Apartment CANADIAN
VOLUME 15 / NUMBER 6 / JANUARY 2019
INVESTING IN THE FUTURE SMART RETROFITS FOR LONG-LASTING RETURNS
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EDITOR’S NOTE>>
Apartment CANADIAN
RETROFITS: WHEN ARE THEY NOT WORTH IT?
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This month in Toronto, a burst pipe at a Wellesley Street apartment tower put the state of our aging building stock back in the mainstream media, as more than a thousand angry tenants endured several days without heat, light or water. Was the incident a result of neglect on the part of the building owner, or was it simply a factor of the building’s advanced age? As speculation continues to circulate, the reality is, our cities are full of aging apartment buildings badly in need of repair. From the ground up, many of these towers require complete overhauls in order to make them livable, let alone conserve energy and reduce GHG emissions. In these cases it goes without saying that the work, and expense, is a necessity. But what about those smaller cosmetic renovations—the “facelifts” meant to improve aesthetics and catch the eye of prospective renters? In this issue of Canadian Apartment, we delve into “cost versus value” to help owners and managers determine when (and if) a renovation makes financial sense. Of course, it wouldn’t be an issue of Canadian Apartment if we didn’t relay the latest sales and transactions figures or update on the affordable rental housing crisis. Other topics include: parking garage upgrades, clothing donation bin liability risks, and more. Please enjoy the issue, and if you’d like to contribute to a future edition, or comment on something you’ve read, don’t hesitate to reach out. Sincerely, Erin Ruddy @CdnAptEditor
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The opinions expressed are those of the authors of articles and do not necessarily reflect the views of Canadian Apartment Magazine. This information is general and is not a substitute for legal advice. Sworn Statement of Circulation: Available from the publisher upon written request. Although Canadian Apartment Magazine makes every effort to ensure the accuracy of the information published, we cannot be held liable for any errors or omissions, however caused. Printed in Canada.
Yes, we can! Since MetCap Living established itself as a leader in property management, we have routinely been asked one, simple question; “Can you help us run our property more effectively?” And, for well over thirty years, the answer has remained — Yes, we can! Our managers are seasoned professionals, experienced in every detail of the day to day operations and maintenance of multi-unit rental properties. From marketing, leasing, finance and accounting, to actual physical, on-site management, we oversee everything. We concentrate on revenue growth, controlling expenses, and strategic capital investment in your property to maximize your profitability over the long term — when you’re ready to discuss a better option; we’ll be there. You can count on it. Kazi Shahnewaz Director, Business Development Office: 416.340.1600 x504 C. 647.887.5676 k.m.shahnewaz@metcap.com
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Apartment CANADIAN
VOLUME 15 / NUMBER 6 / JANUARY 2019
FEATURE 16 A Place to Call Home Experts weigh in on the continuing housing crisis by Erin Ruddy
RENT NOW
COLUMNS 8 Transactions Canada’s Red-Hot Rental Market 10 CMHC Supply and Demand in 2018 By Graeme Huycke 14 Ask the Expert 5 Strategies for a Successful Renovation 25 Legislation Clothing Donation Bins May Pose Liability Risk By Barbara Carss 26 Newsworthy Industry Hot Topics 28 Insurance Modern Employee Benefit Plans By Andy Schwartze
COVER STORY
DEPARTMENTS
16 Renovating your Apartment—Is it Worth It? A simplified case study on cost vs. value By JT Dhoot, AACI, CBV
4
Apartment
ON THE COVER:
INVESTING IN THE FUTURE SMART RETROFITS FOR LONG-LASTING RETURNS
Photo courtesy of RioCan Living
CANADIAN
Editor’s Note
30 Smart Ideas
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VOLUME 15 / NUMBER 6 / JANUARY 2019
PA R T O F T H E
Brio, coming soon to Calgary
PA R T O F T H E
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Canada’s Red-Hot Rental Market Sound fundamentals and the promise of stable returns suggest another solid year for the sector With rental demand still strong, driven in part by a healthy labour market, changing demographics and stringent mortgage rules making home ownership less affordable for Canadians, 2019 is setting off to be another lucrative year for the sector.
Notable Q4 2018 Transactions: Address
City
#of Units
Sale Price (Millions)
Sale Price/Unit
Purchaser
1.
Parkvue/Esplanade Apts.
Toronto/ London
962
$241.0
$250,479
Starlight/Homestead
2.
20 & 40 Tuxedo Crt
Toronto
426
$75.2
$176,526
Reserve Properties
3.
Elton Construction Portfolio
Edmonton
295
$69.9
$236,834
Realstar Group
4.
11440, 11444 Ellerslie Rd W
Edmonton
240
$55.8
$232,500
Skyline Apt. REIT
5.
The Pinnacle
Edmonton
249
$67.3
$270,080
Timbercreek Am
6.
3545-3555 Cote Des Neiges
Montreal
299
$112.0
$363,344
Akelius Canada
8 | Canadian Apartment | Part of the REMI Network |
TRANSACTIONS >>
Starlight and Homestead Purchase two Ontario Properties In January, Starlight Investments and Homestead Land Holdings announced they had jointly purchased two Ontario apartment complexes for a total of $241 million. Combined, the two properties comprise 962 units. Parkvue Apartments, located in the east end of Toronto, consists of three tri-winged towers with 175, 173 and 225 units, plus a variety of amenities spread throughout the three buildings. The 7.3-acre site backs onto Knob Creek Park and presides over 777 feet of frontage on Danforth Rd. “Starlight is pleased to continue its urban growth with the acquisition of three desirable high-rise towers in Toronto,” said President and CEO Daniel Drimmer in the release. “These acquisitions create further synergies with our existing Toronto portfolio and will benefit from our scalable asset management program.” According to JLL, who handled the transaction, the Parkvue property “afforded the unique opportunity to acquire substantial residential rental scale and quality situated on a contiguous site located within a node that is both established and developing.” The second property, Esplanade Apartments, is located at 1 and 9 Grosvenor St., and 291-295 George St. in London—just a few minutes from Western University and overlooking the banks of the Thames River. Consisting of four buildings on a 6.3-acre lot, Esplanade Apartments includes 392 rental units. “The Esplanade is an institutional quality asset, adjacent to Gibbons Park, and located on the banks of the Thames River in London,” said Homestead CEO Alfred G. Hendry. “We are very proud to add this spectacular property to our London portfolio.”
