Building October November 2012 by IQ Business Media

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CONTENTS

24 Features 18 – Tricky Math / The P3 rage has swept across the country, promising what many believe is the solution to our infrastructure deficit woes. But are they really the best response?

28 – The Cost of Staying Still / Even as parking rates in Canada continue to climb, parking lot owners and operators are looking at innovations that could change the way we park.

By Rhys Phillips

By Peter Sobchak

24 – Tripping the Light Fantastic / Unassuming and quiet by day, the new Ryerson Image Centre’s LED lighting system transforms all four sides of the building into a work of frenetic, joyful art that banishes the night. By Peter Sobchak

Departments

26 – The Strata Creep / The micro-climate of Vancouver notwithstanding, the existence of strata industrial and office properties are relatively sparse across the country. But that may be changing as developers respond to the needs and desires of tenants who are beginning to see the advantages of owning where they work. By Peter Sobchak www.building.ca

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6 – Online Content 7 – Editor’s Notes 9 – Upfront 14 – Market Watch 16 – Legal 30 – Viewpoint

ABOVE IMAGE: The Ryerson Image Centre, designed by Diamond Schmitt Architects, is a 4,500-sq.-ft. museum-standard facility capped by doubleskin glass cladding around the top of the three-storey building that conceals a programmable LED lighting system. Photo by Tom Arban OCTOBER/NOVEMBER 2012 BUILDING 5

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Life after the back cover…

what’s on BUILDING.ca Read

10 Timeless Hotel REIT Rules Despite the listed lodging sector in Canada becoming meaningfully decreased in size over the last few years, there are still opportunities for public investors. Michael Smith, managing director of real estate at Macquarie Securities Group, explains key concepts for investing in this real estate sector.

Construction Site Safety – The Building Blocks for Project Success Accidents on construction sites continue to affect the success of major construction projects across Canada. Rob Cruickshank, Underwriting Director for Property, Construction and Engineering at RSA Canada outlines important steps to take to mitigate potential losses.

Watch

Attend

Take a virtual tour of the Phase II Development Block 25 of the Regent Park Revitalization in Toronto, which is a combination of public and private interests that are working to give what is Canada’s largest social housing development a new life. Video courtesy of TCHC 2nd Annual Summit on Innovations in Public Consultation and Engagement / November 7-8 / Toronto Design Like You Give a Damn: LIVE! / November 12-13 / San Francisco, California Architect as Developer: Building the Infill House Alternative / November 22 / Cambridge, Ont. Construct Canada 2012 / November 28-30 / Toronto

6 BUILDING OCTOBER/NOVEMBER 2012

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Enterprise Asset Management David Bowcott, senior vice-president and national director of large/strategic accounts at AON Reed Stenhouse Inc., provides his perspective on wholelife approaches to managing a project, and what it means for building and infrastructure in Canada.

“A contractor does not have the same vested interest in a building where the design has been procured by the owner and they have little or no responsibility for lifecycle defects and maintenance.” David Bowcott

Follow Sign up for our weekly e-newsletter, full of fresh news, stories, videos, slideshows and more, only available on our website.

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Volume 62 Number 5 Editor Peter Sobchak Art Director Roy Gaiot Legal Editor Jeffrey W. Lem Contributors Sheri Craig, Rhys Phillips Circulation Manager Beata Olechnowicz Tel: (416) 442-5600 ext 3543 Reader Services Liz Callaghan Advertising Sales Greg Paliouras Tel: (416) 510-6808 Email: gpaliouras@Building.ca Senior Publisher Tom Arkell Vice President, Publishing Business Information Group (BIG) Alex Papanou President, Business Information Group (BIG) Bruce Creighton Building magazine is published by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd. 80 Valleybrook Dr. Toronto, ON M3B 2S9 Tel: (416) 510-6845 Fax: (416) 510-5140 E-mail: info@building.ca Website: www.building.ca SUBSCRIPTION RATE: Canada: 1 year, $30.95; 2 years, $52.95; 3 years, $64.95 (plus H.S.T.) U.S.: 1 year, $38.95 (U.S. funds) Elsewhere: 1 year, $45.95 (U.S. funds). BACK ISSUES: Back copies are available for $8 for delivery in Canada, $10 US for delivery in U.S.A. and $15 US overseas. Please send prepayment to Building, 80 Valleybrook Dr. Toronto, ON M3B 2S9 or order online at www.building.ca For subscription and back issues inquiries please call 416-442-5600, ext. 3543, e-mail: circulation@building.ca or go to our website at www.building.ca Please send changes of address to Circulation Department, Building magazine or e-mail to addresses@building.ca NEWSSTAND: For information on Building on newsstands in Canada, call 905-619-6565 Building is indexed in the Canadian Magazine Index by Micromedia ProQuest Company, Toronto (www.micromedia.com) and National Archive Publishing Company, Ann Arbor, Michigan (www.napubco.com).

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Dormir Avec un Éléphant B

y the time you read this, the coin toss of who will lead America out of its economic malaise – at least the next four years of it – will have been decided. It was interesting to watch, however, that although the economy was clearly the single most important issue in their campaigns, rhetoric about solutions to their housing and real estate woes was not a more visible pillar in the candidates’ stump speeches. Foreclosure signs hanging off the front of houses was the single most visible image of the crisis, and as Dave Liniger, co-founder and chairman of RE/MAX indicated in an open letter to Obama and Romney, “Over 3.5 million homes have been foreclosed on in the last four years, another three million are likely in the next four, one in 213 homes had a foreclosure filing in the third quarter, and over 10.8 million homes remain underwater with mortgages greater than their market value.” But as depressing as that statistic is for homeowners and real estate professionals alike, “market performance in recent months has everyone feeling a bit more optimistic,” said Liniger. That optimism is being seen in several reports that came out ahead of the election about America’s real estate recovery: in a nutshell, it is set to advance in 2013 as modest gains in leasing, rents, and pricing will extend across U.S. markets from coast-to-coast and improve prospects for all property sectors. According to the Emerging Trends in Real Estate 2013 report, released by PwC US and the Urban Land Institute, despite a slower-than-normal real estate recovery track, U.S. property sectors and markets will register noticeably better prospects as compared with last year. Recent job creation should be enough to increase absorption and push down vacancy rates in the office, industrial, and retail sectors, helped by the limited new supply in commercial markets. Even the housing sector should make progress in most regions, and demand and interest in apartments in “American infill” locations remain attractive, leading to a boom in apartment development. “With the outlook for commercial real estate continuing to improve in 2013, investors are expected to allocate substantial sums of capital to the real estate asset class, according to our survey respondents” said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. A healthy real estate industry has the ability to promote a stronger overall recovery. But it will take real political leadership in the White House and Congress to acknowledge this fact and take the appropriate steps, such as (according to RE/MAX) having the Debt Relief Act extended, reasonable lending standards established, housing-specific provisions of Dodd-Frank re-examined, and the mortgage interest deduction untouched, measures all intended to help the residential market, which is important because, as indicated in the ULI report, they provide better commercial real estate options since a housing sector recovery generates more jobs, and demand for vacant commercial real estate. At the same time, banks will free up funding and a multiplier effect ensues. There will be no quick turnaround for American real estate, but it is improving. Stephen Blank, ULI’s senior resident fellow for real estate finance, noted that investors must keep in mind recent progress made in the industry as they prepare for a slow but steady recovery. “What these findings suggest is that, in general, the industry is moving forward bit by bit, [and] those who are patient and willing to rethink their expectations and adapt to market realities are the most likely to come out ahead next year.” While watching the run for the U.S. presidency this year was at turns entertaining and concerning (like most television), it would be a mistake to not realize the recovery road ahead for this elephant will have repercussions for us too. To paraphrase Pierre Trudeau’s famous address to the Press Club in Washington, D.C. in 1969, we are “affected by every twitch and grunt.”

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Peter Sobchak

| Editor

We welcome your feedback. Send your questions and comments to psobchak@building.ca OCTOBER/NOVEMBER 2012 BUILDING 7

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Upfront OctNov.indd 8

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UPFRONT

Canadian housing market to moderate in 2013

OTTAWA According to Canada Mortgage and Housing Corporation’s (CMHC) third quarter 2012 Housing Market Outlook, Canada Edition, the country’s new and existing home markets are expected to moderate through the end of 2012 and into 2013, “[A]fter showing sustained activity levels, specifically in the multiples segment, over the first half of 2012,” said Mathieu Laberge, Deputy Chief Economist for CMHC. “Balanced market conditions in most local housing markets will result in a slowing in house price growth as well,” On an annual basis, housing starts will be in the range of 196,800 to 217,000 units in 2012, with a point forecast of 207,200 units. In 2013, housing starts will be in the range of 173,000 to 207,400 units, with a point forecast of 193,100 units. Existing home sales will be in the range of 442,300 to 485,200 units in 2012, with a point forecast of 466,600 units. In 2013, MLS sales are expected to move up in the range of 440,500 to 487,600 units, with a point forecast of 469,600 units. The average MLS price is forecast to be between $351,300 and $378,400 in 2012 and between $358,000 and $395,800 in 2013. CMHC’s point forecast for the average MLS price is $368,000 for 2012 and $377,300 for 2013.

Vancouver office tenants sacrificing building quality for rapid transit access

VANCOUVER Office tenants are sacrificing building quality for convenient access to rapid transit and demand for this space will continue to grow, says Jones Lang LaSalle’s semi-annual Vancouver Rapid Transit Office Index. Class B and C office buildings that are located within 500 metres (the “RTI”) of rapid transit hubs are outperforming www.building.ca

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Class A buildings located outside the RTI. Overall Metro Vancouver vacancy rates are almost twice as high at buildings further than 500 metres away from a rapid transit station. “The trend for choosing proximity to transit over building quality is not abating,” said Norm Taylor, senior vice president at Jones Lang LaSalle. “Owners of offices with close proximity to rapid transit are enjoying the benefits of higher capital valuations in addition to lower vacancy rates and higher net rental rates, while tenants are choosing location, location, location.” The report finds that there is an average rental premium of 22.8 per cent for transit oriented office space in Vancouver, Burnaby and Surrey. Total vacancy levels within the overall Rapid Transit Index are at 6.5 per cent, down from 8.9 per cent when the inaugural report was published in Q4 2011. “We have found that buildings near

and ORTI at 5.5 per cent. However, demand for Class B RTI space in Vancouver is higher than the better quality Class A ORTI office space. Rental premiums reflect this as average asking rents in Class B Vancouver RTI space have reached $25.32 per square foot versus Class A ORTI space which is set at $22.72 per square foot.

