Building June July 2016 by IQ Business Media

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66 03

what’s on BUILDING.ca

READ > An Anti-AntiDevelopment Rant David Allison vents his frustrations at how community activists blocked a legitimate development.

CONTENTS

FEATURES

15 > How Sexy Is Your City? /

The next generation of talent will require cities to take a next generation approach to city building. By Brandon G. Donnelly

20 > Building for Boomerennials / When it comes

to how they want to live, Boomers and Millennials share many of the same needs and wants. Can homes and communities be built that work for both? By David Allison

READ > Security Deposit Insecurity A new Alberta Court of Appeal decision should remind landlords that there is actually very little “security” in a “security deposit.”

24 > Checking In / The Canadian hotel real estate investment market continued its upward trajectory in 2015 with record-setting metrics. By Fraser Macdonald

28 > Disrupting Green Building / Certified green

buildings are failing to fulfill a promise to transform the marketplace in a meaningful way. What we need is a green building revolution. By Jerry Yudelson

EXPLORE > Bota Bota Gardens MU Architecture designed an oasis of relaxation in the heart of Old Montreal.

ABOVE IMAGE:

IN EVERY ISSUE

6 > Editor’s Notes 8 > Developments 10 > Market Watch 12 > Legal 30 > Viewpoint

The Ryerson University Student Learning Centre, designed by Snøhetta and Zeidler Partnership Architects, is a library built for the digital age that encourages students and budding entrepreneurs to interact with the campus and city. (Photo by Lorne Bridgman)

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Volume 66

03 Number

Help wanted

How many of you have a Data Scientist, Robotics Specialist or Virtual Reality Designer working in your company? Are any of your friends Industrial Network Engineers, Cyber Security Analysts or “Customer Makers?” Be honest: do you even know what a professional “triber” is? And don’t be embarrassed if you think a Neuro Implant Technician is something from a Robert A. Heinlein novel. If you know what these job titles mean, and what the holders of them actually do, then congratulations, you are ahead of the game. If not, you are like the vast majority of us. But the reality is, these are the jobs of the future, and cities that want to not only be a part of the future but succeed in it have to be the places where these individuals want to come. To compete in the global economy cities need to develop, attract and keep talent. But while every metropolis in the world is competing on that front, they are not all competing equally. Something sci-fi novelist William Gibson once said — “The future is already here, it's just not very evenly distributed” — echoed in my brain as I listened to a fascinating Meeting of the Minds webinar back in January led by Jeanne Beliveau-Dunn, who holds the title of Chief Knowledge Officer at Cisco Services as well as president and Chairman of the IoT Talent Consortium, of which Cisco is a primary member. She discussed how a “talent deficit” is impacting cities on a global scale, using stats that are startling: global unemployment has topped 212 million, according to the International Labor Organization, while last year, 36 per cent of employers worldwide reported facing difficulties in finding talent, the highest percentage in seven years, according to the World Economic Forum. It is estimated that 42 million new jobs will need to be created each year if the world economy is to provide employment to the growing number of new entrants into the labor market. At a time when cities worldwide are urbanizing at the rate of 10,000 people per hour (equivalent to one new city the size of London every month), “We have entered a global economy where talent and skills shortages challenge economic and business growth around the world,” says Klaus Schwab, chairman of the World Economic Forum. It’s clear the system we have relied on in the past to cultivate talent will not provide a sustainable model for the future. So the big question facing cities that want to become smarter, competitive and more sustainable is, what role does the skills and talent of people both present and incoming – not just to a city proper, but through the job pipelines – play in realizing those goals? We have examined in this magazine before (most recently in the February-March 2016 issue) how urban infrastructure is intelligent, connected, and aware, not just in “the future” but right now, yet paradoxically at a time when it is also crumbling. As Beliveau-Dunn said, if cities are to prosper, "We need new types of skills, new types of talent to make this happen.” The agenda of cities must be to attract the best companies and the best talent, because with digitization impacting every single industry, there is an urgent need to help individuals reskill, and at the same time, upskill the next generation of talent in order to figure out new ways to provide solutions to our cities. Which means you should get to know your friendly neighbourhood Cloud Architect, Machine Learning Scientist and Digital Anthropologist. And if you know of any Business Transformation Practitioners, tell them I may have a job for them.

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

David Allison, Brandon G. Donnelly, Richard Joy, Fraser Macdonald, Jerry Yudelson

Customer Service / Production Laura Moffatt 416 510 6898 Circulation Manager circulation@building.ca Sales Manager Faria Ahmed 416 510 6808 fahmed@building.ca Senior Publisher / Tom Arkell President, iQ Business Media Inc. Alex Papanou Building magazine is published by iQ Business Media Inc. 80 Valleybrook Dr. Toronto, ON M3B 2S9 Telephone: (416) 510-6845 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 Subscription and back issues inquiries please call 416-510-6898, 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 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).

Occasionally we make our mailing list available to reputable organizations whose products or services can be of interest to our readers. If you do not wish to be included, please e-mail or write to us. Building is published six times a year. Printed in Canada. The content of this publication is the property of Building and cannot be reproduced without permission from the publisher. We acknowledge the financial support of the Government of Canada through the Canada Periodical Fund of the Department of Canadian Heritage.

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Proud member of

We welcome your feedback. Send your questions and comments to psobchak@building.ca JUNE JULY 2016

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DEVELOP-

Demand for industrial real estate has been steadily accelerating TORONTO | Canada’s major industrial real estate markets

News Canada’s construction market making headway towards recovery LONDON, U.K. | Despite contracting by 1.7 per cent in 2015, the construction industry in Canada is forecast to improve over the next five years and reach US$321 billion by 2020, according to a report by Timetric’s Construction Intelligence Center (CIC). Canada’s construction industry recorded a weak performance, with its output value dropping from US$294.1 billion in 2014 to US$289 billion in 2015. Factors such as fragile economic conditions, low commodity prices, poor fixed-capital investments and a high rate of unemployment contributed to its weak performance. However, the industry’s future is getting brighter as its value is forecast to pick up from 2016 with investment in public and renewable energy infrastructure, commercial projects and improvements in consumer and investor confidence. Several government programmes, such as the Affordable Housing Initiative (AHI), New Building Canada Plan and Made in Canada, will also continue to support the industry’s growth over the forecast period (2016–2020). The industry’s output value is expected to rise at a compound annual growth rate of 2.13 per cent in real terms over the forecast period; down from 2.29 per cent during the review period (2011–2015). Timetric expects the industry to increase from US$289 billion in 2015 to US$321.1 billion in 2020, measured at constant 2010 U.S. dollar exchange rates. “Growing population, urbanization and improvements in domestic manufacturing activities will likely be the main drivers behind the industry growth. The government’s efforts to enhance the residential and public infrastructure will also contribute,” says Danny Richards, lead economist at Timetric’s CIC. Residential construction is expected to take on more importance in the industry over the next five years, to account for 38.4 per cent of the industry’s total value in 2020. The market will be supported by a rising population, urbanization, and improving economic conditions. According to the United Nations Department of Economic and Social Affairs, the country’s population is expected to reach 37.6 million in 2020 and 40.4 million in 2030. Government efforts to provide affordable houses to the lower- and middle-class population through AHI will also encourage growth in the market. Affordable houses to the lower- and middle-class population through AHI will also encourage growth in the market. JUNE JULY 2016

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of Vancouver, Toronto and Montréal entered a new era of growth in 2015, breaking pre-recession absorption records in some markets and set to have another banner year, according to a report by Cushman & Wakefield which points out that Canada’s industrial markets were steadily gaining traction through 2014 and 2015, while many office markets were feeling the pain of the oil shock and choppy national and global economic conditions. Last year, occupiers of industrial property across Canada absorbed 17.8 million square feet (msf) of space, making it one of the “hottest growth periods” in the sector’s history, says the report. The Greater Toronto area — the third largest industrial market in North America — saw vacancy plunge to 3.7 per cent in 2015, due largely to increased e-commerce-related demand for warehouse and distribution space. The market growth is being fueled by low energy costs, a competitive Canadian dollar, low interest rates, growing U.S. demand, and the evolution of e-commerce. Key findings include:

• Canadian industrial absorption spiked to 17.8 msf in 2015 after reaching 10.6 msf in 2014. This was the strongest performance since 2005 and one of the fastest expansionary accelerations in history; • Toronto absorbed a remarkable 9.1 msf of space in 2015, the strongest growth seen since Q1 2008, prior to the financial crisis; • Vancouver saw the strongest expansionary growth relative to its size, absorbing 4.5 msf in 2015, the strongest performance in more than 15 years;

• Montréal saw momentum kick into gear with absorption averaging 625,000 square feet per quarter, and topping 900,000 square feet in Q4 2015; •C algary, and especially Edmonton, will shift to negative absorption, as the impact of the energy bust widens.

