Building December 2016 / January 2017

real estate development

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construction

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architecture

66

building.ca December 2016 January 2017 CDN $4.95

06

Renting

Housing Affordability

Mixed-up Mixed Use

The Way Forward

ISSUES AND TRENDS TO LOOK FOR IN 2017

New Technology

Global Uncertainties

Oil & Gas

PM#43096012

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DND Portfolio St. Michael’s Cathedral Korean Opportunities

2016-12-09 10:48 PM

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2016-12-09 10:48 PM

LIFE AFTER THE BACK COVER…

what’s on BUILDING.ca

READ > Zero Emissions Building Plan The Pembina Institute explores a blueprint for quality buildings and green jobs in B.C. and elsewhere.

66 06

CONTENTS

FEATURES

11 > It’s More Than Mixed-Use /

“Innovation is by far our biggest issue.

We strive not only to lead—but also to attempt to remain far ahead of the competition.” By Andrew Warren

16

16 > The Real Deal /

How a single branch in the Department of National Defence realistically and successfully manages a $26-billion real estate portfolio. By Shannon Moore

READ > Bases Covered Mark Borkowski explains why a due diligence review is essential in a business acquisition.

20 > Tales from the Crypt /

After +VG Architects’s 14-year, $128-million renovation, Toronto’s St. Michael’s Cathedral is light, bright and resplendent. By David Lasker

24 > Business Season Is Open /

In late September, Building magazine was invited as the only Canadian business media to tour South Korea’s Free Economic Zones, which represent a tantalizing opportunity for foreign investors and builders. By Daniel Wickie

EXPLORE > Place des Gens de Mer Bourgeois / Lechasseur architectes revitalizes a site destroyed by fire in a Magdalen Islands village.

IN EVERY ISSUE

4 > Editor’s Notes 5 > Developments 6 > Market Watch 8 > Legal 26 > Viewpoint

e.

ABOVE IMAGE:

With the Curtiss Kitchen and Dining Facility, the DND wanted to flip the typical perception of army base dining.

(Photo: Brenda Liu).

building.ca

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04

Stir of Echoes

Volume 66

It was a bold, even inspired idea. Like-minds gathered in Ottawa on October 21 for a day-long interactive discussion called POP/ CAN/CRIT on the “current conditions in popular Canadian architecture criticism,” led by 12 of “Canada’s leading critical architectural voices” to debate “the current state, effectiveness, and future potentials of a professional criticism intended for the general public.”

Despite a focus on promoting broad public discourse on architecture, the absence of popular and the use of voices to describe participants already suggested a problem. To be blunt, even before the decline of print media, truly popular architectural criticism in Canada was largely an oxymoron. Over the last decade most of those few newspapers that carried at least some architectural criticism have joined other old media in ignoring what is probably the most important functional and cultural product in our society.

The speakers’ current core occupations reflect this depleted state. With the exception of the Globe and Mail’s Alex Bozikovic, no other speaker is employed full-time as a popular media critic. His predecessor, Lisa Rochon is now a senior fellow at the University of Toronto’s Global Cities Institute, while both the Toronto Star’s Christopher Hume (absent through illness) and former Le Devoir and Le Presse critic Sophie Gironnay are now retired (with Gironnay the Director of the Maison de l’architecture du Québec). Ian Chodikoff and Marco Polo are both past editors of Canadian Architect, with both Polo and David Theodore being current academics. While Elsa Lam is the current editor of Canadian Architect, she, like me, comes from the trade magazine niche that tends to be neither popular nor overtly “critical.” Finally, Trevor Boddy, arguably Canada’s only full-time maven of architecture culture, depends only lightly on writing gigs directed to the general public, as do the other speakers.

Not surprisingly, therefore, the day was heavily scented with a strong whiff of the academe. Most participants endorsed social media’s democratic expansion of discussion. I agree in part that this trend engages more ordinary citizens beyond the academy and trade magazine bubbles as well as the elite print media’s frequent apologia for 20th century architecture’s obsession with expressing some “zeitgeist.” But so much of this commentary takes place unencumbered by well-articulated principles of what constitutes good built form. Instead, debate often becomes that time honoured, end-of-debate assertion, “beauty is in the eye of the beholder,” or the more truculent, “you like what you like; and I like what I like.” But then again, too much professional media criticism has focused on architecture as “art” rather than as “functional art.”

The latter requires a much broader assessment of the built environment as the paramount means by which we dwell successfully.

The recent acrimonious public debate over proposed additions to Ottawa’s Chateau Laurier hotel has polarized around “I like historical replication” versus “you can’t handle brave edgy modernism.” Conversely, POP/CAN/CRIT’s assessment of the Gehry/Mirvish towers in Toronto, a project whose cynical use of a wow-factor dazzle to gain obscene height approval, proved a rather tame affair. Albeit a critic’s heresy, the reason Prince Charles has had such an impact on popular criticism is not his hokey love of Georgian design but his coherent understanding of how we as humans physically and mentally experience the built environment within a specific environment, history and culture. POP/CAN/CRIT was a worthy first step, but the next gathering needs to look outside the academia to engender a more impassioned debate of ideas.

Rhys Phillips We welcome your feedback. Send your questions and comments to psobchak@building.ca DECEMBER 2016 JANUARY 2017

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06 Number Editor / Peter Sobchak Art Director / Roy Gaiot Assistant Editor / Shannon Moore Legal Editor / Jeffrey W. Lem Contributors /

Richard Joy, David Lasker, Megan J. Lem, Rhys Phillips, Andrew Warren, Daniel Wickie

Customer Service / Production Laura Moffatt 416 441 2085 x104 Circulation Manager circulation@building.ca Sales Manager Faria Ahmed 416 441 2085 x106 fahmed@building.ca Senior Publisher / Tom Arkell President, iQ Business Media Inc. Alex Papanou 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 Website: www.building.ca SUBSCRIPTION RATE: Canada: 1 year, $30.95; 2 years, $52.95; 3 years, $64.95 (plus H.S.T.) U.S.: 1 year, $38.95 US, Elsewhere: 1 year, $45.95 US. BACK ISSUES: Back copies are available for $8 for delivery in Canada, $10 US for delivery in U.S.A. and $20 US overseas.

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building.ca

17-01-05 12:00 PM

05

OPMENTS Growth in infrastructure, public non-housing construction offsetting weaknesses elsewhere TORONTO | The latest RICS Canada Construction Survey found that growth in infrastructure and other public non-housing construction is offsetting weaknesses in most other areas such as energy, private industrial and commercial, and public housing. “At a high level, that’s true,” said Jeff Logan, senior estimator at Canadian Turner Construction. “The downturn in the energy sector means some companies’ ability to spend on private sector projects are less than previous years, plus the overall economy cooling means less spending on private construction projects. However, government spending and projects are supplementing the slowing of private sector construction work.”

A net balance of 35 per cent of respondents reported a rise in their public nonhousing workloads in Q3, meaning that 35 per cent more reported an increase than a decrease, while a net balance of 31 per cent reported an increase in their infrastructure workloads. Meanwhile, the energy, oil and gas sector saw a drop in activity for the eighth consecutive quarter, with a net balance of 33 per cent reporting a decrease. Net balances of 28 per cent, 18 per cent and six per cent, respectively, reported drops in public housing, private industrial and private commercial workloads.

As to whether the policies of the Trudeau government are boosting infrastructure projects, Logan said, “I wouldn’t say they’re necessarily increasing them. Infrastructure spending is already a big topic in Toronto, and transportation – both rail and highway – plus typical underground utility work, need a great deal of improvement. Much of our infrastructure is quite old and there’s a great deal of congestion, with one of the longest commute times in the world.” There’s been talk in the GTA for a number of years on how to deal with congestion, and “extensive investments in public transit systems like the GO Transit System and TTC are of critical importance right now. In addition, P3 projects are continuing to move the market in the GTA, and will hopefully help provide a solution to this severe congestion.”