Corix Langley Gateway facility wins “Industrial Development of the Year” award

VANCOUVER The newly-constructed Corix Langley Gateway facility, designed by Vancouver-based Wesgroup in North Langley, has been awarded “Industrial Development of the Year” at the 2012 NAIOP and Business in Vancouver Commercial Real Estate Awards of Excellence. The 80,000-sq.-ft. building spans two floors on five acres of land, and includes a warehouse and fabrication shop. A Geo-

Corix Langley Gateway facility, Vancouver

Canada Line stations have the lowest vacancy rate at 3.2 per cent, followed by the Expo Line at 5.8 per cent and then the Millennium Line at 10.7 per cent,” added Taylor. “The largest RTI vacancy decline over the last two quarters was a 4.1 per cent drop seen in New Westminster, where the ORTI (outside 500 metres) vacancy rate at 23.4 per cent is seven times higher than the RTI rate.” Transit oriented office space is particularly scarce in Surrey, where vacancy rates for RTI offices reside at 1.2 per cent versus an ORTI vacancy rate of 26.5 per cent. In Vancouver, the gap is narrowing, with total RTI vacancy at 4.6 per cent

Exchange system is used to heat and cool the building, and is comprised of 42 heat pumps inside the building and an external ground loop of 48 wells, 168 feet deep, connected with three miles of HDPE pipe. The building also has automatic light sensors, high efficiency hand dryers in the washrooms, and a large capacity storage tank for recycled water which is used to test parts of water treatment systems fabricated on site. “The facility has allowed us to centralize operations and employees from four branches previously located in Coquitlam, Surrey and Langley, reducing commute times,” said Jack Touhey, VP of Public and Government Affairs for Corix. OCTOBER/NOVEMBER 2012 BUILDING 9

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UPFRONT

FTQ-Construction and CEP propose new Canadian Construction Unions Council

MONTRÉAL FTQ-Construction and the Communications, Energy and Paperworkers Union of Canada (CEP-FTQ) are proposing a new Canada-wide entity to their members: the Canadian Construction Unions Council (CCUC). The new organization will allow recruitment of members across Canada in periods of labour shortages to promote mobility and subsequently increase job stability. The CCUC will be the largest group of unions in the country within the construction sector, representing 80,000 workers. It will not only become a major actor on all large construction sites in Canada but also promote sharing best practices between workers of various provinces, as well as labour mobility in times of shortages, with priority to local workers. The CCUC will also be the first Canada-wide construction union organization with no ties to the United States. When FTQ-Construction was created in 1980, its affiliated unions had closed the door to American unions in Canada. “In order to counter the effect of labour shortages, the two labour organizations want to offer greater mobility to their members and thus contribute to full-time employment,” said FTQ-Construction president Arnold Guérin. In Québec, the average number of hours worked in construction is only 900 while 1,800 would be required for the equivalent of a full-time job.

Aggregate certification groups merge

TORONTO Two not-for-profit organizations, both focused on developing voluntary social and environmental certification systems for the aggregate industry in Ontario — the Aggregate Forum of Ontario (AFO) and Socially and Environmentally Responsible Aggregate Canada (SERA-Canada) — have joined forces in what Bill Galloway, senior vice-president

at Holcim Canada Inc. and a SERA Canada board member calls “the right thing to do at the right time.” The two organizations will merge their Boards to establish a single environmental and social certification system for responsible aggregate extraction, siting and operations in Ontario, and bring together the strengths of SERA’s draft standards and standards development process with that of AFO’s sector knowledge and previous work on the design of a credible certification system. “Our number one priority is a certification system that has the support of progressive industry companies, environmental NGOs and local community organizations. Bringing these voices together and sorting through their differences of opinion is the only way we will establish durable and usable voluntary standards for siting and operations,” says Ron Reid, program coordinator for the Couchiching Conservancy and Co-Chair of the Aggregate Forum of Ontario. The Standards Development Panel and its work to date will be carried forward by the merged organization, with up to four additional participants being added to fill gaps in the panel representation. Recent research completed by Deloitte on the details of a certification program will be reviewed in detail by the new board.

HOOPP named Best International Real Estate Investor

TORONTO The Healthcare of Ontario Pension Plan (HOOPP), with a real estate portfolio valued at $6 billion, has won four Investment & Pensions (I&P) Real Estate awards, including Best Real Estate Investor, Best Large Real Estate Investor, Best Innovation, and Best Institutional Investor (Other) in the London, England-based awards competition. This was the first year that I&P Real Estate awards were open to real estate investors from outside Europe. “Real estate delivers steady, inflation-sensitive income, with the potential

for long-term capital appreciation, which makes it an ideal match for our stakeholders,” says Michael Catford, vice president, Real Estate. HOOPP’s properties portfolio makes up 11.5 per cent of their $40.3 billion in assets, and they have recently expanded into the European market with a development at St. James’ Gateway in London, and the recently opened Nova Karolina mall in Ostrava, Czech Republic.

HIP and Kasian to merge

EDMONTON Kasian Architecture Interior Design and Planning Ltd., one of Canada’s largest global architecture, interior design and planning firms, has announced it will merge HIP Architects into its existing operations. Originally founded in 1938, the Edmonton-based practice is responsible for many Edmonton buildings including the Art Gallery of Alberta, the Commonwealth Community Recreation Centre and the Sturgeon Community Hospital Expansion. Under the terms of this agreement, HIP partners Stewart Inglis and Randy Krebes will become principals with Kasian. In addition, 15 members of HIP staff will transfer to Kasian’s Commerce Place headquarters in Edmonton. Craig Henderson of HIP will continue in his position as Senior Consultant assisting with business development for emerging key clients and providing design leadership on new projects. “We are committed to maintaining a large presence in Edmonton, the birthplace of our company,” noted Don Kasian, president of Kasian. “Together we will continue to provide an attractive and exciting company for our employees and seek new opportunities to grow the Kasian brand throughout Alberta,” said Jim Ebbels, Kasian’s managing senior principal in Edmonton.

LEED-certified building stock swells to two billion square feet worldwide

WASHINGTON, D.C. The U.S. Green Building Council (USGBC) announced that the total footprint of commercial