Canadian Wood Council supports ‘30 by 30’ climate change challenge OTTAWA | The Canadian Wood Council (CWC) is supportive of the Forest Products Association of Canada’s (FPAC) launch of the ‘30 by 30’ climate change challenge, a commitment to help Canada remove 30 megatonnes of CO2 by the year 2030. FPAC is currently working on a detailed roadmap to illustrate how it intends to meet the climate change challenge, anticipating that key successes will be reached through active forest management practices that maximize carbon storage in forests and spur growth of trees, increasing the

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use of innovative forest products and clean technologies to displace fossil fuel emissions and by increased efficiencies at mill sites.

People in the News UBC researchers discover cure for ‘concrete cancer’

New Projects

KELOWNA, B.C. | Researchers from UBC’s Okanagan campus have found a more reliable way to make concrete Kengo Kuma reveals from discarded glass. In a recent study, design for large-scale tower they were able to calm a chemical reacin Vancouver tion that has traditionally caused glassfed concrete to weaken, expand and VANCOUVER | Japanese architect Kengo crack, a reaction known as ‘concrete Kuma has revealed plans for his first cancer.’ “Every year, millions of tons of North American, large-scale residenglass bypass recycling centres and end tial tower in Vancouver. Being called up in North American landfills,” said asAlberni by Kuma, the proposed 43-storsociate professor Shahria Alam. “Like ey tower near the entrance to Vancoumany engineers, we are interested in ver’s Stanley Park is being led by Kengo making smarter building materials that Kuma and Associates (KKAA) and decan give the construction industry veloped by Westbank and Peterson, the resources they need without necesand is dominated by two elements: a sarily having to take new resources out gentle structural curve, and a moss of the ground.” garden that surrounds the base of Concrete cancer occurs when the althe tower. kaline properties in cement paste react “In Japanese space, boundaries are with silica properties that can occur in considered mutable and transient. This recycled concrete additives, such as is always an important part of my work,” glass. In their study, Alam and co-resaid Kuma. “In this project, the minsearcher Anant Parghi, found that by imal glazing details and the layered adding a water-based synthetic rublandscaping blur conventional boundber polymer, fly ash, and silica powder aries to enhance the sense of continuity. The design celebrates the presence to the concrete mixture, they were able to effectively neutralof nature in Vancouver.” ize negative chemical reactions. The architectural components of “Though further testing is needed to assess long-term the tower begin with small units; the stability, it now looks like we can replace up to 25 per cent of the cement materials that had to be mined for cement propanels on the façade, the timber of the woodwork, and the duction with glass,” said Parghi. “Researchers have been planks in the corridors are all aggregated into a larger whole, looking for a long time for ways to reliably make use of glass which form the tower. The use of anodized aluminum and in concrete construction, and we believe that this research glass on the exterior allow a reflection of the neighbourrepresents a significant advancement in that search.” b ing buildings and sky, giving external transparency, while various woods on the exterior and interior add similarity to Kuma’s other designs. With a curved silhouette, the tower’s two carved semi-inclusions will create the appearance of spatial balance. The tower’s 181 residential units will be primarily located in the semi-inclusions and have substantial patio spaces designed as open gardens to create personal urban spaces. The mixed-use development will also include a retail space and restaurant. “I have always wanted to have a project in Canada because of its closeness to nature,” said Kuma. “Typologically, this is a large-scale project in North America, a dream for any foreign architect. We have done towers, but not to this scale and level of detail.” building.ca

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MARKE T Spotlight: Housing FOREIGN BUYERS – mortgage professionals surveyed by Fortress

Housing market correction fears "exaggerated"

indicated that approximately eight per cent of their clients were foreign buyers or recent immigrants, while 25 per cent of respondents supported a ban on foreign buyers as a way to prevent a housing correction in Canada. MORTGAGE FRAUD – 38 per cent of mortgage brokers and agents are very concerned or somewhat concerned about mortgage fraud in Canada. Based on survey results, over two-thirds of mortgage fraud is either occupancy fraud or fraud for shelter. “The industry takes misrepresentation very seriously, and as a group we’ve all taken some very strong actions over the last few years to reduce instances of misrepresentation and fraud in the industry,” said Stuart Levings of Genworth MI Canada Inc. OVER LEVERAGE – More than half of the mortgage professionals surveyed believe their clients purchased a home that fit their budget, while 23 per cent believed their clients were being conservative, and 11 per cent felt their clients were very risk averse. Only 17 per cent of mortgage holders are believed to be stretching their budget (eight per cent) or are over leveraged (nine per cent). OVERPRICED HOUSING – over 42 per cent of respondents to the public survey (distributed via social media) listed overpriced housing as their top choice as a potential catalyst for a housing correction in Canada. Many economists and financial institutions have warned of overvalued housing, with many of the international sources like

Despite a decade of warnings, the latest "hot button" threats to housing market stability — foreign investors, mortgage fraud and over leveraged buyers — have no comprehensive statistical support, says Fortress Real Developments in the spring 2016 edition of the Market Manuscript. Now released for the fifth time, the Market Manuscript includes results of Fortress' own original surveys, third-party statistics, forecasts and analysis to look at national and metropolitan area housing trends. "No government agency or private entity publishes data on international home buyers or their source of funds," says Ben Myers, senior vice president of market research and analytics at Fortress, and author of the report. "It is impossible to fully assess the impact of foreign buyers, inappropriate mortgage activity, or the extent to which Canadians are responsible borrowers based on the currently available data. With the limited information out there, and our own survey research, we feel the fears of a major house price correction are overblown."

Finch Ratings, IMF and OECD making the most egregious housing price evaluations. These foreign sources scored poorly in separate poll questions on the trustworthiness of sources of housing analysis on the Canadian market, ranking behind bloggers and financial institutions that work outside the housing industry. NEW HOME PRICE EXPECTATIONS – based on a poll conducted on BuzzBuzzHome, 43 per cent of respondents believe new home prices in Toronto will increase by three per cent to seven per cent in 2016. Last year, half of poll respondents called for new home price growth of zero to three per cent; according to RealNet Canada, new low-rise house prices increased 18 per cent in 2015. For Calgary, 52 per cent of survey respondents expect new home prices to decline by five per cent or more, compared to 44 per cent last year. CMHC reported that new single-detached house prices in Calgary actually increased 17 per cent in 2015. METRO LEVEL ASSESSMENT – the Toronto housing market continues to defy logic, with over 43,000 new units easily absorbed into the market in 2015. Calgary and Edmonton are reacting different-

The Market Manuscript presents results from three sources of original content, a survey of mortgage agents and brokers, and surveys of the general public via social media and the website BuzzBuzzHome. Report findings include: JUNE JULY 2016

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ly to the energy market slowdown, with resale housing faring better in Edmonton, and new home sales performing better in Calgary. The Ottawa market has re-emerged post-election, while Winnipeg remains stable following their recent market boom.

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growth to completions ratio

population growth / housing completions

Population growth, housing completions & ratio in Canada 11

7.0

450,000 400,000

6.0

350,000 5.0 300,000 4.0

250,000 200,000

3.0

150,000 2.0 Source: CMHC, Statistics Canada

100,000 1.0

50,000

0.0

0 1990

1995 Population growth

2000

2005

Housing completions

2010

2015

Growth to completions ratio

It is more likely that the catalyst that eventually causes national house prices to decline in Canada will be another Black Swan, or a completely unexpected global financial event, as opposed to ‘greedy and speculative’ homebuyers, or a completely unexpected and sharp increase in interest rates. “The housing market has been a significant driver of Canadian Economic growth over the past decade. The drivers have been both direct, via construction output and employment, as well as indirect, via the support to consumption from increased wealth resulting from home price gains,” said Brian DePratto of TD Economics, in the report. New household creation in Canada is primarily supported by the population between the ages of 25 and 34, the elder half of the millennial generation. A recent study showed that 91 per cent of millennials still plan to buy a home at some point in the future. “The millennials’ footprint on demand for homes, housing-related goods and autos will persist for a few

more years, especially if interest rates stay low,” says Sal Guatieri, BMO Capital Markets. Based on three forecast scenarios by Statistics Canada, population growth in this younger demographic is expected until 2021 under the “low-growth” projections. Under the less conservative medium-growth and high-growth projections, this key home-buying group would continue to increase until 2023 and 2024, respectively, supporting new home construction. Looking nationally, the Manuscript reported that just under 196,000 houses started construction in Canada in 2015, slightly above the 50-year average of 191,000, but below the 10-year (199,000) average. The consensus forecast is calling for 185,000 starts in 2016. Only seven per cent of respondents to the social media survey believe that overbuilding nationally will be a catalyst for a major housing correction in Canada. Builders and developers are building the appropriate number of homes based on demand, and there is little evidence of overbuilding nationally. b building.ca

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zel

r .

