Building October November 2014 by IQ Business Media

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Getting Main Street Right Real Estate Transparency New Accounting Rules

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64 05

CONTENTS

what’s on BUILDING.ca

FEATURES

22 > Core Values /

Post-secondary institutions can prove vital to the creation of thriving city centres. By Leslie C. Smith

READ > PIEVC & Overcladding: An Overview A look at the potential effects of climate change on high-rise residential buildings, and what can be done.

28 > The Morphology of Main Street /

With the right components, a great Main Street can be a catalyst for ‘real’ mixed use and the focal point of a dynamic community where people want to spend time, connect and socialize. By Michele Alborg

33 > Clearing the Way /

Open data, REIT structures and energy certification schemes are some of the factors that can improve a country’s real estate transparency, according to a new report. By Peter Sobchak

READ > Greener Concrete Blocks How a “small but feisty” firm is working on new concrete blocks that actually absorb CO2.

TOUR > Thompson Rivers University Law School A new law school building designed by Diamond Schmitt Architects, inspired by art and nature, opens in B.C.

36 > By The Numbers /

New accounting rules for real estate and joint investments. By Soo-Ling Huang

IN EVERY ISSUE

6 > Editor’s Notes 10 > Developments 16 > Market Watch 18 > Legal 38 > Viewpoint

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ABOVE IMAGE:

The 110,000-sq.-ft. Environmental Science and Chemistry Building, currently under construction at University of Toronto Scarborough and designed by Diamond Schmitt Architects, is the second building in a new campus precinct and is adjacent to the gateway Instructional Centre. The architectural character of masonry and curtainwall extends an identity established by the Instructional Centre and both buildings serve to strengthen the pedestrian realm along Military Trail with transparent and visual connection to the street. (Rendering by Diamond Schmitt Architects)

Volume 64

05 Number

Excellence Seeks Excellence

Editor / Peter Sobchak

In most cases, what is understood need not be discussed. But then there are times when that discussion still needs to occur, in order to keep us from forgetting the obvious. Such was the case recently as I listened to University of Toronto president Meric Gertler deliver a lecture titled “Universities, Cities and Prosperity: An Agenda for the Future” where he spoke about how strong universities can help build strong cities, and how city builders can nurture these relationships. That a strong university helps build a strong city is undisputed. We accept that when it comes to creative cities, well-educated ones tend to be important cities in the global economy. But the actual value of a healthy, dynamic university institution to the same health and dynamism of its host city seems often forgotten as we talk about ourselves to ourselves. That is evident in the surprise we display when we see Canadian institutions (particularly in Ontario) rank extremely high in international peer review and reputational analyses. Did anyone know that U of T ranks second only to Harvard in research productivity and second in impact as measured by citations within North America? Has anyone even heard of the influential Shanghai Jiao Tong rankings, which show similar results in other categories? Modesty is one thing, but undervaluing these institutions is actually dangerous, because while it would seem that our international peers know more about us than we do, very high global rankings matter because when the best universities in the world want to collaborate, they seek out other institutions of comparable quality as partners. According to an oft-cited study in Nature, “exceptional research groups share ideas, resources, and outcomes and excellence seeks excellence.” These collaborations lead to ideas that fuel local innovation. Toronto, for example, has had its up and downs but is now arguably one of the world’s largest technology hubs. According to data from the City of Toronto and Invest in Canada, Toronto’s CMA is the third largest technology hub in North America and comprises some 43 per cent of Canada’s tech sector investment. Without question Ontario has benefited greatly from the output of human capital from all of its universities and colleges. Yet there seems to be a disconnect between the facts of these rankings and how governments and city builders talk to universities. Case in point is something Gertler mentioned: with Toronto is in the throes of a municipal election you would think that to have a reasonable chance of becoming mayor one would want to engage the leadership of higher education institutions at some point (even privately if not publicly) to get their views on the future of the city and the role that education and research should be playing in that. According to Gertler, at the time of his lecture he’d had just one conversation with a mayoral candidate. And it was initiated by himself. Member of Call it a matter of enlightened self-interest, but it is important for any serious city builder to engage with higher education institutions in their region more effectively. As Gertler pointed out, “Universities impart dynamism and resilience to the economies of their host regions. They help these places reinvent themselves over time and that is of course, really critical. But at the same time that they are sources of dynamism, they are also sources of stability.” To use a real estate analogy, universities are anchor tenants that help stabilize communities, keep property markets buoyant, and (while obvious, often taken for granted) here to stay. They are not likely to pick up and move anytime soon. You can’t say that of all of the sources of employment in a city region.

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

Michele Alborg, Soo-Ling Huang, Jenna Morley, Leslie C. Smith

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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DEVELOP-

Vancouver office tower boom not slowing down

News Multi-family asset class proves to be one of the most sought after in Canada TORONTO | Across Canada, vacancy and capitalization rates remain at historical lows while the average price per door and average rental rates continue to trend upward. Nationally, the average price per door increased by just under 18 per cent and average rents increased by just under four per cent. According to a new report by Colliers International‘s Valuation and Advisory Services Group, the multi-family market continues to exhibit strength and growth. Of the markets surveyed, the Greater Toronto Area continues to be the largest market for multi-family transactions across the country, albeit by a much smaller margin compared with the same time last year. Similarly, Ottawa and Victoria both experienced increases in transaction value, with Victoria seeing an increase of almost 90 per cent. Winnipeg is the least active market, with a midyear transaction value of only $14,850,000. The report also spotlights the Vancouver multi-family market, a market world-renowned for its exceptionally high residential real estate costs. Vancouver, which attracts both local and international investors, has seen a decade-long rise in multi-family values. One multi-family property in particular saw an increase of more than 330 per cent in value and witnessed a 380 basis point shift in capitalization rate over a 15year period. This trend is expected to continue as the supply of capital remains high and the supply of assets remains low.

VANCOUVER | The office tower boom in downtown Vancouver shows few signs of slowing, says Newmark Knight Frank Devencore. Over two million square feet of office space is currently under construction in the downtown district, and four million square feet is being built in the Greater Vancouver area. In addition, another three million square feet is being planned or proposed in the downtown market. At the same time, leasing activity in Vancouver’s downtown core slowed through much of 2013 as vacancy rates crept upwards and rental rates moderated. At the beginning of 2014, just over one million square feet of office space was available, up from 633,000 square feet a year earlier. A number of other trends are also having a major impact on Vancouver’s downtown real estate scene. “We’re also seeing more large blocks of space returning to the market than we have in “We expect that many years, and a rise in sublease rental rates, space availability,” said Jon Bishop, especially in older vice-president and managing principroperties, will pal, Devencore Company Ltd. “As a rebe under pressure. sult, some landlords are beginning to Because specific market their properties much more older Class A aggressively. A variety of inducements, and B spaces will be vacated as from periods of free rent to more flextenants move into ible lease terms, may be available in new towers, certain buildings that have key vacanthe best deals cies to fill. Finally, as has been the case in the months ahead in other major cities across North will generally be America, young professionals are landlord or building choosing to live in or near the city’s specific.” downtown core. Consequently, com– Jon Bishop, panies that wish to attract and retain vice-president & this skilled workforce are recognizing managing principal, the advantages of locating downtown Devencore as well. This trend may help to boost Company Ltd. the demand for downtown office space over the medium term.”

“The multi-family asset class is the most sought after in Canada, and demand is expected to [linger]. There continues to be significant competition for any good-quality, large-scale assets made available for sale; as such, many owners are electing to reinvest and expand their existing holdings where possible.” — Oliver Tighe, director, Colliers International OCTOBER NOVEMBER 2014

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SNC-Lavalin scores five-year contract from Infrastructure Ontario

New Projects

MONTRÉAL | SNC-Lavalin has been awarded a five-year con-

Edmonton’s tallest tower to be built in the new Edmonton Arena District

tract, with the possibility of five one-year extension terms exercisable at Infrastructure Ontario’s option, to deliver integrated real estate solutions projects on behalf of Infrastructure Ontario and its 26 ministry clients. Over the fiveyear term, SNC-Lavalin will deliver approximately $450 million worth of capital, repair and leasehold improvement projects throughout the northern part of the province and in Toronto’s downtown core. Individual projects are expected to range in value from $100,000 to $10 million.