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ket . . average . . . . . rent . . . of . . $686 . . . .per . . suite . . . .which . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .is. being . . . . purchased . . . . . . . at . . an . . attractive . . . . . . price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .per . . suite . . . .of. .approximately . . . . . . . . . $67,000, . . . . . . well . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .below . . . . replacement . . . . . . . . . cost,” . . . . .said . . . Daniel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Drimmer, . . . . . . Chair . . . . of . . the . . Board . . . . .of. Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .of. the . . .REIT . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Temple . . . . . . REIT . . . . to . . .become . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .a. corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . .has . . an. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .WINNIPEG . .. .. .. .. .. .. .. .. .. .. .Temple . .. .. .. . . REIT . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. the .. .. .. REIT .. .. . . .and . . .its. . affili. . . . . .feet . . . of . . outdoor . . . . . . living . . . . space . . . . .equipped . . . . . .. .. .nounced . .. .. .. .. .. ..that . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. TR .. .. ..Trust, .. .. .. . Temple . . . . . Limited . . . . . . . .with . . . bars, . . . . outdoor . . . . . .kitchens . . . . . . and . . .living . . . .. .. .ated . .. .. ..entities, . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. ..Temple .. .. .. . . General . . . . . . Part. . . . . .areas, . . . . even . . . .a . rooftop . . . . . infinity . . . . . .pool, . . . .are . .. .. .Partnership . .. .. .. .. .. .. .. ..and . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .as .. .. .. as .. ..a..newly .. . . . incorporated . . . . . . . . . . .just . . some . . . . of . .the . . possibilities. . . . . . . . . . . . . . . . .. .. .ner . .. .. Inc., . .. well . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. . . . . Hotels . . . . .Inc.” . . . . . . .“Over . . . . the . . .last . . few . . .years, . . . .Toronto . . . . . .has . .. .. .corporation . .. .. .. .. .. .. .. .named . .. .. .. ..“Temple . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. ..to.. .the .. .. . . . . .conversion . . . . . . . . .seen . . . a. . growing . . . . . . demand . . . . . . for . . .high-end . . . . . .. .. .have . .. .. .. agreed . .. .. proposed . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .REIT .. .. . to . . a. corporation . . . . . . . . . .condo . . . . residences . . . . . . . ranging . . . . . between . . . . . . 1,000 . . . .. .. .of . .. the . .. .. .. .from . .. .. ..a..trust . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. . plan . . . of . . arrange. . . . . . . .to. .10,000 . . . . square . . . . .feet,” . . . .says . . .Hunter . . . . .Mil. . .. .. .pursuant . .. .. .. .. .. ..to.. .a. ..statutory . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .the .. .. .. .. . Business . . . . . Corpora. . . . . . . .borne, . . . . president . . . . . . of . . Milborne . . . . . . Real . . . .Estate . . . .. .. .ment . .. .. .. under . .. ..Canada . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. (.CBCA . . . . . . . will . . . be . . . .Inc. . . .“It’s . . .no . . longer . . . . .an . . exception . . . . . . .to. sell . . .. .. .tions . .. .. ..Act . .. .. .. .).. .The . .. .. ..conversion . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. ..unitholders .. .. .. .. .. .. . .of. the . . .REIT . . . .for . . . .a. $4 . . million . . . . . condo . . . . .and . . as . . more . . . . Toron. . . . .. .. .presented . .. .. .. .. .. .. to . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. . . . . . and . . . if. ap. . . . .tonians . . . . . trade . . . .in. .their . . . large . . . .homes . . . . for . . . a.. .. .approval . .. .. .. .. .. .at . .. a.. .special . .. .. .. .. meeting . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. conversion .. .. .. .. .. .. .. . will . . .result . . . .in. the . . . . .luxury . . . . ‘turn-key’ . . . . . . .lifestyle . . . . . this . . .reality . . . . will . . .. .. .proved, . .. .. .. .. ..the . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . into . . . .a . new . . . . .continue . . . . . .to. grow.” . . . . . . . . . . . . . . . . . . .. .. .reorganization . .. .. .. .. .. .. .. .. .. .of . .. .the . .. .. REIT . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .corporation . .. .. .. .. .. .. .. .called . .. .. .. .Temple . .. .. . . .Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. .. .. . 68 . . .GE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .Cominar . .. .. .. .. .. .. .. acquires . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .Capital . .. .. .. .. .. ..assets . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .True . . . . North . . . . . Apartment . . . . . . . . . .REIT . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. ..Cominar .. . . . . . REIT . . . . has . . . . .acquires . . . . . . . .a. 26-property . . . . . . . . . . . . . . . . .. .. .QUÉBEC . .. .. .. .. .. .. ..CITY . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. .. of .. . 68 . . properties . . . . . . . in . . . .portfolio . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .acquired . .. .. .. .. .. ..a..portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . GE . . . Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .Montréal . .. .. .. .. .. .. .and . .. .. .Ottawa . .. .. .. .. . from . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. ..Estate’s .. .. .. .. .. Canadian .. .. .. . . . . equity . . . . plat. . . . . .TORONTO . . . . . . . . . . True . . . .North . . . . Apartment . . . . . . . .. .. .ital . .. .. Real . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. .. .. .a. ..total .. . . of . . 4.3 . . .million . . . . . . .REIT . . . . has . . . acquired . . . . . . .a . portfolio . . . . . . .of. . 26 . .. .. .form, . .. .. .. ..comprising . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. The .. .. .. .portfolio . . . . . of . . 14 . . . .properties . . . . . . . comprising . . . . . . . . an . . aggregate . . . . . . . of . .. .. .square . .. .. .. .. feet. . .. .. .. . . .consists . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. ..million .. . . . . square . . . . .feet) . . . . .2,076 . . . .suites, . . . . currently . . . . . . .owned . . . . and . . . oper. . . .. .. .office . .. .. .. .buildings . .. .. .. .. .. ..(1.5 . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. vacant .. .. .. .. .land .. . . . (3.4 . . . acres) . . . . in . . . .ated . . . by . .Blue-Starlight . . . . . . . . . LP . . , .an. .entity . . . .con. . .. .. .and . .. .. one . .. .. ..parcel . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. office .. .. .. ..properties .. .. .. . . . . (1.2 . . .million . . . . . . .trolled . . . . .by . .Daniel . . . . .Drimmer. . . . . . . .The . . . REIT . . . .. .. .Ottawa, . .. .. .. .. .. 23 . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .and .. .. industrial .. .. . . . . . properties . . . . . . . . .acquired . . . . . . the . . .property . . . . . . portfolio . . . . . . by . . .ac. .. .. .square . .. .. .. .. feet) . .. .. 23 . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. square .. .. .. .. .. .feet) . . Montréal . . . . . . . . .quiring . . . . . control . . . . . of . .Blue-Starlight . . . . . . . . . for . . .the . .. .. .(1.3 . .. .. ..million . . . . in . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .properties . . . .thousand . . . . . . . .price . . . .of. .$138.95 . . . . . million, . . . . . . a. .transaction . . . . . . .. .. .and . .. .. ..4.. office . .. .. .. .. .. . . (200 . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. ..and .. .. ..3.. industrial .. .. . . . . . properties . . . . . . . . .that . . . more . . . . than . . . doubles . . . . . . the . . .number . . . . . of . .. .. .square . .. .. .. .. feet) . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .. .. .. .. .. .feet) . . . in . . Québec . . . . . . . .rental . . . . suites . . . . .under . . . . management . . . . . . . . . from . . . .. .. .(53 . .. .. .thousand . .. .. .. .. .. .. square . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .1,657 . . . .to. .3,733 . . . .units. . . . The . . . .properties . . . . . . .are . .. .. .City, . .. .. .. all .. .. for .. .. ..the .. .. purchase .. .. .. .. . . .price . . . .of. $697 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .located . . . . . in. .Ontario, . . . . . .New . . . Brunswick . . . . . . . and . . .. .. .million. . .. .. .. .. .. .The . .. .. ..acquisition .. .. .. .. .. . . . will . . . increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .Nova . . . .Scotia . . . .and . . were . . . .originally . . . . . . acquired . . . . . .. .. .Cominar’s . .. .. .. .. .. .. ..asset . .. .. ..by .. .. .. .base . . approximately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .by . .Blue-Starlight . . . . . . . . . in . .connection . . . . . . . with . . . .the . .. .. .14 . .. .per . .. ..cent .. .. .. to .. ..35 .. ..million .. .. .. . .square . . . . feet . . . and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .privatization . . . . . . . . .of. TransGlobe . . . . . . . . .Apartment . . . . . . .. .. .has . .. .. a.. .meaningful . .. .. .. .. .. .. .. impact .. .. .. . . on . . .the . . REIT . . . .’s. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .Real . . . Estate . . . . Investment . . . . . . . .Trust. . . . . . . . . . . .. .. .geographic . .. .. .. .. .. .. .. ..diversification .. .. .. .. .. .. . . . . profile, . . . . . .in. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . .“This . . . . represents . . . . . . . a. unique . . . . . opportun. . . . . . .. .. .creasing . .. .. .. .. .. .its . .. ..Ontario .. .. .. .. .. ..net . . .operating . . . . . . .in. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .ity . . for . . the . . . REIT . . . . to . . take . . . advantage . . . . . . . of . . a.. .. .come . .. .. .. .contribution . .. .. .. .. .. .. .. .. from .. .. . .five . . per . . . cent . . . to . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .high . . . quality . . . . . portfolio . . . . . . .with . . . below . . . . .mar. . . . 11 . . per . . . cent. . . . .B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.building.ca . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-11-06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

UPFRONT

projects certified under its LEED green building program surpassed two billion square feet. An additional seven billion square feet is currently in the pipeline across the globe as registered projects. “In communities around the globe, leaders from every sector of the building industry are reinventing their local landscapes with buildings that enliven and bolster the health of our . . environ. . . . . . . . . . . . . . ment, communities and local . . . . econ. . . . . . . . . . omies,” said Rick Fedrizzi,.. ..president, . . . . . . . . . . . . . . CEO and founding chair, USGBC . . . .. . . . . . . . . . . . . As the most widely recognized . . . . . .and . . . . . . . . . . used green building program, . . . . LEED . . . . . . . . . . . . is certifying two million square . . . .feet . . .of. . . . . . . . . commercial building space each . . . .day . . .in. . . . . . . . . more than 130 countries. Today, . . . .nearly . . . . . . . . . . . . 50,000 commercial projects are . . currently . . . . . . . . . . . . . . participating in LEED, comprising . . . . . nine . . . . . . . . . . . billion square feet of construction . . . . space. . . . . . . . . . . . . Since the beginning of July, . . over . . . .300 . . . . . . . . . . projects have earned LEED certification . . . . . . . . . . . . . . . . in more than 20 countries worldwide. . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . Joe Brennan to build “custom . . . . . . . . mansions in the sky” .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . TORONTO Camrost-Felcorp . . . . is. .try. . . . . . . . . ing to capture the high-end.. penthouse . . . . . . . . . . . . . . . real estate segment in Toronto . . .through . . . . . . . . . . . . . a partnership with custom home . . . . build. . . . . . . . . . er and designer Joe Brennan ..of.. Brennan . . . . . . . . . . . . . . Custom Homes, who will provide . . . . . pur. . . . . . . . . . chasers with an opportunity.. to . . custom . . . . . . . . . . . . design up to 10,000 square ..feet . . .of. .up. . . . . . . . . . scale living space. This partnership . . . . is . .be. . . . . . . . . . ing applied to Camrost-Felcorp’s . . . . trans. . . . . . . . . . . . formation of the former headquarters . . . . . . .of. . . . . . . . . Imperial Oil, known as Imperial . . . . .Plaza . . . . . . . . . Sky Penthouses. Built with a.. ..limestone . . . . . . . . . . . . . . façade and welded-steel frame . . construc. . . . . . . . . . . . . . tion, the building is most known . . . . for . . its . . . . . . . . . . dramatic polished marble lobby . . . . hous. . . . . . . . . . . . ing York Wilson’s two mural masterpiece . . . . . . . . . . . . . . . . ‘Story of Oil’. . . . . . . . . . . . . . . . . “Anything you would design . . .in. a. lux. . . . . . . . . . ury home you can have here,”.. says . . . Bren. . . . . . . . . . nan. Double height libraries.. ..with . . . sky. . . . . . . . . . . lights, home theatres with screens . . . . . that . . . . . . . with . . . span entire walls, private ..gyms . . . . . . . . . . . . . . . squash courts, kitchens with walk-in . . . . . pan. . . . . . . . . . . tries, wine cellars, and up to 4,000 . . . .square . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 BUILDING OCTOBER/NOVEMBER . . . . .2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Upfront OctNov.indd 12 . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REIT Round-Up

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8:09 AM

Upfront OctNov.indd 13

12-11-06 8:09 AM

MARKET WATCH

Commercial real estate leaders begin to express caution

TORONTO Though still in positive territory, the third quarter Current Canadian Real Estate Sentiment Index has dropped to its lowest level since 2009, as Canada’s commercial real estate leaders express caution and less optimism today than a year ago in regard to the broader Canadian economy and the prospects for sustained real growth. Sentiment stemming from an unstable international economy has Canadian senior executives taking cautious approaches and wondering if Canada will be next to face financial consequences. The Canadian Real Estate Sentiment Survey, produced by the Real Property Association of Canada (REALpac) and FPL Advisory Group, measures the current and future outlook of Canada’s top commercial real estate executives on overall real estate conditions, real estate asset values, and availability of capital. A broad spectrum of owners and asset managers, financial services providers, building operators and related service providers across Canada are surveyed for this comprehensive report, which includes both qualitative and quantitative findings.