LEGAL A Rose by Any Other Name The Supreme Court of Canada confirms that penalty interest remains illegal even if characterized as a foregone discount on prompt payment. By Jeffrey W. Lem and Megan J. Lem

Canadian federal law has always restricted the ability of mortgage lenders in Canada from charging default interest, being any amount that has the effect of imposing a higher rate of interest on payments in arrears than payments not in arrears. This rule is currently codified under Section 8 of the federal Interest Act ("Section 8") and is quite uniquely Canadian. Mortgage lenders south of the border, for instance, do not have any restrictions against charging such default interest and, indeed, it is probably the single most surprising difference to them between mortgage lending laws south of the border and those in the Great White North. Practically speaking, it means that while a borrower in default of a mortgage in Canada may still face foreclosure (whether by power of sale or judicial process, depending on the lender and the jurisdiction) and any number of other indignities and burdens, nowhere in Canada will that borrower also have to pay a higher rate of interest just because the A store on West borrower fell into default. This policy is largely consistent Street in Goderich, with the purpose of Section 8 of the Interest Act —while the Ont.’s historic downtown before the intent seems somewhat obscured in histoexact legislative tornado hit (above), ry, there is little doubt that at least one of the reasons for the damage (right), prohibiting default interest in Canada is to prohibit lenders and in August 2013 (below) "piling after the town’s from on" to borrowers just because the borrower's rebuilding efforts. have fallen into arrears on their mortgage — Canadian legislation has always been somewhat borrower protectionist, seeing such persons as having enough perils to face without, all of a sudden, having to pay an interest rate that has just tripled (or more) over night as a result of a default. This is precisely what happened in Krayzel Corp v. Equitable Trust Co., 2016 SCC 18 ("Krayzel"), the recent May, 2016 Supreme Court of Canada case on appeal out of Alberta that has the mortgage lending industry somewhat abuzz. Greatly paraphrased, the borrower in Krayzel was paying interest at approximately 7.5 per cent per annum but, after it defaulted on the principal repayment at matuJUNE JULY 2016

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rity, the interest payments effectively soared to 25 per cent per annum. While still well under a criminal rate of interest, the resulting default interest rate was more than triple the rate that the borrower paid before defaulting. Paraphrased in this manner and with this spin, the Krayzel case would have been a slam-dunk violation of Section 8 and there would never have been an appeal all the way to the Supreme Court of Canada. Alas, therein lies the rub: the facts were very deliberately not that simple. The Krayzel loan was very carefully and deliberately structured to avoid the application of Section 8 by crafting the interest provisions as an effective discount for prompt payment in full rather than a penalty rate after default. As literally expressed in the mortgage documentation, the interest payable was calculated and accruing at an annual "interest rate" of 25 per cent, with monthly installments to be made at a "pay rate" of only 7.5 per cent per annum. If the borrower promptly made all payments on time, the spread between the "interest rate" and the "pay rate" would be forgiven. If the borrower missed a payment (especially the balloon payment on maturity), then the nominal 25 per cent per annum interest rate governing and the spread between the "interest rate" and the "pay rate" capitalized into the principal then outstanding. In effect, what the lender in Krayzel did was to convert what intuitively would have been a penalty or bonus after default into a discount for prompt and full payment, a fee structure that would be familiar to just about anybody who has ever paid a local utility bill. The question before the Supreme Court of Canada was simple: does a financial rose smell as sweet by any other name? Would what otherwise would have been a clear example of default interest prohibited by Section 8 be somehow legal if expressed in the inverse as a lost discount? In a 6-3 split decision, the Supreme Court of Canada concluded that default interest was any financial structure that had the effect of imposing a rate of interest that was higher on payments in arrears than it was on payments not in arrears. In the simplest application of the majority reasons, 25 per cent per annum is higher than 7.5 per cent and the higher rate was payable after a default, "irrespective of the label used...given S.8's explicit concern of substance over form."

The minority found the majority decision somewhat ironic in that, if Section 8 was intended to help struggling borrowers, the majority decision has the opposite effect

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Nothing changed by expressing the formula in the reverse as a discount since the "effect" of the scheme was still the same. Three minority judges concluded the opposite — that discounts for prompt payment were not the same as penalties for late payment, and, therefore, not prohibited under Section 8. The minority found the majority decision somewhat ironic in that, if Section 8 was intended to help struggling borrowers, the majority decision has the opposite effect, so that "lenders could in the future be discouraged from relieving the interest burden on struggling debtors." The majority came to the decision notwithstanding that the borrower in Krayzel was a sophisticated and fully represented borrower (and hardly the widower or orphan that might otherwise have intuitively attracted a broad interpretation of the prohibition imposed by Section 8). The majority specifically adopted the Alberta Court of Appeal's position that the borrower's sophistication had no bearing on the interpretation of Section 8. In terms of a silver lining for the mortgage lenders, Krayzel confirmed what had widely been considered the legal effect of violating Section 8 — the lender loses the excess default interest, but still gets the underlying, pre-default interest rate. In Krayzel, the borrower was still liable for the original 7.5 per cent per annum interest after default. So, even if a mortgage lender was aggressive in structuring

JUST JUST JUST ANOTHER ANOTHER ANOTHER CASE CASE CASE OFOFOF WINDOW WINDOW WINDOW ENVY. ENVY. ENVY.

Jeffrey W. Lem is Editor-in-Chief of the Real Property Reports and the Director of Titles for the Province of Ontario. The opinions expressed in this article are personal to the author and not attributable or referable to the government of the Province of Ontario.

Megan Lem is an articling student at Oslers LLP.

"discount" default interest products, the worst case scenario that mortgage lender really faced was simply the loss of the premium interest component trig gered by the default, not the entirety of the interest payment. While the lender in Krayzel ultimately lost at the end of a very long litigation path to the Supreme Court of Canada, the legal gamble was far from reckless. In addition to three judges in dissent siding with the lender at the Supreme Court of Canada, the lender's interpretation of Section 8 also had the tacit support of a number of Canadian courts (several of them at appellate levels) seemingly turning a blind eye to inverse structures that characterized penalty interest as forfeited discounts. That said, regardless of the legal risk appetite of mortgage lenders in Canada before Krayzel, it would be a daring mortgage lender that continues with such structures after Krayzel. b

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HOW

Sexy IS

YOUR CITY? The next generation of talent will require cities to take a next generation approach to city building.

W LRT Station

By Brandon G. Donnelly

Photos courtesy of Knightsbridge

hether they know it or not, every city is in a war right now for talent. Cities all around the world, from Toronto to Tokyo, are competing for the best and brightest human capital. And since young people are, generally speaking, more likely to relocate, this competition often translates into questions like these: How can my city attract smart Millennials? How can I get young people to move to my city and start successful companies? Does that sound familiar? Since the first cities were created, people have always flocked to urban centres in search of wealth. And the rapid urbanization we are seeing in many countries is simply that same trend continuing. Despite higher costs of living, we recognize that our earning power also magnifies when we position ourselves within big cities with fast metabolisms. Thatâ&#x20AC;&#x2122;s a big part of the reason why cities continue to exist and why they donâ&#x20AC;&#x2122;t completely decentralize. We all need each other. (Affordability, however, does still matter.) building.ca

