Canadian Real Estate Forum Winter 2019 Issue by Real Estate Forums

WINTER 2019 / ISSUE 82

“THINGS CAN CHANGE VERY QUICKLY IN THIS WORLD” – WARREN BUFFET GLOBAL PROPERTY MARKET Constant Change & Technology Should Be Your Focus One Investor’s Fear Is Another’s Opportunity Investors Must Dig Deeper To Understand The Modern Dynamics Of Cities

TORONTO REAL ESTATE FORUM To Stay Relevant, Retailers Must Look Beyond Simply Selling Goods To Crafting Customer Experiences Innovation Is All In The Details Real Estate’s Allure Appreciates As Investors Seek Alternative Assets

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George Przybylowski Vice President Real Estate Informa Markets

INFORMA MARKETS – REAL ESTATE Rick McConnell, President George Przybylowski, Vice President

“THINGS CAN CHANGE VERY QUICKLY IN THIS WORLD” – WARREN BUFFET

EDITOR & ASSOCIATE EDITORS Michel Remy Jean Pickering Katherine Radziszewski

One year ago, my opening welcome in this magazine focused on disruption, transformation an action – and what a year this proved to be. To use the words of Warren Buffet – things can change very quickly in this world. And change we have seen!

DESIGN

This year, for example, brought the start of the 5G roll out with the capacity to disrupt exponentially through improved connectivity by supercharging IoT and it is likely to have significant impacts on the real estate industry.

Informa Markets Design Studio SPONSORSHIP & ADVERTISING SALES Frank Scalisi Director of Sponsorship and Advertising Sales 416-512-3815 frank.scalisi@informa.com FOR MORE INFORMATION VISIT realestateforums.com View upcoming conferences on pg 66, 74 ABOUT THE CANADIAN REAL ESTATE FORUM MAGAZINE The Canadian Real Estate Forum Magazine is published three times annually. Editions coincide with key Canadian Real Estate Forums and associated markets: Spring: Montréal • Vancouver • Edmonton Fall: Ottawa • Calgary Winter: Canada-wide • Global E-magazines are available at realestateforums.com Disclaimer: The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of Informa Markets.

According to the Harvard Business Review – 5G is poised to be huge, a far bigger transformation in mobile technology than any previous generational shift. Its speed, capacity, and dramatically reduced power consumption and communications response times, or “latency,” will make possible an astonishing range of innovative new products and services. NAIOP stated that 5G’s higher speed and bandwidth will create fully wireless workplaces and impact everything from printers to elevators. Greater bandwidth would also allow artificial intelligence programs to analyze more data in real-time, allowing smart buildings to engage and interact with employees and landlords. 5G will also enable elements such as more efficient building maintenance in both commercial and industrial buildings, allowing technicians to address issues virtually and reducing downtime, equipment failure, and costly on-site visits. The 28th annual Real Estate Forum brings together over 2,500 attendees from across our country who are interested in hearing insights from some of Canada’s top entrepreneurs on how they are integrating innovation within their organizations and preparing for the ongoing evolution of transformative change. Our numerous thought leaders will include Galen G. Weston, the head of the country’s largest retailer who employs over 200,000 Canadians as well as the largest REIT (Choice Properties). How are his organizations using technology to stay ahead of the curve and the competition? Following last year’s success, The Deal Room courtesy of Fengate returns, and new for this year we have a Market Intelligence Lounge courtesy of CoStar. There’s lots of networking opportunities built into the program and we encourage you to utilize Real Connect 2019 the Forum app designed to connect you with other attendees as well as provide information on program, speakers and sponsors. All that’s left to say is on behalf of our Chairs, our speakers and our sponsors – a big welcome to this year Real Estate Forum in Toronto! George Przybylowski

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CONTENTS

“Things Can Change Very Quickly In This World” – Warren Buffet

GLOBAL PROPERTY MARKET 10

Constant Change & Technology Should Be Your Focus

One Investor’s Fear Is Another’s Opportunity

Technology & Innovation Stirs-up Real Estate Finance

Privatization, Reform And Renewables Burnish Brazil’s Allure

Housing, Hotels & Hostels Are Hot In Europe

Investors Must Dig Deeper To Understand The Modern Dynamics Of Cities

Europe Remains A Strong Capital Magnet

Foreign Investment To Remain Strong In North America

ALTUS GROUP REPORTS 26

The Altus Report: Viable Transit And Sustainable Development Vital To Future Of Vancouver And Toronto

Canadian Real Estate Forum / WINTER 2019

REAL ESTATE FORUM 34

What Is Driving Demand & Change?

COMMERICAL MARKET STATISTICS

Affordability Shifts More Residents To Rental

Vancouver Industrial Development Boom Expected In The Next 12 Month

2020 A Bullish Year For Canadian Real Estate

REALPAC

To Stay Relevant, Retailers Must Look Beyond Simply Selling Goods To Crafting Customer Experiences

50 Years Of REALPAC

Dos And Don’ts Of Affordable Housing Policy

Decade-Long Debt Binge Dims Prospects For 2020

Convergence And The Developer Of Tomorrow

When It Comes To Predicting Trends, The Devil’s In The Details

Ahead Of The Storm: Developing Flood-Resilience Guidance For Canada’s Commercial Real Estate

Real Estate’s Allure Appreciates As Investors Seek Alternative Assets

Policy Priorities For The Next Parliament

Innovation Is All In The Details

Province Breathes New Life Into Public Property Portfolio

Building Efficiency At The Core Of Competitiveness

How To Take A Calculated Risk With Investment Capital

Awakening To Digital Transformation

Canada Should Shine Through The Next Few Years

Demand For Flex Space Reshapes Office Market

Innovations Bring Mall Traffic

Evolving With Office Tenants’ Needs

Innovation: Construction Could Do Better

Office Space: Workplace Design Changing Dramatically In Response To Technology

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CONSTANT CHANGE & TECHNOLOGY SHOULD BE YOUR FOCUS Christine Filgiano Executive Vice President Portfolio Construction & Risk Management Ivanhoé Cambridge

As the year 2019 winds down, the world is seeing a big structural shift in real estate as much on the side of demand as on the side of supply. At the core of this shift are geopolitics, demographics and technology. The current low interest rate environment is forcing investors to search for yields. The generally attractive returns in real estate mean that the sector is enjoying greater capital allocations, though of course this can also lead to competitive investment markets. Development opportunities are particularly appealing as lower funding costs facilitate the delivery of more competitive returns on investment. Large institutional funds seem to be looking at different ways to structure investments around the world. There’s a real desire to do the right thing on the fiscal side. Liquidity also plays a big role because as countries become a lot more protectionist and inwardly focused, there will be ramifications on the mobility of capital. Technology is impacting a range of real estate sectors and has significant potential to benefit companies in terms of property development and management, but also in terms of wider business operations. For example, the rise of driverless cars may reduce the need for car parks, freeing them up for redevelopment or conversion to a different use class. Another potential consequence of automated vehicles is the disruption logistics, with transport no longer impacted by tachograph monitored drivers who realestateforums.com

Joanne McNamara Managing Director Europe Oxford Properties Group

have their time at the wheel limited by law. The industry as a whole is likely underestimating the impact of technology, and the ways in which it has already changed our lives and our work could be just the tip of the iceberg. People’s relationship with space is changing dramatically. We no longer go to one place to work, another place to be with family, and yet another place to shop or socialize. We’re doing everything everywhere, blurring the lines so, naturally, the space we occupy is bound to change as well. Urbanisation is a key trend at the moment – coupled with large infrastructure investments. This is a positive for real estate investors as population growth in large cities increases the need for housing supply, as well as the logistics capability to service the housing. Finally, the property industry has a huge responsibility to take into account environment and sustainability in all activities, whether it’s creating sustainable buildings or attractive environments for people to live, work and spend their leisure time. We must never lose sight of this responsibility. At this year’s Global Property Market there is much reason for optimism. Despite political uncertainty, strong fundamentals will ensure reliable investment growth in sectors such as residential and logistics, particularly around key urban centres and global gateway cities. May the networking and panel discussions help broaden your horizons in terms of what to take into consideration when looking at real estate investments in 2020. ■ Michelle Morra 11

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Canadian Real Estate Forum / WINTER 2019

ONE INVESTOR’S FEAR IS ANOTHER’S OPPORTUNITY

Jim Costello Senior Vice President Real Capital Analytics Inc.

Looking ahead to where U.S. real estate “There’s been a lot of move into those investors will be most active in 2020, there sectors out of a sense of fear from other have been mixed signals. While some parts of the economy, in hopes that those sectors have seen record high amounts of will be stable,” he says, “but I’m not sure capital moving in, others have seen a they necessarily provide the same kind of decline. What it really comes down to, protection they did in the last downturn.” according to Jim Costello, Senior Vice As capital continues to flow from all President, Real Capital Analytics Inc., is directions, Costello notes an interesting investors shifting away from sectors that change in terms of where have a relatively high capital will go in the capex. “That’s a move that “If we have a downturn capital stack. “There’s a people shouldn’t do out of coming up, I think the huge group of investors fear that some of the trying to get into the debt drivers of it will be current economic portion of the capital instability might lead to a dramatically different stack,” he says. “In the recession,” he says. from what drove the U.S. there’s a little bit of People will overreact to competition there now ‘08-09 downturn.” those fears, however, and with the so-called debt Costello sees that as a funds, the non-bank potential opportunity. He also sees people lenders, taking on more market share.” trying to use the playbook of the last If Costello foresees any challenge in 2020, recession as a goal for safety. “If we have a it’s “noise.” “There’s going to be a ton of downturn coming up,” he says, “I think the political posturing masqueraded as drivers of it will be dramatically different from economic analysis,” he says, “folks with a what drove the ‘08-09 downturn.” particular political lean either pushing up Costello also has an eye on the suburban expectations for growth in the economy or office market, which he says investors are pushing them down. We’re going to see an overlooking. There’s less activity in that awful lot of that given the U.S. election cycle market lately, yet it still offers yields and coming up. The challenge is trying to make opportunities. Costello adds that investors decisions off of true signals rather than all have become very aggressive in the large that noise.” logistics space and the apartment sector. ■ Michelle Morra 14

Canadian Real Estate Forum / WINTER 2019

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TECHNOLOGY & INNOVATION STIRS-UP REAL ESTATE FINANCE

Shawn Lese Managing Director, Head of Americas Product & Solutions Nuveen

The advent of new structures and imaginative ways to harness computer and online technologies has improved capital markets for both investors and real estate industrialists, said Shawn Lese. Financial technology like crowdfunding, blockchain and regulated exchanges for real estate are already influencing investment flows. “Digital portals let you build direct, virtual relationships with investors, with debt sourcing also starting to appear online,” observed Nuveen’s Managing Director and Head of Americas Product & Solutions. “Those technologies are driven by the regulatory dimension as well as by real estate needs.” Distributed legers, known as blockchains, also appear interesting, though their promise will take longer to realize. “We’re still in the discovery stage on the blockchain front,” he underscored. “It’s essential first to forge a sound understanding of how to tokenize an asset before leaping headlong into it. We’re

very conservative in that respect, especially from a regulatory standpoint.”

these loans can net 6-8% to investors, Lese suggested.

Another innovation entails establishing a “There are three ways that we’ve done that,” properly regulated real estate exchange he explained. “We can bifurcate a transitional (REE), akin to equity loan into an A note and B note exchanges, where owners and manufacture a subordinate “The real trick to doing debt for the B note. Second, can list properties using real estate finance in we can take that lone and public market technology. the debt space is the hypothecate it to a warehouse “We’ve been talking with line provider like Wells transitional loan and Fargo—basically a repo line of the online fundraising folk,” Lese said. “They how you get leverage credit to gain leverage. A third range from startups to way is through a collateralized on that.” people who claim that loan application (CLO). they can raise $20 million for a fund or a specific asset. Some “Each have their strengths and weaknesses,” distribute online, raise money and come to he continued. “A note and B note structure invest any surplus. You can raise your own give you matched-term financing, with the risk funds online, third-party funds or sell off that you might be disappointed trying to find a asset components online through a buyer for the note that you’re creating. crowdfunding portal.” Warehouse lines give you greater certainty but are unmatched and without call protection. “I don’t expect tremendous volume on that And with CLOs, there’s a lot of risk in trying to front,” he predicted. “The successful ones will aggregate a large pool of assets required.” probably raise capital in the hundreds-of-millions range per year.” “Financial technology will be really helpful for a tremendous number of people,” he Funds have also started to proliferate outside concluded. “The real trick to doing real estate the financial technology realm to better lever finance in the debt space is the transitional loans that provide an equity cushion with a loan and how you get leverage on that.” better-than-equity return. Demand for this profile has spiked because—if levered— ■ Robert Frank

Canadian Real Estate Forum / WINTER 2019

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PRIVATIZATION, REFORM AND RENEWABLES BURNISH BRAZIL’S ALLURE

counterpart—is, so far, almost entirely domestic money. The absence of intensely competitive bidding that is prevalent in most other major world markets makes Brazil attractive.” That domestic investment has already ramped up demand for stabilized quality properties, driving up prices accordingly. “The FIIs want cash flow,” Heidtmann explained. “However, there is virtually no interest in buildings that need to be fixed up or have weak or uncertain cash flow. That creates a very attractive framework for acquisition and redevelopment.”

Dietrich Heidtmann Managing Director & Head of International Capital Markets GTIS Partners Brazil’s bold plan to improve its finances and halt runaway spending has opened opportunities for real estate and infrastructure investment opportunities, reported Dietrich Heidtmann. “The government got all political parties to back big spending cuts,” said GTIS Partners’ Managing Director and Head of International Capital Markets. “Its economic team have implemented some impressive privatizations and Brazil’s legislature has approved radical pension reforms that will save the government 800 billion reais (C$264 billion) during the coming decade. Budgets are frozen at last year’s levels, plus inflation.” Domestic investors are keen to capitalize upon these changes and record-low interest rates, once the legislation is ratified. They have purchased record levels of FIIs (Fundos de Investimento Imobiliário), Brazil’s equivalent of a Real Estate Investment Trust (REIT). “Foreign investors will soon enter the fray,” he predicted. “The flood of funds that has flowed into FIIs—Brazil’s REIT

Logistics and industrial properties are also positioned to emulate the growth that their North American counterparts have experienced.