The Q3 2012 survey results show the Overall Real Estate Sentiment Index achieved a ranking of 58, down from 63 in Q2, and 66 a year ago. Scores above 50 reflect positive trends and those below indicate negative trends in questions ranked between 0 and 100. The Q3 marked the twelfth straight quarter in which the overall ranking has been above 50. This quarter, the Current Index is at 60, down from 66 in the second quarter and 64 in Q1. The Future Index also dropped to 56 from 61 in Q2 2012, and in fact, is one of the lowest response rankings since REALpac and FPL began publishing the Index in Q3 2009. The Q3 2012 survey results and interviews with leading industry executives highlight the belief that current commercial real estate market conditions will continue in a balanced and orderly fashion. However, the sentiment expressed was one of caution due to global economic uncertainty. Even as the market begins to plateau, general sentiment is still positive as respondents continue to note solid market conditions. Markets are liquid and healthy, capital is available and well-priced, and the low interest rate environment and aggressive pricing of capital has resulted in a lot of activity in the market. Capitalization rates have reached extremely low levels and many respondents believe that they may have finally bottomed. Real estate is perceived as a relatively safe investment and given the low

REALpac/FPL Canadian Real Estate Sentiment Index

Sentiment

Future Conditions

100 90 80 70 60 50 40 30 20 10 0

2009

Overall

Current Conditions

2010

14 BUILDING OCTOBER/NOVEMBER 2012

Upfront OctNov.indd 14

2011

Q2 2012

interest rates environment investors are driving demand for quality assets. Though some banks and institutional lenders are looking at tightening their debt requirements and becoming more cautious with their lending guidelines, there continues to be an abundance of debt capital available at low interest rates. One industry CEO indicated that while “debt is very cheap … people are still forced to put up equity and make disciplined decisions.” Industry leaders surveyed for the Q3 Index noted the abundance of equity capital. Allocations to real estate by major pension funds continue to be significant and are rising. One executive surveyed captured the sentiments of a majority of others in saying “Too many large players are chasing too few quality assets with lots of money.” As REALpac’s 2012 Policy Briefing outlines, the federal government could increase sentiment by finalizing REIT legislation, originally announced on December 16, 2011, thereby instilling confidence into one of Canada’s strongest industries throughout the economic downturn.

Office occupiers have dwindling options in the face of tight availability

TORONTO The outlook for corporate office occupiers continues to be challenging due to shrinking office vacancy in the face of a relatively robust leasing market and a dearth of new completions, according to CBRE Limited’s Mid-Year Canadian Office Occupier MarketView. A good number of Canadian companies — in particular, those focused in growth sectors such as professional services and energy — have been steadily hiring and leasing additional office space in an environment of little new supply, especially in key Canadian downtown markets. As vacancy rates drop and rental rates rise, it is becoming clear that traditional real estate strategies are likely to leave occupiers in a pinch and strategic planning for real estate needs are imperative. “Consistent with modest economic expansion, the Canadian office market conwww.building.ca

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MARKET WATCH time are creating more open, progressive, inviting and increasingly collaborative work spaces,” according to Judith Amoils, Managing Director of Consulting Services for CBRE. More sophisticated occupiers are improving the alignment between business needs and corporate real estate strategies. Occupiers who develop proactive leasing strategies, integrated with other corporate real estate management functions, will be better positioned to address market conditions. Office market fundamentals will continue to move in favour of landlords through 2012 and into 2013. Recent of-

fice employment data indicates that while weak it is sufficiently strong to keep occupancy levels in the black. The lack of new supply is another important factor in the sustained move towards markets favouring landlords. Unless there is significant economic upheaval, most office tenants will find limited options when their current lease expires or new premises are required. “To a large degree, tenants will have to make do with what they have until new space comes online in late 2014 /early 2015. For some tenants, this will feel like an eternity,” concluded Moore. B

Suburban Supply and Demand Completions

Absorption

Vacancy Rate

12.0%

1.0

8.0%

0.5

4.0%

0.0

0.0%

-0.5

-4.0%

2007

2008

2009

2010

2011

Vacancy Rate

1.5

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

16.0%

SF (Millions)

2.0

2012

Downtown Supply and Demand Completions

Absorption

Vacancy Rate

12.0%

2.0

8.0%

1.0

4.0%

0.0

0.0%

-1.0

-4.0%

-2.0

-8.0%

2007

2008

2009

2010

2011

Vacancy Rate

3.0

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

16.0%

SF (Millions)

4.0

2012

Source: CBRE Ltd.

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OCTOBER/NOVEMBER 2012 BUILDING 15

Mid -

tinues to have lower vacancy and few large contiguous space options in the country’s key downtown markets,” said Ross J. Moore, Canadian Director of Research for CBRE Limited. “Demand for quality space is greater than what is available and relief is unlikely before 2014.” A new development cycle, however, is underway and landlords are jockeying for position in Canada’s major markets. At mid-year, office construction activity in both downtown and suburban markets totalled 15 million square feet (nearly double the 7.9 million square feet underway a year ago), 8.7 million square feet of which was in downtown markets, and more is expected; however, 6.3 million square feet (42 per cent) is located in the suburbs, which shows that suburban markets are far from moribund. The construction of new inventory will provide more LEED certified options in a number of cities, and occupiers are taking advantage. Toronto, Calgary, Montréal and Vancouver all have a number of new office towers underway, but with many of the new builds at least two years from completion, occupiers will be forced to meet their immediate real estate needs in a very challenging environment. The report from CBRE Limited finds that occupiers are beginning to consider alternative office locations and are also re-envisioning their existing space. As 2012 unfolds, the relatively high rents for Class A office space in downtown markets may shift corporate occupiers to consider secondary markets and/or Class B and C office space. For the near-term, office occupiers will have more choice in these markets but this option is not available to all occupiers. If occupiers find the need to grow within their existing space, they are transforming the physical office space using advancements in workplace design and telework. Real estate strategies are increasingly incorporating non-traditional office layouts and uses in order to balance business goals and cost constraints. “Innovative space is no longer just the domain of creative companies. Corporate environments are successfully using less space per worker, but at the same

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LEGAL

Inspectors Get Inspected As regulation in the real estate industry continues to grow across the country, Ontario may be looking to introduce a sheriff to regulate the home inspection industry. By Jeffrey W. Lem and Odysseas Papadimitriou

ary months after having announced a comprehensive public consultation over the Condominium Act, 1998, a key plank of which will be the possible regulation of the province’s condominium property managers, as we reported in the July 2012 issue of Building, Ontario’s provincial government recently announced that it is also undertaking a similar comprehensive public consultation over the potential regulation of the province’s home and property inspection industry. Although it is not yet a part of most pre-printed realtors’ forms of agreements of purchase and sale, the “conditional upon inspection” clause has become quite ubiquitous in arms’ length residential resale deals. A recent online poll conducted by the Toronto Star concluded that almost 40 per cent of all homebuyers “wouldn’t dare buy a house without one.” A telling statistic from the same online poll hints at the probable reason for the government’s recent interest in industry regulation – almost the same number of respondents also noted that they had purchased a home with a “clean” home inspection report, only to discover significant undisclosed defects in the house after closing. Readers of Building are quite aware that the question of industry competence is not new. Mike Holmes, Canada’s iconic home renovation on-air TV personality, recently wrote in The National Post, “I’ve been saying it for years. The home inspection industry is like the Wild West — a lot of cowboys, not a lot of sheriffs.” He elaborates on his lament by noting that “…there are good home inspectors working in the 16 BUILDING OCTOBER/NOVEMBER 2012

Upfront OctNov.indd 16

industry. But we need to take the necessary measures that will make sure there are only good inspectors working in the industry. We can’t afford not to.” Holmes also concludes by advocating that “[t]he rest of Canada needs to get behind this so we’re all on the same page moving forward.” Similarly, Bob Aaron, the prominent and well-respected Ontario real estate lawyer, has been advocating for a number of years for greater oversight in the home and property inspection industry. In a 2009 Toronto Star column, commenting on British Columbia’s then-nascent home inspection licensing legislation, Aaron glowingly endorsed the idea of regulating home inspectors nationwide. Even if Ontario ultimately passes legislation licensing and regulating home and property inspectors, it won’t exactly be breaking new ground in this aspect of consumer protection. In March of 2009, British Columbia became the first Canadian province to implement mandatory licensing of home inspectors. Alberta followed suit in 2011 and Québec is already ahead of Ontario in the consultation and prelegislative diligence process. South of the border, just over half of U.S. states currently require that their home and property inspectors be licensed at the state level. Actually, unbeknownst to many, Ontario already has quasi-governmental oversight of the home inspection industry. A private member’s bill in 1994 established the Ontario Association of Home Inspectors as a non-profit corporation “dedicated to enhancing the technical skills and professional practice of home inspectors, and maintaining high professional standards through education and discipline.” While members of the On-

tario Association of Home Inspectors can use the “Registered Home Inspector” designation, membership is not compulsory -- inspectors can still legally practice their trade without belonging to the Ontario Association of Home Inspectors, so long as they did not hold themselves out as a “Registered Home Inspector.” Ontario’s initiative will, as part of a broader consumer protection plan, consult with home inspector associations, consumers, representatives from the real estate sector and other industry stakeholders on mandatory minimum qualifications for home inspectors. The stated government objective of this consultation process is to come up with legislation that would: 1) increase transparency of the profession; 2) ensure a minimum standard of training; 3) improve consistency in home inspections; and 4) enhance consumer protection. The Ontario initiative seems limited to licensing of home and property inspectors, but in 2002, the Canada Mortgage and Housing Corporation (CMHC) actually commissioned a research report that went one step further. This CMHC research report, now a decade old, considered the benefits of legislating that home inspections be made statutorily mandatory (rather than voluntary) for all resale housing sales. A bold idea at the time, the CMHC report concluded that “[p]re-listing home inspections could benefit sellers, giving them the option of remedying any major problems or adjusting their price” and noted also that “[h]ome inspections are not meant to be used as tools for renegotiation, but this is now often the case. Pre-listing inspections would avoid this problem.” Alas, the CMHC report also concluded (quite accurately in light of the fact that the current government initiative avoids any discussion of mandatory home inspections) that, “unless political interests change significantly, there is no momentum for [mandatory home inspection] to happen. Home inspections are a low government priority…” That said, the consultation process is deliberately amorphous in scope and it is not entirely unimaginable that, since the government is already considering the merits of law rewww.building.ca

