Building April May 2019

Urban Development / Architecture & Design / Innovation

PM#43096012

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FEATURES

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Where is the Money Now? Are CRE Fintech portals disruptive and transformative or just a wobbly niche?

By Rhys Phillips

Digging Up Dirt As rapid urban development continues to reshape the province, Ontario’s lack of an excess soil policy creates environmental hazards and economic inefficiencies.

By Stefan Novakovic

Staunching the Loss Ontario is currently seeing $2.5 billion in municipal construction contracts not subject to fair and open bidding.

By Brian Dijkema

Delivering Value for the User With ever-evolving technologies and the needs of society shifting, how do public sector authorities effectively and efficiently deliver infrastructure?

By Suzelle de Wet

The Campaign to Nothing Zero Carbon Buildings are not only good for the planet, but a good financial investment too, says the CaGBC.

Departments Building.CA explore Le Jardinier ADHOC architects design an affordable housing project for a diverse clientele in Montréal, ranging from families to young professionals.

tee ign nts

read As Climate Changes, The Way We Build Homes Must Change Why floods, wildfires and other catastrophes will change housing.

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Editor’s Notes Market Watch Legal Briefs From the Bullpen Powers That Be In Their Words Site Visit Spec Sheet Viewpoint

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Volume 69 No. 2

Editor in Chief Peter Sobchak Art Director Roy Gaiot Legal Editor Jeffrey W. Lem Contributors Suzelle de Wet, Brian Dijkema, Richard Joy, Megan J. Lem, Shannon Moore, Ben Myers, Stefan Novakovic, Kevin Powers.

Customer Service / Production Laura Moffatt, 416 441 2085 x104 Press Releases pressroom@building.ca Circulation Manager circulation@building.ca Sales Manager Faria Ahmed, 416 441 2085 x106 fahmed@building.ca Vice President & Senior Publisher Steve Wilson, 416 441 2085 x105 swilson@building.ca President, iQ Business Media Inc. Alex Papanou Design Consultation BLVD Agency

Building magazine is published by iQ Business Media Inc. 101 Duncan Mill Road, Suite 302 Toronto, ON M3B 1Z3 (416) 441 2085 x104 info@building.ca www.building.ca SUBSCRIPTION RATE: Canada: 1 year, $30.95; 2 years, $52.95; 3 years, $64.95 (plus H.S.T.) U.S.A.: 1 year, $38.95 USD. Overseas: 1 year, $45.95 USD. BACK ISSUES: Back copies are available for $15 for delivery in Canada, $20 USD for delivery in U.S.A. and $30 USD overseas. Please send prepayment to Building, 101 Duncan Mill Road, Suite 302 Toronto, ON M3B 1Z3.

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Building is published six times a year. Printed in Canada. The content of this p ­ ublication is the property of Building and cannot be reproduced without permission from the publisher.

Funded by the Government of Canada

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Good News Gloom

“Canadian commercial real estate has been a primary benefactor of a decade of economic growth and distinction on the global stage. Further integration into the global economy coupled with technological change has produced new sources of demand, an influx of foreign capital and changing business needs and behaviours,” say the authors of the recent CBRE 2019 Canadian Market Outlook. Numbers don’t lie.

A strong demand for office, residential, and industrial persists throughout major city centres. In the office sector, national construction activity reached 16 million square feet for the first time since Q4 2015, while in the industrial sector the national average net asking rent reached a record high of $7.97 per square foot in Q1 2019.

Yet despite seeing these stats as reasons to rejoice, typically prickly CRE senior executives look for things to worry about, as evidenced by responses in the REALPAC / FPL Q1 Canadian Real Estate Sentiment Survey.

“The biggest challenge is a cooling trend on new product absorption, predominantly brought about by price levels and affordability, and compounded by policy at both the provincial and federal levels (tax structures and stress tests)—that has affected it more on the higher than the lower end,” said one respondent. “There’s a need and desire for housing, but it puts affordability more at risk. There’s a spike in prices on the low end as demand shifts, and policies are actually hurting the people that they’re trying to help.”

A major concern voiced in the Sentiment Survey was that while fundamentals are strong, the wild card is government intervention, acting as a major contributor to rising interest rates and other concerns. “There’s a lot of desire at all levels of government to try and tinker. There’s interest rate hikes and stress testing with homebuyers,” said one respondent. “We are also seeing it at the provincial level with trying to implement tax

Peter Sobchak Editor in Chief We welcome your feedback. Send your questions and comments to psobchak@building.ca

policies to dissuade money laundering, and there are lots of initiatives that municipalities are trying to enact. All with good intentions, but not well thought out, which makes us nervous, especially if the government continues to want to intervene.”

The government did intervene, at least in Ontario. With Bill 66 passing third reading in the Ontario legislature, municipalities in the province stand to gain hundreds of millions of dollars by opening public construction contracts to all qualified bidders. The bill updated Ontario’s outdated labour laws, which had blocked almost $2.5 billion worth of publicly funded municipal infrastructure work from fair and open competition. Isn’t that good news?

“While government, business leaders and average Canadians adjust to changing conditions, it is important to remember that these difficulties are by-products of Canada’s significant competitive advantages, stable institutions, high quality of life and a decade of G7-leading economic growth,” CBRE reminds us. “In the eyes of the world, Canada remains a place where opportunity can become reality and prosperity is a more likely outcome than it is simply a possibility.” Let’s keep that in mind everyone.

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market watch Spotlight: 2019 Real Estate Market Outlook

Once-in-ageneration moment for Canadian commercial real estate

Landlords in Control

Safety and stability thrust Canada into the spotlight during the Global Financial Crisis and initiated a transformative decade.

An influx of global capital, record construction activity, rising home prices and the pace of technological advancement produced prosperity for many. However, some market participants were caught flatfooted and left behind.

Few sectors have so universally benefitted from Canada’s economic momentum than commercial real estate, says CBRE in their 2019 Canadian Market Outlook report.

Record occupancy levels, investment activity and new construction are hallmarks of the largely unprecedented and uninterrupted run for the industry. Growth is often synonymous with discomfort. In many Canadian cities, real estate is at the forefront in both regards.

The past decade of momentum has been a mixed blessing for Canada and commercial real estate’s bull-run is producing similar challenges. Most notably, there is increased competition for commercial space, rising lease and construction costs, as well as an elevated level of exposure to global economic forces.

Despite these challenges, Canadian real estate is not a victim of its own success. This is what it is to be a leader in the world. This is what it feels like to live in thriving global

cities. These are the challenges that governments, businesses and citizens face when the pace of change accelerates due to rising competition and opportunity.

Canadian commercial real estate, like the country itself, has left the safety of the harbour in search of larger opportunities and greater prominence on the world stage. On this journey, it will be essential to remember the practices that provided stability and initiated a decade of growth. It will be even more important to innovate and advance global best practices to ensure that the real estate industry and the broader economy are able to address challenges, build on our promise and reach the intended destination.

Once in a Generation Demand for commercial property has never been higher, which makes finding space and negotiating for it all the more complicated.

This is true for most property types and is most pronounced in gateway markets like Toronto and Vancouver. To be clear, this is not simply a traditional “Landlord’s Market.”

Conditions are so tight that landlords are becoming increasingly particular and are able to control their portfolios like never before.

In the tightest office markets, 10-year

16 % 14 10 8 6 4 2

National industrial availability rate

6

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Source: CBRE Research, Q4 2018

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Toronto downtown office vacancy rate

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lease terms with top pricing are now standard. Discounted sublets are being assumed by landlords who have confidence that they can be re-leased at top dollar. This environment is limiting movement and encouraging renewals, while also encouraging occupiers to consider workplace strategies that allow them to do more with their existing space.

Landlords are equally, if not more confident, in managing their industrial buildings and portfolios. In the tightest neighbourhoods within Vancouver and Toronto, landlords are increasing rents for top-tier product at some of the fastest rates in the world and commonly pushing for 15-year lease terms. Vancouver’s net industrial asking rent increased by 15.9 per cent year-over-year in 2018 to $11.86-persq.-ft., the highest on record. While higher rents and longer leases may be hard for some tenants to swallow, this dynamic shift may be mutually beneficial. Tenants are now more likely to consider longer-term occupier strategies, including significant investments in supply chain automation and robotics to improve operations, while landlords can obtain lengthy commitments and an opportunity to future-proof their assets.

While landlords have an unprecedented negotiating position, rising asking rental rates do not necessarily translate into increased cash flows. Tight markets discourage tenant movement and encourage renewals. New workplace strategies allow tenants to do more with existing space and apartment owners are not seeing the normal 25 per cent lease turnover in major downtown markets where rents are climbing the fastest. Limited vacancy also

This is what it feels like to live in thriving global cities

hinders property renovation. A pronounced “Landlord’s Market” is problematic for tenants, but still presents challenges for landlords.

Red Lines and Red Tape Strong demand, record low vacancy rates and changing tenant needs are spurring a wave of new construction across the country. While the amount of new space is triggering anxiety amongst some market watchers, the bulk of the 14.6 million square feet of office and 18.5 million square feet of industrial product under construction is concentrated in markets which are currently underpinned by unprecedented strength and demand.

Over 7.3 million square feet of office space is under construction in downtown Toronto, with Vancouver adding an additional 2.9 million square feet, both of which hold the lowest vacancy rates in North America at 2.7 per cent and 3.8 per cent respectively. To alleviate the industrial supply crunch, 6.6 million square feet and 5.0 million square feet is being built in Toronto and Vancouver,

2018 Apartment vacancy rates

Source: CMHC, Oct. 2018

Vancouver Toronto Ottawa

1.0% 1.1% 1.6% 1.9%

Montréal Halifax

1.6%

respectively, 64.8 per cent of which is preleased due to pent-up demand. Even smaller cities like Victoria are reporting the highest number of cranes at work in the city’s history.

While these numbers may seem large, make no mistake, new construction is absolutely needed. A lack of vacancy in any property type hinders economic growth by limiting a company’s ability to respond to client needs and evolve business strategy, while also acting as an impediment for international firms looking to expand into new markets. What is telling about the amount of space under construction is not the overwhelming amount of space, but the fact that it is not a record given a lack of vacancy and availability.

From coast to coast, developers are pointing to a confluence of issues that are restraining development: record land prices, increasing development charges, rising material and labour costs as well as a prolonged and more involved planning and approval process.

The commercial real estate industry only has to look to the residential market to see what happens when demand outstrips supply over a prolonged period.

There is a shortage of almost all types of quality modern commercial property. Rising costs and red tape threaten to create an even greater imbalance. While there is a role for municipal planning and protections, government and business interests need to align to ensure that the Canadian economy has the physical space required to grow so that our cities and the national economy can continue to prosper.

The preceding was an excerpt from CBRE’s 2019 Canadian Market Outlook

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legal Briefs

Double Default Alive and Well

When neither the vendor nor the purchaser is ready to close, the deal does not die: it lays in suspense.

By Jeffrey W. Lem and Megan J. Lem

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.

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Megan J. Lem is a corporate lawyer in the Toronto office of Osler, Hoskin & Harcourt LLP. This article reflects the opinions of the author alone.

The world of real estate law produces a number of unusual rubrics that are far from intuitive, and, sometimes, even seasoned real estate lawyers forget some of the more obscure rules relating to real estate conveyancing. One of our favourites is the “Double Default Rule.” The Ontario Superior Court 2019 decision in Fortress Carlyle Peter St. Inc. v. Ricki’s Construction and Painting Inc. is an excellent showcase of how and when the Double Default Rule works.