Building industry groups agree to streamline green building tools WASHINGTON, D.C | The International Code Council (ICC), ASHRAE, the American Institute of Architects (AIA), the

Illuminating Engineering Society of North America (IES) and the U.S. Green Building Council (USGBC) have signed a memorandum to collaborate on the development of Standard 189.1, the International Green Construction Code (IgCC) and the LEED green building program. The cooperation aims to create a comprehensive framework for jurisdictions looking to implement and adopt green building regulations and codes and/or provide incentives for voluntary leadership programs such as LEED. The agreement outlines the development, maintenance and implementation of new versions of ANSI/ASHRAE/ IES/USGBC Standard 189.1, Standard for the Design of High-Performance, Green Buildings Except Low-Rise Residential Buildings and the IgCC, which will be combined into one regulatory tool. This agreement also endeavours to align the LEED program with the new code to ensure a streamlined, effective set of regulatory and above-code options for various jurisdictions across both Canada and the U.S.

EDMONTON | The Edmonton Arena District (EAD) joint venture, between Katz Group and WAM Development Group, announced the construction of Edmonton’s newest and tallest tower and one of the tallest structures in Western Canada. The new 62-storey tower will be located in the EAD on the corner of 102 Street and 103 Avenue with Stantec as the anchor tenant leasing nearly 450,000 square feet. The 746-ft.high mixed-use office, retail and residential tower will host 26 storeys of offices, around 320 residential units, be designed to achieve LEED Gold cerThe EAD Tower tification, and will span roughly one million square feet. Construction will begin this fall and scheduled to open in summer 2018. “We set out a vision seven years ago for how an iconic new downtown arena could be the catalyst for positive change for downtown and the entire Capital region,” said Daryl Katz, chairman, Katz Group. The project started in 2011 when the land was purchased by the Katz Group, which established a joint venture with WAM Development Group in 2012. The EAD is aiming to be Canada’s largest mixed-use sports and entertainment development while reflecting the goals of The City’s Capital City Downtown Plan. Anchored by Rogers Place arena and Winter Garden, the EAD will revitalize more than 25 acres of downtown Edmonton, extending from 101 Street to 104 Street and from 103 Avenue to 106 Avenue. Phase 1 of the development will include 1.3 million square feet of office space, more than 1,000 residential units and over 215,000 square feet of retail space.

“ASHRAE see this as a move forward in green building, reducing fragmentation of compliance documents for users who are pressing toward a more sustainable environment.” —Tom Phoenix, ASHRAE president building.ca

MENTS

DEVELOP-

ACQUISITIONS 12

Cominar acquires $1.5 billion portfolio from Ivanhoé Cambridge

Calgary will soon have a downtown apple orchard TORONTO | An innovative condo development anchored by a one-acre apple orchard is poised to put Calgary on the map in terms of creative city planning. “Calgary has a hard-earned reputation as a hub for a wide range of creative, successful people and businesses,” says Brad Lamb, CEO of Lamb Development Corp. “I hope our project helps showcase the city’s hunger for imaginative design that puts urban lifestyle front and centre.” The Orchard, as it is called, is a two tower condominium project planned for 5th Street and 12th Avenue in Calgary. The approximately 61,000-sq.-ft. land parcel will include the two 31-storey buildings separated by an orchard featuring two apple varieties. The Orchard will be designed to specific conditions needed to grow and sustain the food source. “Condo developers must start thinking more courageously when it comes to designing downtown projects,” says Lamb. “City living has so much to offer. Now is the time to start reinventing the way we envision downtown communities, especially the integration of shared green space.” OCTOBER NOVEMBER 2014

MONTRÉAL | Cominar REIT has acquired a portfolio of shopping centres and office buildings from Ivanhoé Cambridge, the real estate subsidiary of the Caisse de dépôt et placement du Québec, for an estimated $1.63 billion, including ownership interests of partners of Ivanhoé Cambridge in two of those properties. The share of the assets being sold by Ivanhoé Cambridge is $1.527 billion. The portfolio includes 11 shopping centres, three office buildings and one industrial property, all located in Québec and Ontario. In order to execute the transaction, Cominar conducted financing operations: issuance of $500 million of new units, including a $250 million portion to be purchased by Ivanhoé Cambridge; Otéra Capital, the commercial real estate financing subsidiary of La Caisse, is also involved in the finanThe Ochard cing for $250 million; a syndicate comprising National Bank of Canada and Bank of Montreal granted bridge loan facilities of up to $950 million. After the transaction, Ivanhoé Cambridge will own approximately 8.5 per cent of Cominar’s units and will be the REIT’s largest unitholder. It intends to work closely with Cominar’s senior management and with the second-largest unitholder, the Dallaire family.

Altus Group acquires RealNet TORONTO | Altus Group Limited has acquired the privately-owned Canadian real estate information services company RealNet Canada Inc. Founded in 1995, RealNet’s team of 40 professionals, including its founder and president, George Carras, will join Altus Group’s Research, Valuation and Advisory (RVA) group in Canada. “We are very excited about the acquisition of RealNet and having George Carras, a prominent industry leader, join our management team. We have a long working history with RealNet and believe that the formal integration of our substantial assets will benefit all of our clients and each of our business units,” said Bob Courteau, CEO of Altus Group. “The acquisition broadens Altus Group’s Canadian full-service offering, enhances its data and market research revenue stream and furthers the Company’s strategy of building out its data solutions.”

Canada’s HealthLease Properties REIT bought by a U.S. REIT George Carras, founder and president, RealNet Canada Inc.

building.ca

TORONTO | HealthLease Properties REIT has entered into an arrangement agreement with Health Care REIT, Inc. to be bought for CDN$14.20 per unit in cash, representing an aggregate transaction value of approximately CDN$1 billion (USD$950 million). According to The Globe and Mail, this transaction “is the latest in a series of deals as health care real estate companies look to take advantage of rising demand for senior care facilities in a consolidating sector.” b

Less parking = a better downtown

Just had a read through your article [and I] couldn’t agree with you more on the parking issue (“Grow Up”, Building, August-September 2014). What we have done in Penticton’s downtown is eliminate all of our parking requirements for new commercial (and existing renovations). Since we did that in 2011, we have seen many of our vacant sites develop – the most significant being our new Landmark 7-plex cinema. They have 1,200 seats but only provided 35 parking spaces on site, as a result of our “zero parking” requirement. With the abundance of available parking around the downtown during their peak times (free on-street after 6:00pm, for example), it supported their business case for investment downtown. Under our old bylaw they would have had to provide over 300 parking spaces, and we do not have a site downtown that would have accommodated that. It would have been a tough call for Council to approve a variance for over 250 parking spaces, so we took the process out of the picture and we’ve seen amazing success. Also, we’re in the process of eliminating our parking requirements for new multi-family units in the downtown core as well. Since the cinema investment downtown, we’ve seen over $8 million in new investment, including two new craft breweries, a distillery, a wine bar, new residential and other commercial development. We have a number of big incentives also available that have contributed to development moving forward as well. Regards and thanks for your article! Anthony Haddad | Director of Development Services, City of Penticton, B.C.

