Ask The Expert Office-to-Rental Building Conversions

FROM OFFICE TO RENTAL HOUSING

How viable are building conversions as a long-term housing solution?

Office-to-residential building conversions have been gaining momentum in some jurisdictions, particularly in urban centres hard-hit by the economic fallout of COVID-19. As subvariants of the virus continue to circulate and many workers resist returning to the office, some cities, like Calgary, have been left with a surplus of unused commercial space amid the interrelated housing and climate crises.

To contend with the glut of vacant commercial buildings and revitalize its downtown core, the city launched the Downtown Calgary Development Incentive Program in 2021, offering grants to help facilitate office-to-residential building conversions. As of mid-October, a total of seven projects had received a grant, and 665,000 square feet of unused office space had been replaced with 707 new homes.

Among those projects was Neoma, an office-turned-affordable-rental-building run by the non-profit housing provider, HomeSpace Society. As reported in our last issue, the conversion took about six months to complete at a cost of $30 million. Funding came from multiple sources, including $16.6 million from the Rapid Housing Initiative; $2 million through the Canada-Alberta Bilateral Housing agreement under the National Housing Strategy; and $5.5 million from the City of Calgary’s downtown revitalization program. Private donors also raised nearly $6 million toward the extensive renovations required to repurpose the 10-storey building into private, livable homes.

“By investing in projects like Neoma, we’re creating a downtown where low-income families, seniors and newcomers can build their lives with access to key amenities just a short walk away,” said Calgary Mayor, Jyoti Gondek, at the official opening in September. “Calgary is proud to be leading the country with this project that will serve as a blueprint for cities looking to address both the housing crisis as well as downtown revitalization.”

While not all building conversions will offer this same noble mix of affordable rental units, shelter spaces, and transitional housing to

“Given most governments are taking an active role in spurring rapid housing development, we could certainly see more conversions happening in Canada.”

help families in need, there is no question that more rental housing is needed arguably everywhere. Will building conversions pick up speed and be widely embraced as a viable housing solution? The answer, according to Sheila Botting, Principal & President, Americas Professional Services, Avison Young, is complicated.

“Given most governments are taking an active role in spurring rapid housing development, we could certainly see more conversions happening in Canada,” she said. “On its own as a single solution, it won’t deliver the substantive number of new housing units needed to meet the demand across Canada’s major cities…but every little bit helps.”

First off, Botting points out that some properties—i.e., those of a certain vintage— are more likely to be considered for an officeto-residential project than others.

“Office tenants today are drawn to trophy, A-Class buildings with higherquality amenities like fitness centres, cafeterias, and coffee shops—spaces that foster opportunities for collaboration, brainstorming and engagement,” she said. “Employers and building owners that want to attract back their current employees and bring in new talent are relying on these things to help them achieve that goal.”

Increasingly, older C-Class buildings will be challenged by this flight to quality as leases come up for renewal, making them obvious targets for office-to-residential projects, especially those buildings with historic significance or character in downtown and midtown areas. But regardless of age or quality, Botting says there are some practical challenges building owners should be aware of before considering a conversion.

“Floor plates should be in the 8,000 and 14,000 square feet range for a project to be feasible,” she said. “Buildings with very large floor plates are impractical in that they are too deep with limited windows. Also, inserting plumbing for kitchens and bathrooms can be expensive, and older buildings may not have the required infrastructure for a residential environment, with sufficient parking, staircases, access, etc.”

In some cases where the infrastructure is inadequate, it might make more sense to demolish the pre-existing building and replace it with a brand-new high-rise apartment to deliver the needed housing units, particularly in Toronto and Vancouver where higher density land values justify conversion.

“Challenges in these cases might arise from municipalities reluctant to give up commercial space and employment land with high tax-paying, job-creating tenants,” she warned. “So, while this strategy represents one of many options to bring more housing to market, it isn’t a viable solution on its own to meet housing need across Canada. Other solutions include unlocking surplus land and dedicating this to future affordable housing, which we are now seeing happening by the City of Toronto and Province of Ontario. Converting employment land could provide another similar option from the private sector.”

Ultimately, Botting’s take on building conversions is that if the project checks all the boxes in terms of the physical asset, infrastructure, zoning, location, and having support from partners and government funding, it will likely see a successful outcome worthy of the initial investment. But unless all the boxes are checked, the risks of undertaking a conversion project will likely outweigh the rewards.