Presume that you are a purchaser and the vendor has failed to deliver a critical estoppel certificate from a key tenant. You have a legitimate demand that the vendor will not satisfy, and that you are not prepared to waive. You want this deal, but you are not prepared to take it with the risk of a hostile long-term tenant. You are in a position to close the deal and want to force the vendor to comply with its obligations under the agreement of purchase and sale. Your lawyer tells you that you are in a good legal position…that is, however, until your accounting clerk tells you that the money you needed to close the deal was somehow lost in banking limbo (you know that you wired the closing proceeds, but your lawyer was frantically looking for the money in his/her trust account!). It is true that the vendor was not in a position to close the deal, but neither, it would seem, were you. Now what?!

Now, go across town and switch places with the vendor but using the exact same facts from the opposing perspective. You (remember, now you are the vendor) know you have to deliver an estoppel certificate, but, in your mind, you already have. The picky purchaser says your estoppel certificate isn’t exactly in the form required by the

agreement of purchase and sale. Maybe the purchaser has a point, but you are sick and tired of this purchaser and, frankly, the markets have been good and you just as soon not close with this purchaser — you would do just as well, indeed probably better, going back to the market. Your lawyer says that your legal position isn’t really that strong but the lawyer will do what he or she can. While the odds are slim, who knows, maybe your dreams will come true and the purchaser won’t be available to close in any event. Guess what? The purchaser’s lawyer is not in funds on the closing date! It is true you were not in a position to close, but neither, it would seem, was the purchaser.

Now what?!

This is, more or less, what happened in Ricki’s Construction, where the purchaser had requisitioned the delivery of an estoppel certificate that the vendor could not or would not deliver. The purchaser’s lawyer seemed to be in the driver’s seat until it was discovered that there were no closing funds in the trust account at the agreed-upon 6:00 p.m. closing. As it turns out, the bank had the money, but could not do the internal transfers necessary to get the money into the purchaser’s lawyer’s bank account during business hours on the closing date.

For all intents and purposes, the purchaser in this case was arguably not in funds come closing, but the vendor was in no better position, having failed to deliver a critical estoppel certificate that was contractually required. Both parties were apparently in default on closing, and neither party was in a position to close.

Most real estate professionals, including many brokers and lawyers, think that this “double default” fact scenario results in a colossal crater — the deal has died

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When both parties default, the deal doesn’t die. Instead, it becomes a race to cure. because neither party was properly in a position to close. These real estate professionals would be spectacularly wrong.

According to the Double Default Rule, where both parties are in default (and neither party is ready to close on the scheduled closing date), the deal is not dead. Instead, it is just postponed indefinitely, until resurrected by the first party who can come to

the table with a reasonable new closing date. In the meantime, the deal is in “limbo” or “suspended animation” — the purchaser does not get their deposit back, and the vendor is not entitled to sell to anyone else.

The widely accepted genesis of the Double Default Rule is an Ontario Court of Appeal decision from the early 1970s called King v.

Urban & Country Transport, and the doctrine

is often still often referred to as the “The Rule in King v. Urban” by older real estate lawyers.

In Ricki’s Construction, the bank finally got the closing funds into the purchaser’s lawyer’s trust account approximately 19 minutes after closing. After the usual nasty exchanges of recriminations and legal threats, the purchaser’s lawyer, now flush with funds, called for a new closing date on the very next day. Of course, the vendor disagreed, and, and the new closing date came and went with the vendor still stubbornly arguing that the deal had already died the day before.

The court held that the new closing date was reasonable and that the purchaser was ready, willing and able to close on that new closing date: the purchaser won and the vendor lost. Although we have significantly paraphrased the “legal takeaway” from Ricki’s Construction, the case does re-affirm, some almost 50 years after King v.

Urban that the Double Default Rule remains alive and well in Can­adian real estate law.

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from the bullpen Remove That Easement Are urban planners overstepping their bounds?

By Ben Myers

Ben Myers is president of Bullpen Research & Consulting, a boutique real estate advisory firm that works with land owners, developers, and lenders to better inform them of the current and future macroeconomic and site-specific housing market conditions that can impact their active or proposed development projects.

Follow Bullpen on Twitter at @BullpenConsult or find Ben at www.BullpenConsulting.ca.

In March, urbanist and author Alain Bertaud, a senior research scholar at the NYU Marron Institute of Urban Management, visited Toronto to give a presentation on cities and discuss the findings of his new book, Order Without Design: How Markets Shape Cities. Bertaud is a free market thinker, a man that believes in the “invisible hand” of the market to shape the design and spatial allocation of new buildings and built forms within a city.

According to Bertaud, urban planning started as a way to reduce the negative externalities of development. In his example he spoke about a new building that could be situated in a certain way to reduce the shadowing on neighbouring properties.

However, in many places around the world, Bertaud contents that planners wanted to shape cities in their own image, instead of allowing them to grow organically and to react to the needs and desires of the residents.

The central thesis of Bertaud’s latest work is that successful cities adapt and react to the needs of its inhabitants.

Codifying rules and regulations about how buildings and areas grow can be harmful in the long run as many of those zoning regulations are difficult and costly to modify and cannot keep up with rapidly changing market forces. He points to minimum unit size requirements implemented 50 years ago in New York City, when there were many families living in urban apartments in Manhattan. As household sizes changed, employment patterns altered and space was in short supply, demand for small units increased dramatically and developers couldn’t provide the supply to match this spike in demand given the zoning restrictions. Developers could only build large, expensive units that were severely unaffordable.

There were several Toronto planners in attendance at the event, fresh off patting themselves on the back for a new plan called TOcore, that has minimum unit size guidelines and strict unit mix requirements. This

plan will only add more large expensive units to the market at the expense of muchneeded smaller suites suitable for first-time buyers and renters.

Before making big policy or zoning changes, planners should meet with economists to understand the financial consequences of their actions, says Bertaud. The lack of communication between these two groups has had dire consequences for cities despite the desperately well-intentioned moves by planners to encourage families to return downtown, to preserve historic architecture, and to protect jobs. Those three initiatives alone can often lead to less housing supply, accelerated gentrification, and an unfair subsidy to a dying industry at the expense of a new one.

Bertaud doesn’t let planners off that easy, however. He does believe that there are planning departments that purposely restrict development in order to create leverage over developers. Their intention is to force the developer to negotiate in order to secure suitable density permissions in exchange for certain community benefits or design features. In strong markets, these restrictions and negotiations result in many shared community benefits and societal gains, but in a weak market they just kill developments by making them financially unfeasible.

During the final question and answer period, Bertaud stressed the need for the media to present an unbiased and impartial coverage of planning policies, zoning changes, and new development. While it’s true that five additional floors may increase a developer’s profit, they also represent 50 new homes.

A systematic and comprehensive review of the trade-offs that planners encounter on a daily basis is required to improve the productivity of cities. After 50 years of rules intended to be thorough and precise in programming a city, the planning profession may have overstepped their bounds. In the language of real estate, perhaps it’s time we removed that easement.

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powers that be Weird Science When it comes to development, there is a world governed by science and there is a parallel world of political science.

By Kevin Powers

Kevin Powers is managing principal of Project Advocacy Inc., a subsidiary of Campbell Strategies, and is focused on helping project developers facing public and government opposition.

Find him at www.projectadvocacy.ca or email him at kevin.powers@ projectadvocacy.ca

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A colleague and I were admiring a stuffed mountain lion outside a state Senator’s office when he greeted us with a joke about his aim. Earlier that week, the Senator had come out of nowhere to oppose a project we were working on and we were scrambling to figure out his stance. He was from a far-flung jurisdiction, normally a big supporter of our industry, and an ardent opponent of all things environment-related, unless they could be shot and stuffed. But there he was in the newspaper, standing shoulder-to-shoulder with his political opponent, a liberal Democrat, condemning the environmental impact of our proposal. It just didn’t add up. Additionally, not a single fact he quoted about our project was accurate.

We were there to set the record straight and, hopefully, get him to soften his stance, or at least assume a lower profile. As we were getting settled in his office, he motioned to a stack of newspapers on his desk. “I don’t know what you guys are going to tell me about your project,” he said, “but what I can tell you [is] I’m getting great headlines opposing it.” In that moment it became clear that there would be no setting the record straight. Newspaper headlines were all the proof he needed that his position was the right one.

In an era of fact-based decision-making, it was a striking admission, and one he would never have said on the record. But it served as a stark reminder that there is a world governed by science, and then there is the parallel universe of political science.

The world of science is the one developers naturally inhabit. It consists of all of the empirical data that demonstrate how your project will interact with the environment and the local population. It is the detailed traffic and hydrogeologic studies. It is the careful look at shadow impact and noise levels. It is the economic impact analysis and projected taxes. This is the information that makes the case to the planning department. And without it, it would never make its way to Council.

At council, and among politicians, this data is important too, to a degree. They need to know that it won’t affect the drinking water of neighbours, that it won’t cause traffic congestion, and that it won’t impact the local mountain lion population.

But for a politician, the data-driven viability of a project is table stakes. For them, the real litmus test of a project rests in the murkier realm of political science, and it is here that all too often developers fall short in their preparation and analysis.

Before heading into a meeting with a politician, they should understand that politician’s stance on development. Have they voted against this type of development in the past? Or have they been criticized for being too close to developers? Who are they aligned with at council, and which way are their allies likely to vote? How far away the next election is, and how might this project affect their re-election chances among different demographics? What is their base likely to think? And how is the project, or their opposition to it, likely to play in the local media?

All of these should be “known-knowns” addressed before heading into any meeting.

And then, of course, there are those unknown unknowns, which can force you to work around, rather than with, a politician.

My colleague and I spent half an hour with the state Senator, walking him carefully through the 1.5 billion years of geology that would ensure our project, and his state, was safe. It was a presentation that had softened even our most hardened sceptic. But at the end of it he just winced.

“Well, this has been very interesting. But, you see, your science doesn’t really hold water for people like me and many of the people I represent who believe God created the Earth in seven days about 5,000 years ago like the Bible says,” he said.

“Thank you, though,” were his words as he stood up and motioning us to the door, “and good luck with your project.”

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By Design Commercial Program

By participating in the Enbridge Savings by Design Workshop, we were able to discuss real costs of choices, both for construction and long-term operating. The overall building massing and layout was set by very complex program and siting restrictions, so the areas in which we benefited greatly were in rethinking storm water management on site, window type and performance, exterior wall assembly, and healthy materials.

The mechanical engineering part was also indispensable and so instructive; highlighting important and easy changes, discussing more complex upgrades, and understanding the long-term and performance impacts of our systems, both as climate change worsens and as building systems need replacement and upgrades.

The Enbridge charrette provided the perfect opportunity to make clear and informed choices that brought our project to the next level of energy, health and operating performance. It saved construction and operating costs and made for a healthier building.

— Chantal Cornu, LGA Architectural Partners

In 2018, Evergreen Brick Works was in the midst of an ambitious effort to transform the historic Kiln Building – and make it carbon neutral by using the right energy at the right time. Early in the process, Enbridge led a Savings by Design workshop for the project. On a fast track project, this provided a tremendous opportunity for the integrated design team to reflect on the early trajectory set in the project, and obtain informed perspectives from invited experts on enhancing it.

The workshop also provided a spring board to brainstorm how the Kiln Building project could serve as a catalyst to transform the entire Brick Works campus to be carbon neutral, which has been a longstanding vision of Evergreen.

The Savings by Design workshop struck a great balance between both blue sky and detail level thinking. It was informative, fruitful, and an overall positive experience. We’d highly recommend Enbridge’s Savings by Design workshop program for anyone thinking about making more sustainable buildings.

— Drew Adams, Associate, LGA Architectural Partners

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a

Where is the Money Now?

G

Are CR E Fintech portals disruptive and transfor m ative or just a wobbly niche?