O
n the supply side, conditions are tight in all major urban centres, with exception of those in Alberta. According to Morguard’s Keith Reading, “New supply is a non-factor in terms of providing relief from shortages of apartments.” In most cities, the condo rental market is also very tight, and supply will be an ongoing issue as families struggle to find accommodation they can afford. With rents generally rising across the country (except for Alberta), growth is moderating after a period of more rapid growth On the investment side, Reading observes, “There is no shortage of interest on the part of investors looking for a stable, safe place to invest capital. Supply-wise there are not enough assets available for acquisition to go around. Off-market opportunities are key, capital is flowing at a record high despite the shortfall in availability relative to demand.” With values holding at the peak, Reading says there will be modest upward pressure given market perception of ongoing growth in rents for the foreseeable future. In all 2019, will likely shape up to be strong year for the sector, given sound fundamentals and the promise of stable returns on investment.
BEFORE
AFTER
Building Science & Restoration Consultants ■ ■ ■ ■ ■ ■
Garage & Balcony Restoration Building Envelope Assessment and Remediation Capital Planning Pre-Purchase / Due-Diligence Inspections Technical Audits Structural Engineering
Please contact: Philip Sarvinis | Bill Gladu | Michael Pond | Jeremy Horst | (416) 977-5335
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| www.REMInetwork.com | January 2019 | 9
CMHC REPORT >>
Supply and Demand Insights from CMHC’s 2018 Rental Market Report by Graeme Huycke
Demand for rental housing rose across most of Canada in 2018 according to CMHC’s latest Rental Market Report. This growth stems from a variety of factors, including increases in international migration and youth employment, as well as the changing needs and housing choices of an aging population.
10 | Canadian Apartment | Part of the REMI Network |
Vacancy Rates (%) - Selected CMAs and Canada Vacancy Rate (%)
7.7
2017
2018
5.3
1.6
2.4
Canada
3.3
Halifax
1.9
Québec
1.6 Ottawa
Winnipeg
Regina
Saskatoon
1.0
Toronto
1.1 Calgary
1.2
2.9
Montreal
3.9
Edmonton
0
8.3
Vancouver
11 10 9 8 7 6 5 4 3 2 1
Victoria
W
ith growth in demand outpacing growth in supply, the overall vacancy rate for rental apartments in Canada fell to 2.4 per cent. Regionally, vacancy rates fell in Quebec, Alberta, Saskatchewan and the Atlantic region, while in Ontario, British Columbia and Manitoba, they rose slightly. “The decrease in vacancy rate was attributable in part to the strong increase in international migration,” said Aled ab lorweth, Deputy Chief Economist. “This factor combined with the growth in youth employment and the aging population drove up demand for rental housing.”
CMHC REPORT >>
Primary rental Market (by bedroom type) Bachelor
one bedroom
two bedroom
2.9% 2.4% 2.4%
Vacancy rates decreased in most provinces In Quebec, the vacancy rate fell significantly, from 3.4 per cent in 2017 to 2.3 per cent in 2018. Because of Quebec’s large rental housing stock compared to other provinces, the decrease there contributed greatly to the decrease in the national rate. Meanwhile, in the oil-producing provinces of Saskatchewan and Alberta, rental markets continued to recover from the 2014 oil crisis. In both provinces, rental demand was boosted by stronger net migration. This greater demand, combined with the weaker growth in supply in these two provinces, drove down vacancy rates. In Alberta, vacancy rates went from 7.5 per cent in 2017 to 5.5 per cent in 2018. In Saskatchewan vacancy rate went from 9.3 per cent in 2017 to 8.7 percent in 2018. In the Atlantic region, all provinces saw their vacancy rates fall. In Newfoundland and Labrador, though, while the vacancy rate fell from 6.6 per cent to 6.0 per cent, this represented a decrease of only about 20 units. Such relative stability was due to steady supply and demand, reflecting stagnant economic activity and moderate employment growth. Ontario (1.8 per cent versus 1.6 per cent in 2017) and British Columbia (1.4 per cent versus 1.3 per cent in 2017) saw their vacancy rates increase slightly, while remaining amongst the lowest in the country. Manitoba, for its part, experienced a small increase in its vacancy rate, which rose from 2.7 per cent in 2017 to 2.9 per cent in 2018. These increases, however, were not enough to offset the downward national trend.
three or more bedrooms
1.8%
Vacancy Rate
Vacancy Rate
Vacancy Rate
Vacancy Rate
$787 Avg. Rent
$946 Avg. Rent
$1,025 Avg. $1,025 Avg. Rent Rent
Investment breakdown by province: Province / Territory
Investments
Units /Individuals
British Columbia
$664,705,370
96,146
Alberta
$477,115,339
48,287
Saskatchewan
$366,058,095
35,379
Manitoba
$320,541,712
40,532
Ontario
$2,088,364,201
310,387
Quebec
$996,576,775
362,569
New Brunswick
$136,991,313
20,062
Nova Scotia
$203,385,785
29,778
Prince Edward Island
$27,020,047
7,433
Newfoundland and Labrador
$157,932,951
24,441
Northwest Territories
$73,853,257
3,212
Yukon
$35,752,075
1,549
Nunavut
$164,509,432
2,324
National
$18,852,123
Total
$5,731,658,475
982,099
| www.REMInetwork.com | January 2019 | 11
CMHC REPORT >>
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Please visit our website: www.cbre.ca/nag-canada
Update on National Housing Investments In November, the federal government issued a detailed breakdown of national housing investments, reporting that more than $5.7 11:02 AM billion had been spent on the creation and repair of affordable housing across Canada since 2016. As a result of these government investments, 14,703 new units have been (or are being) built, 156,526 units have been (or are being) repaired, and 776,233 families or individuals benefited from a more affordable place to live. These investments have also provided more stable housing to 25,769 Canadians who were homeless or at serious risk of homelessness. “We are working to make sure every Canadian has access to a safe and affordable place to call home,” said Hon. Jean-Yves Duclos, Minister of Families, Children and Social Development. ”We are committed to making housing more affordable, and thanks to the investments made by the Government of Canada, almost 1 million families across Canada have an affordable home. Canada’s first ever National Housing Strategy, a $40 billion program, will build on this success in the years to come.” The National Housing Strategy aims to protect the affordability of 385,000 existing housing units, repair 300,000 affordable homes, build another 100,000, and provide direct support for those in housing need to reduce chronic homelessness by 50% in Canada. In creating the Strategy, the government consulted Canadians on a human rightsbased approach to housing. Through these consultations, Canadians from diverse backgrounds, housing experts and providers, academics, and people with lived experience from across the country shared their thoughts, ideas and feedback about what housing and human rights mean to them.
