Canadian Apartment Magazine by MediaEdge

CANADA’S NATIONAL PUBLICATION FOR APARTMENT OWNERS AND MANAGERS

VOLUME 13 / NUMBER 4 / OCTOBER 2016

www.REMInetwork.com

FINTECH MEETS MULTIFAMILY CAPITAL R2Crowd’s Amar Nijjar and Chad Gemmell discuss the future of real estate investment

Finance Issue PA R T O F T H E Apartment market report

New and notable transactions MPAC’s new multi-res valuation approach

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Editor’s Note

Make way for Fintech

/cammediaedge /cdnapartmentmag /mediaedgecam

The Canadian apartment landscape is changing. New processes and methods are replacing conventional approaches to everything from how we communicate with staff and tenants, to how we finance capital. Leading this innovation is the team at R2Crowd, a strategic partner with JLL. The company’s CEO, Amar Nijjar, and Senior Director from Colliers’ Multifamily Appraisal Group, Matthew Bruchkowski, were both on hand to share their thoughts on crowd funding and how technology is disrupting the multifamily capital formation process. Please read our interview with these Fintech thought-leaders beginning on page 18. Up front in our apartment market section, The Apartment Group’s Lorenzo Digianfelice and Morguard’s Keith Reading both share their insights into what made Q3 significant. As a quarter marked by its distinct lack of product and deals (specifically in the GTA), multi-residential rental properties continue to generate strong interest among investors looking to capitalize on the sector’s stable, secure history. Meanwhile, Barbara Carss takes a look at MPAC’s new valuation process for multi-residential properties, noting the industry’s reaction to the spikes in values that were determined by the reassessment. Her highly informative article can be found on page 14. Please visit us at www.reminetwork.com for daily news and updates about Canada’s dynamic, ever-evolving apartment market. I look forward to hearing from you!

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aula Gasparro P Mike Kazmaier Barbara Carss Andy Schwartze

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“The current way of capital formation in the real estate sector is like the 8-track of the 1960s, while we are more like Spotify.” -Amar Nijjar

Manufacturers: Those wishing to have their products reviewed should contact the publisher or send information to the attention of the editor. 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.

– page 21 4 | Canadian Apartment | Part of the REMI Network |

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CONTENTS COVER STORY

FEATURES

18 Industry Influencer

14 MPAC Adopts New Valuation Process

Fintech Meets Multifamily Capital R2Crowd’s Amar Nijjar and Colliers’ Matthew Bruchkowsky discuss how crowd funding is disrupting the traditional capital formation process in the multifamily sector By Erin Ruddy

By Barbara Carss

24 Tapping into Water Savings

By Mike Kazmaier

COLUMNS 10 Transactions GTA Sales at an All-Time Low By Lorenzo Digianfelice 12 CMHC Affordable Rental Innovation Fund Kick Off By Paula Gasparro 28 Newsworthy A new Measurement Standard for Residential Buildings 30 Marketing Enhancing the Apartment-Finder Experience By Chaim Rivlin 33 Insurance Personal Asset Exposure is Real By Andy Schwartze

DEPARTMENTS 4

Editor’s Note

32 Ask the Expert 34 Smart Ideas

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MAC Awards Gala

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October 2016

EllisDon to build Manitoba’s tallest structure

Industry sees promise in low-impact communities

EllisDon has been selected to build SkyCity Centre Winnipeg, which will soon become Manitoba’s tallest skyscraper. The 45-storey, mixed-use condo, apartment, and office tower will feature 30,000 square feet of amenities.

Industry proponents of sustainability are looking beyond buildings and thinking more about community scale in order to help impact decarbonization goals, such as Canada’s longterm greenhouse gas (GHG) emissions reduction target of 30 per cent by 2030.

Canadian retail market trends spur opportunity Mixed-use developments such as Toronto’s Canary District go beyond the zoning requirements for at-grade commercial units. This is just one of the factors influencing the retail market.

All the Buzz

From the Green Bin

Expert Advice

Social Media

Metro Vancouver home sales fall 32.6 per cent

Canada-wide carbon polluting fees coming

Getting the most from your swimming pool

Connect with us on

Vancouver saw more demand for condominiums and towns than detached homes as sales slid in September.

Provinces and territories will have until 2018 to put a price on carbon or accept a national model.

Martyn Knowles wades into pool maintenance.

How Can Older Buildings Compete with New Developments?