“Foreign investors will soon enter the fray,” he predicted. “The flood of funds that has flowed into FIIs—Brazil’s REIT counterpart—is, so far, almost entirely domestic money. The absence of intensely competitive bidding that is prevalent in most other major world markets makes Brazil attractive.”

“We have already played the logistic and industrial segments very successfully,” Heidtmann said. “We are also one of the largest institutional owners of hospitality in Brazil. São Paulo room rates and occupancy have already surpassed last peak rates and Rio de Janeiro is bound to follow with the recovery of the oil sector.”

Finally, Brazil’s push to switch to renewable energy like wind and solar has created a whole new class of opportunities. “It’s a new area that we’re pursuing that is very complementary to our real estate portfolio,” he concluded. “We control one gigawatt of exclusive capacity and are looking to grow.” ■ Robert Frank

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Canadian Real Estate Forum / WINTER 2019

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HOUSING, HOTELS & HOSTELS ARE HOT IN EUROPE

Lonneke Löwik Chief Executive Ofﬁcer INREV Europe’s real estate industry remains awash in investment money, reported Lonneke Löwik, Chief Executive Officer, INREV. “We still see major liquidity in capital markets in Europe,” she said in an interview. “Last year Germany overtook the United Kingdom, but Germany, the United Kingdom and France all remain highly dynamic, especially the major cities: London, Paris and the five main German cities.”

The appetite for investment is not applied equally across all segments of the European real estate market, though. “Retail is not attracting as much capital,” Löwik acknowledged. “Office continues to fare well in the larger markets, as do logistic properties. With office, it’s much more the flex market.” “What we are witnessing is more and more interest in beds,” she reported. “Hotels, student housing and residential. Like North America, we’re also seeing growth in the health care and senior living markets. While it’s still small compared to other segments, it has definitely picked up and is gaining pace.” With European capital cities like Berlin mooting rent controls, investors are paying increased attention to affordable housing, Löwik added.

“We are witnessing more and more interest in beds: Hotels, student housing and residential. Like North America, we’re also seeing growth in the health care and senior living markets. While it’s still small compared to other segments, it has definitely picked up and is gaining pace.” away,” Löwik said. “Real estate remains very attractive compared to the bond market. Even if interest rates change, I do not expect that there will be a move away from real estate, though it will have an impact.”

Interest rate changes continue to sustain investment flows and compress capitalization rates.

“While we haven’t seen much change to interest rates so far, we have started to see other shifts that have benefited Paris, as Brexit progresses,” she concluded. “Europe’s financial and political landscape include a new leader at the helm of the European Central Bank and a new European Parliament. France has seen some political unrest, though the Macron government will remain in place for several more years, but Germany is poised for change.”

“I don’t think they will be completely swept

■ Robert Frank

“There is a lot of focus on the bed sector and on affordable housing,” she said. “They go hand in hand. The accent on affordable housing is because it has become such an issue.

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Canadian Real Estate Forum / WINTER 2019

INVESTORS MUST DIG DEEPER TO UNDERSTAND THE MODERN DYNAMICS OF CITIES “Changes within cities as well as between them have accelerated over the last decade. New infrastructure, ambitious regeneration projects, densification and technological advances are increasingly impacting the shape, form and value of the built environment,” says Feenan. Rosemary Feenan Executive Vice President Research QuadReal Property Group

As more cities reach the levels of maturity and transparency required to earn a spot on the investor watchlist, it’s more important than ever to be continuously alert to a city’s ability to meet the rising demands of ever more discerning businesses and citizens. says Rosemary Feenan, Executive Vice President, Research for QuadReal Property Group.

We have seen the emergence of new quarters, innovation districts, urban logistics and data centre geographies, as well as satellite developments that are shifting the spatial dynamics within cities, says Feenan, and while population growth, transparent political and legal processes and liquidity remain vital to city success, it is the capacity of cities to absorb change, to meet climate concerns and to build balanced regulatory frameworks that will mark them out as ‘key investable cities’. Against the backdrop of a widely anticipated global economic slowdown, many cities are building on their core

EUROPE REMAINS A STRONG CAPITAL MAGNET

David Hutchings International Partner Head of Investment Strategy EMEA Capital Markets Cushman & Wakeﬁeld With more capital emerging globally, Europe is still seeing significant inflows, and pension funds continue to demonstrate a growing predilection for property, reported David Hutchings, International Partner, Head of Investment Strategy, EMEA Capital Markets, Cushman & Wakefield. Where that capital goes, though, often takes diametrically different directions. 22

“With record-low or even negative bond yields, some investors have prioritized income stability and are willing to accept lower returns for real estate that meets their requirements,” he observed. “Others prefer to push up their returns and are taking on more development risk as an alternative to the bond market. It’s quite nuanced. There is no overall trend.”

strengths. A cluster of North American cities continue to push forward in creating the ‘tech city backbone’ of a powerful global system of technology leaders. Within this framework cities like Austin and Vancouver are excelling as viable alternatives to their more expensive neighbours. In continental Europe, the French economy is likely to be one of the strongest in 2020 with Paris set to reap substantial and long-lasting benefit from the 2024 Olympic games, with the Grand Paris infrastructure project giving a certain boost to interest in the French capital.” In Asia Shanghai’s journey to a global knowledge city and Tokyo’s embrace of the changes needed to host the Olympics, are showcasing the possibilities for future urban development. Such global cities that are forward planning for densification, that encourage the opening up of new urban geographies and that pay close attention to future climate and social challenges are central to QuadReal’s strategy. Even within these cities granular data and predictive analytics are allowing us to become far more sophisticated in identifying specific opportunities on a local level. ■ Barbara Balfour At a local level, structural changes will shift the market, but will vary from one market to another. The most significant of these is climate change. With deadlines looming for carbon footprint compliance, prospective real estate industry stakeholders indicate that this is increasingly an important factor. “While it’s not going to be the main market driver for some time, it will steadily move up the agenda for investment, developers, occupants and local authorities in 2020,” Hutchings anticipates.

While Europe continues to attract the most capital for new funds, it is Asia that is demonstrating the greatest growth rate in the core end of the market.

Logistics assets will continue to shine in Europe, as they will globally, he added, followed by the residential market—which varies from country to country, with an increased focus on residential rental and affordable residential rental properties.

“Given the cost of capita with lower interest rates, we expect more yield compression in parts of Europe, particularly in core gateway cities,” Hutchings predicted.

“That doesn’t just mean lower price,” he explained. “It means denser developments with higher standards and smaller suites in the cities.”

Prospects for 2020 hinge to a great degree on the outcome of ongoing trade talks and on business confidence, he forecasts. “Occupants are willing to take more space and pay the rent,” Hutchings declared. “That is the big-ticket item, if trade slows.”

“New, specialized sectors like student housing are also attracting interest and doing well at a smaller level,” Hutchings concluded. “At a broad level, we’re getting a lot of interest in specialized markets.” ■ Robert Frank Canadian Real Estate Forum / WINTER 2019

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FOREIGN INVESTMENT TO REMAIN STRONG IN NORTH AMERICA Heading into 2020, it seems that all signs point to continued interest in the U.S. real estate market on the part of investors from virtually everywhere in the world except China, because governmental regulation has tamped down the interest of Chinese investors in the U.S.

Brad Olsen President Atlantic Partners, Ltd.

That’s according to Brad Olsen, President, Atlantic Partners, Ltd., who says that, overall, he expects to see an increase in foreign investment in U.S. real estate in 2020, assuming global economies remain relatively stable, that there is no significant shift in interest rates particularly in the U.S., and assuming that product becomes available. “One of the big issues for all investors has been the lack of product come to market even though the U.S. looks more attractive and has greater liquidity than other markets,” he says. Olsen also expects continued flow of capital from Canada, including both the largest funds and some of the medium sized funds. Across North America, investors have begun to look beyond the gateway cities, which are at very low yield levels. Where exactly they’re looking varies by sector. “Gateway cities like New York, San Francisco, and Boston are key for the office sector,” Olsen says. “The multifamily sector typically is attracting capital to growth centres, markets

with both population and job growth. Those tend to be in the sun belt, ranging from Washington DC, through the Carolinas, Georgia, Florida, across Texas, in the mountain states, particularly the Denver market, and up and down the West Coast. “On the logistics space, it really is logistics hubs, big cities like Los Angeles, Chicago, Dallas, Atlanta, New Jersey, but some of them are markets which investors in office or even multifamily would avoid.” Asked which Canadian cities are on investors’ radar for 2020, Olsen says the emergence of Montreal as the acceptable third city for office investment beyond Vancouver and Toronto has become “the most interesting story in Canada.” He says there’s a sense of resurgence because Montreal has increased its infrastructure spending. “It’s also the result of yield differential and cost differential. Office rents are much lower, yields are much higher.” Other features attracting real estate investors to Montreal, according to Olsen, are its “Frenchness”—a positive in the eyes of foreign investors—as well as the city’s “quirkiness” which attracts tech companies. As long as Montreal doesn’t become too attractive and affect the price differential compared to Toronto and Vancouver, Olsen says, “in the current climate, we certainly hear people talking about Montreal in a way we haven’t in the last 10 or 20 years.” ■ Michelle Morra Canadian Real Estate Forum / WINTER 2019

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THE ALTUS REPORT VIABLE TRANSIT AND SUSTAINABLE DEVELOPMENT VITAL TO FUTURE OF VANCOUVER AND TORONTO In this issue of The Altus Report, we discuss real estate trends in the Vancouver and Toronto market areas.

Kruti Desai Manager, National Research Insights, Data Solutions Altus Group

Ray Wong Vice President, Data Operations Data Solutions Altus Group

Chart 1: Low Bond Yields Moderately Compress Cap Rates in Vancouver and Toronto Cap Rate (%)

Source: Altus Group’s Investment Trends Survey

The Canadian economy seems to be weathering the storm while the global economy continues to weaken. Ongoing uncertainties in trade, disruptions in the energy sector and geopolitical conflicts weigh heavy on the global economy, and Canada’s economic resilience may be tested as it prepares to withstand any economic downturns. As a response, the Bank of Canada maintained its target overnight interest rate at 1.75% for the eighth time in a row in October. Bond yields sit at historic lows, and the Canadian dollar has shown some signs of modest gains against the US dollar even as commodity prices have fallen. However, growth is still expected to slow below its potential, and high personal debt levels, high consumer spending, and housing affordability still remain a concern. Meanwhile, Canada boasts strong population growth, a notable lift in income levels and gains in employment, particularly in the tech sector, all of which may further strengthen demand for more affordable and available housing and quality office space. In major cities like Toronto and Vancouver, space is at a premium and supply continues to remain tight. According to Altus Group’s Q3 2019 results, downtown vacancy rates for Vancouver were at 2.2%, a drop from 3.9% in the same quarter last year, and in Toronto rates remained unchanged at 3.4%. This means that such cities may be highly vulnerable to even the slightest changes in demand, putting pressure on both the private and public sectors to seek innovative strategies and scaling up their efforts to accommodate future growth through sustainable development and investments in transit and transportation networks. New Housing Initiatives Aim to Address Housing Needs Many cities across the country are investing in infrastructure and moving ahead with densification along transit routes, which may point towards a more robust future for the Canadian real estate market. With skyrocketing housing prices in the last few years, many have been edged out of the Canadian Real Estate Forum / WINTER 2019

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Chart 2: Downtown Ofﬁce Vacancy Rates in Vancouver and Toronto Among Lowest in North America Vacancy Rate

* Markets covered by Altus Group Source: Altus Group

Chart 3: Top 5 and Bottom 5 Favoured Real Estate Segments Q3 2019

Source: Altus Group’s Investment Trends Survey

real estate market in urban neighbourhoods. However, cities like Vancouver and Toronto are looking to address these challenges. Toronto’s Housing Now initiative, which was approved last year, aims to activate 11 City-owned sites for the development of affordable housing within mixed-income, mixed-use, transit-oriented neighbourhoods. The plan would create a mix of affordable rental, market rental, and ownership housing options for middle-class households. This initiative is one component within the City of Toronto’s emerging HousingTO 2020-2030 Action Plan to address housing issues. Investors also see opportunities in the rental market due to the changes in Canada’s housing dynamics. According to Altus Group’s Investment Trends Survey in Q3 2019, Suburban Multi-Unit Residential remains one of the top 5 favoured asset classes in both Vancouver and Toronto. Vancouver is moving in a slightly different direction. Last year, Vancouver councillors voted to allow “ gentle density” or “duplexes” in traditional single-family neighbourhoods. The policy change means permitting duplexes on approximately 67,000 single family lots and aligns with zoning around expensive, less crowded neighbourhoods such as Kerrisdale, Dunbar and West Point Grey, and with

regulations in crowded areas such as Kitsilano and Strathcona. However, according to a poll from Research Co., some residents still believe that the preservation of heritage buildings must be practiced even at the expense of no new rental housing or may be more resistance to more extensive projects of higher density in general. The change came as a result of the need for more affordable housing, yet while duplexes may now be allowed in Vancouver, only a handful of applications (mostly in East Vancouver) have been submitted from October 2018 to March 2019 compared to new single-family homes. Duplexes are also only an option for new construction, and an increase in floor area over what’s currently permitted isn’t allowed, nor does it allow duplex in conjunction with a laneway house. The change provides an alternative to those already considering demolishing and building a new house, and the allowable density was kept low to avoid triggering significant redevelopment. Canada’s Largest First Nation’s Development Proposed in Vancouver The large-scale $3 billion, 4.7-hectare rental housing project by the Squamish Nation in Vancouver doubled in scope this Fall. The proposed project would bring close to 6,000 units within 11 towers, which would be predominantly rental. This number doubled from the original plan back in April as a way for the Squamish Nation council to increase its potential value. The project, named the Senakw development, would be situated on land that is owned by the First Nations group and located next to the Burrard Street bridge in Kitsilano. The reserve land is not under the control of the City, therefore not subject to public consultation or local zoning or bylaws. The nation’s planning team is marketing the project for people who don’t own cars and want to live downtown by adding limited parking spaces for only 10% of the rental units, below the typical minimum. About 80% of the land would be publicly accessible space such as parks. Revery Architecture firm will design the towers, and private Vancouver developer Westbank will be responsible for the project’s construction, who will also receive 50% of revenue. The nation also plans to collect taxes on all of the units, including the 50% owned by Westbank as a way to fund infrastructure services such as water, sewer and waste removal. This development would be the largest private First Nations development project in Canada. The project Canadian Real Estate Forum / WINTER 2019

TOP 10

REAL INSIGHTS

ISSUE 36

2019 Global Property Market

INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF GLOBAL PROPERTY MARKET

AFTER A STELLAR 2018, GLOBAL INVESTMENT DIPS IN H1 2019

INVESTMENT GROWTH IN ASIA

US IN ITS 11TH CONSECUTIVE YEAR OF GROWTH

Global commercial real estate investment volume fell by 7.5% in the 昀rst half of 2019 compared to the 昀rst half of 2018, CBRE reported.