The survey also found planning and regulatory issues to be the most significant obstacle to growth in Q3, with nearly three-quarters (72 per cent) of respondents reporting that as a concern. Financial constraints, competition from rivals, insufficient demand, and shortages of skilled labour comprised the other major impediments reported by survey participants.

New Projects Next phase of Le Phare de Québec unveiled QUÉBEC CITY | Groupe Dallaire has un-

Le Phare de Québec

veiled the evolution of its Le Phare de Québec project, which will be built on Boulevard Laurier. It is now comprised of four towers, each of which the company claims will “feature a distinctive architectural design for a more harmonious densification of the site.” In total, the project is expected to have a total floor space of more than two million square feet of office, commercial, residential and hotel space; a main tower 250 metres in height; a public observation tower at the top of Le Phare, presenting Québec City then and now and offering a 360-degree panoramic view; and a 750-seat multimedia concert hall, the development of which will be overseen by internationally-renowned artist Steve Barakatt, who will also serve as its creative director. The project represents a private investment of $650 million.

“Our intention has always been to remain a major player in the development of the downtown business district,” said Michel Dallaire, Chairman of the Board and CEO of Groupe Dallaire. b

building.ca

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06

Spotlight: Healthy Buildings

Canada poised for wider adoption of green building practices Data on benefits other than productivity—including leasing data and occupant satisfaction — can help drive greater investments in healthier buildings in Canada, says a new report sponsored by the Canada Green Building Council (CaGBC) and conducted by Dodge Data & Analytics, titled Healthier Buildings in Canada 2016: Transforming Building Design and Construction.

Productivity data may be only one piece of the puzzle for creating a stronger healthier building market. Owners are also interested in health as a tenant/employee amenity, so greater public awareness and data on the business benefits of employing healthier building products and practices are equally as essential and may be more readily available over time. Creating more tenant and building occupant interest in the impact of buildings on health is still essential, even if it is through some of its softer benefits like employee satisfaction and engagement.

72 per cent of owners in Canada versus 67 per cent in the U.S. report that occupant health and well-being influences their design and construction decisions. Yet seven factors are selected by more than 72 per cent of owners as influential. Three of these factors — operating cost savings; design and construction cost savings; and building energy performance — may be in direct conflict with healthy building improvements, suggesting the need for prioritizing health higher among owners. Three others — tenant demand; market performance and value; and return on investment — could eventually encourage wider investment in health if data can demonstrate that making buildings healthier has a positive impact on these factors.

Aesthetics can be part of healthier building investments, including the use of art, addition of light and biophilic features, but emphasis on aesthetics can also cause prioritization of building features and materials that do not have a positive impact on health.

Business benefits are also driving investments in healthier buildings. More owners invest in healthier buildings with DECEMBER 2016 JANUARY 2017

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the expectation of achieving business benefits like tenant/ employee satisfaction and improving their brand — benefits that result from health being considered a building amenity — than are making these investments to improve productivity or to stay in compliance with corporate social responsibility (CSR) goals. Even the second highest factor — happier and healthier building occupants — speaks as much to the tenant/occupant experience as it does to any specific concerns about health and productivity.

Nearly half of owners (46 per cent) report that they are able to lease space more quickly in buildings with healthier building practices. This demonstrates that, even at this early stage in the healthier building movement, tenant interest is already evident.

Approximately one third (30 per cent) of owners report that they see a positive impact on the value of buildings with healthier practices compared with those without, with over one third (38 per cent) of them reporting an increase of seven per cent or more of their building value. However, nearly half (47 per cent) of the owners do not know the impact of healthier building investments on building value, no doubt due to the fact that consideration of building impacts on occupant health as a separate factor is still relatively new.

When asked to rank several potential benefits of making healthier building investments in terms of which would deliver the best return, occupant productivity gains following business benefits at a distant fourth, selected by less than one third. This demonstrates that productivity can be a compelling argument for why investing in healthier buildings makes good business sense, but it is not the sole argument. While more data on hard benefits would have a strong positive impact on wider investments in health, many companies are also finding success with softer arguments that encourage tenant interest and thus help deliver these three key benefits. Although many owners report not seeing strong tenant demand as a dominant driver of healthy buildings, they believe this will be a critical driver in the future.

When asked why they measure health impacts, significant differences were found between Canadian and U.S. building owners in that Canadian building owners are more likely to measure the health impacts of their building in order to seek brand improvement/value from their investments, increase the building value, and gain a competitive position in the marketplace.

Aligning Owner and Project Team Perceptions A higher percentage of designers (78 per cent) consider health and well-being influential than the 72 per cent of owners, and health ranks third in designers’ overall priorities, second only to design and construction cost savings (86 per cent), and building energy performance (82 per cent). However, this study discovers that owners are more interested in health

OWNER GOALS FOR HEALTHIER BUILDINGS

MARKE T

building.ca

2016-12-09 10:48 PM

OWNER GOALS FOR HEALTHIER BUILDINGS

Improved tenant / employee satisfaction with building 79% 65%

Happier healthier building occupants 66% 64%

Brand improvement 60% 46%

Meeting demand from building occupants 57% 42%

Fulfilling professional duty 55% 45% Improved financial benefit due to greater occupant productivity 53% 53%

Compliance with core values / CSR policies 51% 65%

than many in the design community believe, often underestimating the influence of tenant relations and branding which drives owner investments, and owner interest in features like improved daylighting, enhanced access to natural features, site selection promoting community integration and layouts that encourage physical activity.

While designers on average do recognize the importance to owners of improving tenant/employee satisfaction, they considerably underestimate the influence of brand improvement and overestimate the influence of CSR compliance for their clients.

Therefore, designers and contractors seeking to influence owners to invest more in healthier buildings need to position these benefits as critical, valued amenities.

Challenges to Greater Investments in Health Across all segments, budget concerns and limitations are named as a major obstacle to including health in the design and construction process. About three quarters of owners and designers agree that budget concerns rank high among the challenges to increasing investment in healthier building products and practices. However, a strong business case based on a better documentation of the benefits of making these investments would counterbalance those concerns since, as this study suggests, the initial costs for healthy green buildings can be subsequently recouped.

Nearly half of design firms rank lack of client interest high, while roughly the same share of owners consider an unclear business case and other competing priorities to be impediments. These concerns about an unclear business case were strongly echoed in a series of in-depth interviews conducted as part of this project with leading owners across industry in making healthier building investments, underscored by a strong call for more actionable data.

Owner goals for healthier buildings (according to owners)

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Green Building Is Driving Use of Top Healthier Building Practices and Products The most common healthier building products and practices — such as daylighting, low VOC products and mechanical ventilation strategies to improve air quality — are notably those that green building certification systems require.

This demonstrates how green building programs have driven awareness and use of healthier building products and practices.

In addition, significantly more owners in Canada report using CO2 sensors (70 per cent) and natural ventilation (47 per cent) than those in the U.S. (51 per cent and 28 per cent respectively). However, a much higher percentage of government policies that encourage occupant health, well-being and safety including avoidance of hazardous materials, VOCs, and red list chemicals are reported to exist in the U.S. (65 per cent) than in Canada (40 per cent). Project sector also plays an important role in the level of use of healthier building products and practices.

07

Study Implications Throughout the study, the need for additional data is clear.

As interest in healthier buildings has increased, many have thought that demonstrating productivity benefits and healthcare cost savings, despite the challenge of gathering this data and linking it to specific building practices, is the best way to move the market. Yet data on increased building value, speed of leasing and rent averages for healthier buildings may be easier to gather than trying to link productivity and healthcare cost improvements to healthier building investments.

Although lack of data appears as a common reason for why design decisions are not as influenced by health and wellbeing impacts as they could be, greater effort needs to be made to communicate the findings that have emerged from research studies examining this relationship to industry stakeholders. Industry perception surveys are thereby able to provide the pulse for what is important to its stakeholders.