By Rhys Phillips

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Economist Robert J. Gordon’s remarkable book The Rise and Fall of American Growth (2016) concludes by detailing how the third industrial or digital revolution has failed to come close to matching the productivity growth rates achieved between 1930 and 1970, despite a moderate uptick between 1995 and 2004 generated by the introduction of the Internet. This has not curtailed the omnipresent use of “disruptive” and “transformative” as adverbs to describe how digital technology impacts just about every component of the economy. Starting four years ago and continuing, these adverbs frequently came into play to describe Fintech and its impact on the $7-trillion global commercial real estate (CRE) market. A prime disrupter of CRE , goes one argument, is the so-called “democratization” of investment created by lower cost, online crowdfunding platforms backed by new exempt market regulations. By 2019, are these portals proving to be disruptive and transformative or just a wobbly niche?

CRE Fintech: An Age of Disruption and Transformation or not?

Fintech is a broad term primarily applied to any new, digitally-based technology intended to improve the efficiency and ease of the application of a wide range of financial services. As Amar Nijjar, founder of Toronto-based R2 Capital and Investments explains, Fintech can be divided into two discrete forms. First, it simply means the application of digital technology to financial sector transactions such as investment flows,

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money management and disbursements. But second, it “deals with the capital formation process connecting private capital and equity sources with property owners and developers who need capital to do their projects.”

The latter’s most disruptive impact is touted to be the implementation of online crowdfunding platforms that open up CRE investment to a much broader range of retail investors while reducing cost to both investors and developers/borrowers.

Although Deloitte’s 2018 Commercial Real Estate Outlook reported that between 2008 and 2017, investment into the creation of real estate tech start-ups soared, by mid2018, CFX Markets reported total crowdfunded real estate investment accounted for only $2.5 billion of the $7 trillion worldwide CRE market. Optimists see this as signalling significant potential to grow. Similarly there appears to be consensus that all crowdfunding will reach $300 billion by 2025, but if real estate sustains its current 6.2 per cent of these funds raised, its overall contribution will remain marginal.

A Refresher: CRE Crowdfunding Sprouts and Grows Real estate was at the heart of the great collapse of 2008. In reaction, regulatory reform to protect investors only strengthened the near exclusion of individual “retail” investors from the lucrative CRE market. At the same time, accredited investors (as defined in the table, opposite page) who lacked the right connections also found it difficult to crack the market. The conditions were

ripe for the birth of crowdfunding. In 2010, Washington D.C .-based Fintech start-up Fundrise’s work with the Securities and Exchange Commission (SEC) to create an online portal for accredited investors to fund a local project kick-started a “democratization” of investment. Obama’s subsequent 2012 Jumpstart Our Business Startups Act (JOBS Act) allowed start-up platforms and even small businesses to openly market private investments to accredited investors.

While the potential percentage of Americans who qualify as such investors is relatively small (less than nine per cent), in this age of income inequality they still control 70 per cent of all wealth.

For the remaining 91 per cent of the population, the addition of Title III in 2015 meant private investment was opened up to non-accredited investors, albeit restricted to very modest investment limits with limited raises over a prescribed period.

While crowdfunding initially focused on the “fix and flip” market, CRE projects soon gained traction. Constrained by Title III’s severe limits on non-accredited investors’ contributions and $1-million raise limits, the Act’s Title IV R egulation A+ (also approved in 2015) gained prominence as it permitted raises of $50 million per year open to retail investors. This has been increasingly exploited by offering eREITs through online platforms. Fundrise would establish the first eREIT and moved solely to an e REIT model in 2016. As pooled funds, however, this model takes away the investor’s flexibility to invest in commun-

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We have 13 different regulators who behave as if each is a different country.

Ontario Exempt Market - Funding Exemptions Exemption

ity-specific projects; an attribute Nijjar believes is a key social objective, especially for secondary communities.

Canada quickly followed suit. It has to be remembered, however, that “the biggest challenge is we have 13 different provincial/ territorial regulators who behave as if each is a different country and they don’t have harmonization,” says Nijjar. While in general this is true, there has been enough harmonization to permit Ontario’s regulatory evolution since 2012 to act as a model.

By 2016, following an Ontario Security Commission (OSC ) review “to consider whether there was potential to facilitate greater access to capital through the exempt market, particularly for start-ups and small or medium-sized enterprises while maintaining an appropriate level of investor protection” the OSC issued four new capital raising prospectus exemptions.

First, in February 2015 came the security holder prospectus exemption followed by the friends and business associates exemption (May 2015). Third, the offering memorandum exemption was approved in January 2016, and fourth, the crowdfunding exemption also arrived in January 2016. These exemptions are not restricted to online platforms and can even be used by a developer to raise capital directly. Within these exclusions, the OSC outlines seven types of prospectus exemptions (although for our purposes the accredited investor, crowdfunding and offering memorandum exemptions are the focus for the online platforms and are summarized in the table).

Accredited Investor

Who Can Invest

Investment Limits

Implications

Accredited Investor • Net income => $200k ($300k with spouse) two previous years and upcoming year; or • L iquid assets of $1m; or • Net assets of $5m

No dollar limit on investment

Approximately 90% of potential individual investors are excluded.

No costly prospectus or alternative offering memorandum is required.

Pension funds, charities and other listed exemptions Retail Investors Crowdfunding (online through a single portal registered with the OSC)

$2,500 per investment up to $10k per calendar year

Very low limits on investment and raises.

$25k per investment up to $50k per calendar year

No costly prospectus or alternative offering memorandum is required.

Accredited Investors Large investors such as banks and governments

No limit Retail Investors other than an Eligible Investor

Offering Memorandum

Eligible Investor • Net Assets exceeding $400k; plus • Net income before taxes exceeding $75k; or • Net income alone or with spouse of $125k Accredited Investors

Purchase price of all securities purchased under exemption in the 12 months before is not more than $10k

Replaces the costly and time-consuming process of preparing a security prospectus; but, still takes time and resources to prepare.

Purchase price of all securities purchased under exemption in the 12 months before is not more than $30k But, if the eligible investor has received advice from a portfolio manager, investment dealer or exempt dealer that an investment above $30k is suitable, the limit is $100k No limit

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Online platforms may register as either a full Investment Dealer or, as is frequently the case, an Exempt Market Dealer regulated under the Investment Industry Regulatory Organization of Canada (IIROC). The latter is restricted to exempt securities not requiring a prospectus. A mortgage administration licence is required if syndicated mortgages are used as the investment instrument and is regulated by the Financial Services Commission of Ontario (FSCO).

Philip Aubry, an associate at the Dickinson Wright LLP Toronto office who assists firms prepare for exempt raises and is not aware of any eREITS operating in Canada, confirms that common investment instruments used include limited partnerships (units) and syndicated mortgages, frequently under the offering memorandum (OM) exemption. Preferred shares are also an option. Given the significant financial disclosures and reporting requirements of an OM, however, he adds “if you can avoid using the OM exemption, you definitely do and we always gravitate toward the accredited investor exemption.” Garret MacGillvray, now a senior associate with Trez Capital but with significant experience

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with an online platform, agrees. “There are three levels of audited financial statements that you can get for an audit and this is the most expensive.” Nijjar’s R2 Capital, until recently, primarily used the accredited investor exemption and bluntly states the syndicated mortgage approach “is broken.”

Game Changer or Footnote?

While in 2018 both American and Canadian articles continued to suggest the disruptive potential of online CRE platforms, caveats were common. A November 2018 ValuStrat report titled How Will FinTech Impact the Commercial Real Estate Market suggests online platforms are “trying to radically transform traditional commercial real estate lending processes, [but] they are still finding that they have plenty of work ahead.” In a 2018 interview for ITBusiness.ca, NexusCrowd’s CEO Hitesh Rathod admitted growth has been slower than expected.

Determining the dollar impact of CRE crowdfunding investment in both the U.S. and Canada has proven elusive. While it is possible to get data on the larger individual U.S. platforms, sometimes indicating total

Different Techs: Fintech vs. PropTech CRE Fintech investment platforms should be differentiated from PropTech. In Forbes, Angelica Krystle Donati defines the latter as “any technology for the real estate space [spanning] software, hardware (for example, sensors), materials (for example, special bricks that act as batteries for solar panels) or manufacturing (3D printing, offsite manufacturing).” It includes property management tools as well as emerging “deep technology” such as blockchain, artificial intelligence, big data analytics, and the Internet of Things (IoT).

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There are signs these platforms are not yet a proven business model.

raises in the hundreds of millions, the cumulative incursion into total CRE investment is probably relatively insignificant. In Canada, a 2018 OSC report on the exempt market found that in all industrial sectors individual investors contributed $2.2 billion or only two per cent of total investment even though they constituted a whopping 77 per cent of all investors. Only 10 per cent of their investments went into rea l estate a nd mor tgages.

Approximately 80 per cent of this investment was raised under the accredited investor exemption and there were no reported crowdfunding exemptions used in 2017. Nijjar’s assessment of its current impact on CRE investment is, in one word, “lacklustre.”

Equally difficult is getting a handle on the number of operating platforms. Through the National Crowdfunding Association’s listing and internet searches, 12 can be identified in Canada, although a majority offer securities in a mixed range of industrial sectors and most catered only to accredited investors.

Interestingly, R2 Capital has just gone through a major pivot towards becoming a data firm generating wealth maps of interested investors that can be monetarized through the platform. “Going forward, R2 is not about selling investments,” says Nijjar.

Despite the growth of disruptive technology, there appear to be few dedicated online platforms for CRE. In the U.S., for example, there are approximately 100 real estate crowdfunding platforms but as a capital source for the CRE sectors these remain marginal. Plus, there are also signs these platforms are not yet a proven business model. “Five or more

years after many companies in this space got their first funding, it isn’t clear any of them have figured out how to make money,” wrote Jan Brzeski of California-based Arixa Capital.

Already by the end of 2017, Ian Ippolito’s Real Estate Crowdfunding Review reported only five platforms were “thriving,” while the vast majority faced moderate or substantial issues and “a stunning one-third of the former 25 [top] platforms are out of the accredited investor platform business today.”

The Review’s 2019 platform ratings for accredited investor portals were not encouraging: in the six tiers descending from Best-of-theBest Tier to Bottom Tier, no platform made Tier 1 and only six made Tier 2; 17 made only Tier 5 and included those that had exited/shutdown or faced significant challenges; 80 met no assessment criteria and populated the Bottom Tier. In its 2019 report on platforms for non-accredited investors, the Review found only 15, many of which appear to primarily offer eREITS. Growing Pains or a Limited Business Model We started with the question of whether or not online CRE investment platforms were transformative or a niche market with a wobble. It is tempting to lean to the latter. However, some trends recently identified by Sam Dogen in his Financial Samurai blog may increase the penetration of these platforms. First, accredited investors may become less a target in favour of institutions allowing for much bigger raises. Indeed, Investment Property Forum had already identified back in 2016

the “crowding out” of smaller investors by institutional investors. But don’t expect major traditional institutions to acquire or create their own investment platfor ms, says MacGillvray, a trend not even found in either the more mature U.S. or U.K. markets. Second, eREITs, although currently absent in Canada, may increase providing relatively safe investments for retail investors. Finally, mergers and acquisitions, he believes, will result in only three top tier companies in the U.S. by the end of 2019.