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LEGAL form in this area of consumer protection, the conclusions of the 2002 CMHC report advocating mandatory home inspections might yet see the light of day in the form of legislation. While it is too early to tell, there does not seem to be any organization-level resistance to the pending government licensing of home inspectors. Anecdotally, there are some concerns that government competency standards will be set so low that many inspectors with sub-standard skills could get an unintended â&#x20AC;&#x153;reputational liftâ&#x20AC;? in the form of government stamp of approval through licensing. Also anecdotally, there are concerns about increasing transaction costs if all home inspectors now have to be qualified and registered, especially in remote and rural areas where licensed home inspectors will be comparatively rare. While increasing transaction costs is alArriscraft_Building_HalfPage_OctNov2012.pdf 1

ways a concern whenever a government imposes a licensing and regulation regime, these supply-side concerns would be more of an issue in the case of the mandatory home inspections considered in the CMHC report. So long as home inspections are not mandatory, then, presumably, any shortage of licensed home inspectors will be countered, at least in part, by purchasers not insisting on deals conditional upon home inspection (or waiving same if they are already in the offer) in those areas where additional costs and delays imposed by the lack of registered home inspectors outweigh the benefits of the home inspection. As with the Condominium Act public consultation process already underway, there is no set timeline for the home inspection public consultation process, nor are there any promises that legislative reform will necessarily follow. Further9/26/2012 12:31:47 PM

more, the recent prorogation of Parliament threatens to delay both initiatives, although one would have thought that just because Parliament is not sitting, a public consultation process could proceed relatively unimpeded. Then again, perhaps only the truly naĂŻve believe that much government business will get done during prorogation. B Jeffrey W. Lem is a partner in the Toronto/Markham offices of Miller Thomson LLP, a national law firm with 11 offices across Canada. Jeffrey is Certified by the Law Society of Upper Canada as a Specialist in Real Estate and can be reached at jlem@millerthomson.com. Odysseas Papadimitriou is an Associate at Miller Thomson LLP, specializing in all aspects

of condominium law.

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Tricky Ma+h ≥

≠

The P3 rage has swept across the country, promising what many believe is the solution to our infrastructure deficit woes. But are they really the best response?

By Rhys Phillips

10 BUILDING OCTOBER/NOVEMBER 2012

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www.building.ca

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There are two uncontested truths about Canadian

infrastructure: first there is a priority need to upgrade or expand infrastructure at all three governance levels; and second, alternative funding arrangements or public-private partnerships (P3s) are the most cost effective means for achieving timely quality services. But if the first seems irrefutable, does the increasingly accepted second wisdom hold up under scrutiny? If our increasing public infrastructure gap is a reality, how can we respond in an age of governments committed to a smaller public sector and debt reduction? Is the use of P3s the answer? According to the federal government’s Economic Action Plan, the answer is a resounding “yes.” It states categorically that “P3s have demonstrated their ability to produce value for taxpayers in the delivery of public infrastructure…” with demonstrable lower cost to taxpayers. Already in 2008, the Government had established PPP Canada as a federal Crown corporation to promote their use and backed this up with a $1.3 billion P3 Canada Fund for infrastructure renewal and development. It requires that “All [federal] infrastructure projects creating an asset with a lifespan of at least 20 years, and having capital costs of $100 million or more, will be subjected to a P3 screen to determine whether a P3 may be a suitable procurement option.” In addition, all proposals seeking $50 million or more in federal contributions from the $33 billion federal Building Canada Fund or the Gateways and Border Crossings Fund must consider (but not necessarily select) P3 options. This federal initiative, however, already lagged behind most of the major provinces. Ontario (Infrastructure Ontario), B.C. (Partnerships British Columbia), Québec (Infrastructure Québec) and Alberta (Alternative Capital Financing Office of the Alberta Treasury Board) had already established public agencies early in the millennium to develop clear, less ad hoc assessment standards, negotiate and oversee alternative funding agreements and act as P3 proponents. (This last role, however, when coupled with responsibility to be the government’s chief

assessment agency for each proposed project’s value for money, or “VfM,” as compared with a standard public option, has been the source of much criticism.) In a joint release last July, the federal Infrastructure Canada and P3’s most active proponent, The Canadian Council for Public-Private Partnerships, reported that “since the early 1990s, there have been over 100 P3 projects (completed, under construction or in procurement) in jurisdictions across Canada” including 50 hospitals. The 2012 report, Canada’s Top 100 Projects, lists 25 current P3 projects ranging from 12 in the health field, seven public buildings, five in transportation and one transit. “In Ontario,” it states, “every new courthouse is being constructed through a P3 model, usually a design-build-finance-maintain contract.” With discussions underway since 2011 to provide long-term federal funding to provinces and municipalities after the 2014 conclusion of the Building Canada Fund, Paul Moist, president of the Canadian Union of Public Employees (CUPE) said in an interview that there is an expectation that the 2013 federal budget will outline a new infrastructure program that will replace the current “must consider” to “must be” a P3. Equally important, the nature of these arrangements are evolving, now frequently involving not just development and financing but maintenance and operation periods extending 20 to 35 years after construction is completed. While Design/ Build and Design/Finance/Build fall into the broad scope of P3s, Partnerships BC’s 2003 definition is now frequently cited: A public private partnership is a legally-binding contract between government and business for the provision of assets and the delivery of services that allocates responsibilities and business risks among the various partners. In a P3 arrangement, government remains actively involved throughout the project’s life cycle. The private sector is responsible for the more commercial functions such as project design, construction, finance and operations.

The Chief Peguis Trail four-kilometre extension links north Main Street to Lagimodiere Boulevard in northeast Winnipeg. www.building.ca

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Making the Case – or not - For P3s Versus Traditional Public Approaches An early and sometimes lingering argument for the private partner approach is that it provides needed infrastructure without increasing public debt. As the private sector finances the cost and then leases the facility back to the government, so the argument went, the cost need not appear on the books as debt. Partnerships BC maintained in its 2003 document that public model infrastructure projects “have traditionally been funded by the Province and, in many cases, have added to levels of overall debt. But despite the overwhelmingly favourable reviews the P3 P3s can reduce government’s capital costs, helping to bridge the approach receives by governments, private sector proponents gap between the need for infrastructure and the Province’s fiand P3 agencies charged with managing public interest, criti- nancial capacity.” Loxley documents how this argument collapscism from the start has been harsh. For more than a decade, es in the face of standard national and international auditing practices, a conclusion supported by the Conference Board reCUPE has spearheaded a relentless labour attack on most of port that states bluntly “these accounting treatments have been the claimed benefits of alternative funding arrangements. In 2010, two competing in-depth studies emerged with very largely discredited and are now no longer feasible.” One of the more bizarre arguments favouring P3s found in different conclusions. The Conference Board’s self-styled impartial Dispelling the Myths: A Pan-Canadian Assessment of the 2003 B.C. document but still frequently cited, argues that Public-Private Partnerships for Infrastructure Investments con- a “life cycle” approach, e.g. a long term public commitment to cluded that second wave (post 2005) P3s have resulted or would paying a set operation and maintenance fee coupled with perresult in significant cost savings to taxpayers. Limiting its assess- formance standards, ensures assets will be kept in good condiment to post 2005 projects, it argued, ensured assessment of tion. Conversely, governments have a bad habit of only those agreements im- neglecting public assets over time. In other words, fuplemented after provinces ture governments’ flexibility to allocate public funds put in place their sophis- is neatly prescribed and may well distort required exticated agencies. This limit- penditures away from non-P3 capital assets. While ation tacitly seems to recog- Loxley, CUPE and a number of Auditor Generals nize the significant and have suggested that many current performance stansometimes well-publicized dards are suspect, equally compromised is the governproblems with P3s in the ment’s ability to respond to often radically changing previous two decades. These demands such as a decline in the need for a school included, the Conference locked into a 30 year contractual commitment. The “science” of comparing the merits of public Board admits, a failure “to transfer risk to the private versus private models is complex but must start with the premise that all things being equal, the traditional consortium.” The same year, John Lox- approach will have a lower cost. A P3 has two inherley, professor and former ent higher costs, profit to the private sector partner head of the Department of (frequently large multinational infrastructure comVancouver General Hospital’s Academic Economics at the Univer- panies) and higher financing costs as the interest Ambulatory Care Centre. sity of Manitoba in Winni- rate available to government is almost always sigpeg, came to a diametrically opposite conclusion in his book nificantly lower. Loxley also raises the question of Public Service, Private Profits: The Political Economy of Pub- transaction costs or public money spent on the extra legal and lic-Private Partnerships in Canada. Based on a detailed review technical work required to reach P3 agreements but are not of the key concepts used to compare the net cost for a P3 ap- factored into most comparisons. In his Asking the Right Quesproach versus a traditional public option, Loxley found biases tions: A Guide for Municipalities Considering P3s (2012) writthat typically overstate P3 savings. His subsequent extensive ten for CUPE, Loxley cites evidence that P3 transaction costs project analyses dating back to the 1990s and supported by the average 3.5 per cent versus 1.7 per cent for conventional public work of other critical economists, invariably found that in- projects. Again, the Conference Board agrees although without stead of cost savings, P3 projects have added more to public suggesting a quantitative level. Proponents present a number of reasons why, despite the debt than would have the traditional public approach. Significantly, an increasing number of audits by provincial Auditor higher P3 costs, all-in-one infrastructure firms can in fact Generals seem to support Loxley’s findings. build cheaper. These include, according to Partnerships BC, 20 BUILDING OCTOBER/NOVEMBER 2012