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MARKE T Industrial construction surge overshadows uneven office market TORONTO | Lacklustre job creation continues to impact demand for commercial real estate in Canada. CBRE Limited’s National Office and Industrial Third Quarter 2014 Statistical Summary suggests that tepid job growth has undermined office leasing activity, but has been unable to stem an historic industrial construction boom. “The Canadian economy may not be firing on all cylinders, but the Toronto and Calgary office markets turned out quite a performance last quarter,” said John O’Bryan, chairman of CBRE Limited. “It was a bit of a have or have not summer. The standout office markets were exactly that, while other areas were fairly quiet. One assumes that strong office leasing activity in core markets will translate into more widespread office demand in the year ahead.” The national office vacancy rate dropped for the first time in two years, retreating 10 basis points (bps) to 10.3 per cent in the third quarter of 2014. Office vacancy had been increasing at a slower pace in recent quarters. Demand for downtown office space in Toronto and Calgary tipped the scale and resulted in a long awaited drop in vacancy. With 14.1 million square feet of new office space under construction in downtown markets across the country, it is encouraging that Toronto and Calgary were able to sustain the uptick in downtown office demand that was recorded in the second quarter. Toronto had 650,560 square feet of downtown office space come off the market in the third quarter, the most since the fourth quarter of 2011, and downtown Calgary had 368,052 square feet of net leasing activity. Financial services were active in Toronto, while energy companies continue to lease office space in Calgary. No other downtown office market recorded significant leasing activity as demand was limited to renewals of existing leases. “Office property owners outside of Toronto and Calgary can take some encouragement from these numbers,” said Ross Moore, Director of Research for CBRE Limited. “Sustained office leasing by key sectors of the economy bode well for the future. Business expansion of this nature is exactly OCTOBER NOVEMBER 2014

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what is needed to balance the wave of new supply and offset the push for increased office-use efficiency.” While tenant demand for quality office space, local amenities and public transportation has focused attention on the downtown office market, significant office leasing activity was recorded in suburban markets this quarter. Nationally, 874,470 square feet of suburban office space was taken off the market this quarter, well above the 10-year quarterly average of 693,000 square feet. Unlike the downtown office market, demand for suburban office space was quite healthy from coast to coast. Calgary, Montréal and Vancouver recorded the highest demand for suburban office space. “The suburban office market is tenanted by a different subset of businesses than many downtown markets, including a larger proportion of American companies,” Moore noted. “The accelerating U.S. economy is encouraging for Canadian manufacturers and may be bolstering demand for suburban office space as well.”

Industrial construction booms

The Canadian industrial market continues to be characterized by limited availability as tenants remain hungry for industrial space across the country. Industrial asking rental rates climbed to an average $6.09 per square foot, a new record high. Demand outweighs supply in most areas, especially for modern distribution facilities. The overall industrial availability rate fell 10 bps quarter-over-quarter to 5.3 per cent, with Montréal and Vancou-

“We have been talking about an office construction boom for a couple of years now, but it is the industrial market that is really taking off.” — Ross Moore, Director of Research, CBRE Limited

ver contributing most to the decrease in available industrial space. The Montréal industrial market has now rebounded from a prolonged period of soft demand. The availability rate in Montréal has fallen from 10.0 per cent in the first quarter of 2011 to 6.7 per cent, which is in line with most other industrial markets across Canada. Montréal is experiencing strong demand from the distribution sector, a trend that has energized industrial markets across the country in recent years. Demand for distribution space has prompted the commencement of 19.9 million square feet of industrial construction activity nationally. This is the highest amount of new industrial space under construction on record and is well above the 12.5 million square feet 10-year quarterly average. “We have been talking about an office construction boom for a couple of years now, but it is the industrial market that is really taking off,” said Moore. “In relative terms,

the amount of office space being built is less significant than in the last two construction cycles, but we have never seen this much industrial space under construction in Canada. Distribution activity has led the charge, but should the U.S. economy provide an additional boost to Canadian manufacturers then we haven’t seen anything yet.” Case in point is new development numbers for the Greater Toronto Area (GTA). In its Industrial Real Estate Market Study, Newmark Knight Frank Devencore reported that the need for larger, more modern industrial spaces has spurred significant development activity in the GTA West. At the present time, some four million square feet of industrial space is being built in Mississauga, Brampton, Caledon and Milton. “The key stories in the GTA industrial real estate market during the first half of 2014 concerned the supply and demand disconnect and the increasing obsolescence of older industrial properties,” said Rob Renaud, Managing Principal / Broker of Record at Newmark Knight Frank Devencore’s GTA West Office. “In part, this has to do with the changing nature of the GTA’s industrial base, where the exponential growth of e-commerce businesses is fuelling demand for larger and more modern logistics and distribution spaces. Typically, these spaces are 400,000 square feet to 1.5 million square feet, have higher clear heights, more trailer parking, better office space layouts, more energy efficient systems and, in many cases, building designs that are specifically tailored to the space users.” Throughout the GTA, vacancy rates have fallen from 4.2 per cent to 3.9 per cent over the past year. While demand was greatest for spaces of 400,000 square feet and beyond, there was also significant tenant activity in the 20,000 to 100,000-square-foot market. Asking rental rates have remained relatively stable over the past 12 months and are averaging $5.75 in the GTA as a whole. “The continued changing dynamic of industrial activity, with the shift away from manufacturing to e-commerce, logistics and warehousing enterprises, is having a clear impact on the GTA’s industrial real estate landscape, “Renaud added. “The developments currently underway will certainly help to ease the demand; however, as needs evolve so too will the specifications that tenants require in their premises. As an example, we are already seeing a growing need for clear heights as high as 40 feet, which the new 32 to 36 foot clear speculative developments do not address. “Given these issues, space users must weigh all of their options, including build-to-suit premises where they may see leases that extend up to 20 years. Tenants who do not necessarily require the most modern space have a greater range of options. The key is to prepare a thorough real estate analysis that takes both present and future needs into account and aligns with overall business strategy. Build-tosuits, blend-and-extends and/or lease restructurings may also prove advantageous,” Renaud concluded. b

Exceptional Opportunity: Request for Qualifications REDEVELOPMENT OF

LeBreton Flats LOCATION: OTTAWA, ONTARIO

The National Capital Commission (NCC), as the steward and planner of Canada’s Capital, is seeking innovative proposals for the largest and most significant urban development site in Canada’s Capital. The redeveloped LeBreton Flats is poised to become a signature destination for visitors to Canada’s Capital and a point of civic pride for its residents. This opportunity calls upon your abilities to reimagine this exceptional site and the potential experiences it can offer. We envisage a bold, new anchor institution that will welcome the public, serve as an economic driver, feature innovative use of the land, and bring design excellence, animation and a unique public experience to the nation’s capital. We are calling on the world’s best to come forth and make it a reality. Proposals may be submitted until Friday, December 5, 2014, at noon EST.

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LEGAL Waive Goodbye Why exercising the Distress Remedy will mean losing your Right to Terminate. By Jenna Morley

If a tenant fails to pay rent, the landlord has a decision to make: whether to terminate the lease and sue for the unpaid rent and for future rent, or to continue the tenancy and distrain on the tenant’s goods. Most commercial leases contain a clause which states that the landlord’s remedies under the lease are cumulative, and that no remedy is exclusive or dependent on any other remedy. Since termination and distress are both powerful self-help remedies, why not use both? If the landlord elects to terminate the lease and take possession of the premises (known as the landlord’s right of forfeiture), it may sue the tenant for the unpaid rent, as well as the lost future rent over the balance of the term. But, if the landlord elects to seize and sell the tenant’s goods to satisfy the rent arrears, it must preserve the lease. That remedy (of distress or distraint) is only available while the lease is ongoing and arrears of rent are outstanding. Some landlords take this step first, and after selling the tenant’s goods to pay the arrears, terminate the lease on the basis of the rent still owing. Canadian Courts have consistently held that distress and termination are mutually exclusive remedies that cannot be exercised concurrently. In other A store onaWest words, landlord cannot distrain and terminate the lease at the same time. Nor Street in Goderich, can a landlord terminate the lease and then distrain, since distress is only availOnt.’s historic downtown before able while thethe lease is alive. tornado hit (above), The British Columbia Court of Appeal recently addressed the question of the damage (right), whether a 2013 landlord could distrain first and then terminate the lease after the and in August (below) afteris thecompleted town’s distress in Delane Industry Co. Ltd. v. PCI Properties Corp. Landrebuilding efforts. lords will not like the outcome.