Commentators also predict “traditional” crowdfunding will itself be disrupted by the need to leverage blockchain-based tokenization that will improve liquidity, diversification and distribution of risk. Thomas Park, CEO and co-founder of Vancouver-based Reitium Blockchain Technologies agrees: already it boasts $830 million in committed assets (90 per cent in the U.S. but some in Canada) and almost two thousand investors on a waitlist while the company completes its exempt dealer applications. Once up and fully running, an investor can establish a cryptocurrency token account, use a Tinder-like swipe on their smartphone to select properties and click to buy. Tokenization allows an investor to purchase in fractions and because a secondary market will be created, investors will have more liquidity (although resale requires an accredited investor).

It is probable CRE crowdfunding will remain a growing capital market niche. The key focus will have to be getting out of the wobble, possibly further regulatory changes and, in the end, finding profitability.

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in their words

A Capital Idea

Rhys Phillips chats with Amar Nijjar, co-founder and CEO of R2 Capital and Investments, about the birth, growth and evolution of both his firm and Fintech.

What do you define as “Fintech for commercial real estate” and what are the services and products it provides? How does it differ from traditional services?

Fintech in commercial real estate comes in a couple of different forms. [In general] Fintech essentially means the application of digital technology applied to financial sector transactions. This includes, for example, investment flows, money management and disbursements. Wrapped into this is [Fintech for commercial real estate] that deals with the capital formation process connecting private capital and equity sources with property owners and developers who need capital to do their projects.

Traditionally, that capital formation process [for small and even medium-sized developers] has been very much about friends and family as investors because it has been very difficult to find potential new investors in the community willing to listen to the developer’s story and to become a broader source of investment capital. Alternatively, these developers have had to go through a huge and expensive marketing, educational and informa­-

tional program [to access larger traditional capital sources like the banks]. Frankly, the way it has been done in the past often doesn’t work [for these smaller developers] because there has not been an online “Uber of commercial real estate capital” in the private investment space.

You had to tap the public market in Canada, that is go to the stock exchange and have a listing, have a prospectus and raise money with such tools as ETFs [exchangetraded fund]. On the one hand, these channels do not work for many private players because they do not have the scale or the interest to go public. On the other hand, potential private investors are not given the liquidity that they want or sheltering from the volatility of the public market that they see in the private capital markets.

On top of this, the layer that is extremely complicating is regulations and security laws which are really challenging on multiple fronts in Canada. The biggest challenge is we have 13 different provincial/territorial regulators who behave as if each is a different country and they don’t have harmon­ization. What B.C. allows, Ontario may not

in Canada, there are many oligopolies operating in the banking, financial, insurance, and real estate sectors.

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allow, for example. The fragmented regulatory regime is actually very restrictive in many ways for capital formation.

Certainly the concept of investor protection and regulation has to be there. How­ ever, the current way the regulatory framework in Canada operates with its lack of harmonization does not allow the online portals to achieve their potential for creating

a full capital formation process. For example, the crowdfunding exemption set up in Ontario a few years ago to really allow small-tomedium sized developers to tap into private capital has not been used; and, it has not been used because of the way it has been set up including marketing challenges and the amounts that can be raised.

The new Ford government has a “burden

reduction” initiative on the go and they are asking the regulators to revisit that. What is going to happen over the next few years is some regulatory modernization leading to “reg-tech,” that is regulatory technology that allows regulators to let the Fintech platforms do what they can do. This will reduce the pressures on our companies to leave for those jurisdictions abroad that are friendlier.

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If I am a small- to medium-size developer who needs $8 million to build a low rise, versus Minto wanting to build another high-rise, what is the difference between the traditional model and the Fintech start-up platform in terms of getting the capital I need?

Large developers like the one you mention actually do not have a shortage of capital. They have access to the market where they have a four decade track record, significant family capital and access to large institutional relationships willing to deploy equity cheques of $100 million and up.

A $7-million equity cheque is something that the pension funds are not that interested in. Even up to $30-40 million, projects have few ways to raise capital if they don’t have equity capital of their own.

The way it fundamentally works in capital markets is we set up a limited partnership.

Typically these limited partners are $50$100,000 investors all of whom are investors registered under the accredited investors exemption. Currently, the smaller developers cannot go to the public market for the large institutional investors because of the obstacles I have described. Their only realistic option is to tap into 20 to 30 accredited investors who can each put in $100,000 investments into a limited partnership. And that is where R2 comes into play.

We have over 60,000 investors for our newsletters, and we have about 2,600 registered investors on our platform seeking to learn more about these kinds of projects in their communities. R2 is a central, go-topoint as a conduit to bridge customers who want to partner with these kinds of developments and projects. We use tremendous data science — customer segmentation tools — based on net worth, income, wealth and their preference for certain kinds of projects and certain kinds of markets.

We have become a data company now where we aggregate that data in a meaningful way on our technology platform and showcase our developer deals in an educational, marketing technology format so that the customers are intrigued and want to respond to these property owners. There are 2,600 [potential investor] clients but tens of thousands more in the community who want to latch on, to learn more about what is going on in their communities and who potentially

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may invest in property development. So we have a platform that beautifully facilitates that.

Is this investment in the form of mortgages or in the form of equity?

It is always in the form of equity through limited partnership units with a general partner who takes on all the developer’s risk and who also has skin in the game by retaining 10 to 20 per cent of the equity. The limited partners will enjoy strong returns without having to give loan guarantees, without having to be there to worry about the day-to-day construction management. The general partner does all that. Less used are preferred shares; same concept but a different legal arrangement. The syndicated mortgage [not restricted to accredited investors] is broken and it has been dismantled and will not be used anymore going forward.

What is the pivot R2 has just made in its approach?

R2 is now not about selling, which is what it was at the beginning. We have transitioned our business to being a conduit between suppliers and users of capital. We are not about the selling of investments but more about emphasizing our data and related capabilities. Our goal is to create a sort of wealth map of every interested real estate investor/client or even a colleague in Canada that wants to invest in a commercial real estate project. For example, we are doing advance level wealth or data mapping and cross checks against social media profiles.

One of the things we are working on, for example, is if you have an iPhone and

you go to certain kinds of restaurants, we are able to track that and we match this against data profiles available in the general market and on the internet — you travelled to certain kinds of markets, stayed at certain kinds of hotels — without knowing too much from a granular level to protect privacy. We are able subsequently to map that you have a higher propensity to invest in a certain type of project at a certain level amount.

We are becoming a data company in the real estate scene that will then monetarize the data on our technology platform.

We will be showcasing our platform most importantly to those development projects in Canada and the U.S. Investors can learn more and get comfortable with things like risk scores, walk scores, property scores, competitive area-based transactional analysis. This will provide the research and data to customers and then map their interests and propensities to invest into certain kinds of properties. We then seek to monetarize that data.

With this shift, where you are not selling securities anymore, where does R2 make its income? From where is your revenue stream coming?

Our income comes from the marketing and technology fee around our data services.

We don’t make fees from selling investments or trade fees; we don’t act as a broker dealer anymore. That is a strategic shift we made in the last three months. We want to focus on our core competencies around this marketing technology and really around machine learning and AI. Over time, we will

optics control bureaucracy and bureaucracy controls regulations, particularly in Fintech.

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develop a platform that really focuses on matching the propensity of a customer to invest in a certain type of project with suitable projects. We have a marketing dashboard where investors interested in commercial real estate can come and see 40, 50 or 60 kinds of deals and they can interact in a very user friendly manner and express their desire to learn more about certain kinds of projects. That is the extent of it; and then we work with other broker dealers or we will provide interested parties’ information to the developer. We introduce that individual and then the developer can work with that investor’s lawyer or a broker or a securities dealer to formalize the actual investment deal.

Who is your traditional competitor? Put another way, who are you disrupting?

It is the perhaps the large financial institutions and banks that we are in the long run planning to disrupt in a small way. Right now, in terms of private capital, the smaller guys don’t have the family or country club network. Or, if they do have a network, they tap out very quickly. So the only other choice they have is the Investment Industry Regulatory Organization of Canada (IIROC) financial advisor channel.

The only option they have is to go to Richardson GMP, Laurentian Bank Securities or Bank of Montreal Private Placement.

Then these operations will sell it through their investment banking relationships to high net worth investors or investors in their funds. That is what we are partly disrupting because, as you can appreciate, the smaller developer can interact with investors directly. We are here to provide an excellent capital source, a channel that previously was provided only by the big banks, although sometimes they were just not interested because they don’t want to work on smaller equity raises. It was just not worth their time. They want to go after the big fish. They don’t make the kind of fees that they make on much larger deals.

Look at all the secondary towns in Ontario, the dilapidated malls that Zellers and Sears have vacated. These towns are becoming deserted. These retail centres need to be redeveloped but no bank, none of the traditional capital sources want to go there.

They want to go to Toronto or other big cities.

That’s fine, but from that perspective we can open a flow of capital where the community wants to invest in their own backyard.

We also work with a lot of clients who come to us and say they want to build a retirement home in their secondary or tertiary community on a small lake. But it’s only 15 units and they need only $4 million in equity capital. There is nowhere for them to go.

Platforms like ours can help communities to rebuild and it can certainly help in larger towns and cities by helping smaller to medium-size developers access growth capital and create jobs, because they now have the capital to do their projects. So our country is not just about 10 large developers and five banks; that is what it has become.

If you look around in Canada, there are many oligopolies operating in the banking, financial, insurance, and real estate sectors.

That is because we do not have a lobby for and the right calibre of innovation and entrepreneurship in the small to medium-sized development industry that should be the backbone of the country.

Does this investment model help a developer get in the ground more quickly?

For sure, because a developer can buy a piece of land which is relatively cheap but then has to spend upfront money on lawyers, accountants and architects. He has to go to the city [and] carry the mortgage on the land. All of that is capital. They can buy a $4-million piece of land with a mortgage, then still may need another $2 to $3 million to go through the process and set up a sales centre. And before setting up that sales centre, you need the Tarion warranty at $30$50,000 per unit. You need to cover those costs and they are not cheap. Then you have to throw in the site servicing costs. Only once you have done that and have your sales centre in place can you go out and get your construction mortgage. You just cannot get there without the capital and this is where we come in and that is the bridge capital that we open up.

What do you see will be the penetration of CRE platforms in Canada, which may be doing reasonably well but are behind the U.S. and the U.K.?

We are big time behind the U.K., big time behind Singapore and certainly behind the

U.S. In many ways, we are the most conservative regulatory regime in the world. Our regulators take a lot of pride in avoiding the worst of the 2008 crisis, but we also didn’t have the growth other countries created during the up cycles. It is all a matter of optics because optics control bureaucracy and bureaucracy controls regulations, particularly in Fintech.

Our governments and our regulators have to understand Fintech, they have to understand that we need to expand a bit outside of the big banks and the oligopolies that have been unintentionally created.

Until they do, Fintech is going to lag in Canada. If you look at the actual amount of capital that is transacted on Fintech platforms in the private capital market it is lacklustre, it is negligible.

Where do you think CRE Fintech platforms are going to be over the next 10 years?

What I think is encouraging right now is the regulatory reduction initiative which is now really moving forward within the Government of Ontario. It is certainly moving in the right direction. The momentum for the short-term in Ontario is going the right way. The next 12 months will be key to see what kind of relief we can get and how far the government will commit to getting the 25 per cent burden reduction completed and to putting the reform process to work. If it does not, I think we will continue to lose some of our talent pool. We really need this better political will to ensure the regulatory system can foster this innovative potential offered by our smaller Fintech companies and start-ups.

R2 has a securities licence in all provinces in Canada. But because of the lack of harmonization we found ourselves actually operating in 13 different “countries” and it was a nightmare. We have pared back over the last year to Alberta, B.C. and Ontario only. The actual act of selling securities and investments and operating a trading platform providing investment management is so heavily regulated and broken, it will not work for small businesses.

This is why we have moved away from selling investments and securities and refocused on becoming a technology and marketing platform instead with a lot of work on the data side.