CMHC has released the What We Heard report, which is available on placetocallhome.ca.
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ASK THE EXPERT >>
5 Strategies for a Successful Restoration Michael Pond of RJC Engineers shares valuable ways to minimize mistakes when undergoing parking garage upgrades When it comes to property upgrades, few are more expensive—or more disruptive—than parking garage restorations. Given the significance of these major undertakings, apartment owners and managers should plan well in advance before the shovel meets the dirt, to ensure their project unfolds smoothly, on schedule, and on budget.
“
Repair or upgrades to underground parking garages can be a massive undertaking,” warns Michael Pond, Principal, Building Science and Restoration with RJC Engineers. “We regularly see certain aspects of these projects that are commonly overlooked or not fully considered.” To avoid being caught off guard, Pond recommends implementing the following five strategies:
1
Get the real numbers It’s common for property stakeholders to rely on generic building studies to budget for parking garage work. While comparable data and ballpark figures can be
14 | Canadian Apartment | Part of the REMI Network |
beneficial, a more comprehensive condition survey will reveal the true anticipated cost. “Invest in your own study,” says Pond. “It’s the only way to ensure you will get the level of detail you need. A comprehensive survey gives property owners the granular detail to create accurate tendering drawings and specs that are geared toward the current condition. That way, when you go to tender the work, you know exactly what you’re looking for.”
2
Plan for overages You know what they say about planning for the unpredictable?
The same rings true for any major renovation, repair or retrofit. That’s why it’s best practice to add extra room in a project’s budget to accommodate for any surprises. “We often recommend clients carry a 10% contingency allowance for this type of work in order to handle any unforeseen conditions that may arise,” Pond says.
3
Time your tendering right There are good times and costly times to tender a parking structure project. Around mid-summer, for example, most contractors will already have their year planned out and be busy with current projects. As such, it’s likely their quotes won’t be favourable.
ASK THE EXPERT >>
The winter, on the other hand, is when contractors are planning their next year and want to keep seasonal workers on the payroll. That can make a weather-proof project like a parking garage restoration more appealing, leading to more competitive bids. Overall, Pond says, “Whenever possible, our advice is to tender late in the calendar year or early the following year when everyone is trying to secure next year’s work. For example, tendering in January and doing the work in August is better than tendering in July and doing the work in August.”
4
Have a phasing plan When it comes to completing the work itself, remember to phase it accordingly and consider the full impact of the restoration on all building occupants. “You’re likely going to need to shift cars around or find some limited offsite parking, so having a phasing plan in place from the beginning is important,” says Pond—adding that it’s equally important to remember that work on one floor of parking garage can affect the one below. “If you have a multi-level underground parking garage and you want to do concrete repairs and replace waterproofing system on P1, for instance, you have to close the P2 level because you’re going to be dropping concrete and removing protection for the cars below.”
“Invest in your own study. It’s the only way to ensure you will get the level of detail you need.”
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5
Stay vigilant with maintenance and inspections Whether your parking garage is relatively new or old, it’s a good practice to routinely assess its condition. “You want to keep up on maintenance and inspections, and that includes getting your parking garage assessed by a structural engineer on a regular basis,” says Pond. “If you let that maintenance work slide, or you just fix it and forget it for years, you’ll be opening up your tenants and residents to safety risks.” Parking garage restorations are never cheap. But with solid planning, accurate budgeting, and ongoing oversight, you’ll be setting the foundation for a smart investment.
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| www.REMInetwork.com | January 2019 | 15
COVER STORY >>
RENOVATING YOUR IS IT WORTH IT? A simplified case study on cost vs. value by JT Dhoot, AACI, CBV Commercial Real Estate Appraiser & Business Valuator
COVER STORY >>
UR APARTMENT: Renovations or retrofits to your investment property that increase rents and/or decrease operating costs may also increase your property’s value. Cost and value, however, are not synonymous, and not all renovations are as profitable as you might expect.
| www.REMInetwork.com | January 2019 | 17
COVER STORY >>
The term ‘retrofit’ is a fairly broad term that includes capital expenditures that: a) Extend the useful economic life of the property (i.e. replacing the roof, boiler, etc.); b) Reduce operating costs (i.e. utilities, water, insurance, etc.); and/or c) Add new features or amenities to the property (i.e. dishwashing machine, in-suite laundry, etc.). In theory, a retrofit should be completed when the incremental value created by the retrofit exceeds the present value of its cost. Let’s break this down. How do we estimate value? There are three primary approaches to estimating value of commercial properties, such as multifamily apartments:
Property Value Increases when: a) NOI increases; and/or b) Cap rate decreases. Property Value Decreases when: a) NOI decreases; and/or b) Cap rate increases. Investors often make the mistake of thinking the cap rate and NOI are two independent variables that can be estimated in isolation of one another. In reality, the relationship between the two is a complicated one. For example, a capital expenditure, like a new roof, might enhance the economic life of a building although it may do little to increase rents. If the NOI doesn’t change as a result of the new roof, does that mean the property’s value doesn’t change either? In all likelihood the cap rate would be adjusted downward to reflect the incremental value added by the new roof, but by how much should the cap rate be adjusted downward?