Real estate investment transaction volumes in 2018 were the strongest on record, reaching US $1.75 T and remain strong through the first part of 2019, according to Cushman & Wakefield.

Despite volatility and trade uncertainty, the US economy continues to expand at a healthy rate.

AN UNPRECEDENTED PERIOD OF FUNDRAISING PUSHED DRY POWDER TO A NEW HIGH

AN INCREASE IN INVESTOR ACTIVITY IN THE ALTERNATIVE PROPERTY MARKET PLACE

GROWTH IS SLOWING IN THE EUROZONE

Signi昀cantly fewer funds closed in Q2 2019, as caution seemed to overtake investors according to Prequin.

As traditional asset classes become fully valued and yields shrink across the country, investors are looking to alternative asset classes for superior returns.

The European Central Bank is to restart quantitative easing in order to revive growth.

RAPID URBANIZATION PRESENTS REAL ESTATE OPPORTUNITIES & CHALLENGES 68% of the world population projected to live in urban areas by 2050, says UN.

GLOBAL TALENT SHORTAGE AFFECTS THE REAL ESTATE INDUSTRY

SUSTAINABLE STRATEGIES DRIVE REVENUE

With workplaces and work itself becoming increasingly digitalized, new talent needs are emerging and should become a business priority according to Deloitte.

Market participants increasingly recognize the importance of sustainability in commercial real estate as a growth engine both on the equity and on the debt side.

ARTIFICIAL INTELLIGENCE— THE BIGGEST DISRUPTOR TO THE COMMERCIAL REAL ESTATE INDUSTRY

To access the Real Estate Forum portal, please visit: www.realestateforums.com We welcome feedback. Please email: sarah.segal@informa.com

realestateforums.com

For further details on these top trends please visit the Global Property Market Portal at realestateforums.com

AI may offer big bene昀ts for building ef昀ciency and safety, as well as security and property access, ULI suggests.

AltusGroup 29

Chart 4: Investors Continue Seeking Opportunities in Vancouver and Toronto Selected Major Markets • Buy %/Sell %*

* A positive ratio above 1 indicates more interest in buying than selling; a negative ratio below -1 indicates more interest in selling than buying. Source: Altus Group’s Investment Trends Survey

Chart 5: Featured Vancouver and Toronto Market Sales Transactions 2019

Source: Altus Group

would still need to be approved by the Squamish Nation’s members including whether the nation can enter into a partnership with Westbank in a referendum to be held on Dec 10. If approved, construction is expected to start in 2021. Transit-Oriented Development is the Name of the Game Growing housing affordability constraints, gridlock and congestion, population and employment growth and a new generation of lifestyles are part of why both the public and private sectors are working collaboratively to design communities anchored by transit. Improvements in transit and transportation networks are helping to advance these types of developments across the country. As commuters rely more on transit services and as lifestyles shift towards more higher density urban-style living, partly due to preference and partly due to affordability, transit-oriented development is becoming more common. These types of mixed-use designs aim to transform neighbourhoods and maximize land use for multi-uses and investors are doubling down. Larger types of mixed-use development complexes have already been quite successful across the globe in highly dense cities such as Paris and New York City. Toronto’s population is projected to grow from 2.96 million in 2018 to 4.27 million by 2046, an increase of 44.5%, according to the Ontario Ministry of Finance. Metro Vancouver projects its population to grow to 3.6 million by 2050 from 2.6 million in 2016. Therefore, 30

expansions in transit and rapid transit along busy corridors, and ensuring systems are in a good state of repair are significant investments to ensure regions such as Vancouver and Toronto remain connected, efficient and economically viable for years to come. Transit expansions in Vancouver and Toronto are already making headway to improve the lives of daily commuters and accommodate future residents. The federal and BC government and TransLink are funding over $9 billion in transit and transportation investments across Metro Vancouver as part of the region’s 10-Year Vision for Transportation. In September, the BC government announced six new stations for the Millennium Line Broadway Extension in Vancouver. Construction on the first phase of the Broadway Subway Project from VCC-Clark Station to Arbutus Street is expected to begin in late 2020 and completed by 2025. Future phases would connect the line to UBC’s Point Grey campus. The proposed $3.1 billion, 16-km Expo Line Fraser Highway Extension from King George Station to Langley Centre has moved ahead into the public consultation phase and will focus on the proposed station locations and the elevated SkyTrain guideway alignment. The full extension would include eight stations, three bus exchanges, park and ride spaces, 55 new vehicles, an operation and maintenance centre and supporting system upgrades. Surrey would receive six new stations, Township of Langley would receive one station, and one in the City of Langley with the new Expo Line terminus station. Funding of $1.6 billion is currently available to complete Phase One of the Surrey-Langley extension of four of the new stations and 7 km of the new guideway to Fleetwood. These funds were previously allocated to the Surrey-Newton-Guildford Light Rail Transit Project, however due to soaring project costs, the project was suspended, and funds were reallocated. Construction for Phase One is slated for 2022. About $1.5 billion of funding still needs to be secured to complete the remaining four new stations and 9-km of new track to Langley Centre. In July, a proposed gondola public transit line between a SkyTrain station and Simon Fraser University atop Burnaby Mountain received unanimous approval and support from Burnaby city council to move forward with planning works for the project. The project was initially proposed ten years ago. Canadian Real Estate Forum / WINTER 2019

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Development

In Toronto, transit talks have been slightly more controversial with the recent announcement of a new partnership to construct four new subway system expansions. The City of Toronto and Province reached a tentative deal in October for the Province’s plans of the Ontario Line and the three-stop, 8-km Scarborough Subway Extension instead of the two council-approved projects for a relief line subway and a one-stop Scarborough extension. The Province’s transit plan also includes the Yonge North subway extension and the Eglinton West Crosstown LRT Extension. The Province agreed to waive a portion of the city’s share of the cost of the projects ($6 billion) on the condition that the funds are used for TTC capital repairs or to help pay for new lines such as the Waterfront LRT or Eglinton East LRT. The City currently only has funding for about $1 billion, and the estimated repair backlog is about $33.5 billion. An assessment report for the Ontario Line noted that the project would help better service low-income communities, other areas designated for population and employment growth, as well as connect to other transit lines. However, station locations and routes (whether surface or underground) are still under review and have the potential to be altered. The proposed completion date for the Ontario Line is 2027, the Scarborough subway extension would be 2029-30, and the Yonge North Subway and Eglinton West Crosstown by 2030-2031.

Notable Opportunities for Mixed-Use Development: Onni Group’s Pearson Dogwood 25-acre mixed-use project redevelopment in Vancouver’s Cambie Corridor moved into the development permit state in July. The site is also the location of a potential Canada Line station at 57th Avenue, which would be beneficial for this type of density. For developers who may not want to deal with the pains of rezoning, a site in East Vancouver which has been pre-zoned for mixed-use development may be worth a look. The site is also in close proximity to the Commercial-Broadway Station and local amenities. PCI Developments has plans to create a transit-oriented, mixed-use oriented urban centre in the South Granville region. The developer has filed a permit application for a five-storey office mixed-use development located next to the new Broadway subway extension at Broadway and Granville. Cadillac Fairview’s acquisition of a 38-acre site in Toronto’s East Harbour is another example of a transit-oriented development strategy. The proposed development would be one of Canada’s largest commercial developments and would connect and travel past the Lakeshore and Markham/Stouffville GO Train lines, as well as the future Ontario line subway, SmartTrack services and TTC light rail transit. Another proposed mixed-use development near transit in Toronto is 88 Queen East in the east-end of the city, a partnership development between St. Thomas Developments and Fitzrovia. The plans are to build a two-phase multi-tower development with residential units, a boutique hotel, office space, and a mixed-use podium-level retail component and would replace a former surface parking lot. Oxford Properties recently unveiled its massive plans for a $3.5 billion 4.3 million square foot mixed-use development project named Union Park. Originally plans for a casino was proposed at the Metro Toronto Convention Centre (MTCC) site but was eventually turned down by City council. However, the new plan now includes a 4-tower development located on Front St. between John Street and Blue Jays Way and stretching south across the rail corridor from Roger’s Centre. The proposed plans for the complex would contain a mix of two office towers spanning 44 and 45 storeys,

residential and rental apartments, a public park built over top of the rail corridor connecting to the Roger Centre and CN Tower, as well as three floors of street retail space. Other plans include possibly adding a daycare centre and extending the PATH network to the SkyWalk, which will connect to Union Station. Oxford’s future plans for the site may expand to 11 acres and eventually include a redevelopment of the MTCC. The Design Review Panel recently voted in support of the project on the condition of several elements to be redesigned. The proposed vision of site would be one of the largest redevelopment projects in Toronto with expected construction to begin by 2023 Growing Pains: Thinking about Current and Future Generations According to Statistics Canada, Canada has the highest population growth among the G7 countries. As more jobs and residents get added to Vancouver and Toronto increasing density in many urban centres, the public and private sector are recognizing the need to create a different built form and limit sprawl by designing more connected, livable communities and workplaces that are accessible and habitable. Investment into transit improvements, carefully planned transit expansions, as well as affordable and well-designed complexes around transit nodes would be essential to a sustainable future for these cities. With all three levels of government working together to upgrade and expand transit networks, new development projects along these routes are being envisioned as investors continue to see opportunities in these markets. More developers and planners can be seen integrating inclusive sustainable development strategies into project designs as a way to meet the needs of both current and future generations, creating more community hubs and designing neighbourhoods that connect people to and from other areas across the region. If planned correctly and within a timely manner, residents, along with companies may consider moving into or staying within city walls rather than seeking alternative space outside the urban core, which may further facilitate the effects of urban sprawl. ■

Canadian Real Estate Forum / WINTER 2019

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Canadian Real Estate Forum / WINTER 2019

WHAT IS DRIVING DEMAND AND CHANGE?

Avtar Bains President Premise Properties

Commercial real estate has had a phenomenal run in the last decade. At what point in time are we in the cycle? Most people in this industry, especially those of us in Vancouver, Toronto and Montreal, have taken advantage of increasing rents, greater demand, constrained supply and compressing cap rates, leading ultimately to enhanced value and liquidity. As we head deeper into the cycle in 2020, this could be a time to be cautious or a time to be aggressive, depending on the real estate sector. In the industrial logistics real estate sector, for instance, this could still be the year to be optimistic, to be aggressive and grow. The story could be very different for other sectors. Looking at the global economies, how does one feel today? As moods seem to shift with the daily news or with tweets from a president, one thing is certainâ&#x20AC;&#x201D;volatility is here to stay, and we need to be prepared for the downside - at least in the short term. Leading companies are likely already prepared for this period of volatility, not only maintaining a healthy balance sheet but further preparing to go on the offensive in the event of a market downturn, looking to capitalize on opportunities when others cannot. Every prudent manager of real estate is continuously striving to optimize their portfolio. How strong is your current roster of credit-worthy tenants? Are you pursuing the right balance of tenant and geographic diversification to strengthen your portfolio in the event of a sector slowdown realestateforums.com

Kevan Gorrie President & CEO Granite REIT

or downturn? Conversely, is this the time to surge forward when others may be exercising caution? The executives and speakers assembling at this yearâ&#x20AC;&#x2122;s Real Estate Forum are true leaders in their respective fields. That said, as co-chairs, our goal is for attendees to come away with a better appreciation for what is really driving demand and what is driving change in this industry. Where is real estate going, and why is it heading in that direction? Where are some of the downstream opportunities that will meet the specific needs of your company? And perhaps more importantly, what are the occupiers of real estate thinking and what are their priorities today? What direction are they going in and how are they preparing for that future? We will deem this conference a success if it helps to answer some of these questions. Besides being a powerful source of information, the Real Estate Forum is also beneficial because the commercial real estate world is based on relationships. Meeting people in your asset space is incredibly important to facilitate growth in your company. As you mingle with peers, we strongly urge you to also get to know some of the younger participants. We have found that the NextGen in this industry are an educated, ambitious, passionate and diverse demographic. These future leaders of the marketplace may be more adept than the rest of us at meeting the myriad changes ahead and bringing new ideas that will resonate with the marketplace and move our sector forward. â&#x2013; Michelle Morra 35

AFFORDABILITY SHIFTS MORE RESIDENTS TO RENTAL

Benjamin Tal Deputy Chief Economist CIBC World Markets

“Canadians increasingly want purpose-built rental. It’s the place to invest, because the rental market is on fire.”