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Proudly holding congratulatory messages from the three levels of government are (l-r) Kelson Group’s Alberta Property Manager Denise Cave, President Jason Fawcett and Canadian Certified Rental Building Program Director Ted Whitehead. (Photo: Dustin Delfs

Canadian Certification Program for renters and property managers unveiled in Edmonton and Northern Alberta

First Certified Apartment Building Rental Communities Celebrated In Four Different Markets

This September, Kelson Group became the first property management company in Edmonton and Northern Alberta to have its multifamily apartment buildings recognized under the Canadian Certified Rental Building Program (CCRBP); specifically, its buildings in Edmonton, Leduc, Sherwood Park, and Grande Prairie, AB.

The Kelson Group celebrated its first CCRB-designated buildings in BC in 2016, shortly after the program expanded to BC in 2015. Kelson Group President Jason Fawcett says its newest certified properties in Alberta represent a win-win for its apartment renters and all property management companies, noting, “Our objective with the national CCRBP-approved apartment building program is to provide Edmonton, Sherwood Park, Leduc, and Grande Prairie renters with the peace of mind and a clear quality assurance alternative when selecting their rental apartment home.”

CCRBP is North America’s first quality assurance program that specifically promotes and acknowledges quality for rental housing consumers, as well as professionalism for multifamily property managers and their staff. The program is a huge game-changer when it comes to the rental industry in Canada. Apartment shoppers who choose a CCRBP building enjoy enhanced peace of mind, knowing that their apartment community meets defined standards for quality and service.

In short, says Ted Whitehead, CCRBP Certification Director, “The designation means tenants can rent with confidence. With the added impetus of an increasing number of multifamily companies adopting Environmental, Social, and Governance (ESG) as a strategic business imperative, we expect that over the next 18 months this program will help build a national network of professional multifamily property managers whose focus will go far beyond financial measures to incorporate factors measuring the sustainability and ethical impacts of their investment.”

For a multifamily apartment building to qualify as a Canadian Certified Rental Building, it must meet five mandatory requirements: • Abide by the Program’s Member Code of Conduct • Adhere to the Program’s Mandatory Standards of Practice • Successfully comply with a mandatory thirdparty audit process • Have identified staff successfully complete the program’s training and education component. • Agree to market and identify their building as a Canadian Certified Rental • Building to prospective tenants.

“We are happy to have our members participate in this important ‘for-renters’ initiative,” said Donna Monkhouse, Executive Director of the Albert Residential Landlord Association (ARLA)” At the heart of the Canadian Certified Rental Building Program are 54 standards of practice and associated requirements to which all organizations and buildings must adhere. These requirements translate the concepts of environmental, social and governance into concrete measures that focus on environmental and social responsibility and enhanced corporate accountability.”

“We want renters to recognize that ARLA landlords care about their renters and the buildings in which they live,” Monkhouse adds.

A COMPETITIVE EDGE

In today’s competitive real estate marketplace, internationally recognized ESG benchmark programs like the Global Real Estate Sustainability Benchmark (GRESB) are taking on increased relevance and importance. Not only can CRB certification help enhance an organization’s GRESB benchmarking score, but now, in line with its national expansion, the program has moved from a recognized and approved green building certification program to officially becoming a GRESB Real Estate partner.

Explains Whitehead: “As all levels of government gain greater awareness of the ESG mantra across all industries, there is little doubt that they will soon be asking – or perhaps, demanding – what our industry is doing collectively on this front. Ours is the foremost ESGfocused accreditation program supporting the multifamily industry. And, with many of the REITs, institutional and investor-driven members leading the multifamily industry’s transformation to an ESG discipline, it became imperative to expand this program across Canada.”

“Adopting a strong multifamily ESG framework across the industry is necessary for the industry’s longterm regulatory survival,” he continues. “The multifamily industry provides apartment homes to one in three Canadians, or approximately 4.4 million people. When you take in these numbers and couple them with Canada’s strong public commitment to environmental stewardship and mending the social issues of the day such as diversity, equality housing shortages, income disparities.”

Whitehead says there is little doubt that there will be increased pressure on the multifamily industry to demonstrate what it is proactively doing to address these challenges on all fronts. To date, he adds nearly 13 per cent of multifamily industry companies in Canada have adopted a formal ESG way of doing business.

“That number must dramatically increase if we are to proactively state our case on these fronts,” Whitehead said. “The good news is that most professional property management organizations practice ESG-related activities daily and they just don’t think of them that way. We believe the Canadian Certified Rental Building Program provides a visible grass-roots pathway for professional property managers/ owners to move forward with confidence and success on the ESG front.”

Kamloops, BC-headquartered Kelson Group is the first property management company in Grande Prairie, AB to achieve Canadian Certified Rental Building Program (CCRBP) certification.

Kelson Group Property Management’s President Jason Fawcett and Alberta Property Manager Denise Cave unveil their CCRBP Living Green Together signage for residents at their Heatheridge Estates community in Edmonton, AB. (Photo: Dustin Delfs)