Even as the green building industry continues to grapple with the challenges of sufficient transparency about the impacts of building materials, a new paradigm is emerging for the consideration of building impacts on health and well-being. The key shift is in acknowledging that buildings must do more than simply avoid adverse impacts on health, indeed they can and should actively optimize the health and wellbeing of their occupants. b

The preceding is an excerpt from the CaGBC/Dodge Data & Analytics report, Healthier Buildings in Canada 2016: Transforming Building Design and Construction. For more, visit www.cagbc.org

Architects, interior designers and contractors who believe their clients want to achieve these goals

2016-12-09 10:48 PM

08

LEGAL The New Marketability of Title Paradigm after MacDonald The Supreme Court affirms that good and marketable title now includes freedom from latent defects.

By Jeffrey W. Lem and Megan J. Lem

On October 20, 2016, a panel of the Supreme Court of Canada dismissed the appeal arising out of MacDonald v. Chicago Title Insurance Company of Canada, the title insurance case where a title insurer was found liable under its policy for the costs of fixing illegal renovations that had been done to the insured property. The case itself raised some eyebrows (especially from title insurers who are all now scrambling to amend their policies going forward to expressly deny liability for physical defects in the property), but has largely flown under the radar for most real estate lawyers and other real estate professionals.

This is a mistake, since the case may in fact be ushering in a true paradigm shift in the common law of real property, not so much because of the ultimate decision as to liability, but more so because of the rationale adopted by the Ontario Court of Appeal in reaching its conclusion, which rationale A store on West has now been ensconced in the common law thanks Street in Goderich, to the Supreme Court of Canada’s refusal to hear Ont.’s historic downtown before the the appeal. tornado hit (above), The Ontario Court of Appeal found the title insurthe damage (right), er to pay andliable in August 2013 all of the costs of repairing a material (below) after the town’s latent physical defect in the property because that rebuilding efforts. physical defect rendered the title to that property unmarketable, and one of the primary risks that title insurance insures against is title unmarketability. While it is trite that title insurance guarantees against title unmarketability, the conclusion that unmarketable title includes physical defects actually runs contrary to centuries of common law underpinning the concept of “marketability of title.”

As almost any real estate lawyer would conclude, “marketability of title” has a long history in the common law and means good title, not good physical quality. At least up until the MacDonald case, marketability of title was something altogether different than the marketability of the property or the value of the property. That is, any given property (say, a toxic waste dump, for example) may be utterly unmarketable in the real world (in the sense that it will have almost no buyers at almost any price) yet still have a pristine and totally marketable

title (in the sense that the ownership thereof is totally undisputed and the title has not a single encumbrance or other defect). The Ontario Court of Appeal’s suggestion (since effectively ratified by the Supreme Court of Canada) that a house with significant latent construction defects then has an “unmarketable title” is a truly radical leap from the common law.

At the Six-Minute Real Estate Lawyer conference held by the Law Society in Toronto, Odysseas Papadimitriou, a condominium development and commercial real estate expert with Harris Shaeffer LLP, summarized the problem with the MacDonald v. Chicago Title Insurance Company of Canada decision as follows: “The Court in MacDonald may have arrived at the right equitable result, but in doing so it may have applied wrong legal reasons that could have significant impact for the real estate bar and title insurers for

As almost any real estate lawyer would conclude, “marketability of title” has a long history in the common law and means good title, not good physical quality.

DECEMBER 2016 JANUARY 2017

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generations to come. MacDonald has effectively intermingled unmarketability of title with unmarketability of property….By blending these concepts, the Court has expanded the definition of unmarketable title…Furthermore, this blurring of concepts may have consequences far beyond the title insurance context, consequences which may not have been fully considered by the Court before reaching its decision.”

building.ca

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The unintended consequences alluded to by Papadimitriou can be far-reaching indeed. Consider, for example, a typical “as is/where is” sale. Since the Supreme Court of Canada put its imprimatur on the Court of Appeal’s interpretation of “marketability of title”, every real estate seller who represents and warrants that he/she has “good and marketable title” to the property might now very well be inadvertently guaranteeing that the property is effectively free from all latent physical defects and is fully marketable in the local real estate market!

With no opportunity to argue this point before the Supreme Court of Canada, “qualification” now pretty much has to be the goal going forward. One can expect all title insurers across the board to have already qualified their title policies so that the marketability of title coverage explicitly excludes latent physical defects, and does not actually scoop in by default, the marketability of the property generally. Likewise, it is likely that most real estate lawyers have revised their legal opinions to ensure that “good and marketable title” does not make lawyers de facto building inspectors and realtors. But it is important for realtors and their real estate clients to do likewise in their sale agreements – nothing would be more shocking than to

Jeffrey W. Lem is a lawyer in the Ontario Public Service and bencher of Law Society of Upper Canada.

Megan J. Lem is a corporate lawyer in the Toronto Office of Oslers LLP. This article reflects the personal views of the authors alone.

be selling a property “as is/where is” only to find that one has inadvertently also guaranteed the absence of any latent physical defects or marketability of the property.

Of course, purchasers of real estate will be facing the opposite issue – by getting a warranty on “marketability of title” from the seller, a purchaser may also be getting a windfall guarantee against any physical defects and an assurance that the property will always be generally re-sellable in the open market. Wow, not bad if you can get from the seller when the seller didn’t even know that he/she was giving such assurances.

It is often the cases that “fly under the radar” that most impact how real estate transactions are conducted, and MacDonald v. Chicago Title Insurance Company of Canada may very well be one of those cases. b

09

Canam-Buildings: Better Building Solutions

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The BuildMaster approach, Canam’s advance planning, design and improved steel delivery features, can be combined to any of our construction solutions.

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2016-12-09 10:48 PM

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2016-12-09 10:48 PM

11

“Innovation is by far our biggest issue. We strive not only to lead — but also to attempt to remain far ahead of the competition.”

by Andrew Warren

f

rom millennials eager to live where they work to downsizing Baby Boomers to new arrivals from other provinces or from around the world, Canada’s urban populations are set to continue to grow — and their needs are evolving. Because of this, mixed-use projects combining residential, retail, and commercial components continue to thrive — and there’s a growing consensus that developers must do better when designing public spaces. Developers have responded by continuing to rethink their approach to mixed-use projects: instead of focusing on building “stand-alone” mixed-use buildings, they’re increasingly building mixed-use neighbourhoods and communities that pack residential, retail, and commercial space into a dynamic whole. Most respondents noted that this type of “place making” is a reality that developers need to seriously consider.

building.ca

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2016-12-09 10:48 PM

Forec 2017 (forecast) 2016 2015 2014

Quebec City

12

Investments in transit infrastruc­ ture also are contributing to this evolution, as cities look to establish new areas of development and density around key transit hubs. This is enabl­ ing developers to build mixed-use communities both inside and outside the downtown core. And it’s also giving homebuyers more of a choice between “live where you work” and “work where you live.”

But as mixed-use grows and evolves, developers are discovering that projects are becoming increasingly complex and creating new risks they haven’t had to deal with before. To mitigate this, some developers are partnering with others to pool their respective specialized expertise. Some respondents have also observed more cooperation between former competitors, with one noting that partnerships and joint ventures have become more acceptable than ever before. “Our approach is to continue building relationships for potential alliances of this nature,” one developer said.

Winnipeg

Calgary

Halifax

Ottawa

Edmonton

Saskatoon

Montreal

Toronto

Vancouver

Affordability on the Decline

Housing affordability has become a major point of concern in Canada, and respondents said it won’t let up. High prices in Vancouver and Toronto will continue to squeeze affordability, with both cities’ mortgage-to-income ratios forecast to remain well above the Canadian average in 2017 (figure 1). Montréal will stay a distant third — still below the national average — with Winnipeg and Québec City being the most affordable. On the whole, 2017 looks to see a pullback on double-digit, yearover-year housing price increases, with Toronto leading the way with under five per cent growth this year (figure 2).