Housing costs in Canada’s major cities prices remain high relative to income, despite recent market corrections in Vancouver and Toronto. Even with Montreal’s higher proportion of renters, housing costs there continue to rise. Those price points will perpetuate a long-term shift from home ownership to rental, predicted Benjamin Tal, Deputy Chief Economist, CIBC World Markets. “The market will have to adjust the way it has in Paris, London and Manhattan,” Tal anticipates. “Part of it is more rental.

Canadians increasingly want purpose-built rental. It’s the place to invest, because the rental market is on fire.” Tal remains hopeful that global trade tensions will ease and soften the downturn that the market expects next year. “Lower interest rate and Trump spending in 2020, plus temporary relief from United States- China trade dispute could lift American prospects from recessionary territory to growth of 1.5%,” he suggested. “Canada would ride this wave.” Canadian interest rates ought to remain low with possible cuts by the Fed next year. The recently elected Liberal government is relatively stable and the $4B in new spending promises are unlikely to upset Canada’s economic applecart. “That’s just 0.2 percent GDP growth,” noted Tal, “not enough to give the Bank of Canada the vapours.”

The main political dilemma pits the environment against energy, significantly weakening Alberta. The Liberals are well-positioned to implement their policies by partnering alternately with the New Democratic Party, the Bloc Québécois—and potentially the Conservatives, when it comes time to press forward with pipelines. “We need an environment-friendly way to ship our products to market,” he said. “That’s the real federal-provincial issue during the next two years.

”Canada also needs a long-term strategy to address persistent labour shortages that continue to hobble industry. Developers see it in soaring construction costs. Governments need to respond through education policy, Tal prescribed. “We have people without jobs and jobs without people,” he observed. “That keeps growth below optimal levels and widens income disparity. We need more education.” “I’m not just talking about computer engineers,” he explained. “I’m talking about trades: plumbers, electricians, machinists, welders. We have to stop the stigma start sending more students to colleges than universities.” Easing trade tensions could also encourage corporations to invest some of their huge cash pile. “That uncertainty won’t be resolved any time soon,” Tal conceded. “That’s one reason why the economy will be relatively weak in 2020.” ■ Robert Frank

Canadian Real Estate Forum / WINTER 2019

MARKET LEADER In real estate investment & corporate banking 2019 notable transactions

American Hotel Income Properties REIT LP

Melcor REIT

RioCan REIT

US$215,500,000

$46,000,000

Sale of Economy Lodging Portfolio to Vukota Capital Management

Convertible Unsecured Subordinated Debentures

$500,000,000 Senior Unsecured Debentures Joint Bookrunner August

Co-Advisor

Sole Bookrunnner

Pending

October

Allied Properties REIT

Minto Apartment REIT

$600,000,000

$431,000,000

Two Senior Unsecured Debenture Offerings

Two Trust Unit Offerings

$230,000,000 Trust Units Joint Bookrunner October

Joint Bookrunnner

Co-Lead

August & October

April & October

AIMCo

True North Commercial REIT

CT REIT

Starlight Investments

Crombie REIT

Undisclosed

$81,000,000

$240,000,000

$382,000,000

$200,000,000

Sale of a 50% Interest in a Calgary Industrial Portfolio

Trust Units

Two Term Loans

Senior Unsecured Notes

Joint Bookrunnner

Sole Advisor

Joint Bookrunnner

Lead Arranger, Sole Bookrunner, Administrative Agent & Sole Lender

September

June & September

August

Slate Office REIT

KingSett Capital

Starlight U.S. Multi-Family

BCi & QuadReal

Tricon Capital Group Inc.

$108,000,000

$850,000,000

US$1,400,000,000

$1,500,000,000

US$119,000,000

Term Loan

Two Corporate Revolvers

Corporate Revolver

Acquisition Loan

Sole Lender

Lead Arranger, Sole Bookrunner, Administrative Agent, Co-Lead Arranger & Joint Bookrunner

Sale of a 23 Multi-Family Property Portfolio to Tricon Capital Group Inc. Sole Advisor

Co-Lead Arranger & Joint Bookrunner

Sole Lender

August

June & August

June

IDI Logistics

Choice Properties REIT

Northview Apartment REIT

First Capital Realty

Panattoni & Greystone

US$1,200,000,000

$345,000,000 Trust Units Joint Bookrunnner May

$200,000,000 Corporate Revolver Co-Lead Arranger & Collateral Agent March

$200,000,000 Term Loan Sole Lender March

Sale of Wayfair Logistics Facility & Congebec Cold Storage Facility

June

$750,000,000 Senior Unsecured Debentures Joint Bookrunnner June

$86,000,000 Trust Units Joint Bookrunner June

$453,000,000 Common Shares Co-Lead April

CPPIB & Oxford

H&R REIT

SmartCentres REIT

Slate Asset Management

$230,000,000 Trust Units Sole Bookrunner January

Starlight Investments & Blackstone

$98,000,000

$205,000,000

Sale of 56 Wellesley Street West

Term Loan

Sole Advisor

Sole Lender

February

Term Loan & Corporate Revolver Co-Lead Arranger & Joint Bookrunner

$473,000,000

$250,000,000

Sale of 1 Adelaide Street East

Term Loan

Co-Advisor

Sole Lender

March

$350,000,000 Senior Unsecured Debentures Joint Bookrunner March

$154,000,000

Co-Advisor March

cibccm.com 416 956-6200 CIBC World Markets Inc. is a legal entity name. CIBC Capital Markets is a trademark brand name under which different legal entities provide different services under this umbrella brand. Products and/or services offered through CIBC Capital Markets include products and/or services offered by the Canadian Imperial Bank of Commerce, the parent bank of CIBC World Markets Inc. and various other subsidiaries of the Canadian Imperial Bank of Commerce. CIBC World Markets Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. CIBC World Markets Corp. is a member of the Financial Industry Regulatory Authority. The CIBC logo and â&#x20AC;&#x153;CIBC Capital Marketsâ&#x20AC;? are trademarks of CIBC, used under license. All other trademarks are owned by their respective trademark owners.

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VANCOUVER INDUSTRIAL DEVELOPMENT BOOM EXPECTED IN THE NEXT 12 MONTHS industrial asset with rent growth. While the approvals for new projects.,” says Berry, who foresees a significant amount of construction starts and deliveries into 2021, particularly in the Campbell Heights area in Surrey.

Beth Berry Vice President Industrial Development Beedie Expect to see a fair amount of industrial building completions in Metro Vancouver within the next 12 months, says Beth Berry, vice president of industrial development at Beedie. On the supply side, “We expect to see a significant increase in new industrial building completions in 2020 and 2021 after two years of considerably less new construction delivered in 2018 and 2019. At Beedie particularly, 2018 was a big year for planning and obtaining 38

The process of acquiring land, any environmental redevelopment requirements, rezoning, pre-loading if necessary, servicing and the approval process has lengthened the timing duration for bringing new industrial projects to market, says Berry. On the demand side, “we’re seeing new entrants to the market, logistics users requiring more space, a comeback in manufacturing in our market in the last few years and a massive expansion in the film industry. From film and manufacturing to e-commerce, logistics, food production and recreational uses, there is quite a bit of competition for the existing industrial supply,” she says. The high demand from multiple use categories, coupled with low vacancy and low historic lease rates, is great news from an investor perspective, says Berry. “There can be upside potential for purchasing an

going in cap rate may seem low based on income in place, there’s great cap rate growth potential because lease rates are increasing.” From a new development perspective, this lease rate growth has been essential for projects to make financial sense. Metro Vancouver experienced “a fairly inflationary period of time for construction costs, particularly in 2018 and 2019,” says Berry. “And there are multiple factors that are making new construction expensive.” From the ground up, the land available for industrial development is more challenging than it was a few years ago. The time to bring land to market or to a build ready state have lengthened. The time frame for carrying costs in addition to substantial increases in land value expectations and higher construction costs require increases to market lease rates. Beedie has a number of industrial land opportunities that are in the works, which it looks forward to bringing to market in 2021 and beyond. ■ Barbara Balfour Canadian Real Estate Forum / WINTER 2019

2020 A BULLISH YEAR FOR CANADIAN REAL ESTATE

Brett Miller Chief Executive Ofﬁcer Canderel Group

What do trade wars, movement of foreign currencies, and the state of the global economy all have in common? They have a direct impact on Canadian real estate. “Even though we’re a purely Canadian manager and developer, at the macro level these factors are very significant to us for a number of reasons,” says Brett Miller, Chief Executive Officer at Canderel Group.

“Extremely low interest rates in Europe, the strength of the dollar, and ongoing issues with China are all impacting capital flows. We do a lot of work with foreign investors who co-invest with us and these issues make it hard for European capital to be competitive because they have to hedge against the currency risk on the Euro.” At the same time, Canadian pension funds have moved significant dollars to international markets, creating what Miller says is distortion in the Canadian marketplace. “Then we have foreign owners who would like to come into Canada - they like the product, the stability, and our overall story, but some financial challenges remain. “So I’m watching 2020, I’m really attentive to what is happening at a macro level.” Closer to home, Miller is also watching the evolution of the planning and approval process for developments across all Canadian cities. It’s become increasingly

difficult for real estate developers to juggle city, political and community interests with return expectations, he says. “I’m hoping that we get to a new day in terms of relationships with municipal authorities, so it’s much more of a win-win. And that particularly with affordable housing, that the real estate industry is consulted to participate in a solution as opposed to having political decisions dictated to us.” Developers are generally used to working with volatile markets, whether it’s cap rates, construction prices, or leasing demand and absorption that are being affected. “We expect those to modulate, and I think we’ve learned how to manage them,” he says. “What’s interesting is there’s so much capital in the marketplace, land prices are not reflecting the challenges of bringing product to market. But we’re continuing to see really strong immigration numbers and wealth that’s being created. There is a need for more apartments, more condos and industrial space. The strength of our Canadian cities is what’s keeping us very bullish.” ■ Barbara Balfour

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TO STAY RELEVANT, RETAILERS MUST LOOK BEYOND SIMPLY SELLING GOODS TO CRAFTING CUSTOMER EXPERIENCES Many retailers still haven’t grasped the changes they need to make bricks and mortar relevant again, but others who are innovating their business models tend to choose one of three paths.

David Zietsma Senior Vice President Strategy and Performance Jackman Reinvents

One revolves around taking the pain out of the buying process through an omnichannel strategy, says David Zietsma, Senior Vice President of Strategy and Performance at Jackman Reinvents. “You’re already making

the trip so we’ll make it as easy as possible to get in, grab other stuff while you’re there, and get out. It’s like click-and-collect; Amazon Go is a version of this,” he says. Another path retailers are exploring is an in-store environment that allows for discovery and immersion. “Sephora is a good example of this, where shoppers experiment with makeup. Even grocery stores are becoming more about menu exploration, talking to chefs and learning about what to make than just going in to buy ingredients.” Then there’s a third category of retailers, who are transforming stores into a gathering place for people to do more than just buying goods, but ultimately still talk about the benefit the products are serving. Some examples include the Running Room, Apple and Lululemon, says Zietsma, who also notes the success of a new retail concept called Fourpost. Recently launched at West Edmonton Mall and the Mall of America, the curated selection of pop-up stores acts as a local market brought to life. This is not only engaging for shoppers but also reduces retailers’ upfront costs and the need for long leases.

“If I were a real estate company, I would be reaching around the retailers to create experiences that matter. A new look isn’t enough.” “The evolution of the real estate industry has been slow because it’s structurally not set up for the kind of innovation that needs to happen. Funding is currently dependent on leases and the longer the lease, the better,” he says. “But retail is evolving into something that needs to be a lot more flexible and adaptable than the financial market as letting real estate be. “Retailers are evolving and thinking ahead, but not fast enough and there aren’t enough of them. If I were a real estate company, I would be reaching around the retailers to create experiences that matter. A new look isn’t enough because it doesn’t address the fact that consumers are fundamentally looking for a different type of engagement with brands. If the retailers aren’t figuring out what role they play in people’s lives beyond just offering product, then they’re just like everybody else. ■ Barbara Balfour 40

Canadian Real Estate Forum / WINTER 2019

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“It’s just another sign of how topsy-turvy the world has become, when investors now buy bonds for the capital gain and buy equities for the income. We remain bullish on high quality, long-duration bonds, because the fundamentals still argue for lower yields going forward.” Cash is king Corporate balance sheets burdened by debt could be the culprit. Global debt growth has outpaced increases in GDP fivefold. Markets borne by bullish sentiment have yet to capture diminished prospects, though. “It’s just another sign of how topsy-turvy the world has become, when investors now buy bonds for the capital gain and buy equities for the income,” he quipped. “We remain bullish on high quality, long-duration bonds, because the fundamentals still argue for lower yields going forward.”

DECADE-LONG DEBT BINGE DIMS PROSPECTS FOR 2020 Signs of economic slowdown in the United States permeate almost every statistic that David Rosenberg marshals.

David Rosenberg Chief Economist & Strategist Gluskin Sheff + Associates

“Nine of the ten major indicators declined outright in September. Auto sales collapsed in October, and demand for homes and major appliances fell,” reported Gluskin Sheff + Associates’ Chief Economist & Strategist. “Core inflation peaked at 2.9% in August—its lowest peak ever. Labour market slack is showing up as wage growth slows.” The timing of previous peaks preceded recent recessions with a median lag of six months, clouding the economic outlook for 2020. Americans are still feeling the squeeze of a near-400 basis point tightening from 2016-2018. Relief from subsequent loosening, Rosenberg forecast, “won’t show up until 2021.” The aggregate of indicators projects an 82% likelihood that a recession is in the offing.