The Delane Case In Delane, the tenant stopped paying rent due to a dispute with its landlord. The landlord commenced distress proceedings and sold the tenant’s goods. The sale proceeds were not sufficient to satisfy the rent arrears, so the landlord terminated the lease for non-payment of rent immediately after the sale, relying on a notice of default delivered to the tenant during the distress proceedings. The tenant brought an action against the landlord for, among other things, a declaration that the landlord illegally terminated the lease. At trial, the Supreme Court of British Columbia held that the notice of default delivered during the distress proceedings was not effective to terminate OCTOBER NOVEMBER 2014

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the lease. The Court noted that since termination is fundamentally inconsistent with distress, the two remedies cannot be exercised concurrently. The Court also held that the “cumulative remedies” clause in the lease could not be extended to permit concurrent remedies that are, by definition, mutually exclusive. The Court found that in order to terminate the lease, the landlord was required to provide the tenant with a fresh notice

The Court found that in order to terminate the lease, the landlord was required to provide the tenant with a fresh notice of default and opportunity to cure after the distress was completed. of default and opportunity to cure after the distress was completed. In reaching its decision, the Court implied that had the landlord issued the new notice of default, it would have been entitled to terminate the lease based on the rent arrears that accrued before and during the distress. The landlord appealed to the British Columbia Court of Appeal, which upheld the trial Court’s decision, but

found that the trial judge erred in suggesting that the landlord could terminate the lease based on the rent arrears that accrued before and during the distress. The Court of Appeal concluded that having elected to distrain for the rent arrears, the landlord permanently and irrevocably waived its right to terminate the lease for those arrears. The Court of Appeal noted that in order to terminate the lease, a fresh default, unrelated to the breach that led to the distress, would be necessary. In reaching its decision, the Court of Appeal relied on the 1985 Alberta Court of Queen’s Bench decision A & M Enterprises Ltd. v. B.J. Millwork Ltd. In that case, the Court noted that “distress is an unequivocal election to continue the landlord and tenant relationship and any subsequent forfeiture for the same breach is illegal.” Although the Court of Appeal noted that some lower level decisions appeared to conclude that distress proceedings merely “suspended” the landlord’s right to terminate until the distress was fully completed, it ruled that this is an incorrect statement of law and contrary to the principles of contract interpretation. In sum, an election between two mutually exclusive remedies is irrevocable, and once the election is made, the other

Jenna Morley is an associate in the commercial leasing department at Daoust Vukovich LLP. Her practice includes acting for commercial retail, office and industrial landlords and tenants in a variety of leasing matters. www.dv-law.com

remedy is unavailable. Moreover, a “cumulative remedies” clause in a lease will not alter this outcome. As a result, the landlord in Delane was entitled to sue for the arrears accruing before and during the distress, but it lost its right to terminate the lease for those arrears when it elected to distrain.

Bad News for Landlords This case is problematic for many landlords (and lawyers) who have, for years, assumed that if distress proceedings did not yield sufficient proceeds to cover a tenant’s outstanding rent arrears, the landlord could simply terminate the lease and sue for the arrears, as well as lost future rent. The British Columbia Court of Appeal has made it clear that, for any given rent default, the landlord cannot pursue both distress and termination. Once the landlord chooses its path, there’s no turning back. b

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CORE VALUES

Post-secondary institutions can prove vital to the creation of thriving city centres.

by Leslie C. Smith

How do you establish a new college or university? How can you expand on what’s already there? And why, exactly, should developers care? 23

ust ask three leading post-secondary schools in Toronto’s 905 outskirts – Sheridan College Mississauga, University of Toronto Scarborough and York University Markham – and you will get fascinating insights on the topic of universities as city-builders. All three have witnessed the ongoing population explosion in and around Canada’s largest city, which in turn has fuelled strong public interest in both academic and recreational space. They have seen an incredible rise in foreign students since the millennium’s turn, as well as an enormous increase in adult education driven by new-economy needs. And all signs point to continued upward growth. Meeting these demands in hitherto underserviced areas will mean a wealth of opportunities for public- and private-sector partnerships. Through their sheer energy, colleges and universities can solidify an urban core, pulling together a diversity of elements to create synergy and excitement. The idea of a self-contained, ivy-covered institution is long gone. Today’s post-secondary life is intimately interwoven with its environs and engages fully with the community around it.

Out West

Photos courtesy of Knightsbridge

Dr. Jeff Zabudsky, president and CEO of Sheridan College (which ultimately aims to be known as Sheridan University), has just shepherded his institute through Phase I of a two-part expansion. The new Sheridan College Mississauga joins already established campuses in nearby Oakville and Brampton, with a combined student population of just over 20,000. Phase II plans call for a build just north of the new location, with a capacity of close to 6,000 students. “We have seen our overall numbers double in the last 10 years, and they’re still growing. An area of particular growth has been the international student population. Five years ago, we had about 500 international students. This year, we will cross 4,000. It’s come as a result of high-profile programs that we offer that are renowned throughout the world, and also [through] changes to the federal government’s visa require-

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ments, which have opened the door for international study,” said Zabudsky about Sheridan’s recent unprecedented growth. The main building of the newly christened Hazel McCallion Campus offers a model of sustainability that students in Sheridan’s architecture and environmental sciences programs can use as a living design laboratory. The space has also been created with collaboration in mind. Future employability skills require people to work in teams and in fastpaced, multi-ethnic environments. To accommodate these things, classrooms are furnished with “puddle tables” where students can work on projects in concert. They also feature short-throw projectors that allow any wall to become a screen and any student’s laptop files to be used as a teaching North of Toronto, within the borders of the GTA’s York Reaid. Zabudsky is particularly proud of Sheridan’s partnergion, something very interesting is taking place in the city of ship with the City of Mississauga, which led to the establishMarkham. Spearheaded by the Remington Group, a new and ment of a high-density wireless bandwidth throughout the vibrant downtown is being built where emphasis rests on school and all public facilities in the city. creating a modern, multi-use living space rather than cram“We’re integrated right in the heart of the city,” he conming in as many high-rises and townhomes as possible. tinues, “right by the iconic City Hall, the Living Arts Centre Bud Purves, formerly a private real estate developer and the Square One Shopping Centre. I think what’s exciting and currently president of the York University Developabout Sheridan Mississauga is that it meets two key public ment Corporation, alludes to the process of settling on policy priorities. One is to provide more learning opportunMarkham as the site for York’s proposed new campus: ities. The other is to bring people and life into an emerging city “York Region is the only North American municipality core where none really existed. I like the idea that our post-secwith a million-person population that does not have its ondary environment is playing a role in that mixed-use enown university. We’re going to fix that.” The need for an livening of the downtown core.” educational centre is an imperative, in face of the area’s The huge shopping centre across the road plays multiple growth in the 18-to-21 age group at a rate faster than any roles in Sheridan student life. Its food court, parking and other municipality in the province. shopping are all big draws; so too are opportunities for part“We ran an RFP that we put out to all the municipalities time employment. Then there are other new businesses – in York Region in order to figure out where would be the best place to put a campus, based on a series of 10 criteria, talkpubs, burger joints, banks — that have opened up in the past year to cater ing about things like city-building, learning, partnering opportunities and makmostly to students, bringing more ing use of infrastructure,” says Purves. Not wanting to “build things twice,” York street-level energy to the area. Partner- looked at what was already in the ground and what was being proposed by the ing with some of these, even in a small provincial government and local municipalities, to discover a place where knitway, can add value for everyone. Larger ting a university into the established framework would make the most sense. Markham’s appeal was undeniable. In addition to its ambitious, still-underpartnerships, such as Sheridan’s relationship with the nearby YMCA, where construction downtown zone, the selected five-acre site sits right next to the students receive a discount rate, help Markham Town Centre and adjacent to the new Atos Markham PanAm Centre. in larger ways. The Y builds its mem- The mall offers the same student benefits as Mississauga’s Square One does for bership base, students can keep fit, Sheridan College — accessible parking, food courts and part-time retail jobs. The and the college avoids the strain of con- Atos Centre, which would link directly to the university campus via a pedestrian structing its own gymnasium. tunnel, boasts a score of multi-purpose spaces, three gyms, and an Olympic-sized All these tentacles of reciprocity, Za- pool that will form a legacy both for future students and the surrounding combudsky says, “get students out of the munity. Markham is already well-tied into the region’s transportation grid, and campus, moving around the neigh- new additions to the transit network are already underway. bourhood, and then moving back in for Perhaps most important are the partners supporting York University’s protheir classes. We wanted a place and a posed 750,000-sq.-ft. build. Purves indicates a handful of major players, includdestination that would draw them in ing Remington Development and York Region, which is kicking $25 million into and hold them there in the neighbour- the plan. As well, upwards of 60 other companies have come to the table, all eager hood over the course of the day and into to build a local post-secondary institution. With an estimated 6,120 full-time the evening. I’ve seen how this can en- students accrued in the span of five years and programs tailored to be academicliven a city core.” ally relevant to 21st century industry, the campus will provide a valuable staff