In the short term, Toronto’s and Vancouver’s markets are set to diverge slightly. Even before the additional property transfer tax on non-residents, Vancouver had embarked on a modest correction that started in early summer 2016. TD Economics reported that, by mid-2017, it anticipated a 10 per cent DECEMBER 2016 JANUARY 2017

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Canada

0

10

20

30

40

50

60

70

Mortgage payment as percentage of average household income Note: Mortgage payment is based on the average home price, 25% downpayment, 25-year amortization, and five-year fixed posted rate.

Housing Price Change Year over Year (%) 2016

2017 (forecast)

Toronto

15.5

4.6

Vancouver

10.5

–4.8

Winnipeg

2.6

1.5

Montreal

2.6

1.8

Ottawa

1.1

1.8

Calgary

0.9

–1.9

Halifax

0.6

3.1

Quebec City

0.1

2.9

Edmonton

–1.1

–1.2

Saskatoon

–2.8

–1.7

Canada

10.6

–0.9

Source: TD Economics, Regional Housing Report, August 2016.

4 4

Housing Affordability

building.ca

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Forecast Net Migration, 2016–20 450,000

400,000

300,000 Intercity Interprovincial International 250,000

200,000

150,000

100,000

50,000

Source: Conference Board of Canada.

0

-50,000

Toronto

Vancouver

Montreal

Calgary

Winnipeg

Edmonton

Ottawa

Quebec City

-100,000

Halifax

13

Attitudes toward renting are shifting and people are choosing to rent longer — some even permanently.

350,000

Saskatoon

decline in home prices, which was then expected to stabilize by the end of the year. In Toronto, it’s business as usual — and barring a similar tax, foreign investors may see that city’s market as increasingly attractive. But some interviewees have expressed concerns of a pullback by consumers, especially as the cost of single-family detached houses eclipses wage growth.

Significant increases in immigration over the next five years (figure 3) will continue to keep demand high and put even more pressure on affordability unless more supply is made available. Because of this, demand is anticipated to remain strong, but provides growth opportunities not just in Toronto and Vancouver but also across the rest of the country. As it stands, the average home size in Canada tops that of most other countries (figure 4), and with increased immigration on the horizon, those arriving in Canada may not have the same size expectations, creating demand for smaller units. As well, due to the high cost of moving, and the lack of affordable options for moving up, one interviewee said that existing homeowners are choosing to invest in renovations, putting further pressure on the supply of resale homes.

With no real factors reducing the demand for real estate in Toronto and Vancouver, developers and builders will continue to face supply-side issues. Many believe that provincial government land use policies — like greenbelt legislation and intensification requirements in Ontario and British Columbia — together with increasing time requirements to get local government approvals are factors holding back the supply of available land for development. “Government needs to increase the supply,” one interviewee noted. “If there was enough supply, there would be no LRT Station affordability issue.” Another said that if government would release even 10 per cent of the restricted land, it would solve a big part of the problem. As well, a common issue in nearly all regions was municipal red tape and lengthy approval processes, which are also limiting supply and driving up costs.

While interest rates have stayed low and respondents don’t see any signs of a natural increase anytime soon, any jump could make housing even less affordable than it currently is and drive more significant changes in real estate markets. The sustained low interest rates may be lulling Canadians into a false sense of security, thus spurring them to increase their debt loads. In fact, if interest rates rose by only one per cent, a significant number of Canadians may not be able to absorb the increase in their monthly payments. If this were to happen, the current affordability issue would be further compounded.

Renting for the Long Term

With housing prices in Toronto and Vancouver out of reach for many prospective homebuyers, many are choosing to rent instead. Attitudes toward renting are shifting and people are choosing to rent longer — some even permanently, as they weigh the costs of homeownership against the benefits. As Toronto and Vancouver become more similar to world-class cities like New York, Paris, and London, it is anticipated that renting will become the norm.

It is a trend that is sparking ongoing interest in purpose-built rental units, and raising questions about the size of units and the need for supporting infrabuilding.ca building.ca

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Average Home Size, by Country Australia United States

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structure (e.g., schools, medical facilities, daycare, etc.) to accommodate millennials’ inevitable move toward parenthood and Boomers’ downsizing.

In fact, some older homeowners are opting to sell their homes and cash out, moving into high-end or luxury rental units and keeping the proceeds of the sale for spending.

Canada Denmark Greece France Germany Spain Japan Sweden Italy

Technology Disruptors Hold a Competitive Advantage

Last year, the idea of disruptive technology was gaining traction among property developers and investors. Looking ahead, they now feel that real estate firms must take significant steps to adapt to customers’ growing tech needs or risk falling behind. Luckily, some technological advances are getting easier — and cheaper — to implement.

Many of those surveyed spoke of how technology is changing expectations and how they interact with potential tenants. Nearly endless information is available thanks to the internet, so customers are more informed than ever before. They’re doing extensive research online before buying. On the development side, firms are doing more 3D computer conceptualizations in the planning stage, offering virtual tours to help potential buyers and reducing the need for physical showrooms.

They’re also harnessing the power of data to make better business and marketing decisions and improve financial reporting.

Technology and a changing workplace are creating new demands for office developers and owners. Respon­ dents said tenants are continuing to move toward smaller, open-concept spaces because of “workplace 2.0” changes like office hoteling (reservationbased, unassigned seating), flexible hours, and telework. With more people working remotely thanks to advances in teleconferencing, much less need exists for big, traditional offices. These new workplace concepts are especially appealing to millennial workers and are DECEMBER 2016 JANUARY 2017

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United Kingdom Russia China Hong Kong 0

250

500

750

1,000

1,250

1,500

transforming even the most traditional of office tenants, such as law firms, accounting firms, and banks. Owners of older buildings are finding it harder to compete with newer properties that have taken their future tenants’ needs into consideration; the way forward isn’t necessarily clear, but upgrades and redevelopment don’t come cheap.

Technology is also transforming the residential market. Buyers and renters alike are increasingly expecting more energy-efficient properties and amenities. As hydro costs rise and technology prices fall, the value propositions for things like LED lights, green roofs, and Energy Star appliances become far easier to make. New systems in waste management and energy conservation will help achieve net-zero-impact buildings, which are likely to become more popular as concerns over climate change continue. As well, new technologies have emerged to improve residential homes’ air quality by reducing off-gassing from products like plastics and paints.

These new technologies are also making their way into building codes, though not everyone feels this is necessarily a positive. One respondent, for example, said that sometimes the new codes go too far, legislating features that provide “little to no actual benefit”—or benefits purchasers either don’t understand or don’t use.

Real estate firms must take significant steps to adapt to customers’ growing tech needs or risk falling behind.

Global Uncertainties Weigh on the Mind

Despite some regional differences, Canada’s real estate market has delivered few surprises. While the domestic front has been stable, developers, investors, and property owners alike express concern over global political and economic uncerbuilding.ca

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Source: CommSec, Reserve Bank of Australia, United Nations, U.S. Census Bureau

1,500

1,750

2,000

2,250

tainties. Many worry about the potential impact of Brexit and the U.S. election, while others also cite the global refugee crisis and Europe’s economic and terrorism struggles as areas of concern.

Observers’ chief fear is that any one of these issues could have an outcome that sends markets and economies spinning, though whether Canada gets taken along for the ride isn’t clear. Most respondents believe these global uncertainties, along with the low Canadian dollar, will continue feeding demand for Canadian real estate; for now, Canada is seen to be a steady, low-risk place for investors to put their money.

2,500

Ongoing Oil and Gas Woes

Slumping oil and gas prices continue to weigh on the economy, and they’re hitting Alberta hard. The province has grappled with a recession for the second year in a row, with real gross domestic product (GDP) growth of –2.9 per cent in 2015 and –1.1 per cent in 2016, according to the Conference Board of Canada. While some expect oil and gas prices to rebound from their lows, how high that rebound will be remains to be seen.