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“allowing both sectors to do what they do best… taking advantage of private sector innovation, experience and flexibility…making use of the private partner’s increased flexibility and access to resources” and making better financial use of the asset. Similarly, the Conference Board suggests that lower costs are a function of the ability to determine the most cost-effective delivery practices along with efficiencies garnered from integrating everything from design to operation and maintenance. It adds, however, two big caveats: “there is little empirical evidence of the relative importance of these two efficiency drivers. As well, both these efficiency drivers can be adopted in conventional forms of contracting, provided that care is taken to specify the desired outputs and to design an appropriate contract covering a substantial part of the expected useful life of the infrastructure asset.” At best, therefore, these alleged advantages should be characterized as “ideological” beliefs about the superiority of private versus public abilities. Both proponents and those who have grave doubts about the economic rationale for P3s over conventional approaches argue that selecting the best approach should come down to the Value for Money (VfM) or “the lowest combination of capital, operating and maintenance costs over the life of the project” (B.C. Ministry of Finance cited by Loxley). VfM studies according to the Conference Board “compare the total costs of P3 and conventional procurement methods for each P3 project….” In theory, a Public Sector Comparator (PSC) is developed and compared against a hypothetical P3 Shadow Bid that must be identical in terms of product delivered and service standards achieved. Ensuring fair comparability, as we shall see, is a tricky business. If the P3 option is the lowest cost approach, the Shadow Bid is then used as a basis for evaluating and negotiating a subsequent proposed P3 contract. However, as happened with the Brampton Civic Hospital in Ontario, there can be significant slips between lip and cup. First, it took two attempts – and an upward adjustment to the second – to get a PSC higher than the eventual P3 agreement. Of note, Ontario’s Auditor General (2008) could find no explanation for the considerable cost difference between the two public estimates and, after a lengthy legal fight, Ontario Public Service Employees Union (OPSEU) obtained a pre-construction Deloitte study that suggested a P3 hospital would cost $300 million more than a traditional model. In the end, Ontario’s Auditor General found the P3 approach resulted in a $613 million cost, $194 million over what a traditional public approach would have cost. A comparative study released www.building.ca

Upfront OctNov.indd 21

Durham Consolidated Courthouse in Oshawa, Ont.

the same year by the Ontario Health Coalition found the costs for Peterborough’s superb new regional hospital (Building, April/ May 2010), completed through traditional public means where dramatically lower. According to the Conference Board assessment of selected post-2005 projects, however, “The VfM study results indicate that the second wave of Canadian P3 projects is delivering important efficiency gains for the public sector (i.e., taxpayers) relative to conventional procurement approaches.” Loxley, CUPE and the Auditor Generals beg to differ. Why? In the end, virtually all P3 projects’ VfM rely on two factors, the discount rate and the amount of transferred risk, to be cheaper than its PSC counterpart. And how each is determined remains the subject of much controversy.

The Illusive Discount Rate Because assumptions used in the two models frequently differ, in particular the timing of payments (more up front for PSCs) and the length of time to pay back debt (longer for P3s), the discount rate is designed to “even out” differences. In other words, because a dollar spent now is worth more than a dollar spent 10 years from now, a discount rate is applied that provides a net present value (NPV) estimate for each project model. In general, the higher the discount rate, the lower the relative cost for the P3. What should be the appropriate rate of discount, however, is much contested. For example, B.C.’s Auditor General found in 2011that, based on the difference in borrowing costs between the public and private sectors, the appropriate discount rate for the Academic Ambulatory Care Centre dropped from 7.12 per cent to 5.3 per cent, increasing the P3 cost by $17 million. (The audit report also found that the loss of $38 million in commercial rents to the client was inexplicitly not included as part of the cost of the realized P3 project.) In 2011, New Brunswick’s Auditor General found that the Province did not complete a VfM study until after the decision to proceed with the P3 approach was made for the Eleanor OCTOBER/NOVEMBER 2012 BUILDING 21

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W. Graham Middle School and the Moncton North School. In addition, the report found that the client could not support the decision for the discount rate used for the schools. The conclusion was that the P3 approach cost taxpayers an extra $1.7 million rather than a saving of $12.5 million. In Québec, The Auditor General also raised concerns in 2009 about the use of inappropriately high discount rates in selecting P3 approaches for the Centre de recherche du Centre hospitalier de l’Université de Montréal (CRCHUM) and the McGill University Heath Care Centre (MUHC). In a 2011 updated “watch” to the legislature, he reported that an expected simulation with even a relatively high discount rate of 6.5 per cent was not done. If the simulation had been run, he concluded, the results of the value analysis in favour of the traditional model over the P3 approach would have been even greater than the $10.4 million advantage he had already identified in his earlier report based on required corrections to the initial VfM report. In a telephone interview, Loxley argues a “social rate of discount” of 3.5 to 4.0 per cent, consistent with that used in the U.K., is appropriate while Infrastructure Ontario uses “current Provincial cost of borrowing,” although their published project VfM reports do not reveal the rate used.

The Risky Business of Calculating Transferred Risk Interestingly, the discount rate is not even reviewed or assessed in the Conference Board’s case studies, but risk transfer certainly is. According to the 2003 B.C. document, P3s “reduce public sector risk by transferring to the private partner those risks that can be better managed by the private partner…and reduce the potential for government cost overruns from unforeseen circumstances….” Although a number of Auditor General reports have found significant failures to transfer risk in projects, the key question is whether or not the estimated “risk” premium transferred is a real and accurate ‘cost.’ And why this is so important is made clear by the Conference Board: “Most of the efficiency gains in a P3 procurement rest on a successful and cost-effective allocation of risks between public and private partners.” In other words, without the transfer of the risk costs, most P3 alternatives have a higher price tag than the conventional public model. For example, the Board report uses Durham Consolidated Courthouse as an example. The PSC option has a basic cost of $247 million but an additional “risk” of costing another whopping $157 million. With the addition of questionable transaction costs and a cost for lost tax revenues if it remained public, the “total” PSC cost becomes $426 million. With the P3 comparator, the basic cost is $300 million with $132 of the risk transferred for a total cost of $432 or $6 million more than the public option. But the risk premium actually paid to the private consortium is only $83 million thus reducing the cost to $377 million. The P3 can 22 BUILDING OCTOBER/NOVEMBER 2012

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do this, it is argued, because “AFP efficiencies” mean the extra transferred risk cost not in the premium paid will be avoided. Loxley agrees, citing Durham as well as Credit Valley Hospital and the Ministry of Government Services Data but also goes on to state: “How risk transfer could possibly amount to so much for such pedestrian buildings [for Durham, 39.5 per cent and for the Data Centre, 42.6 per cent] …are not explained – the public is simply expected to believe it.” Risk cost is not an actual cost, such as a bag of concrete, but a possible cost that, at best, could be considered “transferrable” if it was known to be a probable cost. If we knew, for example, that at least on average most publically built hospitals ended up costing 40 per cent more than the estimated cost there might be an argument. But such historical rationales, as a number of Auditor Generals have pointed out, are either missing or, when available, do not support the risk cost assigned to the project. For example, The Globe and Mail’s André Picard wrote in 2008 that Brampton’s estimated risk costs were $67 million or 13 per cent while “in reality, cost overruns are about 5 per cent.” Without oversimplifying what has become a very complex (and usually secret) set of calculations and equations, consultants develop extensive lists of risks (60 in Ontario), assign probabilities and determine impact. In our interview, Loxley states that P3 agencies “make no attempt to unpack the risk transfer, essentially asking us to take their estimates on faith.” Infrastructure Ontario, he continues, uses a risk model developed by Altus Helyar Cost Consulting but the model provides no information on how the data is developed. The Chief Peguis Trail P3 extension project in Winnipeg had a claimed VfM of $26 million based on a risk transfer of $51.4 million. Loxley reports, however, that how this risk cost was calculated is not public, not even to the municipal council paying the bills. In addition, as he and some AGs have pointed out, many of the identified risks, such as cost overruns or construction delays can be transferred within the various traditional public models through such things as stipulated sum and turnkey contracts.

Full Speed Ahead on a Rickety Bridge There may also be other “costs” not typically included in a VfM. These include negative impacts on smaller local contractors while the emergence of an infrastructure oligarchy limits market competitiveness (many P3s have had only a small number of eligible bidders). In addition, the local economic multiplier effect may be adversely affected by the displacement of highend services to other site operations of trans-national companies. Finally, almost all of the Auditor Generals’ reports criticize the level of transparency and public reporting of the P3 projects they have assessed. There may well be economies available through alternative funding arrangements but there currently exists serious arguments that, far from decreasing the debt burden of future generations, P3s have done the opposite. Only when there are truly independent assessments can we be assured that these partnerships offer viable and cost effective models. B www.building.ca

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RIPPING HE

LIGH FAN ASTIC By Peter Sobchak

Unassuming and quiet by day, the new Ryerson Image Centre’s LED lighting system transforms all four sides of the building into a work of frenetic, joyful art that banishes the night.

24 BUILDING OCTOBER/NOVEMBER 2012

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Photo by Tom Arban

eing in the heart of the downtown Toronto core, most of the Ryerson University campus is built out, without much free space to expand. As a result, most “new” space (with a few notable exceptions) comes from renovating existing buildings. While the smart economic thing to do in most cases, this means tackling some buildings that do not appear to lend themselves to many grand design gestures. A perfect example of this was the near-windowless former brewery distribution warehouse on a high-profile campus intersection that housed the School of Image Arts program for nearly 50 years. That was until Diamond Schmitt Architects got their hands on it, transforming it into both a teaching and public venue, with 4,500 square feet of gallery space, curatorial and graduate study centres, and storage vaults. The new Ryerson Image Centre is “a crossroads between university life, graduate study and the public realm,” says principal Donald Schmitt. “A glazed ground floor transforms the public square where the campus connects with the city, [and] a transparent, accessible entrance with enormous photo murals marks the entry from the square.” And just like a set of lights at a crossroad, the most compelling part of the Centre is the energy-efficient LED lighting system. Developed by GVA Lighting Inc. and Crossey Engineer-

Photo by Tom Arban

ing Ltd., the riot of effects is encased in a double-façade glass treatment that floats off the original structure above the third floor. The existing brick surface received new insulation and a smooth stucco finish to create a monolithic surface to act as a projection screen for the new lighting system. This core layer of envelope was then shrouded by a second skin of translucent structural glass suspended one to five inches away by stainless steel point fittings on an aluminum framework hung from the existing building’s primary structure. The resulting void becomes the instrument for the lighting treatment: using asymmetrical optics, the re-surfaced rear walls are illuminated by fixtures within the cavity with a carefully calibrated light spread acting to create a diffuse glow that is then further diffused by the translucent glass skin. The result is that each illuminated glass panel partially spills into the voids of its neighbouring glass panels to create a softened pixelization of the entire façade. To ensure the surface projects a solid and calming demeanor, the luminaires and their associated wiring and supports were rendered invisible from the street during both day and night. Translucent gaskets were used to seal the joints between glass panels and the LED drivers were remotely located inside the building. A white dot frit gradient pattern subtly www.building.ca

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fades in and out that blends the slab edges into the vision glazing to help unify the curtain wall. A solar shading control was embedded within the glass units to ensure a uniform, monolithic daytime appearance from the exterior. Special care was also taken to avoid shadows being cast onto the glass at night by the internal lighting system. This was achieved by installing power and data cabling discretely within the supporting framing, through careful alignment of the luminaires with the glass joints and support brackets, and by locating a supporting structure with a soft curving profile. The highly detailed glass panels themselves are composed of two low-iron glass layers sandwiching a translucent white PVC obscuring layer. The result is that the panels have an even, unfettered glow that allows the façade to function as a monolithic canvas for the programmed lighting routines, with 16.7 million possible colour combinations. And as if that weren’t enough, the pièce de résistance is an app designed by Doug Bouchard from Ryerson’s New Media program that allows individuals to program the wall in colour and patterns. Using the app, a selected colour and a line or squiggle drawn on a smart phone will be recreated on the exterior of the building. When more than one person is using the app at a time, colours and patterns will be blended and mimic the effect of painting. B OCTOBER/NOVEMBER 2012 BUILDING 25

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The micro-climate of Vancouver notwithstanding, the existence of strata industrial and office properties is relatively sparse across the country. But that may be changing as developers respond to the needs and desires of tenants who are beginning to see the advantages of owning where they work.