American equities stand to slide the most in a downturn, increasing the allure of foreign stocks, Rosenberg suggested. “One has to question the logic of any investor spending more to buy into a price-to-earnings ratio of 17.5x, going forward,” he said. “In contrast, Japanese forward valuations, at 13.7x, are far below their long run average of 19.8x.” Massive fiscal stimuli by China that carried the global economy after setbacks in 2008 (19% of GDP) and in 2016 (10% of GDP) are unlikely to recur, Rosenberg added. “All we did between that and the Trump tax cuts was to buy some time.” In Canada, housing starts have dimmed. Hitherto-strong multi-unit residential construction continues to sag, though single-family starts have recovered some of the fallout from September. Building permits are contracting 2.5% year-over-year, with a near 5% (non-annualized) fall in September. “This does not bode well for residential construction,” he predicted, “an area that the Bank of Canada recently mentioned it would monitor as a source of ‘resilience’ in the Canadian economy.” ■ Robert Frank Canadian Real Estate Forum / WINTER 2019

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WHEN IT COMES TO PREDICTING TRENDS, THE DEVIL’S IN THE DETAILS understand who their customers are and how that impacts both their marketing and location-related decisions,” says Kestle.

Jan Kestle President & CEO Environics Analytics

After years of decision-making based purely on gut feeling, businesses have started taking on a much more analytical, data-driven approach. That’s great news for Environics Analytics – and the owners, investors, and developers who are increasingly turning to them, says President and Chief Executive Officer Jan Kestle. “We work for most shopping center developers and a large number of retailers in Canada to help them 48

we’ve seen from all the research over the last five years is retail is not dead and there’s more than one or two types of shoppers. People are still going into stores and retailers are still opening bricks and mortar. Everybody does a bit of everything.”

Using aggregate, anonymous, privacy-friendly data combined with findings each business has “A lot of the trends we hear about in retail and collected from their customers, Kestle helps development tend to be the them do a deeper dive in average of what’s “One size doesn’t fit all making location decisions. happening in the big cities. customers for one kind when it comes to trends, “The But one size doesn’t fit all of retailer are similar to when it comes to trends, and it makes a big another and you can attract and it makes a big difference whether you tenants into vacant space difference whether you are based on who else is there are in a major in a major metropolitan and what the shopping trip area, in a rural area or looks like. metropolitan area, in a somewhere in between. rural area or somewhere “Using a lot of deep analysis The devil’s in the details around the different types of and that’s where using in between.” customers and where their more data and analytics habits are coming from, and can really afford developers the opportunity to make a better assessment of by looking at surveys, demographics, government data, and other kinds of data feeds, their investments on the retail side.” we’ve built this whole ecosystem of consumer This is particularly relevant with regards to the behavior for all of Canada, where everything is evolution of traditional shopping centers into tied to each six-digit postal code.” gathering places that are more adapted to their local communities, says Kestle. “What ■ Barbara Balfour Canadian Real Estate Forum / WINTER 2019

REAL ESTATE’S ALLURE APPRECIATES AS INVESTORS SEEK ALTERNATIVE ASSETS trade wars hurt the money centre coastal cities Not all players will benefit equally, Love cautioned. If capital demand continues to grow, prices for the very best of assets will continue to be compressed.

Jon Love Chief Executive Ofﬁcer KingSett Capital Record low and even negative interest rates that have driven equity values skyward, sending investors scurrying for other vehicles for their capital. “Real estate often tops the alternatives list, because it often offers the best risk-versus-reward profile,” observed KingSett Capital Chief Executive Officer Jon Love. “On a global basis, we will continue to see strong capital demand for real estate and we could soon see even stronger flows into real estate.”

“There is a growing gap in investor demand between the best and the rest,” he noted. “That will reflect itself in pricing dynamics.” The prospect for trade wars, Brexit, tax hikes and growing anti-resource sentiment cloud the horizon, though. “In the past, political priorities hinged on prosperity,” Love continued. “Today we’re instead witnessing government policies that are, at best, indifferent and, at worst, detract from private sector employment.” The pain from those policies is not distributed equally, either. “People outside the biggest cities suffer most. We’re becoming a society of super-urban haves versus everyone else,” he declared. “With Brexit, Londoners will suffer less than those in the rest of Britain. The United States’

far less than they do the countryside. Likewise, in Canada, anti-resource policies simply don’t have the same impact in Montreal, Toronto and Vancouver that they do elsewhere.” It’s premature to despair though, Love added. He said that he was emboldened by recent federal election results. “I was heartened by Canadians’ ability to send a message to government that is fairly unambiguous,” he said. “It is now a question of how the Prime Minister and his Cabinet colleagues translate that message and transform it into action.” “It’s not an easy job,” Love acknowledged. “I have great respect for people who undertake political office and try to sort out all these issues.” “It’s too soon to say what the outcome will be,” he concluded. “We have yet to see how politicians will respond to the message that the electorate has sent: As Cervantes wrote in Don Quixote, ‘The proof of the pudding is in the eating.’” ■ Robert Frank

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INNOVATION IS ALL IN THE DETAILS

Laurence Vincent Co-President Groupe Prével

“The solution is to build, build, build, and build again because the more we build, the more we’ll have offers on the market.”

For Laurence Vincent, innovation is all in the details. “It’s not about making a big, flashy statement but rather all the little things that make a difference when you add them up, thus changing the way people live,” says the Co-President of Groupe Prével, which just launched the first phase of the Esplanade Cartier project in the east end of downtown Montreal. This will involve the construction of 114 units in a 14-storey tower overlooking a public square – but there’s much more to come, she says. “We’re also looking to incorporate rental housing, offices and retail space to create a feeling that’s very vibrant and well integrated in the neighborhood,” says Vincent. “I think a lot of people are uncomfortable with condos that don’t respect the environment where they’re being built. By being very sensitive to the values of our clients and staying connected through focus groups and ongoing conversations, we’re able to come up with innovations that are relevant to them.” For instance, instead of keeping bike storage in the basement, they plan to feature it in the lobby on the ground floor, thus promoting active transportation by making it more accessible.

They’re also creating a pedestrian-friendly vibe on the project’s ground level, says Vincent. “We recreated the typology of the Montreal triplex where entrances will come directly from stairs on the street, so it doesn’t feel like a big monolithic block, but rather all these little shops and houses as you are walking by. This gives people opportunities to interact with each other on the sidewalk and creates a much warmer feel.” Thanks to an influx of foreign students, downsizing baby boomers, and millennials choosing not to buy real estate, rental markets are booming in Montreal. “There are a lot of new markets we hadn’t seen in the past. Right now we have an occupancy rate of 1.9 per cent, which is below the equilibrium,” says Vincent. “I think the solution is to build, build, build, and build again because the more we build, the more we’ll have offers on the market. This will cause a domino effect where some people who have the means will be able to get into more expensive housing, which will liberate units that are more affordable.” ■ Barbara Balfour Canadian Real Estate Forum / WINTER 2019

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“We’re examining how land that we’re about to sell because it is no longer needed for one program might be redeveloped creatively in partnership with the private sector to deliver affordable housing while ensuring that the builder and owner get a reasonable return on an ongoing cash flow basis.”

PROVINCE BREATHES NEW LIFE INTO PUBLIC PROPERTY PORTFOLIO Ontario is taking a fresh look at how best to use its infrastructure holdings to improve how it delivers public services.

Toni Rossi President, Real Estate Infrastructure Ontario

“We’re incredibly creative,” smiled Infrastructure Ontario (IO) President, Real Estate, Toni Rossi. “When we looked at our current portfolio we discovered that some facilities hadn’t been updated for decades. They’re ripe for optimization.” Specifically, the province’s real estate agency hopes to unlock the untapped real value in its assets to deliver more and better affordable housing and long-term care beds as well as to encourage efficient, environment-friendly transit-oriented development. Part of that process will entail assessing advances in private-sector real estate development that can benefit Ontario taxpayers. “We aim to work smarter,” Rossi declared. “We’re learning from the private sector’s successes in how it optimized and managed its assets, and intend to apply those lessons to how IO manages public sector assets.” “Public housing, in particular, offers a very good opportunity to collaborate with the private sector on construction,” she suggested. “Policy levers could also help

offset some real estate value in order to make long-term care development more economic. We’re exploring ways to work with private sector developers to lever our land and private sector land so as to deliver more long-term beds to meet demographic needs, placed in the communities where they will be needed. That’s the government’s objective.” Until now, little of Ontario’s public property portfolio has strayed from single-use silos. IO is reviewing how some of those properties might be repurposed or multi-purposed. “We’re examining how land that we’re about to sell because it is no longer needed for one program might be redeveloped creatively in partnership with the private sector to deliver affordable housing while ensuring that the builder and owner get a reasonable return on an ongoing cash flow basis,” Rossi explained. “Long-term care: Why not take a second look at how we employ our hospital and school board land and weigh whether they deliver their full value to the community?” she continued. “Can we intensify those sites? Many comprise a fair bit of land. Could two storeys make better use of that land?” “These are the questions that we have been asking for several years and will continue to ask,” Rossi concluded. ■ Robert Frank

Canadian Real Estate Forum / WINTER 2019

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BUILDING EFFICIENCY AT THE CORE OF COMPETITIVENESS Leading-edge technology: Tenants want it, the environment needs it, and it spares costs that end up making the smart property owner more competitive. What’s not to like?

Lisa Chandler Vice President, Development Oxford Properties Group

“You have to innovate, if you want to stay ahead of or keep pace with the competition,” agreed Lisa Chandler, Vice President, Development, Oxford Properties Group. Changing demographics come with demands for buildings that are not merely environment-friendly but also more convivial workplaces for their inhabitants, as well. “Health & wellness is a big focus. Years ago, it was just LEED. Now, you have to push the boundaries to attract tenants,” she suggested. “You have to differentiate yourself to stay ahead.” “We’re looking at making all of our buildings smart, whether they’re shopping centres, office buildings or residential properties,” Chandler said. “We’re also working on giving our customers more flexibility to control their own space. We’re testing apps that could let clients control their lighting and HVAC. We’re also looking at the innovations in intelligent glass.” Some of that leading-edge technology comes with a hefty price tag, she acknowledged. So how does Oxford implement competitiveness-enhancing without sacrificing returns? “If I aim to invest $2 million in infrastructure that could shave 20 percent from my energy costs over the next ten years, I have a

“Today, sustainability is a priority. If there is a sound business case for renewable energy, geothermal or solar, then we’re prepared to implement it. We’re looking at installing solar panels on our shopping malls and industrial properties and even, to some extent, on our office and residential properties, where smaller roofs pose a constraint.” strong business case to support the investment,” Chandler asserted. “Eight years ago, we would not have looked at it that way. Today, sustainability is a priority. If there is a sound business case for renewable energy, geothermal or solar, then we’re prepared to implement it. We’re looking at installing solar panels on every one of our shopping malls and on all of our industrial properties and even, to some extent, on our office and residential properties, where smaller roofs pose a constraint.” “We’re guided by our strategy: We start at the macro level. Sustainability is a core value at Oxford. Then, we work our way down to the micro level,” she concluded. “For example, when master planning the intensification of our shopping malls, and building sustainable communities is key, we weigh the business case on the implementation of technologies like geothermal and district energy as a supplement to solar to support our strategy.” ■ Robert Frank Canadian Real Estate Forum / WINTER 2019

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Paul Finkbeiner Global Head of Real Estate Great-West Lifeco In his business, Paul Finkbeiner, Global Head of Real Estate, Great-West Lifeco is always trying to do two things: deliver good returns to his clients and grow his business to meet his clients’ needs. He looks at growth from both a geographical standpoint and a new product standpoint. “In the last two years we’ve added capabilities in the U.S., and we’re looking to add capabilities in the U.K., Ireland and Europe going forward,” Finkbeiner says. “But we’re also looking at new 56

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fund money—he says, “You’ve got to know what you’re buying and know the risks. Once you are able to assess that, you’re a better advisor and you’re better at placing people’s money.”

When asked about the current global socioeconomic climate, Finkbeiner says the key to operating amid turmoil is When deciding on an asset class, diversification. “You’ve just got to diversify Finkbeiner explains that geographically, diversify by because he is an advisor and “You want to be asset type, and if you do that I not a pension fund, he has to think you’ve got a better thoughtful in go where his clients want to chance of being there for the whatever you do... long term.” go. “What I’m seeing is there are some clients that still want Take risks, not core real estate, so very Finkbeiner doesn’t take his chances.” stable return, but we also responsibilities lightly. He have other clients that are says that when managing looking for higher yield and more risk. So other people’s money, he thinks as though we’re just trying to accommodate them that he were managing his own mother’s money. way,” he says. “And by having more “It could be for someone’s retirement. You geographies I can do that.” want to be thoughtful in whatever you do,” he says, “and therefore it’s research based, For the year ahead, Finkbeiner believes real it’s due diligence based, and you’re taking estate will continue to have a good run but, risks, not chances. That, to me, is what with any real estate investment, advises being a good investor is all about.” anyone to be cautious, to do the proper due diligence. For someone in his particular ■ Michelle Morra position—he places other people’s money unlike a pension fund, which places pension Canadian Real Estate Forum / WINTER 2019

AWAKENING TO DIGITAL TRANSFORMATION

Michael Turner President Oxford Properties Group Someone recently mentioned to Michael Turner, President of Oxford Properties Group, how Amazon is an example of the impact technology is having on real estate. Turner pointed out that technology’s impact goes a lot further back in time. The personal computer changed everyone’s jobs, for example, and rewinding way back to the 1800s, the invention of the vertical lift added many, many storeys to buildings and had an enormous impact on the industry.

We would run well over 1000 jobs through a platform like Honest Buildings that will save us a fair amount of money and time, and we’ll have better data on our own projects.

Technology today affects underlying demand and “how we think about leasing space, managing space, understanding our own business from an asset management perspective, how we invest, and how we develop,” Turner says. He adds that Oxford and its progressive, tech-savvy executive are investing heavily in cloud-based technologies and, for some time now, have been undergoing a complete end-to-end digital transformation. When deciding on which technologies to adopt, Turner says Oxford focuses on “areas that have the lowest hanging fruit, with the greatest magnitude of impact for dollar spent or time or effort.” Two mega processes the company has moved to cloud enablement are capital procurement and capital management. “We use a system called Honest Buildings, which we piloted, saw the vision of the company’s CEO, and have quickly enabled it throughout our entire portfolio globally.