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Edmonton

-2,500 Winnipeg

4,600

Ottawa/ Gatineau

-3,700 Toronto/ Oshawa

58,200

Sources: Altus Group

5,800

Calgary

But in addition to this desire for wealth, we have come to appreciate that quality of place also matters a great deal. Unless you happen to be a city in the middle of a proverbial gold rush, it’s not enough to simply build a place where people can get rich. The talent that cities are trying desperately to attract want something more, especially since it’s now possible for many people to work and/or start a company with just a laptop and a solid Wi-Fi connection. My favourite example of this phenomenon is the story of how the streaming service SoundCloud came to be based in Berlin — a city that has become a model for attracting young and ambitious talent. Initially, the company was based in Stockholm where the founders went to school. But in the documentary film The Startup Kids, CEO Alexander Ljung tells the story of how they decided to travel around Europe to look for the ideal city in which to launch their “global audio distribution platform.” The last city on their stop was Berlin and they deemed it the coolest place. So they set up shop and launched their first web product at midnight in a Berlin nightclub. The rest is history. It’s for reasons like these that every conference and panel discussion, and every city, is seemingly focused on attracting talent and creating walkable mixed-use communities. People young and old are returning to cities all around the world and there’s a pretty clear preferential shift towards those types of places. Even Silicon Valley, where many fortunes have been made, is losing the battle with the city. Recently, famed investor Paul Graham delivered a talk in Pittsburgh where he describes what happened in the Bay Area: “I’ve seen how powerful it is for a city to have those [young] people. Five years ago they shifted the center of gravity of Silicon Valley from the peninsula to San Francisco,” he said. “The reason the center of gravity shifted was the talent war, for programmers especially. Most 25 to 29 year olds want to live in the city, not down in the boring suburbs.” Pick Your Battles But if all of this is known, why then are some cities winning and some cities struggling to achieve their talent goals? In an article titled “Unrolling the Sidewalks” (Building August-September 2015), Rhys Phillips mentions Brampton, Ont.’s frustration with not being able to draw in the same millennial demographic that nearby Hamilton is now successfully attracting. So what makes Hamilton different than Brampton? And what should your city be doing? JUNE JULY 2016

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What makes Toronto talent ready? Learning Toronto is home to a number of top educational institutions, including: University of Toronto contributes $15.7 billion annually to the economy and has created 59 new companies in the last three years.1 York University - the 3rd largest university in Canada with long-standing research expertise in space science.2 Civic Engagement Residents are actively working with the city through new platforms and communities such as: Civic Tech Toronto - hosts weekly meetups to tackle civic challenges. IdeaSpace - connects city staff with residents to share ideas for solving city challenges. Culture and Lifestyle Live Arts Inc. - cultural incubator for artists in underserved neighbourhoods and populations. Toronto International Film Festival - draws thousands of attendees and debuts Oscarwinning films each year.3 #1 multicultural city in the world - half of the population was born outside of Canada.4

Sources: 1 University of Torornto website 2015; 2 York University website 2015; 3 The Toronto Star 2015; 4 Pittsburgh Post-Gazette 2014

2016 job growth forecast (by CMA)

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Photo: Doublespace Photography

Sources: 1 University of Torornto website 2015; 2 York University website 2015; 3 The Toronto Star 2015; 4 Pittsburgh Post-Gazette 2014

What most cities understand today are the elements that can be easily measured. They know that prudent investments in transportation and infrastructure are important for productivity levels and inclusivity. They know that top tier educational institutions — which are plugged into the urban fabric of the city — are important for developing human capital and spinning off innovation into private enterprise. They know that affordable housing is important for maintaining diversity. And they know that arts and culture is important for cities, even though this one is a bit harder to quantify. But without undermining any of the above, what many cities seem to ignore during this battle for talent is this one simple, yet somewhat intangible, question: Is the city sexy? Because what Berlin taught the world is that it doesn’t matter if you’re poor, as long as you’re sexy. That alone can be a potent talent acquisition strategy for a city. And in the case of Hamilton versus Brampton, one could argue that Hamilton is winning because it is the sexier of the two. To some, this may seem insignificant in a world of billion dollar infrastructure announcements and large university endowment funds. And this is not to say that those elements are not important. It is to say that the way in which those elements come together to form communities can and should be done in a myriad of unique ways. The value is in the execution. Authenticity and Localness One of the reasons that talent is eschewing the suburbs for the city is that there is a sense of authenticity found in many older urban centres. Part of this simply has to do with the age of the building stock and urban fabric, but part of it also has to do with how few suburbs have historically invested in proper architecture and urban design. When everything feels the same, nothing feels authentic. Hamilton is in a great position to capitalize on this given its rich history and existing building stock. Of course, as city centres intensify to meet growing demand, they have to be careful not to erase the qualities that made them unique and desirable in the first place. Part and parcel to authenticity is a preference for localness. Cities, developers, and other urbanists have realized that people don’t want to move to a place that feels like every other city. And one of the ways that is manifesting itself in city building is in the preference for local businesses and retailers. Looking at Toronto’s upcoming Canary District neighbourhood — where the retail strategy was orchestrated by Live

The new Student Learning Centre, designed for Ryerson University by Snøhetta, has one of the best business incubators in the country with the Digital Media Zone, making it a powerful piece of branding for Toronto.

Work Learn Play Inc. — one can see a deliberate strategy around local, independent businesses. National and multinational retailers would have meant a completely different community.

City Brand Every city and community has a brand, whether it is being actively managed or not. Unfortunately, many cities fail mis-

erably when they do try and manage it. Does anyone remember the “Toronto Unlimited” branding initiative of 2005? It resonated with no one and quickly fizzled out. The city branding that needs to happen in this social media smartphone era is something much deeper. It spans every thing from investing in great

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192

225

350

348

357

221

2009

2010

2011

2012

2013

2014

2015

architecture to executing on well-crafted street furniture and urban signage. Every detail matters, even down to the typefaces being selected. Graphic designers are also city builders today, because our city brands are being constantly refined and distributed on every conceivable platform from Instagram to Snapchat to Beme. This is happening whether we recognize it or not. A great case study is Toronto’s Union Pearson (UP) Express train. Despite being constantly derided in the media for mispricing and increasing public subsidies, the UP Express is actually a phenomenal city branding effort. Everything from the station architecture to the complimentary onboard books has been carefully and beautifully crafted. This is important because it is ground zero for first impressions. It is ground zero for new talent coming to the city. Housing Supply Of course, one cannot forget about the more prosaic elements of attracting talent. Alongside the return to cities — and bolstered by our low interest rate environment — Canadian cities are experiencing an affordable housing crunch. And at the top of this list are Vancouver and Toronto. In fact, a 2015 Globe and Mail article talking about Vancouver’s burgeoning tech scene listed high home prices as one the major barriers to attracting top talent in the city. “It’s hard to convince people to come into this market, where they are typically paid less and the cost of real estate is higher,” says Jeff Booth, CEO of BuildDirect. com, echoing the simple truism that people move to cities in search of wealth. As a result of eroding affordability, Vancouver has been leading the way in Canada with respect to what is known as laneway housing (sometimes called carriage homes, “detached accessory dwelling units” or DADUs in other markets). Laneway houses are a way to increase the supply of low-rise affordable housing in existing communities and, since 2009, Vancouver has issued more than 1,000 building permits for this type of housing. It’s not a silver bullet, but every bit helps. And it is a question of when, not if, other cities in Canada follow suit with similar laneway policy to Vancouver. In addition to increasing housing supply, laneway homes also serve another important purpose: they’re sexy. In Toronto, where laneway homes are a rarity, there’s huge demand for this housing type. Recent developments, such as the Lanehouse on Bartlett by Curated Properties, quickly sell out and many young urbanites would actually prefer a laneway house to a conventional single-family home. Nightlife There’s been a lot of focus on “18-hour” and “long-day” cities as of late, including in the previously mentioned article by Phillips. But nightlife as an economic development and talent acquisition stratBrandon G. Donnelly egy still remains a glaring omission for many Canadian citis an architect-trained ies. Recently in Europe, we’ve seen the emergence of “night and tech-obsessed real mayors” whose job, just as it sounds, is to be the CEO of estate developer. He is nighttime activity in the city. The first of its kind was in Amthe development lead at sterdam and it has resulted in the abolition of “last call” (i.e. CAPREIT and the author 24 hour venues), as well as the creation of the world’s first of a daily blog with over Night Mayor Summit. 11,000 readers. He can The key here is not to think of cities in terms of a longer be reached at www. or extended day, but to think of the night as an entirely new brandondonnelly.com AUGUST JUNE JULY SEPTEMBER 2016 2013

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opportunity to attract and retain talent. The reason Amsterdam did what it did was because it recognized that the type of creative and innovative people they were trying to bring to their city wanted nightlife. It was entirely strategic and it has already proven to be successful in cities such as Berlin. It should be noted that the population of Amsterdam is less than 900,000 in the city proper. So there is no reason that this strategy need only be reserved for Toronto, Montréal, and Vancouver. Nightlife is also a perfect opportunity to bolster an existing arts and culture scene.