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Digging Up Dirt As rapid urban development continues to reshape the province, Ontario’s lack of AN excess soil policy creates environmental hazards and economic inefficiencies. By Stefan Novakovic

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sequestered. The realities of urban land mean that a wide variety of pollutants ranging from gasoline runoff to road salt and industrial waste are often found in construction sites.

As it stands, provincial regulations already outline some safety limits for various pollutants, but the lack of oversight regarding the condition of source sites creates chronic gaps in knowledge of soil conditions.

Once excavated soil is removed from the source site, it is often very difficult to find out where it ends up, even though environmentally sensitive solutions exist. Soil can either be sent to an approved/engineered landfill, a clean fill site, or a treatment facility, where it can be safely remediated and re-used. Unfortunately, this is not always the case, as contaminated soil has sometimes even ended up on prime farmland and private property, posing a significant environmental and health risk.

While Ontarians are left in the dark about where excavated soil goes, the recipients are often equally unaware of where it comes from and what’s in it. Meanwhile, as RCCAO Executive Director Andy Manahan explains, the construction industry lobbies for local reuse of excavated materials as native backfill. Yet, the uncomfortable status quo means that most urban soils “must be hauled long distances to designated sites in rural areas,” Manahan writes in the Ontario General Contractors Association journal. Under the current system, the negative economic and environmental externalities are substantial, he explains.

Beyond the costs to transport and dispose of soil, there are other impacts. Extra truck

Policy framework Current system Source sites are largely unregulated Sites where excess soil is generated

Sites where excess soil is temporarily stored or processed

Sites receiving excess soil

Source

Interim

Receiving

Source

Interim

Receiving

Potential policy shift Greater policy focus on source sites should include: • Reuse planning • Tracking and record keeping • Reuse responsibility • Matching of soil with appropriate receiving sites

Source: MECP, Excess Soil Management Policy Framework, 2016

Where does it all go? As Ontario’s cities continue to add population and density, cranes and construction sites are an ever-present part of the urban landscape. But while the realities of construction — and the politics of urban density — are seldom far from public consciousness, a major element of urban development is chronically overlooked, as the thousands of tonnes of soil excavated from construction sites across the country each month pass out of sight and out of mind.

According to research commissioned by the Residential and Civil Construction Alliance of Ontario (RCCAO), an estimated 25 million cubic metres of soil are excavated per year in Canada’s most populous province alone.

The excess soil excavated across Ontario in one year would be enough to fill Toronto’s Rogers Centre all the way to the roof 16 times over. It’s a staggering quantity, one that’s hard to square with the lack of public attention and lack of public oversight it receives.

Like many jurisdictions around the world, Ontario lacks a comprehensive regulatory framework to manage excess soils. While regulations exist to ensure soil from brownfield sites is treated safely — with full documentation of soil content and disposal sites mandated — no unified policy exist to regulate the reuse and safety of excess soil from Ontario’s construction sites.

Not all excavated soil is created equal.

Many sites have relatively uncontaminated “clean fill,” which can safely and beneficially be reused by numerous industries, including the construction industry itself. Conversely, toxic soils must be carefully remediated or

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traffic results in greenhouse gas emissions and increases wear and tear on our roads and highways. For example, disposing of the excess soils generated by the Eglinton Crosstown Light Rail Transit project in Toronto will take 150,000 truck trips and produce 60,000 tonnes of carbon dioxide.

Most of the excess soil is dealt with responsibly but a few unscrupulous operators illegally dispose of soils without permits.

Although soil from urban road beds often contains salt — viewed as relatively clean — there are cases where soils with more harmful contaminants are dumped illegally.

Public confidence in the process is eroded when these situations are brought to light.

Although movement to regulate excavated soil has gradually taken shape in recent years, the industry has remained dangerously unchecked, and the whereabouts of much of Ontario’s excess soil remain unknown. Without a robust and consistent regulatory apparatus, public knowledge of the industry often comes

via sporadic white papers and government studies, occasional troubling legal disputes and investigative reports. So where does it all go? In 2019, we still don’t know.

A Secretive Business Historically, most of Ontario’s excavated soil has been difficult to track. As commercial construction and infrastructure projects (including public transit) continue to produce millions of tonnes of excavated soil per year, the companies that handle the waste have typically been tight-lipped about their disposal sites and practices. “The dirt guys are very secretive about what they do,” Walsh Construction’s Tom Sims told the National Post in 2013. “If they find a location that is paying for dirt, they don’t want their competitor to know where that is,” said Sims, discussing the dig for Toronto’s Line 1 TTC subway extension.

According to the Post, the total soil excavated for Line 1 and the Crosstown LRT adds

up to over 2.5 million cubic metres. In regards to the soil excavated for the Crosstown LRT, TTC and Metrolinx representatives were not able to provide the Post with exact locations for the excavated soil, with numerous sites in Peel region cited. However, the Post’s investigation revealed that the excavated soil “would not go to Peel but to Technicore Underground in East Gwillimbury. When a reporter visited Technicore, a woman gave out another address for the soil: 5338 Wellington Road 125, Erin.

This is the address of Mulmur Aggregates.”

A representative of Mulmur Aggregates was able to tell the Post reporters that the soil would likely end up at several sites, though without specific details of how and where excavate would be treated. Similar ambiguity surrounded the soil from the Line 1 subway extension. (For their part, a representative of Mulmur Aggregates told the Post that greater attention needs to be paid to soil excavation during the design stage of infrastructure projects, with the company finding

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Fill Estimates

16-25 million cubic metres of fill are produced each year in Ontario

That’s enough to fill the Rogers Centre 10-16 times

Or 1.6-2.5 million truckloads of fill

Source: RCCAO

it “burdensome and risky to always be weighted down at the contractor stage.”)

Since 2014, the Hamilton municipality of Flamborough has faced the dangerous consequences of illegal dumping from GTHA construction sites. As reported by the CBC, so-called “fill brokers” approach construction contractors to remove excess soil, offering to pay rural landowners for unknown — and untested — quantities of soil. “It’s almost like a drug cartel,” Hamilton’s former Ward 14 Councillor Robert Pasuta told the CBC in 2015.

In 2016, Environmental Science & Engineering Magazine reported that another “Ontario farmer accepted ‘free’ soils in the summer of 2011, only to find out later that it contained polyaromatic hydrocarbons and heavy metals.”

Across the province, similar instances of contaminated soils abound, with the Township of Scugog voting in 2017 to take legal action in order to launch a long-standing remediation plan for contaminated soil at the Greenbank Airport, some of which came from Toronto construction sites.

In Toronto’s downtown, many sites “sit on partially contaminated land, especially those created by lake-fill operations,” writes John Lorinc in a 2012 piece for the Globe and Mail. Unregulated and potentially toxic, the excavated soil is sometimes inappropriately disposed of. Highlighting the lack of accountability and subsequent moral hazard of the industry, Lorinc points to a Pickering landowner who was offered “$8,500 to dump and grade about 500 truckloads of fill on his land” in 2010. Unfortunately, the excavated soil (sourced from downtown Toronto) turned out to be highly toxic. The rancid-smelling earth was contaminated with gasoline, containing “up to seven times the provincial limit.”

In Toronto alone, the record-setting pace of construction creates a near-constant stream of excavation. The excavation process for each new site carves out pieces of earth that in bygone decades would have been used to create the Humber Bay Parks, Ashbridges Bay Park, the Leslie Street Spit, or dumped in ravines. In the 21st century, the era of land reclamation is mostly behind us. Today, provincial growth policies such as the Places to Grow Act and the Greenbelt plan encourage an urban development model while greatly reducing the landform practices that dump excavated materials into

the lake. The new result is a fate for excess soil shrouded in mystery.

As the Toronto Star’s Moira Welsh put it, “Ontario’s lucrative soil industry operates with little government oversight. There’s no regulated tracking system, no proper definition for ‘clean’ soil and not enough rules to govern where the soil is taken.”

Long Road to Regulation To close the obvious gaps in provincial policy, the Ministry of the Environment and Climate Change (MOECC) has gradually — and perhaps too slowly — moved toward a new policy framework for excess soil. In 2013, Ontario MPP for Wellington-Halton Hills Ted Arnott fielded complaints from constituents about

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Source: 2017 Excess Soil Symposium, CUI

Ontario Fill Site By-Laws

No site alteration or fill by-law Last revision date prior to 2014 Last revision date 2014 or later

noisy dump trucks full of soil passing through the riding. Ironically, it was complaints about rumbling traffic and not soil toxicity that prompted the MOECC to take action.

A year later, the Ontario government introduced a series of public consultations that would help shape a draft policy for a new regulatory system. By 2017, the Liberal government prepared a draft of the “Excess Soil Management Policy Framework,” which mandated increased oversight of the excavation process, focusing on the source site where soil is removed. Complementing pre-existing regulations concerning receiving sites, the proposed framework would require source sites to “be responsible for characterizing their excess soil, tracking it, and verifying that their excess soil reaches an appropriate destination.”

In 2017 and 2018, additional consultations

and amendments helped shape the policy further. Last June, however, the change of government put a potential wrench in the already slow-moving machine. Nonetheless, the Conservative government is promising to finalize new rules, though the ultimate scope of regulations remains unclear.

In a March statement, Ontario Ministry of the Environment, Conservation and Parks (MECP) spokesperson Gary Wheeler stressed that the ministry is finalizing rules on excess soils, but that additional industry consultation will continue to be undertaken. “Our ministry is committed to making it easier and safer to reuse excess soil and to increase the redevelopment and clean-up of contaminated lands in Ontario,” Wheeler wrote. It’s a potentially promising, if somewhat vague, start for the new government.

As the provincial cogs continue their slow bureaucratic turn, years of activism and concern from both the public and the construction industry have exposed the obvious weaknesses in Ontario’s regulatory system. While the public remains ill-informed about the state of excavated soils, the construction industry is hampered by an inability to safely and efficiently reuse clean and remediated fill.

The solutions are hardly out of reach. Juris­ dictions including Québec, the U.K., and the Netherlands all have robust and reasonably effective regulations governing the conditions of source sites and the reuse of soil. In Ontario, a strong and consistent policy framework governing the source sites and safe reuse of excavated soils can have clear environmental and economic benefits. For now, however, the dump trucks continue their journey into the unknown.

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Staunching the Loss Ontario is currently seeing $2.5 billion in municipal construction contracts not subject to fair and open bidding. By Brian Dijkema A construction market of almost $2.5 billion is about to get a whole lot more competitive.

Bill 66, also known as the Restoring Ontario’s Competiveness Act, would restore competition on bidding for construction work in Toronto, Hamilton, the Region of Waterloo, Sault Ste. Marie, and a host of other public bodies including the Toronto District School, the University of Toronto, and others.

In doing so, these communities will be able to experience the benefits of competition that have been denied to them for, in some cases, over 30 years. In Ontario, a little known clause of the Ontario Labour Relations Act treats public entities like the City of Toronto, the Toronto District School Board and Ontario Power Generation as if they are private companies, and forces them to open bids to a select group of companies that are affiliated with a particular union.

The result is that these public entities are not able to take advantage of having a deep and diverse pool of bidders, each bringing their competitive advantage to the service of the public. Cardus conducted research in one of those closed municipalities — the Region of Waterloo — that showed that their bidding pool went from a deep and healthy pool of about eight bidders per project to a shallow and significantly less competitive pool with an average of 3.5 bidders per project.

Why does this matter? Because, as another research paper written by Drs. Morley Gunderson, Tingting Zhang, and myself

showed, less competitive environments put upward pressure on prices in closed environments. In our comparison of open municipalities, and closed municipalities, the gap between bids on public works (an indicator of how close the prices came to the competitive price) increased by over 100 per cent.

