and is Kate Brown is Group ility to adapt to adverse events in an greatly needed. A clear city-wide plan with transparency of Director – Sustainability increasingly uncertain world. what is trying to be achieved provides certainty to investors for the London-based We hope more companies will build and filters into the regulatory system through planning and Grosvenor Group. and contribute towards this essential rebuilding regulations. Central to attracting and retaining search area so that together we can help create cities that prointernational investment for critical infrastructure and the vide high quality of life and thrive as attractive places to live, future is certainty — there has to be a clean system which work, play and invest for generations to come. b cannot be arbitrarily changed and in which investors will search into sea level rise predictions for planning purposes. Vancouver has a Greenest City 2020 Action

Plan, which contains 10 goal areas around carbon, waste and ecosystems, with the objective of making

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The Environmental Abatement Council of Ontario (EACO) serves the environmental abatement industry. Our members represent our industry as a whole including contractors, consultants, engineers, suppliers, and government officials involved in the environmental abatement industry.

Whenever abatement work is required, make sure you hire an EACO member. Visit: www.eacoontario.com for more information.

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Bleed Trim

V I E W -

Live

Merrie S. Frankel Career success requires taking advantage of transitions. By Andrea Bogar and Robyn Brown

Merrie S. Frankel is a big believer in window periods. “In terms of career transitions,” she explains, “you have to take advantage of them, with thought of course, because that window might not open again.” For a woman who has had six careers, Merrie would know something about transitions. “I didn’t plan it; it was just evolutionary.” Merrie started out with a law degree and an MBA, and knew she wanted to be an attorney, but assumed she would eventually become a business person. It may not have been a straight path to get where she is now, but for the last 15 years Merrie has been a REIT Analyst at Moody’s Investors Service, the global rating agency, where she currently holds the position of Senior Credit Officer/Vice President in the Commercial Real Estate Finance group. Here she is responsible for a ratings portfolio of real estate investment trusts (REITs) and real estate operating companies (REOCs) in the United States and Canada where she interacts daily with senior management at issuers, institutional investors, and investment bankers. Previously, she worked at Salomon Brothers, JP Morgan, Cushman & Wakefield, Ernst & Young, and the Argo Funds. She believes recession periods are part of the reason you don’t see as many women in the upper levels of the real estate industry. Women tend to be weeded out during recessions, and when there is a recovery, they don’t necessarily come back. They go into other businesses like marketing and advertising, or other parts of Wall Street. On discussing success for young women in the industry, Merrie stresses that it’s not only hard work, but also finding what you are good at. Young people early in their career need to be constantly learning: “Be a sponge soaking up all the info you can,” she stresses. “You need to constantly learn or you will fall flat.” In the end, she believes, there are no shortcuts. Merrie acknowledges that a challenge for many women at the senior level is their inability to have their voice heard. She recalls a bright colleague who didn’t speak up in an important meeting, and let everyone else talk. “I took the woman aside afterwards and told her to make sure she doesn’t walk out of a room having not said something ever again.”

“Don’t just talk the talk either. Say something succinct and logical, but you have to have your voice heard. It’s part of the game,” she says. It also helps to have a sense of humour. “Women in particular tend to put their heads down and just work, but you also want people to want to work with you.” A sense of humour will also help with clients, warding off a difficult situation, or cutting through things with a laugh. Merrie is also active and passionate about teaching. She started Urban Land Institute’s (ULI) UrbanPlan program in New York City and is a professor at Columbia University where she teaches a graduate real estate capital markets course. ULI’s UrbanPlan is a month-long real estate course that is integrated into a high school economics course where students redevelop a site while learning to balance public and private interests. “It’s one of the best things I’ve done. I love watching the light bulbs in their minds turn on.” For ULI, she has been the chair of the New York District Council, chaired the product council UDMUC-Gold, been a council counsellor, and is currently the Outreach Chair for Women’s Leadership Initiative (WLI). She is also active in a number of other organizations such as Women Executives in Real Estate (WX) and the Financial Women’s Association of New York (FWA), where she currently co-chairs the Directorship and Corporate Governance Committee. The growth of the WLI at ULI Toronto has been a real source of pride for her. “Seeing it flourish, how it’s changed, and is still growing especially as it evolves in different regions, it’s often really different than we had initially imagined, but each DisAndrea Bogar is Regional trict Council utilizes the parts that Director at Blueprint work for them.” Effects, and Robyn Brown In discussing the evolution of her cais a Land Use Planner/ reers, she confesses she wouldn’t change Land Economist at IBI anything about her path. “Every move Group. Both are made sense at the time, and I’ve learned Toronto-based and something everywhere I’ve been.” b members of ULI Toronto.

R in

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With saveONenergy incentives, we installed energy-efficient equipment in the building to save energy and money for our tenants Vladimir Niderman Property Manager, 212 King West Holdings Inc.

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

The Real Estate & Construction 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 & Construction 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-construction

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Seiter&Miller 001224 Pub. Building Size. 8 x 10.75 Issue April 2014

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