Sources: Square One Insurance Services

Laneway home building permits issued in Vancouver

The Battle for Talent At the end of the day, these are only some of the elements that are critical to competing in today’s global battle for talent. Cities all around the world are focused on creating diverse, transitoriented, and walkable communities. They’re carving out new bike lanes, reclaiming public space for pedestrians, and investing in transit. They’re also stitching their universities and educational institutions back into the urban fabric and creating new start up incubators and accelerators. Indeed, all of this is important in attracting top talent. But what many cities forget is that there’s a certain cool factor that also serves as a magnet for talent. Cities need to be sexy. Talent of all ages increasingly wants to be in a place that is authentic, a place that feels “of the place” with local shops, restaurants, and shops. They want standout architecture and beautifully designed communities. They want a thriving arts and culture scene and world class nightlife that doesn’t shut down at 2:00am. And when all of these elements combine in just the right way, you get a city brand that becomes almost stronger than what is actually there. That’s the sort of phenomenon that makes your bike lane different than the next city’s bike lane. It is the sort of thing that brings talent to your city. b

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BUILDING FOR

BOOMERE By David Allison

JUNE JULY 2016

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09 21

When it comes to how they want to live, Boomers and Millennials share many of the same needs and wants. Can homes and communities be built that work for both?

REN N IALS By now youâ&#x20AC;&#x2122;ve undoubtedly come across a comment from a demographer or industry analyst that points out some seemingly random similarity between Baby Boomers and Millennials. I started watching for these references to overlapping wants and needs specifically around housing and community-building issues, and the more I found the less random they appeared. In many ways, Boomers and Millennials are more-or-less the same people, give-or-take a few years. When looking at issues of homes and community, there are a growing number of areas where these two groups overlap in attitudes and behaviours, and since we are talking about the two largest demographic cohorts in history, maybe those seemingly random similarities are a bigger deal than we thought.

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Huge numbers of Millennials have no intention of ever leaving their dense urban lifestyle, even if they have kids...

that they won't fit in, and will find it hard to meet people. If we can mix Boomers and Millennials in multifamily condo developments, and provide amenity spaces with simple programming, we will make everyone happier and healthier.

Lifestyle Spaces, NOT Fitness Rooms Another major lifestyle trend shared by the Boomers and Millennials is a move away from hard-core fitness, and towards a kinder and gentler idea of health and wellness. The weightlifting and cardio regimes of days gone by are almost comical to many Millennials. They don't want to get fat, or be unhealthy, but they just can't see themselves crowding into a gym to build better biceps, or duct-taping themselves to a treadmill to lose a few pounds when snowboarding or a hike will get them to the same destination. It’s a de-institutionalization of healthy living: a strong preference for more natural ways to stay fit instead of slavish devotion to a fitness-factory full of machines. Yoga? Yes. Pilates? Of course. Millennials are also driving healthy-living trends like organic foods and non-GMO produce, and would prefer to eat a 100mile diet if they could figure out how. Walk through a local Whole Foods and count the percentage of Millennials in there, looking for grass-fed butter. Now a lazy writer could cut and paste those preceding paragraphs, substitute the word “Boomer” for “Millennial” and no one would be the wiser. Boomers share many of the same ideas about health and wellness that Millennials do. Plus, they have an added incentive: while their bodies are aging, they sure don't feel like they Making Things are 50 or 70, or anywhere in between. Many observers agree that the “Maker Saying "60 is the new 40" out loud has become an inescapable proclamation, Movement” originated in the tech secmostly from 60 year olds. Boomers are responding to the memories of their own tor, with computer wizards hacking parents' declining health by embracing swimming, hiking, skydiving, skiing, into hardware and software to make snowboarding, and yes, yoga and Pilates. And it all seems to be working. Average things other than what the manufaclife expectancy in developed nations is turers intended. Sprouting from that is growing by leaps and bounds, which a Maker Movement of a lower-tech variety: young Millennial moms knitting sweatfor the Boomers is exactly the delayeders for their kids; canning vegetables from the backyard garden; building things end-game they have in mind. with power tools; and tinkering with old cars are all popular pastimes for MillenSo, both Boomers and Millennials nial Makers. Look at the explosive growth of offerings on the handmade-stuff-oncrave long-term health and wellness. line retailer Etsy if you need proof that making things is a very big thing indeed. How can this help us create better homes But Millennials didn't invent this. The Boomers did, and in most cases they got and communities? Maybe the scrap of it from their parents who really had no choice. Boomers’ parents had to make space in the back of the towers we build clothes and food and furniture because, well, that's how you got your clothes and filled with second-rate weight machines food and furniture. Boomer dads love their tool bench in the garage, and Boomer and ineffective cardio machines should moms use the clickety-clack of knitting needles as a sort of meditation practice. be banned? Maybe what is needed inSo the Millennials and Boomers agree: making stuff is fun. But why should we stead are climbing walls, ski-weekendcare? Because huge waves of Boomers are selling the family house in the suburbs shuttle-buses and a building manager and moving to higher density urban condos and apartments, and huge numbers that teaches yoga in the mornings. Is it of Millennials have no intention of ever leaving their dense urban lifestyle, even so crazy to imagine Boomers and Milif they have kids and are raising a family. lennials downward-dogging before the So not only do the Boomers and Millennials agree that making stuff is fun, day begins, side-by-side, in the building they agree that making stuff is fun while living in condos and apartments. What they all call home? would we have to do with our buildings and our communities to help foster this shared interest? Imagine the wonderful connections that would ensue if you had Work-Life Integration a condo tower where baking bread in the community kitchen (or refinishing Boomers repeatedly say that they have thrift-shop furniture in the common-area workshop) became a regular Saturday very little intention of retiring, at least morning intergenerational event? in the way their parents used the word. Research shows that social interaction is the key to a long and happy life. As I They may be leaving corporate life bediscovered while researching my book The Stackable Boomer, one of the biggest hind, but they will be consulting, volfears Boomers have about moving away from the family home in the suburbs is JUNE JULY 2016

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Urban planners suggest some simple solutions for an aging population that unteering on boards or with communshould become commonplace as we work to build inclusive communities. Steep ity groups, taking classes in art history curbs are impossible for wheelchairs and walkers, and are inconvenient for those or motorcycle mechanics, or learning using a cane, or even just a bit unsteady on their feet. A sloped "ramp style" curve how to program HTML. And for this, to the curb is much less likely to cause trip-ups or create barriers to moving they need a workspace. around the neighbourhood. Millennials have an entirely differFrequent placement of benches and plenty of other kinds of public seating ent attitude to work than the generaare good ideas too. Older Boomers can stop and rest, and maybe even have a tions that came before. To begin with, chat with a friend. Bright lighting on streets and in public spaces makes it feel they are not so hung up about getsafer and easier to move around at ting one job at a great company and night. Parks and greenspaces should staying there until they eventually get a corner office with a potted fern, and finalbe liberally scattered everywhere, inly a certificate (suitable for framing) thanking them for a lifetime of service to the stead of centralizing the greenery in corporation. one giant park in the middle of the No, they may work for a company for some time, or part time, but they will also community that only hard-core Frislikely have a side-business or two, and maybe make some extra money as a DJ on bee players and dog-walkers will use. the weekend when they aren't being a yoga instructor. These are all simple changes that Millennials enjoy — in fact prefer — this gig-based economic existence. They make sense for an aging Boomer popudon't want to be stuck in one job, doing one thing for the rest of their life. Conlation. But you know who else they sequently, the time Millennials spend working versus the time they spend make sense for? Moms with kids in not-working is more fluid. They may work some afternoons and a few mornings strollers. They need a place to sit, curbs and all day Friday and Sunday around mid-day. They have friends whom they that are friendly for prams, and good work with, friends who work for them and friends whom they work for. The safe lighting for getting around. Milboundaries between work and not-work are very blurry, if they exist at all. lennials will appreciate pocket parks So as Boomers are looking at integrating more kinds of work into their life, and as much as Boomers do, too. including family and friends in their endeavors, Millennials have been behaving this way since they began earning a living. What could we do with this, as an indusWhat’s next? try charged with building homes and communities that work for both these groups? I’ve commissioned a new research proWithin our buildings, maybe that big empty lounge with the billiards table and ject to dive deeper into the cross-pollinsquishy sofas could be a co-working space with a coffee machine. Co-working is the ating impacts these similarities may newest and hottest thing to hit the world of work, and it is perfectly suited for those have as we work to build better homes who work in spurts and want people around sometimes and others times would and cities. Even before that research is rather be alone. More like a coffee shop or hipster study hall than an office, these done, however, it seems that the real places virtually force you to talk to other people around you. story here is that it’s time we had a big Need proof? Google “WeWork” and see what pops up. think about the way we build homes For Boomers with thick fingers when it comes to minor and cities entirely. tech glitches, Millennials sharing the co-working tables are For a very long time now, we’ve done a built-in IT department. The Millennials struggling with a things more-or-less the same way bebudgeting forecast or tax issue? I bet there's a retired charcause we’ve always built for vertical tered accountant or VP of finance in the room, who'd be glad clumps of consumers that we define as to pass along some things she or he picked up over the years. demographic groups. But maybe the Perhaps some simple skill-swapping board could be organDavid Allison is an real revolution is to think about buildized, so everyone knows what resources they have available award-winning author, ing for cross-generational groups that to them, right there, at home. speaker and the principal enjoy the same kinds of things in a advisor at David Allison home, regardless of age, gender, mariPlanning Neighbourhoods for Boomerennials Inc., a boutique brand tal status, or income? It could mean Urban planners have been talking for some time now about strategy and story buildings that feel more like a village, how to make our streets more Boomer-friendly. As we age, advisory group based and a community of these villages-inmobility issues become an annoying yet serious part of our in Vancouver. He has a-building. As more and more families life. We progress from walking slowly, to using a cane, and 30 years of client choose urban over suburban, these for some of us, eventually a walker and even a wheelchair. experience in real estate could be pretty great places to live. For Our energy levels decline, so that quick sprint down the development and other everyone. b street to the grocery store for guacamole and breadsticks industries across Canada becomes a half-day outing. and the U.S.