Calgary has seen its share of ups and downs over the years, and experience has taught real estate investors to wait and see where the market goes before committing themselves to anything new. Oversupply of office space has not stopped some projects from being completed, but the Calgary market has hit the pause button.

And while Edmonton isn’t immune to the challenges of low oil prices, the impact on its real estate market has been softened thanks to the city’s more diversified economy and significant investments in redeveloping its downtown core.

EXPECTED BEST BETS FOR 2017

Waiting for Deals

While eagerness for investing in property abounds, there still isn’t much to invest in. This was a significant trend in 2016, and continued demand — especially in Toronto and Vancouver — looks like it will continue to outstrip supply through 2017. Respondents said current players seem likely to hold onto their assets longer, with bigger players taking greater control of the marketplace. But respondents have seen newer players on the outside paying any price for land or projects just to get into the market. Some institutional investors are also looking to rebalance portfolios that are now disproportionately weighed to the West due to British Columbia price increases.

Access to capital is not seen by most respondents as a problem, with one stating that there’s a “lineup of money looking to be placed.” Overall, real estate is still seen as a good asset class, and its historic returns will continue to make it an attractive investment opportunity for both local and foreign investors. b

15

The preceding is an excerpt from The Emerging Trends in Real Estate 2017, a joint publication between Urban Land Institute and PwC. It can be found at pwc.com Andrew Warren serves as the Director of Real Estate Research for PwC.

Given the state of the markets across Canada, where should developers and investors focus their attention?

INDUSTRIAL PROPERTY

PURPOSE-BUILT

URBAN MIXED-USE

SENIOR HOUSING/

In the current market, industrial bets are widely seen as the wisest as the growth of online shopping creates more and more need for distribution and logistics hubs. While some worry it’s tough to find property suitable for development, others point out that it’s getting harder than ever to squeeze value out of office and residential developments.

MULTIFAMILY RENTALS

DEVELOPMENTS

RETIREMENT HOMES

With rentals gaining in popularity thanks to rising house prices and demographic shifts, coupled with aging housing stock across the country, the market for purpose-built, multifamily rentals is better than it has been in years. Our survey shows that developers and investors increasingly sense the opportunity and are keen to get new rental projects going, provided the economics work.

As millennials and Boomers alike flock to urban cores in search of a vibrant lifestyle, convenience, and proximity to work, respondents believe that the market for mixed-use properties combining residential, retail, offices, and more is a solid play. Increasingly, developers will move away from viewing projects as one-offs independent of their surroundings, in favor of building complete neighbourhoods.

A number of respondents, sensitive to the potential in an aging yet wealthy boomer population, believe investing in retirement homes and other senior housing will be a growth opportunity over the long term. Whether they can do so at the scale needed to deliver both care and desired profits remains to be seen.

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How a single branch in the Department of National Defence realistically and successfully manages a $26-billion real estate portfolio.

ast April, the Department of National Defence’s (DND) Infrastructure and Environment Branch became the sole manager of the DND and Canadian Armed Forces’ real property portfolio. This move followed a comprehensive review of a 2012 Auditor General Report that explored the effectiveness of the department’s management team. Prior to 2016, the department’s real property was overseen by nine separate managers — each with a different approach to investment and spending. “The Auditor General Report was clear. This was not the most efficient approach to managing real property,” says Anne Morton, Senior Director of the Infrastructure and Environment Group. “The report directed the department to transform its approach and optimize business processes to truly provide sound stewardship.”

The Infrastructure and Environment Branch now assumes the responsibility of more than $26 billion worth of assets across Canada — from buildings for ships to hangars for planes, barracks for people, bunkers for bullets, and more than $2.2 million hectares of land,” says Morton. More specifically, the portfolio contains approximately 20,000 structures in over 200 locations, three ports, 37 airfields, 79 hangars, more than 15,600 sewers, bridges, docks and firing ranges, 5,500 kilometres of roads, and land holdings estimated at four times the size of Prince Edward Island. “Our portfolio is the largest and most complex within the federal government,” says Morton. “Centralization of all infrastructure under one real property manager has meant a cascade of changes as to

DECEMBER 2016 JANUARY 2017

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how we conduct business and how we manage this very complex and unique organizational culture.”

In addition to maintaining the quality of buildings, the Infrastructure and Environment Branch now manages new construction projects and oversees the repair, disposal and/or remediation of outdated structures. One of its most important roles, however, is to manage funding. In the fiscal year ending March 31, 2016, the capital budget

Photos courtesy of ADM(IE).

by Shannon Moore

17

CLOCKWISE FROM

CFB Esquimalt occupies 41 square kilometres at the southern tip of Vancouver Island and is the naval base and home port to Maritime Forces Pacific and Joint Task Force Pacific Headquarters; CFB Bagotville, located near Saguenay, Que., is one of two Royal Canadian Air Force bases using the CF-18 Hornet interceptor, and in August received a $1.2-million investment in green infrastructure and clean technology improvements; CFB Halifax is Canada’s east coast navy base and home port to the Atlantic fleet.

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for construction totalled more than $453 million, while operation and repair budgets were in excess of $953 million.

“One task of our Branch is to allocate these budgets in a more efficient way, in order to bring the right resources to the right assets at the right time,” says Morton. “Our goal is to create an infrastructure portfolio that is affordable to the department, government and taxpayers, and one that is cost effective and sustainable from a real property management perspective.” The Branch makes continuous efforts to be prudent with spending and to optimize the allocation dollars within the department without threatening the quality and efficiency of military operations.

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EFFICIENCY AND SUPPORT Another primary task is to improve energy efficiency while reducing the environmental impacts of existing infrastructure. An important way in which this is achieved is controlling sprawling by building up instead of out. With such an immense portfolio, efficiency is also achieved by encouraging departments to share spaces. “Part of our approach in creating a leaner portfolio is to assign joint use and multifunction-

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al facilities,” says Morton. “The rule is simple: our existing infrastructure must be used to its full capacity. However, consolidation and multi-functionality is implemented only where possible without compromising the missions of the military.” As defence accounts for approximately 56 per cent of the government’s energy portfolio, the Infrastructure and Environment Branch has also established base energy performance contracts with the private sector in order to determine an appropriate standard for measuring efficiency. One particular hurdle has been the attempt to determine energy use in the large majority of structures located outside of urban centres.

Arguably the most important role of the Branch in assuming its new management position is to provide continuous, unfaltering and reliable support to the Canadian Armed Forces. The first way in which this is achieved is by acting as a translator for the military — helping them to understand real estate terminologies in ways that are accessible and relatable to non-industry personnel. For example, Morton explains that when the military looks at a facility, they measure it based on its functionality over its square footage. As opposed to listing its dimensions, the Air Force would measure a building based on how many C-130 Hercules airplanes can fit inside. In assuming a translator role, the Infrastructure and Environment Branch can ensure that the facilities provided will support and match the needs of the military itself. Keeping the lines of communication open and flowing among colleagues and staff helps to ensure a successful and supportive infrastructure for all.

Likewise, the Branch offers support by establishing and maintaining defence infrastructure that allows the Forces to function and operate at their full capacity. In addition to managing current requirements, the Branch looks ahead to anticipate the Canadian Armed Forces’ future needs. Planning occurs on short-term (one to five years), medium-term (five to 10 years), and long-term (10 to 30 years) scales.

“Failure to match infrastructure investment with operational needs puts in jeopardy the Forces’ ability to organize, train, equip and deploy, putting Canada and Canadians at risk,” says Morton. “Defence infrastructure must support operations and training, accommodate personnel, protect essential materials, and enable the Forces to deploy, sometimes rapidly, like with Afghanistan in 2002 and Haiti in 2004[...]It’s important that we have flexibility so that the Armed Forces can react to their urgency.”