How do I calculate the present value of the retrofit costs? It seems simple enough— add up all the invoices and voila, there’s the total cost of your renovation project. Calculating the true cost of a renovation project, however, may involve further considerations: • Are there any financial incentives being offered by government or industry that can potentially offset your up-front costs? Are these incentives paid in a lumpsum up-front payment or are they received over time in future years? • Have you included a management fee to reflect your time and expertise in executing the renovation project (i.e. obtaining permits, obtaining quotes, hiring trades, managing trades, etc.)? • Has lost rent throughout the renovation project been accurately accounted for?
18 | Canadian Apartment | Part of the REMI Network |
1) The Direct Comparison Approach; 2) The Cost Approach; and 3) The Income Approach. For multifamily apartment building valuations, the Direct Comparison and Cost Approach are typically used as secondary methodologies to test the reasonableness of the value derived from the Income Approach. In its simplest form, the Income Approach is based on the following formula: Value = Overall Capitalization Rate (Cap Rate) / Net Operating Income (NOI) The correct application of the Income Approach requires matching a stabilized NOI estimate with a corresponding cap rate. Changing either of these variables results in a change in the value of the property, as shown below:
“Investors often make the mistake of thinking the cap rate and NOI are two independent variables that can be estimated in isolation of one another. In reality, the relationship between the two is a complicated one.”
COVER STORY >>
Hypothetical Renovation A
Hypothetical Renovation B
Objective
To increase average rents by completing significant cosmetic upgrades to the interior and exterior of the building.
To decrease operating costs and increase the remaining economic life of the property by replacing major building components.
Scope of Work
New exterior paint, highend appliances and lighting/ plumbing fixtures, marble flooring, etc.
New building envelope, basic in-suite and common area upgrades including flooring, paint and energy-efficient fixtures
Anticipated Cost (incl. foregone rent)
$2,223,853
$1,900,000
Incremental Annual Rent, $ Incremental Annual Rent, %
$210,000 38.9%
$30,000 5.6%
Incremental NOI, $ Incremental NOI, %
$119,601 47.6%
$80,316 31.9%
To renovate or not: A simplified case study Let’s assume you own a 50-unit apartment building built in the 1960s. The property has an excellent location and despite dated interior and exterior finishings, the property has operated at full occupancy in recent years. You are currently debating completing one (or neither) of the renovation projects cited above. You have researched your property’s competitive positioning within its market and based on this analysis, and the scope of each retrofit project, you have
estimated Hypothetical Retrofit A will result in greater incremental annual rent and NOI, albeit at a slightly higher anticipated cost. What should you do? Some (but far from all) of the considerations you should keep in mind include: • Are there rent controls that may limit how much and when you can increase rents? • How will your property assessment, and hence property taxes, be impacted? • How will your property’s post-retrofit average rent and operating costs compare to the broader market? The analysis on page 20 compares the property’s current ‘as-is’ value against its ‘as-renovated’ value based on Renovation A and B. Note the average rents and operating costs are different in each scenario, as is the cap rate. In short, a higher cap rate for Renovation A reflects the added risk of targeting
| www.REMInetwork.com | January 2019 | 19
COVER STORY >>
the small ‘high-end’ segment of the market whereas the cap rate for Renovation B accounts for the relative safety of having rents at current market levels, plus the expectation of no major capital expenditures over the near term. Both Renovation A and B increase the value of the property but only Renovation B results in an increase in value. In other words, the value added to the property in Renovation A equals the cost of Renovation A, meaning there is no excess cash (profit) left for the investor (assuming no fees are included in the renovation cost). Would you invest $100 to receive $100 in return? Probably not. Current (As-Is) CONCLUSIONS How much value was added to the property? (Post Renovation Value - Current Value) What costs were incurred to achieve this incremental value? How much value did the investor create? (Post Renovation Value - Renovation Costs) KEY ASSUMPTIONS No of Units Avg. Monthly Rent per Unit Stabilized Vacancy Allowance Operating Expense Ratio (% of EGI) Total Renovation Costs Overall Capitalization Rate (Cap Rate) PRO FORMA Potential Gross Income (PGI) Less: Vacancy Allowance Equals: Effective Gross Income (EGI) Less: Operating Expenses Equals: Stabilized Net Operating Income (NOI)
On the other hand, Hypothetical Renovation B created over $300k in value. Should the investor undertake this project? What if the investor created $200k in value, should he or she still undertake this renovation project? The answer to this question depends on internal factors specific to the property and external factors related to the broader market. In the end, spreads between cost and value provide investors with opportunities to make profitable investment decisions. Understanding how and why cost and value may be different is, in large part, what differentiates successful investors from the rest.