The Strata Creep

By Peter Sobchak

Wicksteed Business Park, Toronto

ot surprisingly, Vancouver’s unique position makes it a petri dish for certain real estate phenomena not necessarily seen in the rest of the country. We all know of the vertigo-inducing towers that have taken over the city’s core, the revolving door of tax schemes and “extortionist” development fees, and the incredible surge of Asian flight capital flooding into residential markets, where Chinese and other Pacific Rim–nation buyers willingly pay multimillions of dollars for almost anything that comes on the market. But this latter influence has expanded to impact all real estate types, including industrial and office properties. For example strata-titled ownership, a model well-known in Asian cities like Hong Kong and Singapore, has been thriving and making waves in Canada’s Pacific Gateway for several years. And it is now beginning to creep east.

Buying blue collar space

In Vancouver, small-based stratified “is not a major segment of the market, but it is meaningful,” says Kirk Kuester, managing director of Colliers International’s Vancouver office. Where strata ownership has become noticeable is in the industrial segment. With land in Vancouver hard to find and therefore expensive, developers are experiencing clients coming to them saying they can’t find single-lot industrial warehouse space, hence a spurt of good quality 10,000 to 20,000-sq.ft. “mid-day spaces” in the last three years by lower mainland companies like Beedie Group and Adera. But companies like Beedie Group aren’t just sitting in Vancouver with this model. In Calgary they have begun work on the 4.89-acre West Stoney Industrial strata project, and listings are popping up in places like Regina and even Ottawa. One such example of this is Rockport’s Wicksteed Business Park, an industrial / commercial condo development which 26 BUILDING OCTOBER/NOVEMBER 2012

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encompasses 9.5 acres and seven buildings in Toronto’s Leaside neighbourhood. Seventy eight units will range from 1,000 to 30,000 square feet, and owners will benefit from low-cost condominium management including the maintenance of common areas and garbage removal. Rockport is no stranger to the condominium concept: in 1968 they were the first developer to register a condominium corporation in Toronto, and even built two industrial condo projects in the 1990s. “Between our own sources and inquiries made to real estate representatives with whom we worked, we thought the idea of creating smaller industrial commercial spaces in the heart of Toronto, which could be owned and not just rented, would be a good idea,” says Jack Winberg, president and CEO of Rockport. “When we started out, we placed two very preliminary ads in The Globe and Mail and received what we thought was on overwhelming response.” Similar to residential strata, an industrial development can be divided into many units with individual title. But industrial condos can also be tricky things, especially when the near-par exchange rate hurts the industrial sector, and off-loading space to similar companies hit by hard times may be challenging. Plus, investors habitually follow tenants, who tend to gravitate to newer big-box distribution product in places like suburban and rural Ontario where space is more plentiful. But as Winberg says, real estate, like so many things, is a service. “As needs and tastes change, so does demand. In this case, we think we are catering to an emerging aspect of the market that wants non-traditional space, often close to home in a great location.” Buying white collar space

The industrial property market has seen benefits from the spillover demand from office users, and vice versa, especially in Vancouver, a “branch office” city characterized by tenants of private enterprise and small professional firms, where buying office www.building.ca

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and users typically have to make a serious sacrifice in location in order to purchase anything in downtown Toronto,” says Quigley about Toronto, although he could easily be saying the same thing about Vancouver or other cities like Calgary and Montréal that are experiencing similar vacancy constraints. “Small investors and users have not been able to buy Class A office space in downtown and midtown Toronto, [as] this segment of the market is usually reserved for larger institutional players.” While it is true that “[t]his approach has been highly successful in cities all over the world and is relatively new in the Canadian market,” as Quigley puts it, this means by being new the office condo market is also untested, and consultants say it is too early to estimate the value of a second-generation condo. Plus with any shift in 7 St. Thomas, Toronto interest rates, there’s no guarantee a profit will be seen when it comes time to sell. Regardless, trends are showing that small ownership is bespace is appealing to entrepreneurs for many reasons, particularly those who don’t expect to need more of it. Jameson House coming more and more attractive as the rental market becomes and the 1927 heritage landmark Hotel Georgia redevelopment more and more difficult. And while Vancouver may have special are both prime examples of a growing interest in AAA-class office characteristics when it comes to land supply and demand, many condominiums in Vancouver. They also share the similar trait of of the philosophies apparent in strata ownership are not unique being historic buildings repurposed into a mixed-use residential to that city: buyers see them as a way to house a business, create / office condominium. Vancouver “is not really seeing any pur- an investment for themselves in real estate, and take advantage of pose-built strata office,” says Kuester, although he believes the today’s low interest rates. As Kuester puts it, “It’s a form of business that demands our attention because the market is accepting market is ripe and one will emerge in the very near future. Contrary to the Vancouver situation, a new purpose-built it, [even] demanding it, and developers are responding to it.” As vacancy rates drop and rental rates rise, it is becoming office condominium project has just been announced in Toronto: 7 St. Thomas, a 93,000 square foot luxury office con- clear that traditional real estate strategies are likely to leave ocdominium located in the tony neighbourhood of Bloor-Yor- cupiers in a pinch and creative offerings for real estate needs kville. Designed by Hariri Pontarini Architects with interiors are not only imperative but potentially highly lucrative. B by Munge-Leung Design Associates, the nine-storey building Watch for “strata retail” is a combination of six fully-restored heritage buildings constructed in the 1880s, topped by a new fritted glass tower. As with the industrial and office categories, Vancouver has a growing Scheduled for completion in fall 2014, the owners are toutcrop of “strata retail” projects that are building and selling prime reing this as one of the first of its kind in Toronto, in that it was tail space to owners. For example, MetroPlace and Silver, both in the designed specifically as commercial office, and will “appeal to a Vancouver suburb of Burnaby and developed by Intracorp, are a mix business or individual who wants to own their own luxury office of residential units and commercial space. According to Colliers Interspace in a highly desirable residential neighbourhood in Toronnational, Intracorp was able to capitalize on the investor/speculator to,” says Patrick Quigley, president of St. Thomas Developments market and sold 100 per cent of the retail component within a month Inc. And the appeal of ownership is clear: issues like relocation of commencing marketing, in some cases at record-breaking prices. clauses in leases are no longer an issue, owners have far greater Another mix of strata retail and strata office – this one growing control of occupancy costs and utility charges (although there are along the Canada Line SkyTrain at Aberdeen Station in Richmond, still association fees to pay), and they now have equity in where B.C. – is Aberdeen Mall. Designed by Bing Thom Architects with a projected completion of winter 2012/2013, the mall includes three they work. “The upside is you can essentially recoup what would floors (approximately 100,000 square feet) of retail space and three be ‘base rent’ in a leased office from the future sale of the comfloors (approximately 60,000 square feet) of office space. Accordmercial condominium,” explains Quigley. “The base or net rent ing to Colliers, “338 units of retail and office strata development paid in leased space is not recouped, whereas in ownership, this were sold on a strata title basis, positioned primarily to an Asian would constitute an asset and could be sold as such in the future.” demographic, and was the first time in the last 10 years that a com7 St. Thomas illustrates a creative solution to an issue facing mercial strata building was sold in the lower mainland.” downtown commercial space availability. “Commercial investors www.building.ca

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THE COST OF STAYING STILL Even as parking rates in Canada continue to climb, parking lot owners/operators are looking at innovations that could change the way we park By Peter Sobchak

Canadian drivers should not expect relief any

time soon when pulling into a parking lot in major cities across the country, as parking rates continued to climb this year according to Colliers International’s 12th Annual Parking Survey. The average median rate for a monthly unreserved parking spot grew by $6.39 or 2.7 per cent over the past year, now at $241.72, compared to $235.33 the year prior. Calgary maintains its dubious title as Canada’s priciest city to park with an average median parking rate of US$439.93, second only to New York (US$562 Midtown, US$533 Downtown) and higher than other large North American cities such as Boston (US$405) and San Francisco (US$375). However, the rate increase in Calgary this year was somewhat moderate at only two per cent, below the national average. But while Calgary experienced a moderate parking rate increase, drivers in Montréal ($330.96), Regina ($182.50) and Edmonton ($295) saw their parking fares spike by 11.7 per cent, 8.3 per cent and 7.3 per cent respectively compared to 2011. On the other end, Torontonians ($316.40) and Vancouverites ($277.82) felt some relief as the average median parking rates in these cities decreased from last year by 4.8 per cent and 3.5 per cent respectively. “Improving economic conditions, a strong office market and limited future supply of new parking spots are all contributing to the continued increase of parking rates in all categories and across the country,” says Ian MacCulloch, National Research Director with Colliers International in Canada. “Currently, only Calgary, Ottawa, Saskatoon, Waterloo Region and Winnipeg are expecting to add new parking spots over 28 BUILDING OCTOBER/NOVEMBER 2012

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the next year and in limited numbers. This shortage of new supply will continue to put upward pressure on parking rates.” The limited availability of new parking spots in major city centres across Canada is also reflected in parking lot waiting lists. The average waiting time for a parking spot in Canada is currently just under eight months, with motorists in Victoria, Halifax and Regina expecting a waiting period of between 12 to 24 months.