This suggests that prices were moving in the same direction as a hot-air balloon with the fire on: up, up, and away.

These studies are in line with the vast preponderance of data that shows that restricting bidding can raise prices. Surveys suggest that these increases range from approximately eight to 25 per cent.

Money for infrastructure in Ontario doesn’t exactly grow on trees. The provincial government is highly indebted, and is severely constrained in the amount of infrastructure money that it can offer to municipalities for water treatment plants, roads, sewage systems, bridges, and transit.

And municipal tax bases are themselves tapped out. As a result, restricting tendering to a small group of companies results in an unholy trinity of policy choices for municipal and other public leaders: they must either take money for infrastructure from other programs (like affordable housing, transit, or social programs), build less infrastructure, or raise taxes.

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Money for infrastructure doesn’t exactly grow on trees Bill 66 would change public entities back to non-construction employers, and thus bring them back into a world where all qualified companies can bid, regardless of their workers’ union choices. Simply put, introducing greater competition means real money for Ontario’s municipalities especially.

Our research shows that $2.3 billion worth of city construction work is subject to closed tendering right now. Here’s how that money breaks down by municipality (and these numbers do not include some major projects like Hamilton’s LRT, the price tag for which runs into the hundreds of millions of dollars’ worth of construction):

City of Toronto

$1,697,580,770

Region of Waterloo

$317,227,933

City of Hamilton

$235,628,000

City of Sault Ste. Marie

$45,429,750

Total Municipalities

$2,295,866,453

Municipalities stand to gain significant room in their budgets as a result of this competition, reaching as much as $600 million annually. The City of Toronto alone stands to gain almost a quarter billion dollars per year. For a city that is screaming for increased provincial funding on everything from transit to affordable housing, the policy change would be a boon.

What is interesting about this particular issue is that, while the economic benefit of

opening competition is significant, the basic question of public justice might be even more important. Currently workers who exercise their freedom to associate with different unions than the favoured ones, or workers who choose to join no other union at all, are prevented from working in their own cities simply because of that choice.

And therein lies the key question that legislators have to ask as they consider this bill: Is there a compelling public interest in restricting bidding because of union affiliation? There isn’t. Concerns about safety, quality of work, on-time delivery, and so on are most effectively dealt with by the purchaser of construction through the prequalification process. The fact that many Ontario municipalities benefit from bids from a diverse array of companies — union, alternative union, and non-union alike — suggests that the only groups that benefit from the restrictions are the companies who are given a free pass on competing with the full range of players in Ontario’s construction industry.

But let’s not make the mistake of raising the lack of competitive bidding to the status of being the only problem facing Ontario’s infrastructure needs. Certainly, it is a critical and important first step. But here are other steps the province must take too: • I nstituting apprenticeship and training programs need to allow creative arrangements for hiring workers; • Updating the construction industry safety

regime to allow more flexibility and innovation; • Introducing modern labour relations rules would allow workers to meaningfully choose to join, leave, or change unions, and let new contractors into the market; • Improving construction industry data collection in order to reflect the true diversity of the workforce by not focusing solely on a binary union/non-union environment.

“The infrastructure governing construction labour in Ontario remains centralized, organized to control rather than respond to market drivers or new modes of worker organizing,” said Ray Pennings, Cardus executive vice-president, while speaking to the Economic Club of Canada. “Add to that the fact that our skilled construction labour force faces demographic pressures and the outlook for Ontario construction industry is not as rosy as we’d wish.”

But the move toward open and competitive bidding for construction projects province-wide contained in Bill 66 would help immensely.

And if the province follows up with further action on reform in the construction industry, the province will be on a much more solid footing for the coming decades.

P

D

Brian Dijkema is Program Director, Work and Economics, at Cardus, a Hamilton, Ont.-based think tank dedicated to the renewal of North American social architecture.

P

C

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Delivering value for the user With ever-evolving technologies and the needs of society shifting, how do public sector authorities effectively and efficiently deliver infrastructure? By Suzelle de Wet

Capital infrastructure projects

are built to meet the functional and societal needs of the public. However, even in countries such as Canada with dedicated public procurement agencies like Infra­ structure Ontario, projects can take years to be delivered. Government’s best intentions to proactively deliver meaningful benefits often battle to get off the ground. Metrolinx’s Regional Express Rail Program is one such

example, which has incurred delays informed by fundamental strategic changes. These strategic considerations included advancements in propulsion technologies (the consideration of hydrogen fuel cells to electrify the regional GO rail network) and innovation in both procurement model and funding mechanisms.

The challenge for the government has always been to proactively identify optimal

societal solutions, while delivering return on investment. However, the pace at which these are required is accelerating, and user needs are no longer neatly defined. Thus the solution often no longer rests in a clearly defined project scope. Nor is the silver bullet the selection of an effective procurement model. To help deliver a return on investment, inclusion of innovation in all stages of the project life cycle is fundamental.

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public sector authorities delivering infrastructure need to reinvent them­ selves as innovators, or at LEAST, early adopters

Value for money versus value for the user Public sector’s capital spend is scrutinized with unrelenting pressure to deliver value for money and societal benefits. The drive to deliver value through consideration of lowest cost and technical competence, combined with the fractured nature of the construction value chain, inherently creates a climate hostile for innovation. Rarely are new technologies the most cost effective, nor are the risks (threats and opportunities) or benefits associated with these innovations transparent, let alone tangible. This makes it difficult for stakeholders to agree on the potential longterm benefits, amplifying the challenge of appropriately allocating budget, achieving certainty in schedule or compliance, and in securing public favour.

Part of the challenge is the industry standard in assessing value for money. A Value for Money (VfM) study attempts to evaluate and compare whole life costs and benefits of potential solutions. It’s underpinned by the concept of risk being transferred to the party best suited to manage it (an efficient risk transfer).

As such, it considers risk categories, including but not limited to financial; planning; design; construction; commissioning; and regulatory.

The concept is sound but falls short in practice, as it relies on historical data derived from previous projects’ performance and assumes that this performance, and the corresponding expenses and savings, are transferable.

The timing of the VfM study (generally undertaken prior to project scope finalization and with limited private sector involvement)

34

leads to an inability to accurately account for innovation, flexibility or agility in procurement and project delivery methods. The proposition, however, is that value for the user is better delivered by an effective risk transfer, which aligns risk transfer to appropriate incentives to create the most efficient delivery for the project as a whole.

Public sector authorities as early adopters and collaborators Technological advancements have changed the profile and behaviors of consumers. Regardless of income, geography or culture, user needs are becoming increasingly sophisticated.

While technology accelerates the rate at which potential infrastructure solutions are available, the ability of government to deliver these solutions, even with private sector collaboration, has proved challenging.

In order to satisfy consumers, the public sector authorities need to continuously seek to improve their performance and deliver infrastructure solutions which are considered competitive, if they are truly going to deliver a return on investment.

One such challenge facing urban environments is in the conversion of road users to transit users. While the public recognize the environmental and societal benefits of transit, road vehicles are still more attractive (convenient, economical, timely, comfortable, flexible) than many current public transit options. Transit can be a competitive option by adding value in the customers commute by incorporating solutions that address these intangible needs.

In 2018, the Hong Kong-based property developer, landlord and operator of Hong Kong’s High Speed Rail, MTR , launched passenger service after applying an innovative approach to land use, resulting in a positive change in user behavior. MTR looked beyond the functional requirements of a rail station and considered the factors influencing positive public appeal. As a result, through collaboration between government and developers, commercial and residential hubs were established adjacent to the rail station. This collaborative approach notably reduced public funding requirements and increased the likelihood of consumers selecting transit over road vehicles.

Innovation in infrastructure delivery specifically as an aide to increase user value is not new. In 2008, Singapore’s Changi Airport Terminal 3 similarly invested in the intangibles, establishing the first airport-based Butterfly Garden – offering benefits to travelers including reduced travel stress and the opportunity to learn more about species native to Singapore and Malaysia.

To become and remain competitive, public sector authorities delivering infrastructure need to reinvent themselves as innovators, or at the minimum, early adopters. Becoming ‘innovation-ready’ enables public sector to access potential economic, environmental and social benefits otherwise not available.

Appetite for risk: impact on procurement and innovation While not a guarantee of success, an appropriate project delivery method does assist in delivering innovative projects. Unfortunately,

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the inclusion of innovation through traditional, P3 and hybrid procurement routes is still lacking. It is still the allocation of risk and an entity’s appetite for risk which enables or curtails the opportunity to create infrastructure solutions that are nimble enough to adapt to consumers’ evolving needs.

In theory, determining an optimal risk allocation should be relatively simple. In practice, the ability to articulate, quantify and agree on risk allocation between stakeholders on innovative solutions, with the required flexibility to adapt to societal needs, is challenging. However, as seen with MTR’s approach, when there is collaboration, a shared consumer-centric vision, and innovation throughout the project, the resultant risk allocation drives significant value for all parties and delivers an adaptable solution which is able to meet evolving needs.

The role of public sector authorities To position for innovation, public sector authorities should start by shifting how projects are scoped, designed and constructed.

An interesting idea is to approach a project as a singular prototype, with focus not on repeatability of an innovative process or solution, but rather the standardization of the inclusion of innovation along all stages of the project lifecycle. This facilitates the exploitation of new practices, creating a competitive edge and a stronger strategic approach.

This mind-set requires looking beyond value for money and supports an iterative development approach, where value for the consumer is paramount.

Secondly, a new procurement approach is required that capitalizes on collaboration and the core competencies of public and private sectors. Procurement can be characterized as a succession of calculated risks requiring management. The current approach of utilizing an end-to-end procurement process managed by public sector authorities with scope restricted by the RFP, and assigned contracts awarded on lowest price reduces the f lexibility required for innovation.

Attempting to select an “optimal” procurement method to mitigate risk is difficult as neither public nor private sector can articulate all potential risks inherent in a project.

To ensure the creation of competitive solutions, early engagement between public and private sector is crucial. The most influential decisions affecting scope, cost, quality and sustainability are undertaken early in the project lifecycle. Further, for agile project delivery, performance goals, stakeholder expectations, risk sharing and accountabilities are to be agreed and reconfirmed at all stages.

Innovation and collaboration are not new topics in infrastructure. However more than ever there is an immediate requirement to prioritize collaboration and the inclusion of innovation to create competitive user value.

Suzelle de Wet is a Director at Turner & Townsend, leading their governance and assurance offering across Canada as part of their advisory business.

The preceding is excerpted from Turner & Town- ­ send’s 2019 Canada Market Intelligence Report.

The current mind-set and approach to public sector infrastructure projects often prevent value creation and realization. Public sector authorities need to reinvent themselves as innovators, or at the minimum, early adopters, with the overarching objective of embracing innovation in all stages of the project lifecycle. Seven strategies to foster an innovation-friendly, collaborative environment are proposed: • Create a consumer-centric vision which aims to maximize value for the consumer; • Deliver competitive infrastructure solutions; • Standardize the inclusion of innovation; • Establish early collaboration between public and private sector and capitalize on core competencies; • Mandate a whole-life approach; • Focus on upfront planning, but foster an iterative development approach; • Set up projects for agile project delivery.

It is imperative for public sector authorities to look beyond the value for money and refocus on value for the consumer, ensuring that solutions delivered are competitive. This is only possible through early collaboration, blending public and private sectors and effective risk allocation.

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The Campaign to Nothing CaGBC report concludes Zero Carbon Buildings are not only good for the planet, but a good financial investment too.

Canada’s built environment is a significant contributor to GHG emissions, with 17 per cent of GHGs coming from residential, commercial and institutional buildings.