HOLISTIC AND EFFECTIVE TEAMS Support and responsibilities aside, Morton says that one of the most rewarding benefits of managing the DND and Canadian Armed Forces real property portfolio has been the opportunity to see civilians and military personnel working side by side on a daily basis. When consolidation AUGUST SEPTEMBER DECEMBER 2016 JANUARY 2013 2017

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and centralization occurred, thousands of real property experts began working on defence infrastructure alongside the military itself. “We have engineers, architects, general labourers, geographic information system technicians, urban planners, economists, scientists, and analysts, just to name a few,” says Morton. “These experts are working together to deliver the best infrastructure for the Department of National Defence and the Canadian Armed Forces.” Today, approximately 24,000 civilian staff work alongside 27,000 reservists and 68,000 military personnel. “Having the knowledge of both our civilians and military is invaluable,” she continues, explaining that the diverse backgrounds and expertise of all staff leads to extremely holistic, fulfilling and effective teams. “Our military colleagues provide additional insight to our non-military members, and vice versa. There’s always opportunity to learn from each other, which creates a real positive working environment.”

In addition to bringing civilians and military personnel together, the consolidation has allowed the DND to work more closely with the private sector itself. While the department has already established ties in an effort to improve its energy efficiency, it is continuously working on partnering with the private sector for additional, advantageous purposes. The department currently relies on real estate experts within the federIn October 2016, the al government to “share best practices DND attended Ottawa’s and lessons learned in the sphere of Real Estate Forum real property management and major to educate the public transformation initiatives.” However, sector on the the department is attempting to think responsibilities of the outside the box by consulting with federal government external sources, too. “We realize that in managing the DND innovative real property solutions reand Canadian Armed quire looking beyond traditional proForces’ real property ject delivery models. That’s why we portfolio — the largest continue to partner with the private in the Government sector,” says Morton. “While some of of Canada itself. Anne our bases are managed by private secMorton described the tor companies, areas for partnership department’s various also include infrastructure design, new real estate assets, construction, repairs and renovations, as well as revealed the demolitions, maintenance and energy department’s attempts performance contracts.” to establish and maintain a sustainable, “The size and scope [of the DND portfolio] present numerous opporaffordable and tunities for partnership and collaboraccessible infrastrucation in both the private sector and ture portfolio. across the Government of Canada. I For more information hope that in moving forward, we conon the DND and tinue to partner with the private secCanadian Armed tor to adopt some of their best practiForces, visit ces in the field,” says Morton. b www.forces.gc.ca

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Photo: Brenda Liu

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DINING WITH THE ARMY

Part of a large masterplan to create a pedestrian campus at the Canadian Forces Base in Borden, Ontario, the Curtiss Kitchen and Dining Facility is one of two new dining facilities intended to not only replace the dozen or so disparate ones currently being used at the base, but also flip the traditional perceptions of an army cafeteria. With a capacity to seat 1,500 military personnel per meal, 750 at a time in two sittings, and an intuitive programmatic layout, the dining facility demonstrates that utilitarian spaces can also be interesting and inviting.

Designed by ZAS Architects and Jean-Christian Koch Architecte in joint venture, the facility’s program includes a dining hall, kitchen facilities and office areas, as well as washrooms and first aid facilities for the adjacent soccer pitches. The design strategy focused on providing a pleasant, efficient and enduring building with plenty of natural light and optimized interior traffic flow. The building’s plan, forms, colours and materials are all used to convey an intuitive understanding of path and use – diners who have never entered the building are naturally brought through the facility in a loop, completing it with no cross-circulation.

It’s most distinctive feature is the dramatic glue laminated tree-like columns and arches. These structural elements, along with the sweeping views of the natural context, provide diners with a comfortable and peaceful environment for meals – a welcome respite in an otherwise grueling schedule.

While military facilities are often associated with drab utilitarian complexes, the Curtiss Kitchen and Dining Facility reflects a shifting direction in Canada’s military architecture, one that is more humane and rewarding for service men and women. building.ca

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by David Lasker

TALES FROM THE CRYPT

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After +VG Architects’s 14-year, $128-million renovation, Toronto’s historic St. Michael’s Cathedral is light, bright and resplendent.

his past September, a restorations of cultural, educational, cadre of suitably awed municipal, justice, healthcare, residenjournalists saw the fruits tial and recreational buildings. of a 14-year, $128-million renovation of historic St. Michael’s Creeks and Bones Cathedral, the principal church of Canada’s largest EnglishPerhaps the biggest renovation story of the 168-year-old speaking Catholic archdiocese, located at 65 Bond Street in cathedral, and the aspect that seems to most capture the the heart of downtown Toronto. Previously, the 148-year old public’s imagination, lies below ground. “We excavated the monument, designed by Toronto architect William Thomcrypt, where the first Bishop of Toronto, Michael Power, and as, seemed dark, drab and dreary. Now it is light, bright other important figures in Toronto’s history are buried, and and resplendent. turned it into a formal crypt chapel,” White says. For inThe cathedral renovations were instigated by the Archdiostance, on the north side is interred John Elmsley, a convert cese of Toronto and further encouraged by Cardinal Thomas from the Anglican church, a director of the Bank of Upper Collins, who arrived in 2007 and had a vision to develop the Canada and a member of the Family Compact, whose father cathedral as a centre of evangelization. To that end, “the cathhad been Chief Justice of Upper Canada. edral should be a thing of beauty,” says “We expect the crypt chapel to become a tourist destinarchitect Terrance White of the Toronto ation when it officially opens in early 2018,” White says. “The cathedral will office of +VG Architects (formerly the link with the Royal Ontario Museum and Ontario Tourism so that tourists will know that they can come to see that what’s buried here is part of the social and Ventin Group, Architects). cultural history of Canada.”

As lead consultant, +VG worked with Indeed, the district was witness to history. Across Bond Street stands a City the archdiocese to create the renovation of Toronto Historic Site, Mackenzie House, the 19th-century row-house mustrategy and hire subcontractors. White seum dedicated to William Lyon Mackenzie, Toronto’s first mayor and a leadwas partner-in-charge of the +VG team er of the 1837 Upper Canada Rebellion. at the cathedral, and was assisted by David Ecclestone, +VG partner and proLight and Art ject architect. +VG is a full-service archiThe scope of the work included interior conservation, decorating and embellishing. tectural firm with a staff of 56 in offices All the stained-glass windows were restored and new windows and sculptures were in Toronto and Brampton, Ont., offering commissioned. The rose windows in the south and north transepts were boarded new design, additions and heritage

T

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up for a century. Today they display the new stained-glass windows designed and fabricated by John Wilcox and his Toronto-based firm, Vitreous Glassworks.

The original windows were made of quarry-glass, an expedient way to create glass using the yellow pigment that gives the characteristic brown colour to beer bottles. Most of the glass on the tower was quarry glass, except the main window. Leaded-glass windows are vastly more expensive and are typically added later as embellishments by the parishioners, whose names are commemorated at the bottoms of the windows.

New York-based Ecclesiastical Art created the designs for the painted decorations on the interior walls and ceiling of the cathedral. They transformed the ceiling into a canvas de-

picting the celestial sky with more than 18,000 heavenly stars, some of them gilded, some painted red or blue. (If you’ve ever walked through New York’s Grand Central Terminal and gazed up at the depiction of the constellations, you’ll know how inspiring and uplifting a painted sky can be.)

Integrating the Beauty +VG replaced the existing, unsafe balcony, which had been closed to the public since the 1990s. It had been compromised years ago when the organ power was changed from a water-pump system to pneumatic action. To accommodate building.ca

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Photography by Paul Cormack / Concrete Pictures

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underground at every element in the campus of buildings, including the vestry and sacristy as well as the cathedral proper.

Between 2004 and 2005 saw the restoration of the foundation walls and solving the problem of ground water infiltratthe air ducts, the beams were cut. The new balcony, seating into the crypt, as well as restoration of all cathedral ening 230, doubles the original seat count. trances including the heritage steel fence around the property.