All Roads Lead to Technology According to the results of another industry-wide survey of parking lot owners/operators, increased demand for technology-related innovations account for half of the top 10 trends in today’s $30 billion parking industry. Among them, cashless, electronic, and automatic payment systems; real-time information about parking rates and availability via mobile apps; and wireless sensing devices for improved traffic management. “Parking is all about mobility and connectivity,” said Casey Jones, chairman of the International Parking Institute (IPI), the association behind the 2012 Emerging Trends in Parking Survey. More than one-third of those surveyed see the demand for green or sustainable solutions as a top trend affecting the parking profession. It is estimated that about 30 per cent of the cars circling a city at any given time are doing so as drivers look for parking. Aside from the frustration factor, those cars are creating traffic congestion, viewed by survey respondents as being the single most significant societal change affecting the parking industry. From an environmental standpoint, that translates to incalculable amounts of wasted fuel and carbon emissions. www.building.ca

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ing parking more sustainable is energy-efficient lighting, followed by parking space guidance systems that 2.0%** aid in finding parking faster, encouraging alternative travel, automated payment processes, solar panels, renewable energy technology, and accommodating electric vehicles. An increased focus on customer service is another significant trend cited. A chief problem seen by survey respondents is one those in the parking profession are working hard to correct: decision makers need to consult parking experts earlier in the planning process to prevent a myriad of design issues and other problems later on. When surveyed about the most common avoidable mistakes, respondents cited such issues as “lack of vision to invest in mass transit systems,” “inefficient layout and poor aesthetics,” “failure to think about parking in the planning stages,” and “overlooking important issues such as water and power sources, snow removal, entry/exit functionality, and how and by whom the facility will be used.” Survey results showed a dead heat between urban planners, local government officials, and architects as those who most need to better understand parking and all its complexities. When asked where parking would best fit as a course of study at an academic institution, nearly half of respondents suggested that parking should become part of the curriculum at schools for urban planners. Runners-up were schools where business and public policy is taught. B

CANADA MONTHLY PARKING RATES BY CITY* Calgary, AB Montreal, QC Toronto, ON Edmonton, AB Vancouver, BC CANADA NATIONAL AVERAGE Ottawa, ON Victoria, BC Regina, SK Halifax, NS Winnipeg, MB Saskatoon, SK Waterloo Region, ON

$456.75 330.96 11.7 316.40 -4.8 295.00 7.3 277.82 -3.5 241.72 2.7 225.00 2.3 184.80 0.0 182.50 8.3 181.60 4.8 159.86 5.0 157.50 0.0 132.49 3.3 *Survey only includes covered or underground parking garages located in prime central business districts (CBDs).

**Year-Over-Year % Change

“If we can cut the time it takes drivers to find a parking spot by even a fraction, the difference in our carbon footprint is meaningful. And that’s what many new technologies are making possible,” says Jones. IPI has directly tackled the issue of sustainability in its new Framework on Sustainability for Parking Design, Management, and Operations, released at the association’s 2012 Conference and Expo earlier this year and outlining industry-wide goals and organization action items that provide education, incentives, and forums for members to learn about and contribute to sustainable parking solutions. According to respondents, the number one strategy for mak-

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VIEWPOINT

A brighter shade of green Stephen Carpenter has built his career proving that energy efficiency and sustainability make sense.

N By Sheri Craig

o disrespect to Kermit the Frog, but Stephen Carpenter thinks it’s easy to be green. President of Enermodal Engineering, Canada’s largest firm focused on green buildings and communities, his company has been involved with 250 LEED projects across North America and responsible for onethird of all LEED Canada certified buildings. Based in Kitchener, Ont., it has about 100 employees spread across the country in Vancouver, Calgary, Edmonton, Winnipeg and Toronto, and two years ago joined MMM Group, a consulting engineering firm based in Thornhill, Ont. Originally from Ottawa, Carpenter graduated from the University of Waterloo in mechanical engineering and then completed his Master’s degree in solar energy systems, which were “all the rage in 1980,” he says. In 1981, he started Enermodal. “It was kind of post the OPEC (Organization of the Petroleum Exporting Countries oil crisis and energy was a big topic. My focus was on energy efficiency but as time went on, it became obvious that green buildings and energy efficiency are one and the same.” Enermodal’s first major green project was the award-winning Waterloo Region Green Home, designed in response to a federal government Advanced House competition, and opened in 1991. “That got us started on green buildings and we thought, ‘That’s houses but what about commercial buildings.’” The result was Green on the Grand, on Kitchener’s Grand River, the first in the federal government’s C-2000 program to promote energy efficient commercial buildings. From 1998 to the end of March 2007, funding was available under the federal Commercial Building Incentive Program. Enermodal organized more applications than any other firm in the country, says Carpenter. While CBIP was winding down, LEED, introduced in Canada in 2004, was taking off. “We could see that LEED was going to be the successful mechanism encouraging people to build green buildings,” says Carpenter. “Prior to LEED anyone could claim to have a green building but how do you know that it is actually green?” he adds. 30 BUILDING OCTOBER/NOVEMBER 2012

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Stephen Carpenter

“The beauty of LEED is that its label identifies a marketing advantage.” Enermodal embraced the LEED program as a way to prove a green building is actually green, certifying the first LEED Canada building, the first LEED Platinum project in Ontario and 23 of the first 25 LEED Canada certified projects. Since 2004, it has certified 162 LEED buildings. In 2009, the company moved into its new 22,000-sq.-ft. headquarters, A Grander View, in Kitchener, where it was certified triple LEED Platinum for New Construction, Commercial Interiors and Existing Buildings, Operations and Maintenance. It uses 82 per cent less energy than a similar sized commercial building, 69 kWh/m2 compared with the Canadian office average of 394 kWh/m2. Occupancy, controlled ventilation, lighting and heating/cooling minimize energy consumption while a rooftop photovoltaic system provides 5.5 kW of power. In September 2011, he was named to the inaugural class of LEED Fellows by the Green Building Certification Institute (GBCI), in Washington, D.C. The LEED Fellow designation recognizes exceptional contributions to green building and significant achievement within the community of LEED practitioners. Carpenter was one of 34 international green building professionals to be selected through a peer nomination and portfolio review process and one of only two Canadians awarded this designation. He sees LEED evolving with credit for the amount of energy used by a building based on real performance rather than predicted performance. “The trend is not to claims but to actual results,” he says. “We also have to be thinking of context. A green building in the countryside is not a green building if people have to drive to reach it. It’s not a green building in the same way that a similar building in the centre of the city is. “At some point, we’ve got to start talking about green communities and green cities. We’re going to have to think about the way we do cities because our cities have not been designed in a very green way,” Carpenter says. He believes climate change is a major concern and that we’re not addressing the issue. “Europe is well ahead of North America, not just in technological terms but also in attitudes.” Enermodal, however, will continue advocating and advancing green building practices. And Carpenter will continue applying green concepts not only at work but in his personal life as well. He lives in an older home in Kitchener that is “a work in progress,” with a top efficiency heating system and a solar system. And when he’s not walking, he drives a hybrid. B www.building.ca

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T tu ti C su 3 to sh

I to of li it ea sp T ch fr of

sh sh sa C p h ju u

IMPROVE offers an exciting alternative to the traditional big box store The home improvement industry has turned the corner in 2012, and the timing couldn’t be better for IMPROVE, Canada’s ﬁrst home improvement supercentre. Set to open in 2013, the 310,000 square foot facility promises to revolutionize the way customers shop for their home improvement needs.

IMPROVE offers an exciting alternative to the traditional big box store. Instead of combining vastly different product lines into a single retail environment, it features a group of individual stores, each dedicated to a home improvement speciality, in a shopping mall format. This gives consumers the range of choice and expert help that they expect from specialty stores, and the convenience of a one-stop shop for all their reno needs. “This will create a complete paradigm shift in the way that homeowners shop for their home renovations,” says IMPROVE co-founder Oleg Chekhter. “Instead of going from one place to another, shopping for their home improvement needs, people will just come here, where everything’s under one roof.”

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With hundreds of stores to choose from, customers are sure to fi nd what they’re looking for. Located minutes from Highways 400 and 407 in Vaughan, the centre is perfectly situated to serve residents of the GTA, who spend $8.7 billion every year on home renovations, according to the CMHC. At any given time, 2.5 million Torontonians are renovating their homes, meaning IMPROVE retailers can expect a steady flow of business. IMPROVE leverages several retail concepts to ensure its success. First, the mall format is a powerful draw for customers, who can easily spend an afternoon browsing dozens of stores without having to worry about bad weather. “IMPROVE represents a win-win situation for retailers,” says Mr. Chekhter. “The biggest problem for home-oriented businesses is attracting buyers and getting them into their stores. What IMPROVE is offering is, instead of a dozen visitors a day, over 2,000 visitors a day. You just can’t argue with that flow. Can you imagine that, in one day you will have more visitors in one day than you do in a year?” This will also create an entrepreneurial environment where retailers who offer a wide and distinctive range of products will have the chance to flourish. This will encourage retailers

to offer a wide and distinctive range of high quality products to attract buyers. IMPROVE also recreates the excitement of home improvement trade shows, where thousands of Canadians ﬂock every year to view a wide range of products under one roof. IMPROVE, though, is open year-round, meaning customers no longer have to wait months to start shopping for their next big home improvement project. IMPROVE also operates under a unique condo arrangement whereby retailers own their stores. This allows them to build equity in their property, as well as share in a $1 million advertising budget.

There are more than 20,000 home improvement businesses scattered across the GTA, meaning customers have to drive for hours to ﬁnd the products and services they want. The one-stop shop that IMPROVE offers is sure to be a huge draw, meaning no business can afford to miss out. For more information on IMPROVE, visit www.improvecanada.com or phone 416-417-7507.

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WITH ALL THE TWISTS AND TURNS OUT THERE, WE’LL GIVE IT TO YOU STRAIGHT. With 90 years of experience, we know being straightforward is what will point our 7,000 real estate and construction clients in the right direction. BDO. MORE THAN YOU THINK.

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