The standard approach for decreasing GHG emissions associated with Canada’s building stock remains the reduction of energy use required to heat, cool and power buildings through energy efficiency. By investing in energy efficiency measures, and as a result of cleaner electrical grids, Canada’s GHG emissions associated with buildings have trended downward.

However, current projections reveal that GHG emissions associated with buildings will grow modestly by 2030 unless further action is taken. To effectively reduce GHG emissions at the building level, and to help ensure Canada meets its GHG reduction commitments, both energy use and carbon emissions need to be reduced simultaneously, which can be accomplished cost effectively by taking a Zero Carbon Building (ZCB) approach.

By turning existing and new buildings into ZCBs, Canada can significantly reduce its GHG emissions, decrease the demand for carbon intensive energy, and support Canadian real estate owners in optimizing the returns and resiliency of their portfolios. ZCBs can do this because they are designed to minimize carbon emissions and then offset any remaining emissions by generating clean, renewable energy onsite or offsite, which can reduce life-cycle costs and mitigate exposure to carbon pollution pricing.

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ZCB is a new approach in Canada that is not yet well understood by the development and construction industry, governments, and the real estate sector with regards to the business case and necessary considerations for their implementation. To address this knowledge gap, the Canada Green Building Council (CaGBC) commissioned WSP, supported by A.W. Hooker and Associates, to evaluate the financial viability and impact of constructing new buildings as ZCBs. The study examined seven building archetypes — low-rise office; mid-rise office; low-rise multi-unit residential; mid-rise multi-unit residential; primary school; big box retail; and warehouse — in the cities of Vancouver; Calgary; Ottawa; Toronto; Montréal; and Halifax.

The study applied a tailored package of carbon reduction measures across all building archetypes, including: wall and roof enhancements; window upgrades; enhanced user controls (i.e., smart controls); efficient ventilation systems; better heating and cooling delivery systems; fuel switching; and the use of onsite renewable power, such as photovoltaics (PV).

The financial, energy and carbon reduction outcomes of the ZCBs were examined and compared to a baseline design that reflected the 2011 National Energy Code for Buildings.

A ZCB is characterized by four key components:

1/ The building demonstrates a zero-carbon balance in its operations. Over the course of a year, its operations contribute zero carbon emissions;

2/ Design prioritizes reducing energy demand and meeting energy needs efficiently;

3/ Onsite renewable energy is used;

4/ The embodied carbon of the structural and envelope materials (primarily carbon associated with manufacturing) is evaluated as part of the design.

Meaningful Carbon Reductions and Positive Financial Returns The study found that by 2030, over four million tonnes (Mt) of carbon dioxide equivalent emissions per year (CO2e/yr) could be

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The closer that electricity and natural gas come in price, the stronger the economic case for ZCBs avoided cost-effectively if the building types studied are built to be ZCBs. This represents over 22 per cent of the 20 Mt of GHG reductions that the Pan-Canadian Framework recognizes as potential savings from the buildings sector. By 2050, over 12 Mt CO2e/yr could be avoided. The emissions reductions could be delivered at a total incremental capital cost of $3.3 billion per year, which would fund the construction of approximately 47,500 new residential units and 4,800 new commercial/institutional ZCBs annually.

This level of carbon reduction can be achieved with existing market-ready technologies and approaches for the building types evaluated. The study also confirmed that ZCBs are financially viable: on average, ZCBs can be achieved with a positive financial return of one per cent over a 25-year life-cycle, inclusive of carbon pollution pricing, and require a modest eight per cent capital cost premium. As the cost of carbon rises over time, the financial return from ZCBs will only grow.

Nationally, the different archetypes yielded the following financial outcomes: •M id-rise and low-rise offices offer the highest life-cycle returns at close to three per cent; • Warehouses and big box retail facilities can yield returns of one to two per cent; • Multi-unit residential buildings (MURBs) and primary schools are cost neutral or nearly cost neutral.

Regionally, the outcomes for ZCBs are strongest in Halifax due to the high carbon intensity of the Nova Scotia electricity grid (which results in higher carbon cost savings potential) and the relatively low cost of electricity relative to natural gas (2:1 compared to almost 5:1 in Ontario). These factors make switching from natural gas to electricity for heating and hot water more financially advantageous.

In Montréal, Ottawa, Toronto and Calgary, the outcomes for ZCBs are economically strong with any upfront capital cost premium mitigated over the life-cycle by higher operating and emissions savings.

The financial outcome of ZCBs is less strong in Vancouver because of the low-carbon intensity of the electricity grid (which results in lower carbon cost savings potential), the low cost of natural gas, and the milder climate, which reduces the demand for energy. While the current economic case in Vancouver is less favourable than in the other cities, the financial returns will improve over time as the cost of carbon rises, which will lead to a higher price on all types of fossil fuels, including natural gas. The closer that electricity and natural gas come in price, the stronger the economic case for ZCBs. Vancouver’s milder climate also enables alternate approaches to ZCB design, such as the use of air-source heat pumps and lower levels of building envelope performance, that would yield superior financial results.

The study results confirmed that ZCB can be achieved using only onsite carbon reduction measures in over 70 per cent of the scenarios evaluated. In other cases, it is necessary to offset emissions by purchasing green power generated offsite. In this study, offsite green power is assumed to take the form of renewable energy credits (RECs).

Where required, the financial impact of purchasing RECs is modest.

Unlocking the Potential for OwnerOperators and Design Teams The business case for building owner-operators is strong, as they often pay both capital and operating costs over the entire life-cycle and are likely to have broader carbon reduction targets and commitments for their organizations. Furthermore, the incremental capital cost for developing ZCBs is expected to come down over time as building codes are strengthened and the price of carbon pollution increases. To unlock the value of ZCBs, building owner-operators and their design teams are encouraged to: 1. Evaluate ZCB options to maximize carbon reductions and associated carbon costs today: It is important to consider the risk of escalating carbon pollution pricing in the years ahead. Owner-operators should use life-cycle costing that factors in tightening building codes and increasing carbon pollution pricing as a tool to make future-proofing decisions early in the building development cycle;

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GEOGRAPHICAL

THE BUSINESS CASE FOR ZERO CARBON BUILDINGS

Vancouver Calgary Toronto Ottawa Montréal Halifax

Incremental Life-cycle Return

-1%

1%

1%

1%

0%

4%

% vs Baseline

-55

32

58

51

-4

187

$/m2

-137

18

110

79

-6

122

$/tCO2e

GEOGRAPHICAL RESULTS Annual Operating Savings

VAN

CAL

TOR

OTT MON HAL

87%

0

100%

OTT MON HAL

20

99 %

TOR

40

99 %

CAL

60

83%

VAN

80

100%

0

GHGI Savings before RECs (kgCO2e/m2/year)

OTT MON HAL

5

36%

TOR

15 10

21%

CAL

25 20

26%

9%

8%

VAN

8%

8%

0

9%

2

35 30

27%

4

100

40

23%

6

Annual Emissions Savings

18%

8

8%

Increase vs. baseline ($/ m2)

10

Operating savings ($/m2/year)

Incremental Capital Costs

All values are area-weighted averages. Life-cycle costs are assessed over 25 years. Results reflect onsite carbon reduction measures. NECB -2011 serves as the baseline. In certain communities, some archetypes

2. Use existing financial incentives to achieve a ZCB design: There is a wide range of incentives and capital improvement grant opportunities to draw on to advance the development of ZCBs. Owner-operators can inform governments and utilities that they are willing to go beyond code — even going carbon neutral now — with the support of incentives targeted at the uptake of effective carbon reduction measures; 3. Accept the challenge to be innovative: Following an integrated design, construction

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and commissioning process can optimize carbon savings relative to capital costs and deliver a building that achieves its targets (including savings) during operation. The carbon reduction approaches and bundles evaluated for each archetype in this study could be further optimized through a properly leveraged integrated design process that includes early interaction with cost and construction experts.

Owner-operators can seek to maximize opportunities for carbon reduction measures and the benefits of an integrated design,

especially at the bid development and contracting stages. Owner-operators can also recognize and promote the non-financial benefits of ZCBs to tenants/occupants and market peers, such as improved occupant comfort and increased resiliency.

Accelerating To Zero The need for climate action is growing. In its recent report on limiting global temperature rise to 1.5°C, the United Nations’ Intergovern­mental Panel on Climate Change (IPCC) updated their recommended targets

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NATIONAL RESULTS

Incremental Capital Costs $253/m2

Mid-rise Low-rise office office

24% 91%

Annual Operating Savings $17/m2 Emission Savings from Onsite Measures 31 kgCO2e/m/yr

Mid-rise Low-rise Primary Warehouse Big-box MURB MURB school retail

3%

3%

0%

-1%

-1%

2%

1%

107

120

20

-51

-45

42

37

208

-166

27 -

63

-44

64

34

ARCHETYPE

1% 8%

Incremental Life-cycle Return $27/m2 $34/tCO2e

ARCHETYPE RESULTS Annual Operating Savings

60

100%

100%

100%

0

96%

20

80%

40

96%

40%

29 %

0

26%

5

23%

15 10

80

69 %

25 20

GHGI S avings before RECs (kgCO2e/m2/year)

35 30

18%

15%

10%

13%

6%

0

4%

2

10%

4

100

23%

6

Annual Emissions Savings

40

20%

8

4%

Increase vs. baseline ($/ m2)

10

Operating savings ($/m2/year)

Incremental Capital Costs

require offsite green power to achieve Zero Carbon Building. Nationally, the average incremental life-cycle cost rises from 0.7% to 1.3% when offsite green power (in the form of Renewable Energy Certificates) is included.

to 50 per cent GHG emissions reduction by 2030 and 100 per cent reduction by 2050.

The latest recommendations require accelerated reductions between now and 2030.

This study demonstrates that Canada can significantly and economically advance its current targets and those advised by the IPCC by taking a ZCB approach in the real estate sector, achieving up to 22 per cent of the building sector’s 20 Mt GHG reduction potential recognized in the Pan-Canadian Framework.

The cost of not adopting a ZCB approach increases with each passing day. Every build-

ing built today that is not designed to achieve near-zero carbon emissions is contributing to a continued increase in carbon emissions.

Buildings not built to be ZCBs will require major investments in retrofits of mechanical equipment, ventilation systems and building envelopes (walls, roofs, and windows) by 2050 to meet Canada’s targets. These retrofits will be costly and disruptive to building owner-operators and tenants, and will likely need to occur before the normal 25 to 40-year cycle of re-investment in major equipment and building upgrades.

Working together, Canada’s building owner-operators, their design teams, and governments at every level can demonstrate leadership in proving the economic case for ZCBs and normalizing the processes and technologies that will make ZCBs the Canadian industry standard for value and resilience.

The preceding was an Executive Summary of a CaGBC report titled Making The Case For Building To Zero Carbon. The full report can be found at www.cagbc.org

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NET ZERO THE PATH TO

FIRE ACOUSTIC

THERMAL MOISTURE

Sustainable Building Enclosure Solutions, Your Designs

As

an innovator of insulation, Owens Corning is a leader in Thermal, Moisture, Fire & Acoustic Solutions for many of the world’s greatest buildings. Our Building Science capabilities help you create the right solution for Design Performance & Code Requirements on your project. Building Science isn’t just a job for us, it’s everything we do. That’s why we’re the most trusted brand in insulation.

Meet the Owens Corning Building Science Team WESTERN CANADA Luis Faria, B.Eng, PMP, CMgr MCMI

CANADA & QUEBEC Salvatore Ciarlo, P.Eng

Technical Manager

Technical Services Manager, Western Canada

Architectural Solutions and Technical Services Manager, Canada

tyler.simpson@owenscorning.com

luis.faria@owenscorning.com

salvatore.ciarlo@owenscorning.com

GTA WEST, SOUTHERN & NORTHERN ONTARIO Tyler Simpson, B.Tech.