The existing organ, installed in 1880, blocked the entire 2006 is when repairs to the stained-glass windows began. In opening of the great west window, which, like the big window 2013, a ceremony marked the first completed phase, the maat the chancel in the east end, has some of the most beautiful sonry conservation and restoration of the west facade and stained glass in North America. +VG removed the organ to tower. Restoration of the spire took place none too soon: it was about to fall down. A new statue of St. Michael was installed. open up the view. Opus 3907, the new, $2-million pipe organ 2014 saw completion of the Ryerson Chaplaincy, a small built by Casavant Frères of Saint-Hyacinthe, Que., and deproject catering to a ministry that serves Ryerson University, signed in consultation with +VG, splits the pipe chests so which had no quarters. Ryerson Chaplaincy is attached to the that they flank the walls in front of the window, preserving the view and the daylight. The new north side of the Bishop’s Palace or Rectory. This was also instrument will attract international when construction began on a new atrium for the west side of St. John’s Chapel adorganists who will want to play in the joining the sacristy. The purpose was to fix a longstanding problem: St. John’s Chapcathedral. Especially notable are the el was being used as a corridor linking the Bishop’s Palace to the cathedral, which Trompette en Chamade or Festive Trumdiminished the chapel’s importance as a worship space. pet pipes, mounted horizontally and White conceived of the atrium as a cloister, a path of travel that’s covered and protruding dramatically from the cenlooks out to a meditative garden—in this case, the rectory garden. Built for the Cantre of the balcony front. adian climate, this cloister is an indoor space resembling an orangery, with a wall Every cathedral altar has holy relics. of French doors overlooking the garden. The terrace, just outside the doors, offers a The replacement of the altar revealed breathtaking view, looking up at a steep angle to the cathedral. The west wall, along these relics, which are located within St. John’s Chapel, is illuminated by a long skylight. The stonework of this heritage the newly constructed altar. New sculpwall becomes an interior architectural feature animated by daylight. ture niches beneath the balconies will The multipurpose cloister or atrium is large enough to accommodate the chrism have glass-fronted reliquary niches inmass during Easter celebrations, when every priest in the diocese visits the cathstalled in the base of the new carved edral to receive his year’s supply of holy oil. The atrium will also offer, finally, a place wood ecclesiastical sculptures made within the cathedral for the priests, who are celebrants of the chrism mass, to vest.

Previously, they had to vest across the street at St. Michael’s Choir School. It was at the Demetz Art Studio workshop in amusing to see 300 priests walking across the street to get into the cathedral.

Bozen, Italy.

Underneath the atrium addition is the new central HVAC plant and transformer A Construction Pilgrimage vault for the cathedral, St. John’s Chapel and rectory. The new atrium will face a new In 2002, +VG Architects wrote the maspublic piazza on the north side of the cathedral. In summer, the atrium will act as a reception space for summer barbecues in the piazza. ter plan for the first phase, investigatThe cathedral was closed in 2015, for the first time ever, to repair the nave ing the crypt. There was a record of 60 columns, which were in imminent danger of structural failure. But by 2016, the interments but there were only 29 crypt main worship space was finished in time for the Feast of St. Michael’s, a mass chambers. All were opened to confirm that has become a big September tradition. It reopened the following December that all burials were within the crypt. for weekend masses until early September, 2016, when it was shut again to al+VG assembled a team of 15 consultlow final construction on the nave. Ongoing phases of the restoration, with exants, including masonry conservators, pected completion dates in 2018, include the restoration of the Bishop’s Palace an archaeologist and mechanical, elecor Rectory, and completion of the new crypt chapel. b trical and structural engineers, to look DECEMBER 2016 JANUARY 2017

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by Daniel Wickie

DECEMBER 2016 JANUARY 2017

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263

365 303

Source: Real Capital Analytics

223

CPPIB Canada

Ponte Gadea Spain

Deutsche Bank Germany

71

GIC Singapore

61

AEW Capital US

45

222

M&G Investment UK

186

Bloombery Resorts Philppines

“I’m especially pleased that I can meet all of you during the most beautiful season in Korea. I welcome all of you to Korea.”

Man-Gi Jeong, the Korean Deputy Minister of Trade, Industry and Energy, made these remarks at the Grand Intercontinental in Seoul, to a 1,300-strong audience during Foreign Investment Week, and he was talking about the early autumn weather: mild, pleasant and welcoming. But he may as well have been referencing the investment climate in the small but dynamic peninsula, which consistently falls in the top tier of measurement and progress indices.

The Korean population is almost 51 million strong, of which fully half live in the capital, Seoul, and its immediate environs. Highly urbanized and educated, Korea is third in life expectancy, eighth in median household income, with a literacy rate of over 97 per cent. It has free trade agreements with three-quarters of the world economies, is the seventh largest exporter and fifth largest importer. It has the fastest internet speed in the world, as well as the world’s highest level of smartphone ownership.

Korea has a strong belief in openness and transparency in government.

According to the 2015 World Bank Doing Business report, South Korea placed fourth out of 189 countries. Not content to sits on its laurels, the Deputy Minister stated “Korea is continuously making efforts to create the world’s best investment environment by carrying out reforms in the four key areas of

Top 10 foreign investors in South Korea since 01/2015 (millions in USD)

Orion Partners Hong Kong

In late September, Building magazine was invited as the only Canadian business media to tour South Korea’s Free Economic Zones, which represent a tantalizing opportunity for foreign investors and builders.

Nomura Japan

24

the economy — the labour market, the public sector, education, and the financial industry. In fact, Korea introduced the Foreign Investment Ombudsman System for the first time in the world to resolve the grievances of foreign-invested companies.” With respect to the country’s reputation among the foreign investment community, it is worth noting two other metrics: Korea was named the world’s most innovative country by the Bloomberg Innovation Index; and most recently Standard & Poor upgraded the country’s credit rating from AA- to AA, with a stable outlook.

On this last and important point, the Minister explained “...strong economic growth, continuous improvement of external soundness, [and] sufficient fiscal and monetary room as the reason for the upward revision. This rating is the same with that of advanced economies like France and the U.K. Given the downward revision trends of national credit ratings across the globe, it is no exaggeration to say Korea’s strong economic fundamentals are being highly recognized by the world.”

In order to showcase those fundamentals, over the past decade Korea has rolled out the framework for a series of Free Economic Zones (FEZ), designed to promote investment and business development from foreign companies and governments.

The Zones are dedicated to providing a business-friendly environment to multinationals through a combination of infrastructure clusters, taxation and regulation incentives, and smooth administrative services, as well as attractive living scenarios for employees and families. The ultimate goal is to make Korea the business hub of Northeast Asia.

FEZ Hopping As part of the showcase of the country and its opportunities, arrangements had been made for a small contingent of journalists and site inspectors to tour several of the FEZs. A Korean Air Airbus 321 departed Seoul’s Gimpo airport shortly after sunrise to deposit us in Busan, in the country’s southeastern corner. The flight was a few minutes less than an hour, and I reflected on the short internal transport building.ca

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distances as well as how proximate the country was to other major centres of commerce, banking, and industry.

From Seoul, Tokyo and much of Japan is under two hours’ flight time, likewise Shanghai, Beijing, most of coastal (and manufacturing) China and the Russian port city of Vladivostok.

Taipei is a little over two hours, and even the financial centre of Hong Kong is still only three hours away. Over a quarter of the world’s population lies in

A CLOSER LOOK: SEOUL Seoul’s popularity has risen dramatically in recent years, reflecting higher investor interest in Asian gateways offering core product.

According to one broker: “I love Seoul right now; I think it has bottomed out. Vacancy rates are starting to tighten, and we’re seeing a huge pickup in investment inquiry by foreign funds in Seoul.” While South Korea is not an easy place for foreign funds to operate given the monopolistic tendencies of the chaebols, it does offer “some natural inefficiencies” that provide resourceful fund managers scope for profit.