Up North

OCTOBER NOVEMBER 2014

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n Ave. Warde

7 way High

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Pan Am Centre / York Region Campus

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Hilton Suites Hotel

Viva stop

Go Station

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spawning ground for the city’s 900-plus technology and life-sciences companies. A dozen major multinationals are also headquartered here; chief among them IBM, Markham’s largest employer. Such partnerships, Purves points out, “mean we won’t be building lecture halls. Cineplex is building a fabulous theatre in Markham Town Centre, and we’ll be using their screening rooms as lecture halls. Our exam centre will be at the Hilton Suites Hotel. As for student housing, we’ll be making use of the areas that are being built in and around Markham Town Centre. Essentially, what we’re looking to do is build classroom space, and all the other space will be provided by the private and public sectors. So the cost to the government of the York University campus in Markham is minimal and its city-building aspects are maximal.”

Down East

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As Chief Administrative Officer of the University of Toronto Scarborough (UTSC), now celebrating its 50th anniversary, Andrew Arifuzzaman has not been obliged to build his school from the ground up. Even so, he has spent the last eight years working on UTSC’s master plan for expansion. “We currently have over 12,000 students – an awkward size for a university,” Arifuzzaman notes. “So we have pretty aggressive plans for growing the campus. We anticipate being up to 15,000 students within the next five years, and our longer term goal is to surpass 20,000 students.” In the past several years, UTSC has invested over $600 million developing its campus, putting in the work necessary for its growth objectives. A prime factor in these plans involves a jointly funded venture with federal, provbuilding.ca

backs onto the existing Highland Creek community is presently in the works. The consultation process showed that Ellesmere Rd. surrounding neighbours liked the idea of intensification, hoping that it might lead to a true sense of cohesion in the area. Given the sprawling suburb’s lack of a real downtown core, positionMorningside Ave. ing UTSC as a publicly accessible hub filled with intellectual and physical pursuits could be just the ticket for all concerned. It also creates investment opportunities near the campus, not the least of which are condo developments with almost guaranteed velocity of sales and rental income prospects. Broadening an already world-class faculty and enticing thousands more students to its campus means UTSC must place even more emphasis on business partnerships and co-development going forward. “There’s opportunities to create spin-out companies for [those] that want to be closer to the university’s academic mission,” says Arifuzzaman. “So we’ve created an Academic-Industry Partincial and municipal governments to erect nership Zone. What we see happening the Toronto PanAm and Parapan American is higher density development that Sports Centre, adjacent to the university’s has mixed-use retail at grade, and campus, in time for the 2015 games. And that actually creates incubator spaces these were not the only partners: UTSC and partnership spaces, to give the students voted 2 to 1 in favour of a $500 per university some flexibility as we destudent levy to help defray the enormous velop new programs.” costs. A legacy to future generations, like Future plans aside, UTSC has alYork University’s Markham campus PanAm Sports Centre, the Centre will provide both stuready accomplished much, according to Arifuzzaman. “We’ve created a very dent and public populations palpable sense of community pride in an area that typically with a 400,000-sq.-ft. facility hasn’t had that kind of pride. And we’ve opened up our boasting two Olympic-sized pools, a doors. We have a number of people coming to the university 10-metre high dive tank, four gymnasiums, and one of the that hadn’t been there before.” finest fitness facilities anywhere in North America. “We The gist of all this expert input demonstrates that wanted,” says Arifuzzaman, “to create another way to differpost-secondary venues attract energetic, eager young adults entiate the University of Toronto Scarborough from other and bright new ideas that provide invaluable sources of inuniversities in the system, and the Centre provides exactly novation and engagement to the surrounding community. that opportunity.” Whether increasing the worth of what is already in existThe school’s master plan calls for more foot-traffic-friendence or creating the right vibe to attract new development, ly design — among other things, turning Military Trail, the institutions of higher learning have a way of shaping thrivroad that bisects the campus, into a pedestrian spine. Then, ing social settings. In other words, if you build it — and stock too, more housing will be developed on a section of the school’s huge, 300-acre property. A new residential zone that it with smart people — they will come. b OCTOBER NOVEMBER 2014

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Images courtesy of: Diamond Schmitt Architects / Sheridan College Mississauga / York University / UTSC

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Street

The Morphology of Main OCTOBER NOVEMBER 2014

Collage by Roy Gaiot

By Michele Alborg

With the right components, a great Main Street can be a catalyst for ‘real’ mixed use and the focal point of a dynamic community where people want to spend time, connect and socialize.

he term ‘morphology’ brings to mind the notion of a living organism, and is a useful metaphor for the importance of designing an energetic and lively Main Street. Great urban design must be agile, containing as many successful components as possible to ensure a vibrant retail destination. While getting the retail tenant mix right is a key factor to success, it is equally important to create a unique place where people want to spend time, connect with their neighbours, and socialize. With a careful balance of urban design elements, an outstanding Main Street can serve as a first phase catalyst for a new mixed-use community by creating a town centre focus where people aspire to live, work and play. A hypothetical Main Street can be divided into two, highly interrelated areas: the ‘public’ areas of the street and the ‘private’ areas of the shops, façades and other building uses. These two pieces need to fit together seamlessly to create a bustling, livable, and successful Main Street.

A Street for People First off, a great Main Street respects and prioritizes pedestrians. It must be of human scale in size and proportion. As the lead urban designers for Rouse Hill Town Centre, a new model for regional mixed-use development on a greenfield site outside of Sydney, Australia, CIVITAS Vancouver designed the Main Street to be integral to the overall structure of the town center. It is a pedestrian-oriented, traffic calming, ecologically-themed place with its own character and verve. It is a street that is easy to jaywalk across, as people are the main focus of the street. Parallel-parked cars still animate the street, but the bulk of parking is handled by large underground parkades that are accessed from the edges of the precinct. On-street parking is flexible, and allows for a variety of changing events, such as street closures for markets and festivals, pop-up cafes, parklets, or food trucks. Bioswales and rain gardens reinforce low impact design (LID) initiatives for stormwater and create a strong native landscape character for the street. In Calgary’s Centre City Urban Design Guidelines, CIVITAS showed how the sidewalk can respect a rich variety of uses in the city. Here, different activity zones start from the building.ca

CADDIES BLVD.

MAINT STREET

TOWN SQUARE

MARKET SQUARE

LEISURE SQUARE

CIVIC WAY

TRANSIT CENTRE & RAIL STATION

building façade and move outwards, for example with the first zone designated for outdoor dining, followed by a walking and strolling pedestrian zone, a furniture and street tree zone, on-street parking and the traffic movement zone. The widths for each of these zones can vary depending on the specific character of the street, but it is critical that the pedestrian zone be sized to accommodate a comfortable flow of movement, have continuous weather protection to improve the street experience during inclement weather (which is especially relevant to winter cities such as Calgary), and provide a psychological ‘ceiling’ to the street space.

Stage One plan of Rouse Hill Town Centre, Sydney Australia

✤ retail ✤ office ✤ residential ✤ library /community centre

square should be active 18 hours a day, year round: a rather lofty goal achievable by extending programming beyond normal retail hours. Evening activities are integral to its success, which are affected by the tenant mix of the surrounding buildings and by having a lively program of events for the plaza. Restaurants and cafés offer great edge uses, especially when they engage the public realm with ample outdoor seating, and patio areas can create a sense of theatre in the plaza. Cinemas and theatres also extend use into the evening. Additional activity generators include café pavilions, information kiosks, children’s play features, areas for busking and street theatre, and public art. Above all, the space needs to be flexible, allowing for a variety of events to happen, from community events to markets and festivals.