1.800.988.5269

Contact the Building Science Team Member in your area for any product information or to schedule a Lunch & Learn Seminar on topics such as:

1.833.258.5299

• Principles of Acoustics & new ASTC Code Requirements • High Performance Building Envelope Solutions; Eliminating Thermal Bridges and Online Design Tools

THE PINK PANTHER™ & © 1964-2019 Metro-Goldwyn-Mayer Studios Inc. All Rights Reserved. The colour PINK is a registered trademark of Owens Corning. © 2019 Owens Corning. All Rights Reserved.

BLD MayApr 19.indd 40

1.800.504.8294

Visit specowenscorning.ca

2019-04-03 2:30 PM

site VISIT Stacking Up

An Ontario county debuts Canada’s first public building constructed entirely of rammed earth.

By Shannon Moore

THIS PAGE The new building replaces an existing original farmhouse building on Landfill Site-384060 Salford Road (otherwise known as the Oxford County Waste Management Facility) originally served as the administrative office, and is now home to staff serving the daily operations for facility and office administration.

Photography by Mark Burnham

In 2015, the regional municipality of Oxford County, located some 140 kilometres west of Toronto, established an ambitious strategic goal to become a zero waste community by 2025 and a 100 per cent renewable energy community by 2050. Emerging as a direct result of this initiative, the new Oxford County Waste Management and Education Centre sets an admirable precedent for the community projects yet to be realized.

Designed by Michael A. Wilson Architect, the 4,000-sq.-ft. centre improves administrative functions while also supporting public-facing needs. In addition to private offices, a conference room and staff facilities, the new building, which sits on the county’s existing landfill site, contains education spaces to enlighten visitors on best practices in waste management. Operating as an aspirational net-zero building itself, the centre offers demonstrations and information to help inspire an understanding of renewable energy initiatives county-wide.

Completed in fall 2018, the centre’s performance will be measured against the New

Building Institute’s (NBI) Zero Net Energy Criteria after a 12-month period. To meet these energy goals, architect Michael Wilson, whose interest in sustainable design goes back some 30 years, established a reliable program of efficient materials and construction processes. “When I was in school, my thesis proposal was for an autonomous house. At the time, it wasn’t seen as the most ambitious project, but it’s something that I’ve wanted to do ever since,” he says.

“As soon as I got the go-ahead to start the conceptual design for this project, rammed earth came to mind.”

The building’s rammed earth walls are arguably its most characteristic feature.

An ancient technique embraced most recently in sustainable construction, rammed earth consists of natural materials handplaced in shallow lifts and compacted using nomadic hammers. In this case, dry-mix concrete with added pigment provides pleasing colour variations, while the entire system ensures durability, strength and thermal massing. The end result echoes

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THIS SPREAD Rammed earth (aka “site-placed concrete�) is still relatively uncommon in Ontario.

Here, the rammed earth wall system consists of an interior load bearing wythe of 200 mm, insulation also 200 mm and an external wythe of 150 mm. Clearstory windows under the cantilevered portions of the roof form provide naturally lit interior spaces throughout.

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layers of sedimentary rock found in nature, or the stacks of waste disposed nearby.

Other renewable energy efforts include an airtight envelope; wood-frame construction; roof water collection; and windows sourced from a local Mennonite company. “Finding passive windows that would naturally fit the geometry of the building was a challenge,”

says Wilson. The resulting clerestory windows work well within the design while allowing for natural lighting of the space.

Inside, found timber has been reclaimed as a feature wall, while polished concrete floors contribute to the comfortable natural aes­thetics of the space. “My childhood fossil collection is included in that floor,” says Wilson

of the tactile and colourful bits of debris.

The project saw contributions from numerous industry professionals including Greg Leskien of Zon Engineering and rammed earth specialist James Blackman. If successful in its pursuit of efficiency, the centre will be among Canada’s first buildings to be verified as Zero Net Energy by the NBI.

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spec sheet Product Round-up New & noteworthy for building specification.

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Safti First | SuperClear Safti First’s new SuperClear 45-HS and SuperClear 45-HS-LI are approved for glazing in all 45 minute doors, sidelites, transoms and openings in large sizes. They meet strict fire, hose stream and safety requirements without wires, tints, films or laminates. Both versions also performed better in an independent, third-party acoustical lab test against filmed and laminated ceramic in standard hollow metal frames. www.safti.com

Kubota Canada | SVL65-2 The newest addition to their compact track loader line, the SVL65-2 is positioned in a lighter rated operating capacity weight class than previous models and features a slide-up overhead front door, a self-leveling function and Advanced Multifunction Valve (AMV Valve) that provides smooth operation when simultaneous functions are used, such as auxiliary, boom and bucket circuits. www.kubota.ca

Louis Poulsen | Flindt Available in two heights, with or without the base, the Flindt bollard’s slim, curved design was inspired by carpentry and the way in which wood is cut with a knife.

The light distribution is directed downward on one side of the bollard, and the flared aperture creates an organic shaped light pattern covering nearly 180°.

Two COB LEDs are housed in the top of the fixture and are shielded from direct view for glare control. www.louispoulsen. com

Lighting Science | Cleanse This new easy-to-install, air-sanitizing LED luminaire decreases the levels of airborne particles, including micro-organisms, using a multi-stage air circulation and sanitation system, ideal in healthcare, schools, gymnasiums and a multitude of public spaces.

Activated carbon and HEPA filters capture particulates, while UV LEDs (A+C) further clean and deodorize the air, achieving a >99.9% elimination rate among the most common airborne pathogens. www.lsgc.com

April/May 2019

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GSky Plant Systems | Versa Wall Now on its 500th installation, the Versa Wall is proving to be a versatile green solution for shopping malls, residences, corporate campuses, hotels and restaurants.

Engineered with a unique tray design for simplified installation and maintenance, it features a patented vertical irrigation technology system that cuts water waste, prevents oversaturation, and boosts cost efficiency by automatically running a timed gravity-based irrigation cycle less than once a week. www.gsky.com

Formica Canada | HardStop This new line of high-performance decorative protection wall panels features a fiberglass core for added durability and fire resistance, an excellent solution for high-traffic areas. Easy to install, the panels are designed to be applied directly to a variety of substrates including drywall, are available in the full spectrum of Formica Brand colours, and may be installed using a selection of seam treatments. www.formica.com

LG Canada | Multi V 5 575V The next generation in the LG Multi V family is available from sixto 42-tons, with a choice of three-phase 208/230V, 460V or 575V electrical power as heat recovery/ heat pump outdoor units.

Its heat operating range reaches -30°C to withstand Canadian seasonality. New to the Multi V line-up are the single frame 16-, 18-, and 20ton units; the 20-ton unit representing the largest tonnage in the smallest, single frame footprint on the market today. www.LG.com

PCL & Microsoft | Job Site Insights (JSI) PCL’s Business Technology team has partnered with Microsoft to develop a mobile-ready application to provide a single-pane view into all aspects of construction.

By gathering and analyzing Internet of Things (IoT) data using Microsoft Azure, PCL aims to increase safety, efficiency, and productivity. www.pcl.com

L6T System | Lumon This retractable glass wall system allows users to enjoy the comfort and convenience of their outdoor living spaces all year long. The easy-todeploy walls, available in framed or frameless options, protect against wind, rain, sun and other elements while still allowing for maximum natural light. www.lumon.com

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view point Walk With Joy ULI Toronto’s Executive Director feels the real estate and development industry is facing its Uber moment

By Richard Joy

Richard Joy is Executive Director of ULI Toronto. Previously, he served as Vicepresident, Policy and Government Relations at the Toronto Board of Trade, and was the Director of Municipal Affairs and Ontario (Provincial Affairs) at Global Public Affairs.

Follow him on Twitter @RichardJoyTO or email at Richard.Joy@uli.org

46

PropTech crusader and entrepreneur, George Carras, recently opened an Urban Land Institute (ULI) Toronto symposium with two photos: one of an airline pilot and the other a construction worker, each from the 1950s. Imagine, he asked, if they were cryogenically frozen and brought back to life today and sent back to work? The construction worker could expect to draw a paycheck in a couple of weeks, but the pilot would be unemployed, facing a technological environment completely foreign to them.

Our pilot could be replaced with any range of professionals and skilled workers whose jobs have been transformed beyond recognition by technology and innovation over the years. And while the building and construction industry has felt some of the impacts of tech and innovation, another recent ULI Toronto speaker joked that construction is second last only to the hunting and fishing industries in its adaptation to modern technology.

All this is changing quickly and out of necessity. Pressures are mounting as global warming and affordable housing are forcing an old industry to accelerate the adoption of new and better ways of doing business.

The real estate and development industry is finally experiencing its Uber moment.

A recent ULI Toronto program called “Early Adopters” showcased a range of increasingly standard practices for the industry, from the industrialization of construction in offsite factories to the digital twinning of buildings. The Internet of Things (IoT) is washing over all aspects of real estate from construction to the management of the commercial or residential tenant, driving greater opportunities for efficiency and cost reductions, while delivering a better experience for the end users.

Smart windows aren’t just adaptively tinting to sunlight conditions, dramatically reducing energy consumption: they are evolving into 5G antennas and new profit centres for commercial buildings. Customized commercial interior fit-outs can now be envisioned in virtual reality, quickly installed, price guaranteed, and move with the tenant at the end of lease.

Mass or Tall Timber, a typology already considerably advanced in other jurisdictions, is poised to explode into the Toronto market, with the city’s first significant development—Hullmark’s 80 Atlantic—ready to open in the coming months. In addition to the carbon negative benefits of wood (including pine beetle-infested lumber!) such a typology could have enormous economic spinoff to Canada’s challenged lumber industry. Sidewalk Lab’s 3.3-million square foot vision alone would push Canada’s mass timber lumber product capacity to its current limits.

Interestingly, organized labour is often driving the adoption of innovative construction practices by proactively developing a workforce to participate in these new frontiers.

Long-time modular construction leader, Boston-based Tocci Building Corporation, credits the Carpenters Union for their city’s 20-year lead in modular construction.

Toronto’s own Carpenters Local 27 has already graduated the first class of mass timber students who will further fuel the expansion of the market.

Wellness is yet another major tsunami hitting the industry. Demands for more sunshine, natural building materials, human-centered design, active living amenities and more are increasing exponentially in both the residential and commercial markets. Driven by basic economics, like the fact that as salaries and benefits amount to 90 per cent of an employer’s overhead, modest productivity gains through fewer sick days can easily outstrip any other business efficiency measure.

Toronto should take the opportunity to be the global PropTech and urban innovation leader. Domestically, innovation leadership offers the only hope to delivering greener and more affordable residential and commercial real estate. Internationally, our city has the potential to make PropTech an exportable economic commodity fueled by our exponential growth and our advanced technology assets. First mover advantage is ours for the taking if we seize this Uber moment.

April/May 2019

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Visit gerflorcanada.com to view the full collection. All stocked in Canada.

Place your order today at orders.canada@gerflor.com.

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San Souci

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With sleek curves and a low-profile silhouette, the San Souci one-piece toilet makes a strong design statement. Pair with a C3-230 bidet seat and discover the freshness of personal cleansing in a slim, low-profile design. The C3-230 heated seat comes with an easy-to-use touchscreen remote that allows you to adjust and set all your personal preferences, from water temperature and pressure to seat warmth and air-drying.

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2019-03-08 8:21 AM 2019-04-03 2:07 PM