“We’re doing the same in leasing with a platform called View The Space, which is a revenue management tool for commercial assets. All of these platforms are replacing legacy processes and systems that we had to build ourselves and were not very effective.” Turner sees a property manager or developer as a supply side integrator—who integrates skills of several other suppliers to generate an outcome, a service, a product. “We’re moving those integrations to the cloud and using technology instead of formerly analog processes, static pdf files or spreadsheets because the whole market has awoken,” he says. “There’s a whole new cast of very capable platforms that can help us run our business better, faster, cheaper, and help deliver a better experience for the customer.” ■ Michelle Morra

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CANADA SHOULD SHINE THROUGH THE NEXT FEW YEARS QuadReal has prioritized its commitment to its capital partners; as well as agile but thorough decision making; operating, its service and development capabilities; and has adopted a global outlook. “In Canada, we are growing our portfolio of urban, transit-oriented developments like The Post and Oakridge in Vancouver and Bayview Village in Toronto,” he said. “We have also resolved to use attention to detail and responsiveness to demonstrate to our tenants, residents and visitors that our commitment is second to none.”

Remco Daal President, Canadian Real Estate QuadReal Property Group

QuadReal also recently undertook a management role for RBC’s new Canadian Core Real Estate Fund, which is expected to become an equal owner with BCI in a select portfolio of core BCI properties. “The initiative supports QuadReal’s objective to diversify BCI’s real estate portfolio internationally, while maintaining a strong position in high-quality domestic assets,” Daal said.

“Broadly speaking, while there will always be challenges, we believe that the next few years will reinforce the benefits of political stability, conservative leverage and a material exposure to core real estate properties in Canada. It should be a period through which Canada shines.”

While Remco Daal might be mindful that we are in the late stage of the business cycle, he remains upbeat about the opportunity to weather whatever storms lurk over the horizon. “We have to keep our focus firmly on active asset management and develop a diversified portfolio that can be expected to perform well across economic cycles,” advised QuadReal Property Group’s President, Canadian Real Estate. With no end up in sight to the current low-growth, low-inflation environment, robust rental growth will remain out of reach unless developers commit to sectors that are undergoing secular change driven by demography, technology and other such factors, and bolster their investments by delivering responsive local management and service, he said. “That is why we like ‘beds and sheds,’” Daal explained. “Both multifamily and industrial have prospered from secular long wave changes in the way that society does things and what it expects from its accommodation.”

The two main challenges, heading into 2020, echo those of 2019: Geopolitical and policy uncertainty as well as low interest rates that drive more yield-hungry capital into the real estate domain, looking for better returns. In terms of opportunities next year and beyond, Daal anticipates greater demand for environmental resilience, with greater emphasis placed upon sustainable development. Today’s efficiency-enhancing technologies will increasingly become commonplace, he predicted. Daal also flagged the importance of addressing the growing demand for affordable housing. “The challenge is real, and the real estate community has a pivotal role to play in responding to this need,” he urged. “Broadly speaking, while there will always be challenges, we believe that the next few years will reinforce the benefits of political stability, conservative leverage and a material exposure to core real estate properties in Canada,” Daal concluded. “It should be a period through which Canada shines.” ■ Robert Frank Canadian Real Estate Forum / WINTER 2019

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As the human experience revolution gains strength, large corporations have had to rethink how best to retain their number one asset: their talent. Today’s workplaces are gaining a different feel from where previous generations worked two decades ago. “All generations want better workplaces, but millennials and succeeding, younger generations expect it,” declared Trish Clarry, Principal, Corporate Solutions, JLL. “They are looking for more collaborative workspaces, as well as amenities on outdoor patios and in concourses. They want workplaces within walking distance of mass transit.” Those challenges can be solved with wise placement and savvy structures. But now, employees want to enjoy the entire human experience, once they enter the premises. “It’s about their health and well-being,” Clarry explained. “Amenities alone are no longer enough for companies that want to convey that they really care. They also have to weigh the workplace environment to provide access to natural light, optimize artificial lighting and deliver the best heat, ventilation and air conditioning available. All those factors affect health and well-being, hence are getting greater scrutiny.” 60

“It’s about health and well-being: Amenities alone are no longer enough. Companies that want to convey that they really care also have to provide access to natural light, optimize artificial lighting and deliver the best heat, ventilation and air conditioning available.” Does that oblige builders to seek certifications like LEED and WELL? “I’m not sure that organizations necessarily need to obtain certifications,” she replied. “It depends upon where they are in their journey.” “Some large organizations have been engaged in certification for such a long time that they have almost migrated beyond it,” she explained. “It’s just part of their culture, their lockstep, to ask out loud: ‘How do we push the envelope on this?’ Whether they achieve another sign on their building ultimately is secondary to whether they take to heart their own design commitments—and deliver on them.” “For companies that are just starting out on this journey, though, those certifications are exceptional proof points that they can take back to their employees, to demonstrate that they’re making a difference and say: ‘We’re embarking on this journey and these guidelines will help to steer us toward the right decisions that will lead us where we need to go,” Clarry concluded. ■ Robert Frank Canadian Real Estate Forum / WINTER 2019

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INNOVATIONS BRING MALL TRAFFIC

Jose Ribau Executive Vice President Digital & Innovation Cadillac Fairview

Many retailers have struggled since online shopping revolutionized how people spend their money, but malls are fighting back. No longer just places to shop, today’s progressive malls are an experience thanks to innovators like Cadillac Fairview. For two years CF has built its brand as one that is experience-led to create engagement, and through innovation, deepen the company’s interaction with guests and clients. Earlier this year, the company launched “Ravel by CF,” a digital platform focused on helping Canadian retailers and the fashion industry remove friction from today’s retail environment to create greater connections between consumers, and brick and mortar investments. “We’re amplifying our traditional leasing model, unlocking the untapped potential of our physical spaces and creating new ways for consumers to interact with us,” says Jose Ribau, Executive Vice President, Digital & Innovation, Cadillac Fairview. A great example of this is Ravel by CF’s partnership with the Canadian Arts & Fashion Awards (CAFA) as of last June. “We celebrated our partnership with CAFA by showcasing Canadian designers in a special ‘Wear Canada Proud’ pop-up shop at CF Toronto Eaton Centre,” Ribau says. For three weeks, visitors were encouraged to discover Canadian designers and brands, including Biko, Dean Davidson, Hilary MacMillan, Jenny Bird, Roots, and many more. Some of the featured products were available for purchase exclusively at

“We’re amplifying our traditional leasing model, unlocking the untapped potential of our physical spaces and creating new ways for consumers to interact with us.” the pop-up. “This activation generated millions of media impressions, created a new direct-to-consumer relationship for top designer brands, and generated increased cross-selling opportunities for our in-mall retailers,” Ribau says. Another example was a dedicated storytelling space, “Streaming at CF,” a content studio at CF Toronto Eaton Centre that generated increased traffic at a time when Cadillac Fairview was opening new, exciting stores at North America’s busiest shopping centre. “‘Streaming at CF’ enabled content creators from all backgrounds, including two-time NBA Champion Danny Green and Canadian Journalist and Fashion Entrepreneur Jeanne Beker, to create, shoot and air content using state of the art equipment right from the heart of downtown Toronto. “Visitors and shoppers were able to watch the creative process firsthand, while also having access to a highly Instagrammable space including a selection of limited edition merchandise from select creators and partners,” Ribau says. ■ Michelle Morra

Canadian Real Estate Forum / WINTER 2019

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At Cadillac Fairview our heritage is one of seeing growth and opportunity in distinctive urban spaces. We pride ourselves on having the unique ability to design, build, operate and ultimately transform communities in a responsible and inspiring way. Not only do we aim to redeć&#x2DC;&#x20AC;ne skylines, but we believe in creating physical and digital experiences that are unique, inclusive and cultivate a strong sense of community. To learn more about us, please visit cadillacfairview.com

EVOLVING WITH OFFICE TENANTS’ NEEDS

Barbara Ciesla Vice President, Experience Allied Properties REIT

The ways that people work are changing. Employee’s work lives are increasingly nomadic and mobile. Offices are no longer closed spaces but more likely to be wide open to promote collaboration, not to mention comfortable and appealing, with the right amenities to attract top talent. How does this all impact a building owner’s or landlord’s decisions?

“We see tech companies locating their operations to cities in Canada, like Toronto, because they do have access to that labour pool, but that labour pool is being very discerning in how they make decisions.”

“We’re providing the location and the space and then making sure the infrastructure is there for what our users are looking for and are needing,” says Barbara Ciesla, Vice President, Experience, Allied Properties REIT. “But I think the need is ever evolving.

people being interviewed, and these potential employees are asking to come to see their space because that is part of their decision.”

“Allied has always been user focused and our commitment is to continue to be user focused and find new ways of supporting that. That means always being flexible to the changing needs of our users and, of course, the changing needs in the marketplace.” A big factor that connects the workspace to real estate is the war on talent which, Ciesla says, is getting increasingly tougher. “We see tech companies locating their operations to cities in Canada, like Toronto, because they do have access to that labour pool,” she says, “but that labour pool is being very discerning in how they make decisions.” When Ciesla met with some users of a property recently acquired by Allied, she says, “They were telling us that they have

Compared to how real estate was done many, many years ago, building design has become infinitely more complex. Sustainability, human wellness, and technology, which weren’t even considerations a couple of generations ago, have become critically important. “You’ve got all of these elements now,” Ciesla says. “With big data, we want our buildings to be responsive, but that responsiveness is based on the data that we’re pulling out of these buildings. All of these pieces have to converge. The output is a very beautiful, elegant and simple product for our users but, behind the scenes, to get there is a lot of complex thinking.” ■ Michelle Morra Canadian Real Estate Forum / WINTER 2019

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FUTURE FORUMS & CONFERENCES 2019 – 2021 Canada’s Leading Real Estate Conferences Listen to Industry Leaders Learn About the Latest Trends & Strategies Build Your Network

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April 29, 2020 Centre des congrès de Québec (Biennial)

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MONTRÉAL REAL ESTATE FORUM May 28, 2020 Palais des congrès de Montréal

Canadian Apartment Investment Conference September 9, 2020 Metro Toronto Convention Centre, North Building

OTTAWA REAL ESTATE FORUM October 15, 2020 Ottawa Conference & Event Centre

CALGARY REAL ESTATE FORUM October 21, 2020 TELUS Convention Centre

RealREIT September 10, 2020 Metro Toronto Convention Centre, North Building

RealTrends September 2020 Metro Toronto Convention Centre, North Building

TORONTO REAL ESTATE FORUM

Montréal Real Estate Strategy & Leasing Conference

December 2 - 3, 2020 Metro Toronto Convention Centre, South Building

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SASK ATCHEWAN REAL ESTATE FORUM

Vancouver Real Estate Strategy & Leasing Conference

April 2021 Queensbury Convention Centre, Regina (Biennial)

November 3, 2020 Vancouver Conference Centre East

ATLANTIC REAL ESTATE FORUM

December 1, 2020 Metro Toronto Convention Centre, South Building

Global Property Market

May - June 2021 TBD

For details on these conferences and to register online visit realestateforums.com Sponsorship and advertising opportunities available. Mike Pelsoci michael.pelsoci@informa.com 604.730.2034 (Calgary, Edmonton & Vancouver events) Frank Scalisi frank.scalisi@informa.com 416.512.3815 (all other events and advertising) *Dates subject to change without notice.

INNOVATION: CONSTRUCTION COULD DO BETTER

Ian Duke Project Director Westbank Corp. The North American construction industry hasn’t seen as much innovation as some people might have expected, which impacts the ability to have design and tech innovation find its way into projects. Ian Duke, Project Director at Westbank Corp., says the company spends a lot of time and energy travelling the world to research best practices and new ideas for their projects in North American cities. 68

“Just in terms of our global reach and realizing that if you’re going to design projects that are outside of the norm of the market you’re building in, you need to be looking all around the world for material solutions and products because they don’t exist locally,” Duke says. His team has found ways to achieve better quality for lower cost by procuring globally. “There are, for example, large manufacturers in other parts of the world that have the ability to produce curtain wall and other design solutions at a scale that we’re not finding to be available in North America or available at competitive pricing.” Compared to five or even two years ago, Duke has seen a lot of innovation geared to reducing carbon emissions. He points out that because the built environment is “such an intensive contributor” to the overall carbon footprint, the industry has a responsibility to be very proactive in mitigating that impact. Yet there are energy

solutions in Europe that are not yet available in North America—and might not be for years because they would have to go through various testing protocols. “At the end of the day, I think the very biggest innovations that could impact our industry are waiting to happen on larger scales on the construction end of things,” Duke says, “because that’s where I think the greatest impact can be. “For developers operating in urban locations and in a very constrained environment, the ability to build projects offsite and deliver them, as opposed to doing everything from scratch on site, has the potential to really transform how we build our projects in terms of speeding up construction, which saves costs, which reduces the impact of construction on people that live and work in these cities. These, I think, are the big issues. I really think the construction industry needs to embrace new ideas in a bigger way.” ■ Michelle Morra

Canadian Real Estate Forum / WINTER 2019

WINTER 2019 / ISSUE 82

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2019-09-24 9:58 AM

OFFICE SPACE: WORKPLACE DESIGN CHANGING DRAMATICALLY IN RESPONSE TO TECHNOLOGY As technology has granted people the freedom to work anywhere and anytime, the amount of workspace they need is shrinking rapidly.