Hypothetical Renovation A
Hypothetical Renovation B
N/A N/A
$2,223,853 $2,223,853
$2,218,447 $1,900,000
N/A
$0
$318,447
50 $900 3.0% 52.0% $0 4.50%
50 $1,250 3.0% 49.0% $2,223,853 4.75%
50 $950 3.0% 40.0% $1,900,000 4.25%
$540,000 $16,200 $523,800 $272,376 $251,424
$750,000 $22,500 $727,500 $356,475 $371,025
$570,000 $17,100 $552,900 $221,160 $331,740
VALUATION ANALYSIS Stabilized NOI $251,424 $371,025 $331,740 Cap Rate 4.50% 4.75% 4.25% Capitalized Value $5,587,200 $7,811,053 $7,805,647 Less: Renovation Costs $0 $2,223,853 $1,900,000 Equals: Current Market Value Estimate $5,587,200 $5,587,200 $5,905,647
JT Dhoot is a Chartered Business Valuator (CBV) and Accredited Appraiser (AACI) with over 10 years’ experience in valuations, real estate development, and private equity. Check out his website at www.omnisvaluations.com or email him at jt@omnisvaluations.com. 20 | Canadian Apartment | Part of the REMI Network |
Congratulations to the MAC Awards winners On November 29, the industry gathered at the MAC Awards to recognize excellence in residential rental housing. 17 awards were given, covering the spectrum of rental ownership, management, maintenance, marketing, customer service and community involvement. First National clients won all 17 of those awards. Impressed is an understatement. We are so truly proud of all of the achievements of all of our clients. And we feel so fortunate to share a commitment to excellence and collaboration with these industry leaders. Congratulations to all of the winners! We look forward to supporting you in your continued drive for excellence. www.firstnational.ca
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FEATURE >>
A Place to Call Home Experts weigh in on the continuing housing crisis by Erin Ruddy
A
s 2019 begins, Canadians face a well-chronicled slate of challenges to owning or renting a home. Supply is tight, demand is robust and more stringent controls on obtaining credit have kept many would-be homeowners in rental dwellings. Despite this certain knowledge and some meaningful action steps taken by policy-makers to mitigate hurdles and spur new development, housing experts foresee a persistent lack of affordable housing into the future. A recent report from Rentals.ca concludes the ongoing housing shortage will drive monthly rents even higher in 2019. Annual rental rates could increase by as much as 11 per cent in Toronto, 9 per cent in Ottawa and 7 per cent in Vancouver, the report predicts. “Vacancy rates are getting even lower in several major Canadian cities, including Vancouver and Toronto,” observed Ben Myers, president of Bullpen Research & Consulting Inc. “Immigration is at a record high nationally and expected to increase. The change in the mortgage stress test has reduced credit availability and pushed more people to rent that were looking to buy in
22 | Canadian Apartment | Part of the REMI Network |
2018. The increase in rental demand has not been offset by new supply.” According to Bullpen’s data, the combined number of new rental housing units built across all of the Census Metropolitan Areas in Canada was just under 32,000 units from January to October 2018. Though this accounts for an increase of nearly 6,000 units over the same period last year, Meyers contends it won’t be enough to satisfy the additional demand. Dr. J.David Hulchanski, professor of Housing and Community Development at the University of Toronto’s Factor-Inwentash Faculty of Social Work, concurs. “Rents will continue to increase especially in Toronto, Vancouver and Ottawa. There’s no reason why they would not,” he said. Boosting supply: funding, incentives and the need for a streamlined process The city of Toronto defines “affordable housing” as anywhere between 80 to 100 per cent of market value. “Deeply affordable housing” is defined at 40 per cent of the market rate. As Rentals.ca points out, this
means that an affordable space in Toronto or Vancouver equates to around $2,000 per month for a one-bedroom apartment. “The big issue to me in the Toronto rental market is not just price or affordability but inventory and supply,” said Dr. Richard Florida, professor and Director of Cities at the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management. “We need to build a lot more rental housing at each and every price point.” Ted Tsiakopoulos, Regional Economist (Ontario) at CMHC is optimistic that Canada’s 10-year National Housing Strategy, launched by the federal government in April of 2017, will help encourage new development and address the shortage of rental housing. That said, the goal of CMHC is a bold one with an ambitious 2030 deliverable. By that year, “CMHC is aiming to put every Canadian in not only an affordable home but also one that meets their housing needs,” he said. To make it so, municipalities all across Canada have begun to unveil their latest initiatives aimed at boosting local affordable housing supplies. In Toronto, Mayor John Tory’s “Housing Now” plan is already
underway with support from the federal and provincial governments. Eleven surplus city-owned land sites near transit stations are about to be transformed into muchneeded affordable housing developments. The overarching goal, however, is to add 40,000 affordable units in the next 12 years and realize 3,300 or more affordable units per year, beginning in 2020. Looking on the “Brightside”: More affordable housing coming for those in need in B.C. A province deeply impacted by affordable housing shortages, British Columbia recently announced a $492 million commitment for the construction of 4,900 new mixed-income rental units across 42 communities. The non-profit organization, Brightside Community Homes Foundation, has been assigned $18.1 million to be used toward the creation of 181 rental units primarily for seniors and families. It’s perhaps a drop in the bucket in the grand scheme, but for the vulnerable residents of Brightside’s 26 buildings, grants like these are what make the difference between having a safe, secure place to call home, and not having a home at all. “We are thrilled with this grant and what it means for our residents,” said Jan Robinson, executive director of Brightside. “We are hoping to maximize it and gain as much density on the property as possible. This will only help make things more affordable at the end of the day.” Brightside, a housing provider in Vancouver since 1952, owns and manages 26 apartment buildings throughout the city, mostly three-storey wood-frame walkups for seniors, families and persons with disabilities—all individuals struggling to meet the demands of market housing. But, as with most properties built decades ago, many of the buildings are badly in need of repair—a costly endeavor when rental income is less than market and required accessibility upgrades are looming on the horizon. “What makes us stand out from the other housing providers in the province is that we really try to focus on providing support and housing security,” Robinson said. “Many of our residents are older and losing their capacity to manage. Though we can’t
RENT NOW
Rental Facts & Findings Rentals.ca’s latest report reveals that rent in Toronto is the highest in Canada for oneand two-bedroom apartments, while Ontario is still the most expensive province when it comes to rental housing. Average rents in most Canadian cities for one-bedroom apartments were slightly up month over month in December with Ottawa and Calgary leading the way at 5 per cent and 4 per cent respectively. According to the report, low vacancy rates plague most Canadian cities except Edmonton and Calgary. Even though the vacancy rates have dropped in both cities, Edmonton still had a 5.3 per cent vacancy rate in 2018 and Calgary’s settled at 3.9 per cent, according to the Canada Mortgage and Housing Corporation. To open up some units, Toronto will consider following Vancouver’s lead in restricting the short-term rental market (AirBnBs). “With near record-high immigration in Canada and record-low unemployment, demand for housing is high, but flat or declining resale house prices due to current and expected future credit tightening has deterred many would-be, first-time buyers from entering the ownership market,” said Matt Danison, CEO of Rentals.ca. “That demand overflow is being felt in the rental market, where very few Canadian markets are offsetting demand with new rental supply.” “Based on recent economic data, it looks less likely that there will be multiple interest rate hikes in 2019, this should provide some comfort for first-time buyers and nudge them into homeownership,” added Ben Myers, president of Bullpen Research and Consulting. “Even if we see more ownership household formation this year, immigration is expected to stay strong. Canada’s population increased by nearly 185,000 in the third quarter. Statistics Canada said this was the largest quarterly increase in absolute numbers since the introduction of its current demographic accounting system in 1971.”