A Place with a Great Retail Experience Creating a positive retail experience ensures sustained and repeat business. First, a Main Street should be a contained, walkable length. Defining the end points is key, thereby providing natural locations for large-scale anchor tenants such as grocery stores and cinemas. A good length is 300 to 400 metres, allowing for a strong sense of place that is visually and physically legible to pedestrians. Main Street should also provide a continuous experience, especially when considering phasing and leasing. ‘Gaps’ in the retail experience can dilute the overall impact of the street. Likewise, it is important to minimize ‘spatial leakage’ that can happen if people are forced to navigate awkward corners and street crossings. A dense, uninterrupted rhythm ensures a sense of activity at street level and consistency of shop fronts. To encourage walkability, the quality, size and spacing of street front shops is crucial. Smaller frontages that ‘sleeve’ big box uses can reinforce the human scale, and can lead to more fine-grain shopping opportunities. Corner uses should be architecturally unique and active, further con-

The Main Square Another key element of success is the experience of the main square, which can serve as an animated ‘heart’ of the shopping street. As such, it is crucial to direct activity to this square, especially in a project’s early phase. A great main square is influenced by several factors: the size of the space, its orientation, the surrounding (preferably active) building uses, and its programming. Getting the size right is the first step – the space needs to feel intimate but not small. The size is related to the height of the podium level of the surrounding buildings and should achieve a balance of openness and containment. The main OCTOBER NOVEMBER 2014

. DR RT HA E T I WH

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A Living Street – A Balance of Uses Economic studies will typically prescribe a tenant mix for an anticipated market. With that in mind, urban designers can work creatively with economic consultants and developers in the early stages of planning, especially if the existing markets don’t already contain compact, pedestrian-oriented developments. Looking at innovative precedents can broaden the conversation and get the development team excited about unconventional approaches to a holistic urban experience. The importance of a grocery store to the first phase of a new community cannot be overstated, as it can motivate residents to move into an emerging community. Locating the grocery store is key, with good design ensuring that functional requirements such as loading and parking can be accommodated while creating a fine-grain retail experience. Activating the street interface is critical, and several grocery stores, such as Urban Fare in Coal Harbour, Vancouver, successfully site an active café use along the street edge. The bulk of the tenants for a typical retail program are specialty retailers such as clothing, housewares, electronics and larger format tenants such as drug and furniture/garden stores. Food and beverage, another specialty retail type, can be a lynchpin in the design of the retail street. Pubs, restaurants, and cafés generate activity and should be located in sunny, high pedestrian traffic areas such as street corners and the main square. Service retail, such as banking, hair salons, dry cleaners, and

Currie Barracks Core District Plan, Calgary

Main Street, Currie Barracks

Property line

tributing to the continuity of the retail experience. Lastly, with mixed-use as a goal, shopping streets may have office and residential uses stacked above shops. Lobby access is highly desirable by reinforcing a sense of a ‘living street’ and influences the urban character at ground level. The location of lobby entries to these vertical uses must be carefully planned in the overall structure of the street.

Continuous canopy

Calgary Urban Design Guidelines Streetscape

On-street parking

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1.5m min. furniture zone

2.5m min. pedestrian zone

1.0m min. patio flex zone

Retail

al library/community centre with a distinctive façade that engages the plaza. Not to be overlooked, orientation, especially in our northern climate, is extremely important. Sun should illuminate the retail façade between the spring and fall equinox, and hopefully further into the winter. Many factors affect sun access, including tower placement and overall building massing, weather protection, and landscape, so it is important to diligently study the shadow impacts on Main Street from the earliest stages of design. As there is no exact recipe for getting the form and function of the ‘new Main Street’ right, we need to think outside the (strip mall) box and explore emerging market trends that promote interactive, engaging, and flexible retail destinations. Developers, retailers, and designers can embrace a modern shopping village vision by prioritizing pedestrians and ensuring that the built form supports fine-grain frontages and a broad mix of uses. A successful Main Street combines the commercial goal of grouping a collection of marketable and profitable stores alongside the aspiration of creating a thriving commercial spine where residents and visitors love to shop, work, and play. b

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Images courtesy of CIVITAS

so on, adds to the convenience factor of the street for the local residents. Additionally, the floors above ground-level shops can be a potential activator, by incorporating visual access to upper uses. Fitness centres and gyms offer an activated façade that extends the typical retail hours. Medical or learningbased can also have activated uses such as classrooms and waiting areas that overlook the street. Main Street should also contain public amenities that complement the retail program. Civic amenities, such as a community centre, education facility, or library can activate the street and act as a general catalyst for development. For example, Rouse Hill Town Square is anchored by the region-

Town Square at night, Rouse Hill Town Centre

Courtesy of GPT

32 28

Clearing the Way Open data, REIT structures and energy certification schemes are some of the factors that can improve a country’s real estate transparency, according to a new report. By Peter Sobchak

JLL

’s eighth Global Real Estate Transparency Index shows continued progress in the transparency of commercial real estate around the world. Over 80 per cent of the 102 markets covered by the index have registered improvement in their overall score since 2012, with 14 countries seeing significant progress generally correlating with a surge in foreign direct investment, corporate occupier activity, and investors that help to accelerate transparency reforms. The world’s most transparent markets continue to be dominated by the highly liquid Anglophone markets. The U.K. has inched past the U.S. to move into top position, while Australia, New Zealand and Canada sit in third, fourth and sixth place respectively. Differences in transparency among these ‘Highly Transparent’ markets are marginal, however, and each has been jockeying for top position over the past decade.

‘Open data’ policies and REIT structures boost transparency

More governments appear to be embracing a policy of ‘open data’, for example allowing easy online access to land registry information. France and Finland are taking major steps towards open data which is further boosting their already high transparency levels. But this is not just a trend in the more transparent markets — several initiatives are underway in countries traditionally characterised by low transparency. Qatar, in a major move to increase transparency, announced a new open data policy earlier this year which involves the release of a large quantity of government-held, non-personal data to residents. In Uruguay, public land registry information is now available online, while Kenya is starting to digitize all its land records. The introduction of REIT structures continues to underpin improving transparency in several countries. Ireland is seeing the renaissance of the listed sector, with Green-REIT (launched in summer 2013) being the first company making

use of the new REIT regime. In Mexico, following the inauguration of the FIBRA (Mexican REIT) market in 2011, data availability has certainly increased. Meanwhile, proposed legislation in Panama would allow for the formation of a listed REIT market, whilst the government in Kenya has also recently passed REIT legislation. In China, CITIC has recently won regulatory approval to issue the country’s first REIT.

Wider adoption of sustainability tools

In recognition of the growing importance of environmental sustainability to the real estate industry, JLL created a Real Estate Environmental Sustainability Transparency Index in 2012, assessing the tools and regulations for building energy design efficiency, operational performance, carbon emission reporting and green building certifications. In 2014 the Index has been extended to include 33 countries. While the overall average transparency score has not changed since 2012, there has been a large increase in the number of countries in the ‘Highly Transparent’ and ‘Transparent’ categories. These two groups now account for just over half of all countries, a sign that sustainability considerations are becoming a widely established element of the real estate market. Australia, France and the U.K. remain at the top of the ranking, while seven countries improved their scores sufficiently to join the ‘Transparent’ category — Belgium, Canada, Denmark, Hong Kong, Italy, New Zealand and Spain. Improvements in country scores have been driven by two key factors: the greater availability of market-specific green building certification schemes, which are now available in the majority of surveyed markets; and the wider adoption of energy benchmarking systems — with minimum energy efficiency standards now in place in virtually all surveyed countries. However, what sets the top three countries apart is the introduction of financial performance indicators, which establish a link between sustainable buildings and their financial performance. building.ca building.ca

Nigeria

Algeria

Af ric a

Serbia

Romania

Hungary

Tier 1 cities

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Minimum energy efficiency standards are now in place in virtually all surveyed countries, with a majority making it a mandatory compliance element for new buildings. In parallel with the high penetration rate of minimum energy efficiency requirements, country-specific green building systems (such as BOMA BESt in Canada) are available in most surveyed markets, with many providing publicly available information on certified buildings. Another indicator of the popularity of green building rating systems is the presence of LEED certification in all 33 countries.