Wayne Berger Chief Executive Ofﬁcer Canada and Latin America IWG

“People are using space differently. They have become much more nomadic, which means they don’t spend as much time within one specific area like an office,” says Wayne Berger, Chief Executive Officer for Canada and Latin America at IWG. Berger notes that up to 55 per cent of space in a traditional office environment will go unutilized during the day. In response to the shifting landscape of how we live, work and play, progressive landlords, developers, and coworking space providers are starting to design space differently. “They’re utilizing space to a higher density model, which in turn is shifting how they are looking at mechanical specifications within the space – that covers everything from the elevators to HVAC to all the PropTech components within the space,” says Berger. And traditionally stuffy lobby environments of the past are now getting converted into

community-focused common spaces for people to gather. “It’s almost like an extension of the outside onto the inside of a space, for more of a retail effect, which creates vibrancy and activity within the lobby,” says Berger. “When we looked at our co-working business, when we could take over a full building, we designed what we considered to be an ecosystem of multiple working environments. These might include a cafe you could work out of, areas with soft seating and booths where you could gather communally, and open spaces for people to congregate and meet both informally and formally.” Adding mixed-use spaces around meeting rooms, brainstorming areas and access to outdoor space where people could get some fresh air on a patio or terrace was also beneficial for occupancy, says Berger. “Giving people access to different types of environments within one space means they don’t have to leave because they have everything they need. “The way in which we work is shifting so dramatically that people and companies are increasingly moving towards an asset-light world and with a greater desire for flexibility than what we’ve seen before.” ■ Barbara Balfour Canadian Real Estate Forum / WINTER 2019

Hear Industry Leaders Learn the Latest Trends & Strategies Build Your Network

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For more information or to register: visit realestateforums.com or call 1.800.660.7083 For sponsorship and advertising opportunities contact: Frank Scalisi frank.scalisi@informa.com 416.512.3815 (Atlantic Montréal Ottawa Québec City Saskatchewan Toronto Winnipeg) Michael Pelsoci michael.pelsoci@informa.com 604.730.2034 (Calgary Edmonton Vancouver)

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Latest commercial market statistics across Canada These results are released by Altus Group, powered by our proprietary Data Solu琀ons pla琀orm. Our independent and comprehensive data, analyses and insights on the commercial real estate investment and residen琀al development markets is collected and compiled using na琀onally consistent research processes established in 1995.

Industrial market fundamentals remain strong as supply 琀ghtens up, demand surges and rental rates rise Industrial net rental rates - single tenant industrial (Q3 2019) 18

17 16

13.0

9.6

9.8

7.6

8.8

8.9

8.4

8.5

9.2

9.5

6.8

8 7

8.3

7.7

11.4

$ PER SQUARE FOOT

6 5 4

YEARS 1-5

YEARS 6-10

VANCOUVER

YEARS 1-5

YEARS 6-10

EDMONTON

YEARS 1-5

YEARS 6-10

CALGARY

YEARS 1-5

YEARS 6-10

TORONTO

YEARS 1-5

YEARS 6-10

OTTAWA

YEARS 1-5

YEARS 6-10

MONTREAL

YEARS 1-5

YEARS 6-10

QUEBEC CITY

YEARS 1-5

YEARS 6-10

HALIFAX

Source: Altus Group’s Investment Trends Survey

Regulatory changes, fees and other costs a昀ect investor con昀dence in mul琀-res Threats to mul琀-residen琀al investment – ranking of major mo琀ves (Q3 2019) 60%

50%

54.2%

52.1% 45.7%

% OF RESPONDENTS

40%

43.8%

41.7% 37.5%

35.4%

30% 29.2% 20%

10%

LEGISLATIVE CHANGES RENT CONTROL

REALTY TAXES

UNEXPECTED CAPITAL COSTS

VACANCY AVAILABILITY

ENERGY COSTS

DEBT COSTS

ECONOMIC CONDITIONS

CMHC INSURANCE

Source: Altus Group’s Investment Trends Survey

altusgroup.com/datasolu琀ons 75

Property transactions by asset class Overall market performance in Vancouver indica琀ve of growing demand for development sites Vancouver Market Area, 昀rst half 2018 vs 昀rst half 2019

Land

Oﬃce

Retail

Industrial

Apartment

Hotel $0.0B

$0.5B

$1.0B

$1.5B

$2.0B

$2.5B

$3.0B

$3.5B

$4.0B

$4.5B

Total Investment | First Half 2018: $6.9B; First Half 2019: $3.2B

Source: Altus Group

Investment ac琀vity was down in Edmonton, while demand remains strong amid supply constraints Edmonton Market Area, 昀rst half 2018 vs 昀rst half 2019 Land

Oﬃce

Retail

Industrial

Apartment

Hotel $0M Source: Altus Group

$50M

$100M

$150M

$200M

$250M

$300M

$350M

$400M

$450M

$500M

Total Investment | First Half 2018: $1.8B; First Half 2019: $1.1B

altusgroup.com/datasolu琀ons 76

Property transactions by asset class Investment in Toronto remains strong despite slight decrease in investment ac琀vity Greater Toronto Area, 昀rst half 2018 vs 昀rst half 2019

Land

Oﬃce

Retail

Industrial

Apartment

Hotel $0.0B

$0.5B

$1.0B

$1.5B

$2.0B

$2.5B

$3.0B

$3.5B

$4.0B

$4.5B

$5.0B

$5.5B

Total Investment | First Half 2018: $11.2B; First Half 2019: $9.5B

Source: Altus Group

Investor interest remains high in Montreal based on opportunis琀c cap rates for certain assets Montreal Market Area, 昀rst half 2018 vs 昀rst half 2019

Land

Oﬃce

Retail

Industrial

Apartment

Hotel $0M

Source: Altus Group

$100M

$200M

$300M

$400M

$500M

$600M

$700M

$800M

$900M $1,000M $1,100M $1,200M $1,300M $1,400M $1,500M

Total Investment | First Half 2018: $3.4B ; First Half 2019: $4.0B

altusgroup.com/datasolu琀ons 77

TOP 10

REAL INSIGHTS

1 INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF TORONTO REAL ESTATE FORUM

INVESTMENT IN CANADA’S PROPERTY MARKETS PICK UP AFTER A SLOW START TO THE YEAR

Changing economic conditions, slowing global economic outlooks and repatriation of foreign capital, cited as contributing to the lower investment volume.

2019 Toronto Real Estate Forum

ISSUE 37

STRONG EMPLOYMENT GROWTH HOLDS OFFICE VACANCY TO ALL TIME LOWS

INSATIABLE DEMAND FOR INDUSTRIAL SPACE PERSISTS

Unrelenting demand for office space, which is led primarily by a red-hot tech sector and coworking providers, will keep availability at near rock bottom, according to Cushman & Wakefield.

The 30.4 M sq. ft. of industrial space under construction at the end of the third quarter may do little to alleviate supply shortage.

INNOVATION IN THE DEVELOPMENT SECTOR INTENSIFIES

ALTERNATIVE ASSET CLASSES GENERATING INCREASED INTEREST

ACROSS THE COUNTRY APARTMENTS ARE AT OR NEAR FULL OCCUPANCY

RETAIL OWNERS REPOSITION TO REMAIN COMPETITIVE

Across the country, development and urban revitalization occurring on a scale not seen in a generation, propels new trends and technologies.

In the quest for yield, investors are turning to alternative asset classes.

Despite growth in supply pipeline, new construction is not keeping up with rising demand for rental housing.

Continued store closures have landlords looking at new kinds of tenants.

TECH DISRUPTION HAS THE CAPACITY TO DISRUPT EXPONENTIALLY WITH 5G ROLLOUT

SUBURBS ARE TRENDING

The improved connectivity that will result from 5G will supercharge IoT and is likely to have significant impacts on the real estate industry.

Millennials looking for affordable housing options are heading to ‘purpose-built’.

To access the Real Estate Forum portal, please visit: www.realestateforums.com We welcome feedback. Please email: sarah.segal@informa.com

10 MORE LANDLORDS INTEGRATING SMART TECHNOLOGIES INTO THEIR BUILDINGS

For further details on these top trends please visit the Toronto Real Estate Forum Portal at realestateforums.com

Smart buildings improve tenant experience and promote energy and financial savings.

AltusGroup Canadian Real Estate Forum / WINTER 2019

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50 YEARS OF REALPAC

Michael Brooks Chief Executive Ofﬁcer REALPAC

We are pleased to be celebrating 50 years at REALPAC in 2020. In March of 1970, four pioneers got together with a plan to organize the industry and, as its first project, to standardize accounting treatment for the large public real estate companies. The founding members were Trizec Corporation Limited, Cadillac Development Corporation Limited, Markborough Properties Limited and Campeau Corporation Limited. The initial name of the association was the Canadian Institute of Public Real Estate Companies, or CIPREC. 80

The first meeting was held October 14, 1970 in the Royal York Hotel. By early January 1971, CIPREC had already grown to 24 members. Jean Paradis, then the President of Campeau Corporation, in one set of minutes, remarked “it does not seem likely that [membership] will ever reach the hundreds” given the nature of the individually substantial member companies. In 2019 we are at… 100 member companies! The original goal of CIPREC was to “represent the …companies and as a forum for the establishment and maintenance of codes of conduct and standards appropriate to this major industry”. This mandate has of course grown over the years, with the current mandate reflected in our 2019-2021 Playbook and our ‘CASE’ acronym: Connect people at the senior level, Advocate for the industry, Support the industry through research, standards and best practices, and Educate the industry through conferences and training programs. The name changed from CIPREC with one ‘P’ to CIPPREC with two ‘P’s’ in 1999, short for the Canadian Institute of Public and Private Real Estate Companies, because membership was expanding to include some larger private entities. A complete rebranding occurred in 2005 to change the name to the Real Property Association of

Canada, or REALPAC, as by then most of the real estate investment trusts had also joined, and the CIPPREC name needed a refresh. There are too many milestones along the way to recount in this short article. I’m proud to have joined the association in 1997 as the then Executive Director. There were just two of us in a small 500 sq ft office in the hospital district back then, myself and a retiree who served as the office administrative assistant. A shag rug, a correcting IBM Selectric typewriter, paper-based accounting – a hand written ledger book from Grand & Toy. A double pedestal oak desk, and an oak chair with a rocker function, that if you leaned back too much, gave way and you went for a tumble. Today, REALPAC is the strongest Canadian association representing investment commercial real estate. We are global in reach, count the biggest Canadian public, private and institutional real estate investors as members, and our highly educated and professional staff of 12 take great pride in assisting the industry to continuously move forward and provide the offices, homes, industrial facilities, retail outlets, seniors housing and hotels, that makes Canada such a great country. There’s always more to do and we look forward to the next 50 years. n Canadian Real Estate Forum / WINTER 2019

CREATING VALUE THROUGH SPACES THAT ENGAGE, EXCITE AND INSPIRE.

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DOS AND DON’TS OF AFFORDABLE HOUSING POLICY Graeme Kennedy Coordinator Policy & Planning REALPAC Affordable housing policy can be successful when governments work in partnership with the development industry. Around the world, local governments have leveraged unique policy concepts that align goals collaboratively with industry to deliver affordable housing to their communities. Housing supply does not happen automatically. Behind every home is an industry with very specific training and knowledge that knows how to build housing capable of meeting people’s needs. When government fails to consider the role of the development industry when crafting new policy frameworks, it misses half of the equation responsible for fulfilling policy goals. REALPAC is currently undertaking an analysis of many of the housing programs and policies that we have come across, consulted on, and advocated for, with the goal of creating a best practice guide for government; a sort of “dos and don’ts” of affordable housing initiatives. Many affordable housing policy options surveyed were found to have negligible impacts on affordability yet negatively impacted the development market. For example, many discussions of policy interventions, especially regarding initiatives like Rent Control or Inclusionary Zoning, speak to placing a ‘chill’ on the market. Many believe this to be largely a short-term impact. However, REALPAC’s analysis of Ontario’s history of rent control policies found that not only did rent 82

controls completely collapse the production of purpose-built rental housing post-implementation, but the rental market never fully recovered. When policy options are being developed, they must consider whether short-term relief from acute market conditions is worth entrenching long-term chronic stresses within the housing market. “Do” – Policies to promote Good policy options take into account that construction costs and municipal charges, as well as the costs of permission delays, are ultimately paid by the home buyer or renter, and not the developer. Good policy options relax density restrictions and encourage more housing types across cities. The ‘separation of uses’ clause that is fundamental to most zoning bylaws today is derived from the need for communities to mitigate the impact of ‘external nuisances’. Factories are no longer being built in residential areas, and mixed-use is proving to be an attractive development model, yet restrictive and exclusionary zoning policies continue unabated. Any proposal that fails to challenge this fundamental rule will continue to section off large areas of thriving cities to new residents. Good policy options help to balance supply and demand. In fact, it is better for national and local economies if supply slightly outpaces demand. This ensures the availability of homes so that people can move up on the housing ladder and make choices about where and how they want to live. It is vital to monitor both the available land supply and the local vacancy rate, to ensure that there is housing choice available both today and into the future in growing communities. Good policies incent innovations and help clear a path for affordable home ownership. New options for laneway suite development are innovative. However, overly restrictive policies can make such ideas impossible to build. Policies need to consider that methods change and so should neighbourhoods.