provide staffing to go in and help them, we do connect them to services so that they are able to function independently for longer.” YIMBYISM: “Yes in My Backyard” Last fall, Brightside launched efforts to engage Vancouverites on the need for equitable housing developments
for people of all income levels and to promote the idea of “YIMBYISM” as a solution to the city’s housing barriers. At an event attended by citizens, non-profit housing representative and real estate professionals, participants looked at a number of issues and responded to an indepth housing survey. | www.REMInetwork.com | January 2019 | 23
FEATURE >>
Key takeaways from the survey: • 75% said expediting the permit process is the most important issue/ solution policy-makers should focus on in the next 12 months • 64% said Vancouver’s current housing situation is a threat to diversity • 46% said developers and non-profits should seek to build affordable housing projects that enhance or provide access to community spaces, with recommendations to provide housing that is “community-oriented”, “flexible”, “livable” and “bright” with direct access to outdoors • Most people (75%) had a positive perception of affordable housing • Concerns around “renovictions”; lack of affordable housing supply; high cost of rent; lack of developer interest in building affordable housing, and the need for more family-sized rentals emerged as top priorities
“With between 3 and 4 million Canadians currently in need of affordable rental housing, the problem is endemic. It cuts across the country and every group, the obvious one being the homeless.” - Cary Green, Chairman of Greenwin Inc.
At the end of the day, Robinson said she is hopeful that “YIMBYISM” will prevail and believes that all levels of government are doing their part to effect change. “Everybody is concerned about the affordable housing deficit and offering support,” she remarked. “However, I think we could use some more collaboration between the levels of government. Though there are many programs being
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offered, they need to be more accessible. CMHC’s Co-Investment Fund was a little too stringent and difficult for people to meet the qualifications, though I understand they are changing that and making it a little easier. Now, if the city could just step up a bit, cut the red tape and expedite that permitting process, that would be really helpful.” “Affordable Housing Bonds”: A viable solution to the housing crisis? Meanwhile, Cary Green, veteran housing developer and chairman of Greenwin Inc. has been touting the merits of a solution he believes could spark widespread housing development: government-funded development bonds. In December, Green spoke with TVO’s Steve Paikin about this approach and why he believes it’s the best possible direction. “With between 3 and 4 million Canadians currently in need of affordable rental housing, the problem is endemic,” he told Paikin. “It cuts across the country and every group, the obvious one being the homeless. You’ve got people living in overcrowded homes and in substandard housing. Students…people in their first jobs…coming out of divorce, returning war veterans and new immigrants.” In short, Canada needs more affordable housing, and these bonds, says Green, would provide a viable, fiscally responsible means to kick-start new development. The complete interview can be downloaded at the following link: https://tvo.org/video/programs/ the-agenda-with-steve-paikin/a-privatesector-fix-for-affordable-housing.
LEGISLATION >>
Clothing Donation Bins May Pose Liability Risk Property owners should be diligent about known hazards by Barbara Carss At least five Metro Vancouver municipalities are taking immediate steps to have bins for collecting donated clothing sealed or removed from publicly accessible locations following a recent spate of fatal mishaps in cities across Canada. That includes Toronto, where Mayor John Tory is asking that a review already planned for 2019 be moved forward on city staff’s work schedule.
H
is plea came soon after a woman died from injuries caused when she was caught in a clothing bin. “The City of Toronto does license clothing drop boxes — all clothing drop boxes placed on private or public property must display a permit — so I believe we must take action now,” Tory submitted in a letter to the city’s licensing committee in early January. Commercial property owners who host such bins could run afoul of their province’s Occupiers Liability Act or Occupational Health and Safety Act should an incident occur. Diligence is advised regardless of whether local ordinances are imposed. “If you’ve got these bins on your property and now everybody is aware they pose a hazard, you have an obligation to take reasonable steps to protect your workers or others who come onto your property,” says David Reiter, a partner and litigation lawyer with Aird & Berlis LLP. “Make sure that known hazards are addressed in some way.” In a motion unanimously endorsed earlier this week, Vancouver Council instigated the removal of clothing donation bins from all cityowned property, while urging private property owners to follow suit. The motion opens possibilities for further restrictions, such as a bylaw to prohibit the bins on private property, along with leeway to reinstate receptacles that can be “made safe, with consideration given to bin designs that also avoid strewing refuse.” Multi-residential buildings are identified as potential future test sites for those theoretical bins. Thus far, Burnaby, Delta, Richmond and West Vancouver have also introduced measures to control bins and address safety issues. Some sponsoring charitable organizations have likewise been proactive. “Working with our Canadian-based clothing bin manufacturer using their technical guidance and/or parts, approximately 4,000 Diabetes Canada clothing donation bins across Canada, including those in the city of Toronto, have already been or are in the process of being retrofitted or modified in an effort to prevent injury or death