Uneven progress on energy consumption benchmarks

While average scores of most categories improved, only half of all surveyed countries have building energy benchmarking tools in use. In Europe, EU member states have, as a result of the 2002 European Energy Performance in Buildings Directive, introduced energy consumption benchmarking systems based on building design or actual consumption. Since the 2012 survey, building energy benchmarks are now required to be made available in all marketing collateral to potential tenants who intend to rent in a building. “While these initiatives were certainly in existence in building.ca

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Global Real Estate Transparency Index 2014

Top improvers by region

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India

Ireland

OCTOBER NOVEMBER 2014

Kazakhstan

No rth

Mauritius

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Peru

Kenya

Quatar

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SubSaha ran A frica

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2012, they were not used as widely in Canada at the time compared to other nations, particularly those in Europe. By 2014, however, Canada had adopted these green initiatives more extensively and its score in the Index improved accordingly,” says Chris Langstaff, Senior Vice President, Research & Strategy, LaSalle Investment Management. These U.S. and EU energy consumption benchmarking systems help establish a basis for energy reduction measures. However, there are only a few countries which impose any mandatory energy efficiency improvement measures despite a large proportion of existing stock that is in need of such upgrades. These improvements could help futureproof assets against more stringent environmental regulations expected to be introduced over the coming years and decades and attract corporate occupiers who demand more energy efficient and sustainable office space. What would it take for Canada to improve its transparency rankings in the next report in 2016? “The continued progression and wider adoption of financial performance indicators — meaning a green building investment return benchmark related to green buildings — which have been around in some countries for a few years but are still relatively new in Canada, will certainly help,” says Langstaff. “While REALpac / IPD did launch a Canada Quarterly Green Property Index in late 2013, it was still in the ‘consultative’

Sub-Saharan Africa shows greatest improvement stage when we were compiling data for the Transparency Index in early 2014. Thus we were not able to score Canada highly in that particular category at that time. But assuming its further adoption, as well as continued growth in the number of LEED certified new and existing buildings and spaces, continued demand for such spaces by tenants, and continued growth in and recognition of other energy-related and green initiatives, we fully expect Canada will continue to improve its overall score when we next update the Environmental Sustainability Transparency Index.”

This year, SubSaharan African countries have taken centre stage, as improving transparency pushes into the frontiers of the commercial real estate industry. Five out of the Global

Growing expectations of market transparency

Top 10 improvers in the 2014 Index

The world’s dominant commercial real estate markets are in better shape than at any time since the Global Financial Crisis of 2008-2009. Levels of real estate investment activity are returning to pre-crisis levels and investors are moving up

are from the SubSaharan region, led by Kenya, Ghana and Nigeria, where concrete efforts are

the risk curve into new geographies and property types. Meanwhile, corporates are now executing long-term portfolio strategies and selectively extending their footprints into emerging markets. As momentum builds across the global real estate markets, investors, developers and corporate occupiers are demanding (and expecting) ever greater levels of real estate transparency. At the same time, there is a growing recognition by governments, particularly in emerging economies, that poor real estate transparency not only hinders inward investment and long-term growth prospects, but also has deep impacts on the quality of life of its citizens. b

being made to

2014 COMPOSITE SCORE

TRANSACTION PROCESS

REGULATORY AND LEGAL

LISTED VEHICLES

and the regulatory

MARKET FUNDAMENTALS

INVESTMENT PERFORMANCE

MARKET

improve governance

framework in order to create a more business-friendly environment. Nonetheless, African countries are rising from a low base and Africa remains the

United Kingdom 1.0 1.6 1.0 United States 1.4 1.3 1.0 Australia 1.4 1.5 1.1 New Zealand 1.8 1.5 1.1 France 1.6 1.8 1.3 Canada 2.0 1.7 1.3 Netherlands 1.4 1.6 1.3 Ireland 2.5 2.1 1.0 Finland 2.1 2.0 1.2 Switzerland 1.5 2.9 1.1 Sweden 2.0 2.2 1.2 Germany 2.0 1.9 1.6 Singapore 2.1 2.2 1.2 Hong Kong 2.1 1.7 1.7 Belgium 2.4 2.2 1.1 Denmark 2.9 2.1 1.4 Poland 2.8 1.6 2.0 Spain 2.6 2.2 1.6 Norway 2.5 2.9 1.5 South Africa 2.4 3.4 1.3 Austria 2.3 3.0 1.5 Italy 2.1 2.5 1.5 Portugal 2.5 3.1 1.7 Czech Republic 2.9 2.2 2.4 Hungary 2.9 2.7 2.0 Japan 1.9 3.4 1.9 Malaysia 2.8 2.6 1.9 Brazil - Tier1 3.2 2.5 2.0

1.3 1.3 1.2 1.4 1.3 1.3 1.3 1.4 1.4 1.4 1.0 1.4 1.6 1.1 1.5 1.2 1.2 1.5 1.9 1.3 1.6 1.1 1.0 1.6 1.6 1.2 1.7 1.6 1.3 1.7 1.6 1.5 1.8 1.8 1.3 1.8 1.4 2.1 1.8 1.8 1.8 1.9 1.6 2.0 1.9 1.3 1.8 2.0 1.7 2.0 2.0 2.0 1.4 2.0 1.5 1.8 2.1 1.6 1.4 2.1 1.5 2.1 2.1 2.1 2.0 2.1 1.8 1.6 2.2 1.9 1.6 2.2 1.8 1.3 2.2 1.8 2.3 2.2 1.7 2.3 2.3 2.1 2.0 2.4

Real Estate Environmental Sustainability Transparency Index 2014

most opaque continent, home

Highly transparent

Australia France UK

to six of the world’s 10 least transparent real estate markets. Doing business

Transparent

in Africa is not easy, and while great strides have been made over the past two years, much still needs to be achieved.

Semi-transparent

Austria • Belgium Canada • Czech Republic Denmark • Germany Hong Kong • Italy • Japan Netherlands • New Zealand Singapore • Spain Sweden

Brazil China • Croatia India • Ireland Poland • Russia Switzerland USA Low transparency

building.ca

Romania UAE-Abu Dhabi South Korea Slovakia • UEA-Dubai Mexico • Turkey

BY THE NUMBERS

By Soo-Ling Huang

eal estate traditionally lends itself to joint investment with various investors (co-venturers). Real estate deals are constantly evolving, mirroring the developments occurring in the economy, the real estate markets, and investors’ objectives. With the change in the structure of these arrangements, the accounting for them has become complex and, at times, inconsistent. This has resulted in joint investment accounting that does not faithfully represent the economic reality. Currently, Canadian private investors have multiple accounting options for their investments. Like investors’ confidence, which reflect the true nature of real estate deals, accounting standards also need to evolve alongside this economic reality. The International Financial Reporting Standard for joint arrangements was recently revised and is applicable to publicly listed entities. At the heart of this standard is the concept of ‘joint control’ — what investors actually own and owe. The Canadian Accounting Standards Board also reviewed this concept and a revised standard (s.3056, Joint Arrangements) was released in September, 2014. This revised standard will apply to private entities for fiscal periods starting on or after January 1, 2016. The focus is on the concept of joint control and investors’ rights to individual assets and liabilities or net assets with the objective of making the accounting treatment user-friendly, as well as reflective of the real estate arrangement.

How does this affect me?