“Don’t” – Policies to avoid Bad policy options tend to miss that housing demand is regional. One size fits all approaches apply economic assumptions to all communities or regions and do so unfairly and ineffectively. Bad policy options rely on status quo zoning regimes that make as-of-right developments economically unfeasible and do not reflect efficient land-use planning principles. This results in both housing scarcity and unaffordability. Bad policies add unnecessary costs to development projects that can even contradict stated policy goals or current trends. Take parking requirements, for example. Many cities have parking requirements that add costs to building at a time when trends indicate a historical lull in car ownership and possible disruptions like autonomous vehicles. Again, the developer passes those costs along. REALPAC’s position is simple; affordable housing will not be built if policy makes it difficult to build housing. Occasionally, political wins are claimed on the targeted delivery of limited quantity affordable housing units, as seen in some cities with Inclusionary Zoning policies. Such targeted delivery strategies generally occur at the behest of long-term market wide affordability. If long-term market stability and affordability does not become the pre-eminent goal of affordable housing policy, governments will continue to be forced to respond to affordability issues of their own making. Similarly, if governments blame the development industry for these issues rather than challenging the prevailing policy status quo, affordability will continue to suffer. Both of these issues can easily become vicious cycles if the past performance of affordable housing policy is not translated into knowledge that can better inform future initiatives. As always, REALPAC advocates that the best path forward is one where the development industry can collaborate with government to solve growth-related demand issues and fulfill community-oriented housing goals. n Canadian Real Estate Forum / WINTER 2019

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CONVERGENCE AND THE DEVELOPER OF TOMORROW Michael Brooks Chief Executive Ofﬁcer REALPAC

2020 will mark the convergence of three powerful forces impacting real estate markets around the world; the investor and regulatory led push for more environmental, social and governance (ESG) accountability, the continued growing investment in and adoption of process innovations in the PropTech sector, and the emergence of the smart city movement as a catalyst for transformational change in global cities. Parts of these forces have been around for quite some time. ESG disclosure can trace its roots back to at least 1997, with the founding of the Global Reporting Initiative (GRI) in Boston. GRI gives industry a long list of indicators, cafeteria style, from which to pick and choose the relevant ones and disclose to stakeholders. Kind of like Yahoo! was before Google came along for those of you who can remember. The global real estate industry has come a long way from the early GRI days, with The Global Real Estate Sustainability Benchmark (GRESB) now a defacto global ESG standard amongst professional real estate investors. Commercial real estate has long been thought to be slow to adopt technology, but it always has, just at a measured pace. In the office sector alone, the architectural tour of Chicago reminds us of the first elevator, the first steel cage building, concrete cores, and HVAC and building systems technology that has been consistently improving over the 84

last several decades. The personal computer dates back to 1975. The first version of Excel (VisiCalc) was invented in 1978. Word processing software (WordStar) just arrived in 1979. The first portable computer wasn’t invented until 1981, and the Apple Mac first arrived in 1984. The Internet, through Internet service providers, only arrived in the late 1980’s. But in real estate, it was really the .com boom and bust that saw a lot more experimentation. Oxford’s innovations in the years around 2000 included tenant service portal 310.MAXX, and now tenant service portals are almost a staple of every landlord in every Class A office building. Oxford’s Emporii was way before it’s time – an online order pickup depot located at the south end of Royal Bank Plaza in Toronto. Basically, the same concept that you now see with Amazon Locker and Pickup Points, and other retailers. PropTech seems to have started around 2015 – the same time we saw the rise of FinTech (financial technology). The explosion of verticals since then has been nothing short of remarkable. It’s not just search, but PropTech now comprises the Internet of Things (IoT) and smart buildings; the sharing economy represented by complies like WeWork and Airbnb; ride sharing by Uber and Lyft; bicycle sharing by Bird and LimeBike; construction tech, lease approval platforms, fault detection systems for buildings, lidar based space mapping, and almost anything you can imagine. At the higher end; AI and prediction analytics, and Blockchain based systems. The Wall Street Journal has reported real estate tech startups sourced $13 billion in seed capital just in the first half of 2019 alone. Wow! Meanwhile many of the largest REALPAC member companies have been investing in PropTech startups. Brookfield, Ivanhoe Cambridge, Oxford, Cadillac Fairview, QuadReal and many others have been placing bets, and operationally validating many of those investee companies. Winners, called “unicorns” because of a minimum $1 Billion US valuation, have included VTS, Honest Buildings (now Procore), Compass, Katerra, SMS Assist, OpenDoor, and of course, WeWork and Airbnb. Residential apps include Zillow, Redfin and Tulia, all public now. Every G7 country has its own PropTech community. In fact, the movement is global.

The smart city movement in Toronto is currently associated with the Sidewalk Labs proposed development in the Toronto waterfront, but its origins are much earlier than that. A smart city will have a number of definitions, but the technology focused definition would be something that associates the use of information and communication technology with the city that effectively manages assets, resources and services. That’s to be contrasted with smart urban growth which is often associated with higher densities and less sprawl. Critiquing Sidewalk Labs proposal has become a bit of a part-time pastime, but it has got everyone thinking about how we can do what we do better. This is no abstract exercise. When you think about the members of our real estate community with significant precincts of land to develop across Canada, it’s what they have to think about now. These projects could include Dorsay’s Veraine project in Pickering, PSP’s redevelopment of Downsview Airport; Cadillac Fairview’s Buttonville Airport redevelopment and their Lever Brothers site development, DiamondCorp’s Port Credit Project, First Capital’s Christie Bakery site, and even Squamish nation’s Senakw project in Vancouver. There are many more. Key design elements of these new precinct projects must include ESG considerations, available and expected PropTech, as well as smart city innovation and technology. Convergence is now. There are many issues to address such as the future of cars, accessibility and mobility, bikeways and scooter ways, stormwater management, environmental footprint, health and wellness, social infrastructure, hazard assessment and resiliency, telecommunication infrastructure and particularly coordination between real estate and emergency services (police, fire and ambulance), net zero energy ready buildings, clean power supply including perhaps on-site generation and storage, zero or minimal waste, enhanced biodiversity, not to mention overall efficiency. That’s a short list that could include many more elements. That’s today’s standard for leading real estate companies. And it’s truly representative of the convergence that we now see; ESG, smart cities, and PropTech. Progressive companies will need to have a strategy around all three to succeed. n

Canadian Real Estate Forum / WINTER 2019

AHEAD OF THE STORM: DEVELOPING FLOOD-RESILIENCE GUIDANCE FOR CANADA’S COMMERCIAL REAL ESTATE Kris Kolenc Manager Research & Sustainability REALPAC

With a changing climate and stronger and more frequent extreme weather events, it is clear that Canada’s buildings must become more resilient. GRESB, an organization that benchmarks the environmental, social, and governance (ESG) performance of real estate and infrastructure globally, defines resilience as the ability to survive and thrive when subjected to acute shocks (sudden intense events like a flood or wildfire) and chronic stressors (challenging conditions which evolve over time such as increasing temperatures and water shortages). REALPAC has been active on the resilience file for the past two years. Our efforts include the release of our Resilience Backgrounder in 2018 and supporting the development of the GRESB Resilience Module, an optional add-on to the annual GRESB assessment that measures how real estate, infrastructure companies, and funds are preparing for potentially disruptive events and changing conditions, assessing long-term trends, and becoming more resilient over time. The module has run for the past two years and will continue for one more before becoming part of the regular GRESB assessment.

According to the Insurance Bureau of Canada, flooding is the costliest natural disaster affecting Canadians and is the lead driver in rising catastrophic insurable losses for the property and casualty insurance sector in Canada. From 2009 to 2018, insured losses averaged $1.8 billion annually, compared to $405 million annually from 1983 to 2008. In addition to the major 2013 floods in Alberta and Southern Ontario, the frequency of floods in Canada is increasing noticeably. For example, we have consistently experienced summer floods in Toronto for the past three years. This past October, through the Intact Centre on Climate Adaptation based out of the University of Waterloo, REALPAC, BOMA Canada, and the Intact Financial Corporation, released “Ahead of the Storm: Developing Flood-Resilience Guidance for Canada’s Commercial Real Estate”. This report outlines 20 measures that can be implemented by commercial real estate owners and managers to enhance flood resilience at the asset-level. continued on page 88 Canadian Real Estate Forum / WINTER 2019

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This past October, through the Intact Centre on Climate Adaptation based out of the University of Waterloo, REALPAC, BOMA Canada, and the Intact Financial Corporation, released “Ahead of the Storm: Developing Flood-Resilience Guidance for Canada’s Commercial Real Estate”. This report outlines 20 measures that can be implemented by commercial real estate owners and managers to enhance flood resilience at the asset-level. These measures can reduce the potential for property damage, business disruptions, as well as the potential for flood-related injury and loss of life stemming from extreme rain events. The 20 flood resilience measures are sorted into three categories: Plans and Procedures, Equipment and Supplies, and Major Retrofits. Plans and Procedures involve ensuring that emergency preparedness and response plans include flood event procedures and that building operations staff and tenants are trained annually on these procedures. Equipment and Supplies includes ensuring that critical equipment and supplies are available on-site to respond to flood emergencies, such as reusable sandbags, submersible sump pumps, portable generators, fuel, portable lights, extension cords, air dryers, air moisture sensors, dehumidifiers, protective clothing, two-way radios, batteries, and medical supplies. Finally, Major Retrofits involve elevating heating, cooling, ventilation, and air conditioning (HVAC) equipment, electrical transformers, switchgear, and service panels, as well as communication systems, above expected flood levels. All of the flood-resilience measures identified in the report are broadly applicable for implementation across office towers in Canada and can be integrated into risk assessment checklists, and acquisition and investment questionnaires used by property managers, owners and institutional investors. While 88

these measures are to be enacted before a flood, the report also details measures to enact during a flood, such as following emergency procedures and instructions from local authorities, and after a flood, such as assessing contamination levels and testing electrical, mechanical, and other building systems to determine if any repairs are required. In addition, the report profiles case studies from across Canada where flood-resilience measures were applied ‘on the ground’ to limit flood risk, and shares examples of innovative technologies for water damage reduction. It would be ideal if building owners could enact all of the report’s flood-resilience measures in all of their relevant buildings. However, this is not likely to be feasible, given capital budget constraints. As a result, it is important that companies identify priority assets which are in greatest need of resilience measures, and the highest risk hazards to address. Some REALPAC members have achieved this by conducting a climate risk assessment of their portfolio (inclusive of hazards beyond flooding) to identify the most at-risk assets. As a result, resilience investment may be prioritized, or the asset divested. REALPAC has been conducting research since this past summer to determine what the best industry approach to conduct these kinds of assessments may be. It has been a pleasure working with the Intact Centre and all other stakeholders to produce the “Ahead of the Storm” report. The report included in its research a national consultation with many commercial real estate owners, managers, institutional investors, asset management consultants, insurance industry representatives, and other stakeholders. This project demonstrates how industry can address some of its most pressing challenges by coming together. REALPAC looks forward to continuing to support its members with resilience and climate risk best practices. n

POLICY PRIORITIES FOR THE NEXT PARLIAMENT

Brooks Barnett Director Government Relations & Policy REALPAC Once a year, REALPAC hosts its signature Chief Executive Summit for senior members of the Canadian commercial real estate (CRE) industry. The two-day event is a chance for real estate leaders to connect, engage and learn about key trends and factors that will impact the real estate business. This year’s Summit, which was held in Calgary, coincided with the 2019 Federal election. So naturally, the state of the Canadian economy, expectations of and on the federal government, the future of landmark policy proposals, and Canada’s role on the world stage, would be topical and hot button issues. Especially when the Summit’s keynote speakers are a former prime minister and a current Alberta premier. Of course, there was plenty of prognostication about what the official result would be. But interestingly, to the many real estate CEOs assembled at the Summit who were and are still carefully monitoring Canada’s politics, that result was almost a secondary or tertiary concern to the policy behind those politics. Leaders and candidates come and go. Policies and programs tend to last a lot longer. Now the official result is known – Canada likely will have a very collaborative and more moderate Liberal minority government – the CRE industry can now begin to map out the policy and advocacy agenda for the next term (however long it lasts!). And based on some of the major policy themes discussed at our Summit, it continued on next page Canadian Real Estate Forum / WINTER 2019

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Lastly, the government should take on a strong and defined role in the property innovations space. Canada’s CRE community is being hit by a wave of innovation brought on by a growing property technology (PropTech) trend, rapid digitalization and the emergence of smart cities. The PropTech sector is not only growing in popularity but also in economic heft. There are hundreds of PropTech companies in Canada and a growing component of the sector has adopted technology into their building portfolios.

should be clear where industry advocates should focus their efforts for the sector, and more specifically, which policy areas will be most important for CRE moving forward. The first, is sustainability. While the Government of Canada has officially recognized the profound impacts of climate change, it has not yet fully figured out how many industries can support efforts to lower greenhouse gas (GHG) emissions and make positive contributions to our national strategy. The government should make a conscientious effort to fully bring the CRE sector into the green economy as well. The government could better support industry efforts to move toward zero-carbon building standards, help to action retrofits to public and private sector buildings (which would grow investor confidence in Canada’s retrofit economy) and look for ways to improve energy grids and public infrastructure. CRE accounts for a significant portion of Canada’s GHG emissions so a more collaborative engagement with the industry would be welcomed. Second, it’s time for the government to determine which housing policies are working and which ones are not. Canadians are well aware that housing in most cities is unaffordable for many citizens. While some national, provincial and municipal housing interventions may alleviate some of the stress on buyers and renters, the fact is that many of the government’s actions have not hit their target. It’s time for the government to consider new approaches to housing that can have market-wide impacts. For example, the government could consider tax exemptions on purpose built rental projects as a way of spurring more activity in that

sector. Similarly, relaxing regulations on some specific real estate assets including seniors housing and long-term care and affordable homeownership could have significant impacts on those sectors. These policies would have cross party support and should be carefully analyzed in the next term. Lastly, the government should take on a strong and defined role in the property innovations space. Canada’s CRE community is being exposed to a wave of innovation brought on by a growing property technology (PropTech) trend, rapid digitalization and the emergence of smart cities. The PropTech sector is not only growing in popularity but also in economic heft. There are hundreds of PropTech companies in Canada and a growing component of the sector has adopted technology into their building portfolios. The British government is a world leader in support for their domestic PropTech industry and has recently announced efforts to release otherwise privately held economic, energy and housing data to innovators, while establishing an expert advisory council dedicated to the digital transformation of the property sector. Canada has placed money behind the burgeoning smart cities movement, but more can be done to facilitate the adoption of new technology for real estate – the largest asset class in the country and world. Doing so would be a forward-looking economic play that that will surely pay off. While the landscape in Ottawa has changed since the 2019 election, CRE’s policy goals to ensure strong capital markets, fair and balanced housing plans, progressive land planning regimes and climate friendly sustainability policies have not. n

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