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CHECKING IN The Canadian hotel real estate investment market continued its upward trajectory in 2015 with record-setting metrics.

By Fraser Macdonald

he Canadian hotel real estate market continued its positive drumbeat in 2015 with transaction volume reaching $2.46 billion, a 70 per cent year-over-year increase with 147 transactions reported. It was a year of record-setting volumes; the highest since 2007 and the third highest in history. A number of macro-economic events impacted the markets in 2015, most notably commodity price declines and a drastically lower Canadian dollar. While some parts of the country were in turmoil, particularly energy-dependent markets, a large majority thrived seeing strong operating performance and investment activity. Heightened interest in the overall transaction market persisted, facilitated by a healthy debt market and a wide variety of well-capitalized buyer groups, including increased interest by cross-border purchasers.

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Source: Colliers International Hotels

2015 Transaction Highlights In the recently released 2016 Canadian Hotel Investment Report, Colliers collected views from some of Canada’s largest hotel real estate participants. Generally speaking industry participants remain bullish on the market (with cautious optimism being placed in energy dependent markets), particularly given the broad cross-section of capital seeking hospitality assets in the market today, as well as Canada ranking highly as an attractive country for drawing international investment. Perhaps the most significant motive for deals to transpire in 2016 will be cash returns remaining attractive given where cap rates and interest rates lie. Other viewpoints rose among hotel participants as well. For example, there continues to be good investment opportunities with a healthy mix of investor types in the current landscape that attract a variety of different product given various investment and exit perspectives. Institutional capital is largely focused on urban, full-service assets in core markets for longer-term holds and would place money in key assets if the opportunities were right. While private investors and hotel investment companies are also targeting Canada’s top markets, they are also less risk-averse to investing in smaller markets subject to proper due diligence on timing the market, picking the right product positioning and taking advantage of the current cost of capital. The premise that portfolio diversity matters more than ever has evolved into a golden rule for both small and larger investors in order to spread risk and exposure over the long-run. The majority of participants cited the benefits of having properties in multiple geographic regions to help offset turmoil that can arise in markets or regions dominated by only a few core industries. Investing in larger urban markets have obvious advantages of reduced volatility given more diversified economies, but on the flipside several smaller markets have seen such

 Average per room pricing was $114,300 – a 23 per cent increase

from 2014 – indicative of strong market fundamentals and the quality of assets trading;

 2015 saw a new record set on single asset transactions over the $25 million threshold with 17 assets trading above this level, illustrative of the appetite for larger urban full-service assets;

 Full-service assets dominated in 2015, representing 73 per cent of

transaction volume totaling $1.8 billion, up 140 per cent from 2014;

 Overall national cap rates averaged 7.3 per cent for the year, 160 basis points lower than 2014;

 Eastern Canadian transactions represented 53 per cent of national

volume, in-line with historical trends. A handful of trades swayed average price per room in the west which saw a pricing premium, averaging $175,100 per room versus $87,700 in the east;

 Foreign investors acquired 27 Canadian hotels in 2015 representing

$515 million (21 per cent of volume). The largest and most notable acquisitions include the 22 property Fortis Canadian Hotel Portfolio, which was acquired by a Westmont sponsored partnership backed by American capital, as well as The Westin Prince Toronto, which sold for $70 million to an investment group based out of Mainland China.

tremendous gains in the current cycle that these can often override losses so long as the investor can weather the storm. Several groups cited that diversity into other real estate asset classes also significantly helps their overall portfolio returns, particularly when the economy turns and the hotel market often sees larger declines than other asset types, such as office and multi-residential. Currency trends are going to fare well for the market from both an operational as well as investment perspective. Canada is one of the world’s top destinations and the country continues to increase its awareness on a global scale for attracting the individual traveler as well as group and tour business. Significant benefits are accruing from the efforts of Destination Canada, the government agency responsible for marketing Canadian travel, and with the low dollar continued positive results in key markets across the country are anticipated. Cross-border investors are also increasingly looking at acquisition opportunities, although their investment criteria are largely focused on major-market

TRANSACTION VOLUME BY REGION 1Q 2016

# of hotels

Price ($M)

% volume

Price per room

Alberta

12.7

73.200

British Columbia

46.2

110,500

West total

58.9

(avg) 94,800

Ontario

246.0

115,300

Québec

18.4

49,100

New Brunswick

7.6

30,200

East total

272.0

(avg) 98,300

Overall total

330.9

100

(avg) 106,700

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Significant single-asset transactions in 2015 (by volume) Property Seller Buyer

The Westin Bayshore (1)

73% FULL-SERVICE ASSETS

Volume $1,793 billion YOY trend # of trades 60 Avg. price/room $134,100

13%

Starwood Capital Group Global, LP

Concord Pacific

# of keys

Price ($M)

Price Buyer per room origin

511 290.0 567,500 CDN

Fairmont Royal Ivanhoe Cambridge York Hotel (2)

KingSett (60%), 1,363 186.5 137,000 CDN InnWest (20%), Ivanhoe Cambridge (20%)

Courtyard by Marriott Groupe Jesta Toronto Downtown

KingSett (66%), InnWest (33%)

575 99.0 172,200 CDN

The Westin Prince (3)

Prince Spa and Resort Operations Ltd.

Wufung Construction Group

395 70.0 177,000 Asian

Best Western Primrose Hotel (4)

Arsandco Investments Ltd.

Knightstone Capital / HOOP

335 50.5

Delta Lodge at Kananaskis

Kananaskis Alpine Resort Inc.

Pomeroy Group

412 42.5 103,200 CDN

n/a CDN

Top portfolio transactions in 2015 (by volume) Fortis Canadian Hotel Portfolio (5)

Fortis Properties Corporation

Western Sponsored Partnership

Novotel GTA Portfolio (6)

Accor Canada

Vrancor Group

4,716 365.0 87,400 USA 585 32.0 54,700 CDN

Source: Colliers International Hotels

2015 VOLUME BY SEGMENT

(1) Property sits on a 6.3 acre site with a marina and surplus development potential. (2) Joint venture with KingSett Capital and InnVest REIT aquiring an 80% interest with Ivanhoe Canbridge retaining a 20% interest. A $50 million renovation program is expected over two years. Pricing reflects an aggregate 100% interest. (3) Sale included 3.0 acres of excess land with development potential.