to those misusing or trying to gain entry to our clothing bins,” Simon Langer, the organization’s national manager, government and strategic partnerships, wrote in a letter to Toronto’s licensing committee. “All modifications are expected to be complete by January 18, 2019.” Toronto’s licensing committee has agreed with Mayor Tory that an earlier review of the city’s donation bins is warranted. If the full City Council agrees at its meeting later this month, a report is to be delivered in May, approximately four months ahead of the original work schedule. Staff has been instructed to address: how the bins might be made safer; the rules guiding where they are located; enforcement to ensure they have required permits; and alternative options for collecting clothing. “Recognizing that many of these boxes help charities and help reuse clothing rather than these items being tossed in landfills, is this the best way to collect clothing in 2019,” Tory asks. Langer notes that accidents and deaths remain rare, while Diabetes Canada’s program collects about 100 million pounds of clothing and household items that might otherwise go into landfill every year. Still, the harsh realities of insufficient housing and Canada’s winter climate may make donation bins unduly tempting as a supply of warmer garments and/or refuge from the open air. The chain of potential responsibility for mishaps could stretch far. “The building/property owner may have some sort of an indemnification arrangement in place with the bin owner and the bin owner may have some form of indemnification arrangement in place with the bin manufacturer, but everyone is likely to be named in a civil suit,” speculates Joe Hoffer, a partner with Cohen Highley LLP, specializing in residential tenancy, real estate and land use planning law. “The plaintiff’s lawyer would likely name every potential insured defendant with any connection to the bin.” Barbara Carss is editor-in-chief of Canadian Property Management. | www.REMInetwork.com | January 2019 | 25
NEWSWORTHY >>
Industry Hot Topics
Lease-up begins at RioCan Living’s eCentral in Toronto
R
ioCan Living announced it would begin lease-up on its first rental development, eCentral, in midtown Toronto in December, 2018. The 466-unit purpose-built rental located at Yonge and Eglinton accounts for a fifth of the approximately 2,300 rental units currently under construction in the RioCan Living portfolio. “The launch of RioCan Living this past March was in part motivated by a shortage of new purpose-built rental buildings in large Canadian cities,” said Ed Sonshine, Chief Executive Officer of RioCan. “The government of Ontario’s recent amendment to rent control legislation as it applies to new purpose-built rental development has encouraged RioCan to move forward more expeditiously to expand our rental residential portfolio. RioCan is uniquely positioned to address the void by developing the properties we already own in major markets that are also strategically located on transit lines.” “Our ability to come to market with a product like eCentral within the same calendar year as our residential brand launch is indicative of the strength of our team and development capability” added Jonathan Gitlin, Chief Operating Officer of RioCan. “We have a deep and talented roster of experts in place who are working to deliver best-in-class, professionally managed residential units to the cities and communities that need them most.”
26 | Canadian Apartment | Part of the REMI Network |
eCentral is a 36-storey rental residence situated within ePlace, a 712,000 square foot mixed-use development that also features retail, office and residential condominiums. Located at the intersection of the Yonge-University subway line and future Eglinton Crosstown LRT, eCentral is the prototypical RioCan Living development, with an emphasis on design, quality, professional management, retail integration and access to transit. With leasing having begun at the end of 2018, residents are expected to begin moving in throughout the first quarter of 2019. Meanwhile, a second RioCan Living development is also slated to begin leasing this year. Frontier is a joint partnership between Killam Apartment REIT and RioCan Living. The 23-storey, 228-unit rental residential development is located adjacent to RioCan’s Gloucester Silver City shopping centre and is steps from the newly built Blair LRT station. Frontier will be the first residence of a five-phase community in the Gloucester neighbourhood in Ottawa, and will enter the thriving market in the nation’s capital when leasing opens to prospective residents in December. Zoning is complete for all five phases of the development and site plan approvals are in place for the second phase. Of the eight rental projects (or 2,300 rental units) actively under construction in the RioCan Living portfolio, five, including eCentral, are located in Toronto, one is in Calgary, and two, Frontier Phase I and II, are in Ottawa. Residents will be welcomed to two of the projects in 2019 and occupancy for an additional three will begin in 2020. These inaugural properties are just the beginning of a healthy pipeline of development opportunities within RioCan’s existing portfolio.
$700-mil mixed-use development set for Montreal
D
evimco Immobilier, the Fonds immobilier de solidarité FTQ and Fiera Properties have partnered to develop the largest mixeduse real estate project in Montreal’s Quartier des spectacles. The $700-million project, MAESTRIA, is set to rise on the former site of Le Spectrum de Montreal. MAESTRIA will be comprised of two towers, rising 51 and 53 storeys, and will have access points on Jeanne-Mance, De Bleury and SainteCatherine streets. Marketing of the new suites will begin in February 2019, with construction scheduled to begin by the end of next year. “We are proud to be building a distinctive, avant-garde property that will help enhance the urban fabric of this booming arts and culture district,” said Serge Goulet, president of Devimco Immobilier, in a press release. “With this landmark project, we intend to maintain the Devimco tradition of creating a living environment with mixed uses that will serve project residents as well as visitors to this highly popular part of Montreal.” According to Daniel Arbour, senior partner at architect firm Lemay, the building’s design is “a nod in the direction of the Quartier des spectacles, a project with a powerful identity and a unique signature, with the two tall towers seemingly in motion, like a pair of tango dancers.” At the 25th storey, a walkway will connect the two towers, making it the highest walkway and lookout of its kind in Montreal. MAESTRIA’s other amenities include 512 interior parking spaces, green spaces developed to promote urban biodiversity, a semi-
Olympic indoor pool with swimming lanes, an outdoor pool with spa, a full Scandinavian thermal pool and spa circuit, a 4,800-square-foot fitness room, a virtual golf room, a games room for children, a library and business centre, a movie theatre, multipurpose room and games room, music rehearsal studios and creative studios. The development will also feature a 51,000-square-foot mini-plaza with retail space, featuring restaurants, cafes and shops, and two sky lounges with terraces and a SkyBox, which will overlook the entire Esplanade des Festivals/Place des Arts complex and connect the two towers. Along with the project, Devimco Immobilier, the Fonds immobilier de solidarité FTQ and Fiera Properties also plan to contribute to the community. According to Goulet, discussions are underway to determine how to best use the space, for example, as recording studios or arts and culture presentation venues. In addition, the partners made donations totalling $100,000 to promote children’s welfare.