This revised accounting standard will likely not impact your real estate investment cash flow, but could impact the ‘look’ of your financials and how and what you communicate with your investors. Under the new standard, the classification of the investment determines the accounting treatment. Some real estate deals involve two or more investors bound OCTOBER NOVEMBER 2014

building.ca

New accounting rules for real estate and joint investments

by a contractual arrangement, which establishes the rights and obligations of each investor. The question to ask is: are there two or more investors who jointly control the arrangement? Joint control allows investors to share power when determining strategic operating, investing and financing policies. Simply, they act together to run the business. But joint control need not be shared by all investors. As every joint investment is structured uniquely, the assessment can only be made after careful review of the terms of the contractual arrangement. The analysis here takes into account that the investment was done through the establishment of a separate entity. Control is not limited to the form and/or structure of the arrangement such as a partnership, co-tenancy, corporation, joint venture or undivided interest. If joint control exists then these investors can choose to record all such investments using either the cost or the equity method of accounting. This is a simplification over the current standard of three choices of cost, equity or proportionate consolidation. (Note: If joint control doesn’t exist, then the investor should assess if it is a passive portfolio investment or if there is significant influence, and record the investment accordingly.) Here are two scenarios to assess whether joint control exists:

Scenario I:

Participant A owns 35%, Participant B owns 35% and various other participants collectively own 30% of the Joint Venture. The arrangement requires majority approval for decisions to be made. This could be a situation whereby participants A and B are knowledgeable real estate operators and the other participants are money partners. In this scenario, it is not automatic to assume that Participant A and B have joint control. Joint control could be a combination of Participant A and some of the other participant (16% collectively). Participants A and B will only be considered to have joint control if the arrangements specify that decisions need to be approved by both A and B. The various other participants are likely holding the investment passively, and would be recording it using the cost method.

Investment in a jointlycontrolled enterprise using scenario II ownership structure Partnership’s statement

Parnter A’s statement under cost method

Parnter A’s Parnter A’s statement statement under under equity method proportionate consolidation method

Cash

100,000

1,000

51,000

Interest in partnership

n/a

5,000,000

5,050,000

—

Real estate

10,000,000

—

5,000,000

Other assets

2,000

—

1,000

Total assets

10,102,000

5,001,000

5,051,000

5,052,000

Long-term debt

2,000

3,000,000

3,001,000

Capital A (50%)

5,000,000

n/a

—

Capital B (30%)

3,000,000

n/a

—

Capital C (20%)

2,000,000

n/a

—

Share capital

n/a

2,001,000

Retained earnings

100,000

—

50,000

Revenue

300,000

—

150,000

Equity pick-up

n/a

50,000

Expenses

(200,000)

—

(100,000)

Net earnings

100,000

—

50,000

Scenario II:

Partner A owns 50%, Partner B owns 30% and Partner C owns 20% of the Partnership. The Partnership agreement specifies that at least 75% of the voting rights are required to make decisions for the Partnership. As only Partner A and B together can make decisions, this would imply that A and B jointly control the Partnership. Partner A and B need not apply the same accounting method in their own recording of the investment in Partnership. Partner A could record the investment using the cost method, while Partner B could use the equity method.

Soo-Ling Huang, CPA, CA, CFP, is a Director in the Professional Practice Group at Crowe Soberman LLP in Toronto. Soo-Ling assists in the monitoring of accounting and assurance standards, as well as standards regarding professional conduct and quality control.

The investors do have the option of undertaking further analysis of what they own and owe in the joint arrangement, to see if they are required to apply the third method of accounting. The third method is ‘proportionate consolidation’, the recording of the investor’s interest in individual assets and liabilities for which they have rights and obligations. Alternatively, if the investor has the right only to the net assets of the arrangement, then this third method is not available. Normally, the legal form of the separate entity (jointlycontrolled enterprise) would indicate if the investors have rights to the net assets. Then why undertake further analysis to see if the investors actually have rights to individual assets and liabilities instead? That’s because the terms agreed to by the investors in the contractual arrangement (and other facts and circumstances) can override the assessment of the rights and obligations conferred upon the investors by the legal form of the jointly-controlled enterprise. This optional assessment might be to the investors’ benefit should the investor need to show the assets and liabilities of its participation in their own financial statements. For example, the investor might have a bonus program that is reflective of certain activities level, which can only be captured through either the equity method or the proportionate consolidation-style accounting. To the left is an example of the end result of an investor accounting for its investment in a jointly-controlled enterprise under the three accounting policies. This example assumes that the further analysis leads to the conclusion that the investor has rights to individual assets and obligations and not net assets. The method of accounting chosen will be dependent on the uses of Partner A’s financial statements. From the example of Partner A’s financials, the numbers are quite different under the three methods of accounting, but it’s the same investment! The cost method shows no activities from the Partnership at all, the equity method shows earnings pick up only (no real estate), while the proportionate consolidation method shows real estate and operations of the Partnership. The accounting method you use will affect how you present the information to your investor and how you satisfy their needs. Choose the right accounting method to serve your business purpose and the way you structure your contractual arrangement.

So what’s next?

Assessing whether joint control exists in a real estate investment is not always a straightforward task. Further, this determination will direct the accounting choices available. The accounting choice might not affect your cash flow but it will affect the investors’ financial statements significantly. Each accounting method has its place and purpose and needs to be evaluated on an individual basis. Consult your accountant to assist with the review of the contractual arrangement and its impact on the financial reporting. b building.ca

V I E W Walk with Joy ULI Toronto’s Executive Director and the Ontario Director of the Pembina Institute discuss what homebuyers apparently want versus what they are getting. By Richard Joy

Eighty one per cent of Greater Toronto Area homebuyers want walkable, transit-friendly neighbourhoods to live in, according to a report released this fall by the Pembina Institute and RBC. And yet a significant percentage will settle for car-dependent communities. Shouldn’t we be changing this paradox? I took a walk along Roncesvalles Avenue in Toronto’s west end with the report’s author and Ontario Director of the Pembina Institute, Cherise Burda, to better understand this significant disconnect. Obviously, as the report makes clear, affordability trumps location preference in the real estate marketplace. Makes sense. Homebuying families are often “driving to qualify” for a mortgage, landing in car dependent suburbs where homes are more affordable. But their transportation costs, which Pembina calculates to be upward of $200,000 per car over a 25-year period, are not factored in the sticker price of the house. The result, Burda says, is that it can be more expensive to live in these suburban communities, with the added irony that this is not what most homebuyers actually want. To further this important analysis of modern home economics, RBC has engaged Pembina in yet another analysis that will spell out in precise detail the monthly costs comparisons of comparable home purchases in different neighbourhoods across the region. This report is expected later this year and is sure to give future homebuyers some pause for thought. Nonetheless, the reality of land supply economics is that our car-oriented suburban communities will continue to have a stranglehold on the real estate market outside of the city core unless we more aggressively expand the transit-oriented land supply in our region. This means intensification. I grew up near St. Clair Avenue and Yonge Street, a neighbourhood that experienced significant intensification over the past half century. It was once a quiet and stable neighbourhood that real estate developers targeted for its coveted transit convenience. Massive intensification ensued and OCTOBER NOVEMBER 2014

building.ca

now the neighbourhood is still a quiet and stable neighbourhood – only with better shopping and parkland amenities. The same development story has played out along Yonge Street at Eglinton and Sheppard Avenues. Each residential intensification, vigorously opposed by its established residents, resulted in more liveable communities than before. But the Yonge Street subway spine’s few examples of responsible residential intensification stand as exceptions to the rule in the Toronto region. The tragic history of our large-scale capital investments into transit infrastructure is massive under-development. My walk with Cherise ended at the intersection of Bloor and Dundas Streets. Standing in front of the now-defunct Giraffe Condominiums high-rise project across the street from two equally tall public housing apartment buildings, on top of a subway station, and the soon-to-be-opened Union-Pearson Express station, she observed that such examples are missed opportunities to create affordable transit-oriented market housing in our city. Indeed, the Bloor-Danforth subway corridor is a land use crime scene. Looking forward, the Province and the regional municipalities are again on the brink of making massive transit infrastructure investments, most notably the electriRichard Joy is Executive Director of ULI Toronto. fication of the GO train network. If history repeats we could again squander Previously, he served as these critical opportunities to fully leVice President, Policy and verage these capital investments of Government Relations at public dollars by not ensuring that the Toronto Board of development follows (or better yet, Trade, and was the leads). Clearly this is something we Director of Municipal cannot afford to do. Affairs and Ontario We need a more modern approach to (Provincial Affairs) at achieving the land use outcomes we Global Public Affairs. seek. We need to do this because of Follow him on Twitter what we have long known: that transit@RichardJoyTO or email oriented communities are the environat Richard.Joy@uli.org mentally responsible, economically sound and operationally efficient approach to land use. And now, as the Pembina report makes clear, we know we need to do this because this is what future homebuyers really want. b

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