FOCUSED-SERVICE ASSETS

Volume $332 million YOY trend # of trades 19 Avg. price/room $116,100

14% LIMITED-SERVICE ASSETS

Volume $334 million YOY trend # of trades 68 Avg. price/room $61,600

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(4) Purchased for conversion to 680-bed student residence. Price per room not applicable. (5) 22 property portfolio valued at $365.0 million. (6) Sold as part of two property portfolios valued at $32 million. Hotel Novatel Toronto North York subject to ground lease.

urban projects, which there is limited availabiltop-line perspective, but there is more room ity and are met with increased competition from to improve the bottom line. The recent rewell-capitalized domestic capital sources. bound in high-torque markets such as Vancouver In hotel real estate, as everywhere else, indusand Toronto as well as Alberta mountain resorts is try disruptors are top of mind. Fresh off the a great success story from a top-line perspective. previous decade-long battle with online travel Optimism is abound for further improvements in agencies (OTAs), new innovations such as Airbnb these key markets given economic forecasts as are rapidly transforming the way travelers book well as currency benefits in the short to medium their accommodations. While these innovations term. Another key component to top-line growth are providing some benefit to the consumer, it has is owners investing significant capital into older yet to be determined what impact these alternaproduct, thereby allowing for healthy rate gains, tive distribution channels will have on as well as the reduction in supply as traditional hotel performance. Owners conversions of hotels to alternative use Fraser Macdonald of assets in secondary and tertiary marcontinues. The increase in top-line is a research analyst kets for the most part do not see this as (particularly with rate growth) transwith Colliers a major threat. The fundamental challates to increased bottom-line flowInternational Hotels. The lenge is that this channel is not properthrough and profitability. However, 2016 Canadian Hotel ly monitored and regulated. many participants believe there is still Investment Report can Continued operational improvemore room to increase rates and it is be downloaded at www. particularly crucial given increased Âments are on the horizon from a colliershotels.com. building.ca

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operating costs that can outpace revenue growth. Owners are continuously evaluating their cost structure including key items such as labour, property taxes and other operating expenses in order to improve profitability. Investors in todayâ&#x20AC;&#x2122;s market are methodically making moves to solidify their portfolios, to take advantage of upside, and mitigate threats. While there are serious con-

cerns with energy-linked markets at the present time, Canadian hotel investors are generally well-capitalized, and for the most part, geographically diversified. Current sentiment may be that of cautious optimism, but positive industry characteristics are overshadowing near-term concerns with major hotel real estate owners optimistic about long-term opportunities and returns.

TOP PREDICTIONS FOR 2016 Following several high-water mark years, overall transaction volume in 2016 should be in-line with average volume seen in the current cycle, still indicative of healthy market fundamentals.

CONTINUED MOMENTUM IN TRANSACTION ACTIVITY:

Depending on product availability, Canada will continue to pique the interest of foreign investors attracted to the countryâ&#x20AC;&#x2122;s stability, with the exchange rate being a significant advantage in boosting purchasing power for many global currencies.

FOREIGN GROUPS TO AGGRESSIVELY BID ON HOSPITALITY ASSETS:

DYNAMIC DEBT MARKETS: There is a growing availability of debt capital across the board, fueled in part by new financing entrants eager to place funds in the hospitality asset class. In addition to growth in providers, record low bond yields will continue to support the transaction environment. ALL EYES ON ENERGY DEPENDENT MARKETS: Weak oil, metal and other commodity prices are widely anticipated to continue throughout 2016 and into 2017. An increase in distress-driven sales may materialize in certain markets, particularly secondary and tertiary markets that are heavily reliant on commodity extraction. CONTINUATION OF INDUSTRY CONSOLIDATION: Big headline mergers and industry consolidation news was plentiful in 2015 and will continue in 2016. With large consolidations of parent companies, this will no doubt lead to increased competition and a run to secure market share. However, the impact will predominately be on a more global scale versus domestically.

Domestic tourism is poised for continued strong growth and generally has a positive impact on operating performance. Major markets, border cities, and other seasonal and resort markets should greatly benefit from currency trends.

CONTINUED IMPROVEMENT IN OPERATING PERFORMANCE:

AIRBNB IMPACTS MAJOR MARKET LODGING DEMAND: The popularity of Airbnb and other hotel-alternative services could begin to impact lodging demand in major markets globally. The conversation on these services as a threat to the traditional lodging industry will rise. b

Tourism in Canada Arrival growth

Nearly 18 million visitors spending close to $17 billion 190,000 tourism businesses

Each 1% increase in arrivals leads to an $817 million increase in Canada's exports.

4.4%

650,000 jobs Global

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7.9%

5% To Canada from non-DC markets

Nearly $6 billion in revenue

To Canada from DC markets

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DISRUPTING GREEN BUILDING Certified green buildings are failing to fulfill a promise to transform the marketplace in a meaningful way. What we need is a green building revolution. By Jerry Yudelson

he major green building rating system, LEED, isn’t growing. In fact, the green building revolution has stalled, and there are no easy solutions in sight. By 2015, LEED had certified less than one per cent of commercial buildings and homes in the U.S. during its first 15 years, and the situation in Canada is not much different (applying the Canadian “10 per cent factor” to compare with U.S. LEED registrations and certifications on a per-capita basis yields just about the same trends overall as in the U.S.). Annual project registrations and certifications for LEED in the U.S. are now fewer in number in 2015 than in 2010. It’s time for a green building program that works for “the other 99 per cent” and that has significant annual growth. The total project certifications at year-end 2015 amounted to less than one per cent of the non-residential building stock (as reported in the LEED Project Directory as of October 31, 2015). In the residential sphere, the fraction was considerably less. We need a new way to rate buildings for their climate and environmental impacts. As the leading green building organization and largest rating system in world, the U.S. Green Building Council and LEED have a special responsibility to engage in self-criticism and continuous improvement. These concerns are not new, but they have taken on more urgency with the upcoming mandatory switch to LEED v4 in October 2016. With most project teams content in knowing how to navigate through LEED 2009, despite its costs and complexities, LEED v4 appears to be “a bug looking for a windshield.” That LEED is broken is not news. Randy Udall and Auden Schendler first raised the issue in 2005 with a provocative article titled “LEED is Broken – Let’s Fix It” on igreenbuild. com. At the time, many LEED advocates, including myself, dismissed issues raised by this article as reflecting growing JUNE JULY 2016

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pains for the LEED system. At the time, LEED was barely five years old and just getting started on the road to dominating the U.S. market for commercial green buildings. But their five main objections—LEED is too costly; project teams are too focused on gaining points and not on results that matter; LEED’s energy modeling is fiendishly difficult; LEED’s bureaucracy is crippling; and LEED’s advocates continually produce overblown benefit claims—remain drawbacks today. Most experienced green building professionals would also agree that these same issues remain relevant now. But there is a larger problem: green building rating systems have diverged greatly from building owners’ and operators’ core concerns, as these systems are designed to meet the needs of green idealists more than those of most market participants. Green building advocates must abandon the approach they have taken for the past 25 years, which includes comprehensive and overly technical criteria; multiple elaborate rating systems; large and cumbersome bureaucracies; and high costs and inadequate focus on real long-term building performance. Instead, they need to embrace the technological revolution that has cut costs for communications by factors of not 10, not 100, but a thousand or more in the past 15 years.

Focus on performance

Moore’s Law, first enunciated in 1965, says that computing power doubles every 18 months. Over time, unit costs for computing have fallen in a similar fashion. Consider this: every six years, it is 16 times cheaper (and faster) to do the same task; every nine years, 64 times cheaper; every 15 years, 1,024 times cheaper (or 16 x 64); and so on. With the advent of mobile communications, social networks, the Internet of Things, big data analytics, cloud computing and global information systems, why should green building still be governed by concepts, systems and procedures developed in the Dark Ages of the Internet in the 1990s? It is time for a serious debate about LEED’s (and other systems’) inadequacies in addressing a few key issues: combatting global climate change; addressing looming water scarcities; and reducing resource waste. The corollary is that it’s time for green building leaders to develop a new model for certifying project design, construction and operations, one that is: • Smart: technology-savvy and mobile-accessible; • Simple: so anyone can understand green building standards without specialized training and certification; • Sustainable: both in focusing on absolute performance as the best means for addressing climate change, and in accelerating building design and management’s movement onto cloud-based platforms.