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Modern Employee Benefit Plans What to consider in 2019 by Andy Schwartze
W
ith January upon us, it’s a good time to take a look at your employee benefits plans—a task that isn’t as simple as it used to be. Increasingly, we are seeing a growing divide in the employee bases of larger companies. Whereas not too long ago, benefits were largely homogeneous and plans were “one-size-fits-all” to please everyone, today they are less so due to age gaps and gender identification, and even on the basis of cultural preferences. The perceived advantages of an employer-provided benefits plan can now, more significantly, differ from one employee to the next. While many younger workers would rather skip the benefits in favour of seeing more money on their pay cheques, older employees with families
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and health considerations have other priorities. The most generous of modern benefit plans available from a few insurers is the “flex” plan. This is the ultimate approach to benefits and essentially allows every employee to pick and choose from a smorgasbord of options, limited only by the offerings and the premium assigned to the employee. Flex plans come with a significant commitment from employers to give their workers whatever options may be available. The negotiations with potential insurance company providers require an investment in time and effort in order to create the palette of coverages to be made available. Once those have been decided, there is another significant investment
that needs to be made in the integration of software systems between insurer and employer. This can bring interesting challenges as employers prefer to see the flexible benefits plan be integrated with their payroll company, not all of which are able to do this easily and seamlessly. Flex plans are best suited for larger employers. One hears often that it takes a group of at least 300 to make a flex plan worth investing in. Even then, management culture has to be very much on side for this to become a reality. Typically, the more traditional benefits plan is maintained, but there are also other things one can focus on to really make a difference. Old design plans have either a single employee category, or something along the lines of “management” and “all other
INSURANCE >>
employees.” The benefits will comprise some life and accident insurance, health, drug and dental costs and some out of country emergency medical coverage. The inclusion of long-term disability coverage is strictly a matter of affordability. In addition, there may be a short list of “paramed” services available, generally capped to a certain low level maximum. For those employers who still have one of these “old fashioned” plans, especially with a younger employee group, the attraction of your benefits offering to a new employee will be limited. On the CRA website, there’s an excellent example of which health related costs can be tax deductible, or employer provided, without being taxable in the employee’s hands. It’s a long list well worth checking out, and it extends beyond what services a typical benefits plan will provide. So, one of the ways a plan can make a huge difference is through the use of an
HAS— “healthcare spending account”. This enables the employer to cap its employment cost exposure by providing each employee with a fixed annual amount useable for whatever eligible expenses the employee incurs. This HSA amount is in addition to the basic benefits, but its inclusion eliminates the need for paramed coverages that satisfy some, but irritate the non-users. The amount can be used to pay certain costs not covered by the basic plan, such as co-insurance and uninsured expenses. What amounts are not used during the term can either be accrued to the following year, or they simply vanish. As always, benefit plans have their limits, but interestingly, CRA seems to be quite comfortable with allowing HSA levels to be pretty high. We have seen cases where upper level managers and
owners have enjoyed an HSA benefit of as much as $15,000 annually. For those who have recurring medical expenses, that are payable one way or another, this can be a significant tax-free benefit paid by the employer. One needs to always remember that the exchanging of money with a life insurer plays in to the value of the business deal. Typical employee benefit plans generally break even at about the 78%-80% claims level. HSA dollars traded with the insurer generally break even at about 89% to 90%. If you are going to provide valuable flexible benefits to your employees, this is a cost-effective way to do so. The use can be tied to an employee’s cell phone, used on demand and even keep a record of the unused balance. Sounds just a bit more modern, doesn’t it?
Andy Schwartze, BSc., MBA, CIP, is an insurance broker specializing in property management and real estate. He can be reached at andy@takecover.ca.
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Smart Ideas
PERFORMANCE ENHANCING DATA
Measure by measure, benchmarking leads to better buildings EWRB – Are you ready for it?
Compass – Benchmarking made easy
A new tool, developed by RWDI in partnership with the Ontario Association of Architects (OAA) and Toronto’s Architecture 2030 District, streamlines energy benchmarking and reporting during the design phase of building development projects. Users must register and can then upload energy models to the tool, which then automatically extracts over 400 variables and completes the submission requirements for six building standards and programs in a matter of seconds. Compass can extract data from energy models created using the following compatible software versions: DOE2 (eQuest, EE4); IES-VE 2017; EnergyPlus 8.7.0+.
The six standards include: • Ontario Building Code SB10 Compliance – Form A, Form 11 • Toronto Green Standard v2 – Energy Modelling Report Summary • Leadership in Energy and Environmental Design (LEED) Canada 2009 – LEED Letter Template • Savings By Design Incentive – Energy and Demand Summary; Custom Project Worksheet • 2030 Challenge – Program Reporting • High Performance New Construction (HPNC) – IESO Incentive Worksheet A data visualization platform allows users to benchmark their modelled building against a database, which in turn, informs the design process.
Visit www.energyCompass.design.com for more info. 30 | Canadian Apartment | Part of the REMI Network |
Ontario’s Energy & Water Reporting and Benchmarking (EWRB) regulation mandates that all privately owned properties over 50,000 square feet (including multi-unit residential with 10 or more units) report their energy, water consumption and GHG emission data to the Ministry of Energy on an annual basis. The first deadline for all buildings over 100,000 square feet is coming up this July. Next year, mandatory reporting will apply to all large buildings 50,000 square feet and over. As daunting as it sounds, the benefits of benchmarking are both proven and numerous. Not only does it provide building owners with valuable information about energy and water consumption, but it helps identify opportunities for efficiencies—hence, savings. As buildings age, and expensive upgrades and retrofits loom, the data obtained through benchmarking will provide insights into outdated or malfunctioning systems, helping building owners better manage—and save— in the long-term. Visit www.ontario.ca/page/measure-energy-and-wateruse-large-buildings for more info.
Comfy living for tenants. Comfy energy bills for you. We’ll cover up to 50% of the cost when you upgrade to high-efficiency equipment The Affordable Housing Conservation Program provides financial incentives for high-efficiency space and water heating equipment, heat recovery, building automation systems and more.
Visit uniongas.com/affordablehousing to learn more.