Stabilized assets are thin on the ground, therefore, because of competition from large local institutions. At the same time, assets that require repositioning offer better prospects. One fund manager gave an example of a corporate restructuring where assets come onto the market as part of a saleand- leaseback deal: “In that case, if there’s a willingness to either back yourself with the leasing with a good asset management team, or back yourself on doing some refurbishment, it could be a good deal. Obviously a very asset-specific opportunity, but where you believe the fundamentals still support rental growth I think that’s an opportunity that perhaps the locals can’t always bid for.”

Development is not a play traditionally pursued by foreign investors in South Korea, but a build-to-core strategy is also a potentially profitable approach for equity investors given Seoul’s lack of en bloc buildings.

Logistics is another area where foreign investors are looking for deals in South Korea.

This can be a tricky space to break into given that the industry has historically been dominated by local conglomerates who prefer to do business with each other rather than with outsiders. That said, as one fund manager said: “There’s a huge need for modern logistics, and none of the big guys are there yet.”

This leaves scope for foreign opportunistic funds to develop logistics facilities using joint ventures with large local players.

The preceding is an excerpt from PwC/ULI’s Emerging Trends in Real Estate Asia Pacific 2017.

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Northeast Asia, and the region generates almost 20 per cent of the world’s GDP. Being peninsular, the country also has immediate access to the global sea lanes and has invested heavily in maritime and port infrastructure. Busan, where we had just landed, has the country’s principal deepwater port, one of the 10 largest in the world.

We were bused to the BJFEZ, the Busan-Jinhae Free Economic Zone, to hear a short presentation on the future plans of this particular region. We were greeted by the investment promotion director, Peter H.J. Kwon, wearing black-rimmed glasses and a stylish blue shirt. He offered us umbrellas against the mild drizzle. We climbed the stairs of a short observation tower and after enquiries about the journey he indicated the wide expanse of land under development, over 32 square kilometers. “There will be the city hall and administrative offices, and [beyond] that, where you see the white structures, will be the medical complexes,” he said.

We were short on time and he gave a quick rundown of the main statistics of the BJFEZ: a new port being developed; a new port railway for cross-country freight and well-established and mature industry clusters in the immediate vicinity; aviation, shipbuilding, automotive, among others. The project is slated for completion by 2020 at a cost of almost 10 trillion won. From an investment standpoint, the BJFEZ offered substantial tax incentives, education and training subsidies, relocation support and cash grants. The director went on to highlight the planned living situation, with housing and educational, administrative and medical infrastructure for the employees and their families. He even referenced the year round mild climate, and in the soft rain, the setting seemed idyllic.

Next stop, the Daegu-Gyeongbuk Free Economic Zone (DGFEZ), and another briefing, this time inside with PowerPoint slides and an engaging presenter. He spoke specifically about a planned luxury golf course and resort that would be built against the coast. He spoke with passion and enthusiasm, and the scope of infrastructure was compelling. This was merely one development among a myriad. At a macro level, the DGFEZ was planning on several field-specific districts, including the Suseong Medical District, a healthcare cluster establishing medical centres and scope for foreign medical tourism; and the Geyongsan Knowledge Industry District, with a focus on development and building of construction equipment and medical devices. The local human resource pool was impressive; the region is home to over 50 universities and colleges, generating 70,000 graduates annually, 17,000 of whom had engineering backgrounds.

The day prior we had visited the YES FEZ (Yellow Sea Free Economic Zone) and the day after were slated for the Incheon FEZ, near Seoul’s main international airport. At all regions the briefing packets were glossy, detailed, and open, with data and testimonials. As we moved to board the bus to go to the next site, the obligatory photo op presented itself, and all the dignitaries and our crew lined up. The prevailing attitude across all the sites was earnest. Everyone was genuine, welcoming and sincere, wanting the investors and journalists to like the country. But the sincerity was backed up by numbers and data, and in the mild air, it was hard not to be convinced by both. b

25

Most active Asia Pacific commercial real estate markets / 1st half 2016 2015 1H16

Metro area

1

1

Tokyo

8,628

3

2

Hong Kong

6,822

7

3

Singapore

4,194

2

4

Sydney

2,996

-50

5

5

Shanghai

2,421

-63

4

6

Melbourne

1,830

-67

6

7

Seoul

1,602

-17

Sales volume (millions in USD)

% YOY change -52 17 35

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26

V I E W Walk With Joy Photo by Roy Gaiot

ULI Toronto’s Executive Director believes John Tory’s road tolls proposal may be his “Nixon to China” triumph

By Richard Joy Whatever the ultimate outcome of Toronto Mayor John Tory’s massive political gamble to propose road tolls on the city’s two expressways, it exposed something quite remarkable: Toronto’s coming of age.

For years Toronto’s social and business leaders spun themselves in circles seeking an elusive tax solution to propose to our politicians. Many bold offerings came forth by some of the most counter intuitive organizations, ranging from the boards of trade and chambers of commerce to automobile lobbyists to various industry groups. And not one, but two provincial reports advanced recommendations, as did a City of Toronto staff report.

But never was there a general consensus reached. Every group of politicians had an issue with another’s proposal.

Public opinion never crossed a threshold of political comfort. And not surprisingly, at each and every potentially pivotal moment our elected officials balked, retreating to the political safety of officiation.

We may have to wait for his memoirs to fully understand the political calculus that convinced Mayor Tory to pick the most controversial of all possible taxes to levy on a largely car loving electorate. Maybe it was blind gamble. Perhaps it was a legacy play of a popular mayor that simply cared less about the politics. Whatever the rationale, the response from the array of aforementioned civil society leaders and general public has been remarkable.

No one would claim the proposal approached perfection. It hardly papers-over the grotesquely expensive Scarborough subway. The quantum of dollars it is expected to yield would take a century to cover the $30-billion backlog of unfunded capital commitments, including the controversial replacement of the eastern Gardiner. It does little to address the ever growing social inequity of our city. And as a very low (two dollars) flat fee, it can’t be expected to discourage peak rush hour congestion or encourage a significant shift to transit. Such shortcomings could be cause for the proposal’s unraveling.

But as a measure of our city’s evolution, there is resistance to the perfection-as-the-enemy-of-the-good critique.

There is a sense that if we can’t rally behind a fiscally conservative mayor on such a proposal, who could we ever rally DECEMBER 2016 JANUARY 2017

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behind? It can’t be forgotten that even left-leaning mayoral candidate, Olivia Chow, was opposed to significant new taxes, and were she elected, could she ever have changed course as Tory has and propose them? And if she did, could she have pulled the vote in Council?

In this context, Tory is asserting a leadership role that was uniquely his to take — a “Nixon to China” move that surprised most civic leaders. In doing so our civic leaders also surprised us. Within a week, a lineup of stakeholders from the Toronto Region Board of Trade, academics, industry associations, environmental groups, urban advocates, civil society organizations and citizen groups swung in behind the mayor with their support. Amazingly too, early public opinion polls have demonstrated strong support for the road toll proposal. Never before had such polling tipped over 50 per cent. Torontonians were clearly waiting to be led, recognizing that opposition was a recipe for the city slipping further behind on its growing infrastructure needs.

Significantly, given the recent opportunity to vote on similar proposals against a backdrop of much the same infrastructure presRichard Joy is Executive sures, Vancouverites rejected them.

Director of ULI Toronto.

But in this instance, municipal politiPreviously, he served as cians were not able to advance their Vice-president, Policy and leadership due to the requirement of Government Relations at the B.C. government for a referendum. the Toronto Board of Queen’s Park, on the other hand, is givTrade, and was the ing its big city government the autonoDirector of Municipal my to decide.

Affairs and Ontario While a tax move is never a done deal (Provincial Affairs) at until the final vote (which may be at the Global Public Affairs. ballot box in the 2018 municipal elecFollow him on Twitter tions), empowered with authority, em@RichardJoyTO or email boldened by his convictions, and enat Richard.Joy@uli.org couraged by the support, Mayor Tory may have pointed our city toward a new era of maturity and accomplishment.

Toronto is showing that it is ready to do more for itself as a confident global city should. b

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