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USGBC LEED non-residential projects in Canada (2011-2015) from USGBC database USGBC LEED REGISTERED in Canada (2011-2015) LEED CI LEED CI (Retail) LEED CS LEED EBOM LEED NC Total

2011 2012 2013 2 1 2 14 51 1 2 6 1 6 6 129 17 21 183

USGBC LEED CERTIFIED in Canada (2011-2015) 2014 2015 Total 5 3 11 49 32 148 9 12 20 27 6 6 153 60 70 351

LEED CI LEED CI (Retail) LEED CS LEED EBOM LEED NC Total

2011 2012 2013 2014 2015 Total 1 1 2 4 19 27 12 47 45 2 106 5 6 3 3 6 23 5 3 2 1 4 15 1 1 112 19 133 12 23 166 72 31 304

USGBC LEED non-residential projects in Canada (2011-2015) from CaGBC database USGBC LEED REGISTERED in Canada (2011-2015) LEED BD+C: Core and Shell LEED BD+C: Healthcare LEED BD+C: Homes LEED BD+C: New Construction LEED BD+C: Retail LEED ID+C: Commercial Interiors LEED ID+C: Retail LEED O+M: Existing Buildings Total

2011 2012 2013 1 2 4 2 4

2 2 2 6 17

1 3 6 9 21

131 1 43 1 182

USGBC LEED CERTIFIED in Canada (2011-2015) 2014 2015 Total 8 11 10 2 2 2 8 11 4 140 5 4 18 49 32 135 20 27 60 74 354

We don’t need to abandon concerns about urban design, healthy buildings, or healthy building materials, but they belong in a separate system or systems. Future green building rating systems should focus only on five Key Performance Indicators: • Energy use • Total carbon emissions • Water use • Waste minimization • Ecological purchasing Until we build most new buildings and retrofit most existing buildings according to dramatically higher standards for energy, carbon, water, waste generation and recycling, then all other considerations are window dressing. After all, Nature doesn’t care how much we reduce annual carbon emissions from unsustainably high levels. Nature only cares about absolute levels of carbon dioxide (and other greenhouse gases) in the atmosphere, about excessive water use that damages natural ecosystems and about waste that doesn’t get recycled into something else. It turns out that the solution is already staring us in the face: the technological revolution that has given us the mobile Internet, social media and Big Data analytics. With this revolution, we can start with the user’s concerns and work toward creating a rating system (or systems) that enhances the user’s experience.

How to proceed?

Here’s an example in one word: Uber. In 2015, just five years after it started, Uber’s latest financing round valued it at $50 billion. What did Uber do? It took on a hundredyear-old urban transportation system—taxicabs—and created an easy-to-use smartphone app that revolutionized it, in the process challenging and upending a highly regulated, low-user-satisfaction industry. No one likes taxis, but if you land at any airport or stand on any street corner

LEED BD+C: Core and Shell LEED BD+C: Homes LEED BD+C: New Construction LEED BD+C: Retail LEED ID+C: Commercial Interiors LEED ID+C: Retail LEED O+M: Existing Buildings LEED-EB Total

2011 2012 2013 2014 2015 Total 5 6 3 3 6 23 1 1 1 1 1 3 119 18 137 1 6 3 4 2 16 7 39 45 19 110 4 2 2 1 4 13 1 1 2 12 23 166 72 32 305

in any large city, they’re usually the only curb-to-door service available. What don’t we like about taxis? They’re not always available when and where you want them; they’re hard to get during rush hour, rainstorms and at dinnertime; they are often dirty and uncomfortable; they are prone to occasional customer rip-offs; and they may not accept credit cards for payment. The taxi business’ main beneficiaries are taxicab owners, not customers or even drivers. Uber started with the idea that a ride-for-hire service could address these issues, utilize surplus labor and vehicles, enhance customer experiences and be profitable for all concerned—by using the phone we already carry in our pockets. Brilliant! I’ve used Uber’s smartphone app many times: I can track where the driver is at all times; I know I’m going to get a clean and comfortable car with a driver who knows the town; and I’ve already paid the fare and tip when I step into the vehicle. Uber is so disruptive that it has encountered stiff opposition from everyone profiting from the current system, including “progressive” politicians who are in hock to taxicab owners for campaign contributions, but it will succeed because it’s focused on creating a superb user experience. According to the New York Times, nearly two million New York City residents have already downloaded the Uber app. Green building certificaJerry Yudelson has tion is ripe for the same disruptive authored 13 titles on treatment, but it’s supremely unlikely green buildings, water that established organizations can or conservation, green will upend their current revenue modhomes, green marketing els to provide a far more user-friendly and sustainable approach. It’s time for new organizadevelopment. His newest tions and fresh thinking in green buildbook, Reinventing ing. It’s time to leave behind the current Green Building, is now monastic, hair-shirt experience of available from New Society Publishers. www. LEED certification and create a fabulous user experience. It’s time to Uber reinventinggreenbuilding. green building. b com building.ca

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V I E W Walk With Joy ULI Toronto’s Executive Director believes one good crisis deserves another. By Richard Joy

A decade ago, regional planning alarm bells rang loudly at Queen’s Park. Low density urban sprawl was spinning out of control. Transit infrastructure construction had come to a complete halt, and Toronto’s commute times had slipped to second worst in North America. It was an urgent moment that required immediate and bold action by the Province of Ontario. And just such boldness was delivered. In less than two years the new provincial government legislated the Greenbelt, a nearly two-million-acre urban containment zone around the Greater Golden Horseshoe. Next came the Regional Growth Plan, a sweeping provincial planning document that required all municipalities to align their Official Plans toward modern urban form and density. Then the regional transit agency, Metrolinx, was created, followed soon after by the Big Move plan to guide massive new commitments to building transit infrastructure. Ten years later there is a lot to show for the turnaround in public policy. Sprawl is now at its slowest rate since the Second World War. Stunning urban densities are being achieved, none more impressive than in Toronto’s downtown core. The most ambitious transit infrastructure program since the construction of the Yonge subway is well under way. Walking and biking numbers are rapidly climbing and transit ridership is at its peak after a 20-year slump. But the alarm bells should still be ringing. The crisis is far from averted. Gridlock has worsened still, while transit projects lumber along behind schedule or never get off the ground. Commitments to finance regional transit for decades lack any serious dedicated funding plan. Meanwhile, population growth continues to be predominantly at the urban edges, only 15 per cent of which is located along subways, GO Transit, or planned high order transit lines and stations. New urban issues have taken on significant urgency. Affordable housing for low income residents is now a fullfledged crisis on its own, while spiraling market housing prices are threatening to deny a generation home ownership. Where market affordability is being modesty achieved, it is in massive high-rise neighbourhoods that are severely lacking in basic community amenities to sustain full life cycle resiJUNE JULY 2016

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dency. But unlike the crisis moment of a decade ago, little public policy boldness seems to be emerging from Queen’s Park. Yes, the Regional Growth Plan is being reviewed this year. But municipalities will have five long years to comply. Urban Growth Centres, the backbone of the plan, will only absorb about 10 per cent of future population growth (and that assumes they achieve targets). Up-zoning along transit corridors are left to municipalities to define and approve, forcing the level of government most susceptible to local NIMBYism to do the heavy political lifting. And funding to scale up the offering of affordability for low income residents seems to be falling almost entirely on the mid-market home buyer through what appears to be the near naked reliance of inclusionary zoning as the instrument to deliver. It doesn’t have to be this way. Much has been done to slow the market on the urban edges of the region (and obviously cutting supply), but little has been achieved to crack open as-of-right zoning supply along transit corridors and Urban Growth Centres. Could the province use its massive transit infrastructure investments as a rationale to dictate immediate up-zoning and efficiently open up new development opportunities along transit corridors and urban growth centres? Such a gesture would likely attract more transit oriented development (TOD) and ease market pressures associated with choked-off supply of ready-to-roll planning approvals. Could the province respond to the growing demand to reform how tranRichard Joy is Executive sit governance works in the region, at Director of ULI Toronto. the very least for capital planning? The Previously, he served as very same bifurcated governance that Vice-president, Policy and has caused Metrolinx and municipaliGovernment Relations at ties to zig zag their transit plans over the Toronto Board of the past decade is still in place. Could Trade, and was the the province finally deliver a dedicated Director of Municipal funding program for transit infraAffairs and Ontario structure to achieve long-term plan(Provincial Affairs) at ning certainty for TOD across the reGlobal Public Affairs. gion? Could the province use its many Follow him on Twitter levers of land value creation to harvest @RichardJoyTO or email necessary dollars to build affordable at Richard.Joy@uli.org housing rather than force these costs onto market units that are already skyrocketing in price? A crisis is a terrible thing to waste. Let’s not waste ours. It’s time to be bold again. b

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