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Transactions

GTA Sales at an All-time Low Lorenzo Digianfelice Shines a Light on the Toronto Apartment Market

Where have all the apartment sellers gone? That is the question more and more buyers are asking. While the apartment market in the GTA and in Southern Ontario has been tight, many are now calling it anorexic. The Apartment Group, which has been selling apartments and for over 20 years and keeping track of market statistics for just as long, has never seen this level of constriction. In the third quarter of 2016 (Q3) there were only nine deals over 20 suites completed in the GTA. In fact three of those nine deals were actually portfolios, so technically there were only seven separate deals completed. This is down 50 percent from the previous quarter and down 40 percent from the same period last year. Year-to-date figures tell a similar story. In 2016, for the first three quarters of the year, there have been 43 sales. This is considerably lower than the 61 deals in

2015 and the 72 deals in 2014. It means we are on track to see a total of about 60 deals completed by the yearâ&#x20AC;&#x2122;s end. In 2013, 122 deals were completed. Historically, Q3 of any year tends to be the slowest. This period occurs in the summer months when many investors and sellers are on vacation and not in full real estate mode. However, this has been the lowest on record and follows on a continuing trend of evaporating product on the supply side, which further skews the imbalance between supply and demand. In Q3 2016 there were a total of 563 suites sold and nine deals for an average of 63 suites per sale. Again this is down 60

10 | Canadian Apartment | Part of the REMI Network |

percent from last quarter and down 50 percent from one year ago. This same trend follows through on the dollar volume of sales completed. In Q3 2016, $95 million in deals were completed compared to $235 million in Q2 and $229 million a year ago. The interesting thing about Q3 2016 is that one buyer, Starlight Investments Limited, purchased almost $80 million worth of apartment buildings in Q3 representing over 80 percent of the market by sales volume. One transaction was a portfolio purchase of buildings for $47 million from Berkley Developments Inc. Another deal was for 27 suites, while

Transactions

another project in North York contained 144 suites for $27.5 million. The other deals were completed by a series of private investors. Cap rates year-to-date are averaging around 4.00 percent, which is down slightly from the average of 4.25 percent for all of 2016. Statistically no significant change despite the lack of product and deals. Price per suite is around $170,000 year-to-date 2016, which is down from $190,000 per suite a year ago. This could relate to the quality of product trading in 2016 as compared to 2015.

Investors looking online at mls.ca or icx. ca will find that there is virtually nothing on the market over 20 suites in any major market out there. On the Toronto MLS system, where typically there has been 50 property listing at any given time, currently there are around 25 to 30. While the above points to a strong seller’s market, those properties that are not priced properly or not marketed correctly still tend to sit there. From our personal perspective not only is activity way down from last year, but deals are getting more and more difficult to hold

together. Financing levels keep shrinking, meaning buyers have to put more down, which makes them sharpen their pencils that much more. It also affects the smaller end of the market and first time buyers. Those deals less than 40 suites need to be highly structured to work for the both buyer and the seller.

Lorenzo Digianfelice is Broker of Record at Commercial Focus Realty and member of the Apartment Group and can be reach at ldigianfelice@cfrealty.ca

Meanwhile, across Canada...

Multi-suite residential rental property continues to generate strong interest on the part of the investment community, with notable investors looking to capitalize on the sector’s history of secure and stable performance. “This will include capital sourced in both the private and public capital markets,” says Morguard’s Keith Reading, noting that Boardwalk REIT acquired two buildings, totaling 347 units, in Edmonton this past July for a combined total of $63.4 million. Additionally, it acquired a third building with 238 units in Calgary for $51.2 million. Reading says a number of groups with little or no exposure to the sector will also look to gain a foothold in the asset class over the near term. In many cases, investors seek the relative safety of the sector, against a backdrop of uncertainty. Risks related to the Canadian and global economy have risen recently. The ongoing global commodities slump has also elevated investor concern levels. Reading says investors will continue to look to Canada’s real estate sector, and more specifically the multi-suite residential rental sector, to provide the buffer against the potential impacts of any further erosion of market fundamentals over the near term.

Notable sales during Q3:

Starlight Investments acquired a 270-unit portfolio in the GTA for $47.1 million or $174,361 per unit

A private buyer acquired

Skyline acquired a 415-

KingSett Capital

55 units, also in Toronto for

unit portfolio in Niagara Falls and Sarnia for $32.1 million or $77,349 per unit

acquired 65 Times Ave in Markham for $16 million or $253,068 per unit

18 Reid Drive, totaling $11.5 million or $209,091 per unit

| www.REMInetwork.com | October | 11

CMHC

Affordable Rental Innovation Fund Kicks Off CMHC is Seeking New Funding Models to Revolutionize the Rental Housing Sector By Paula Gasparro

Canada Mortgage and Housing Corporation (CMHC) is looking for unique ideas, new funding models and innovative building techniques to revolutionize the rental housing sector and spur much-needed change. While speaking at the Toronto Housing Summit on September 30th, the Honourable Jean-Yves Duclos, Minister of Families, Children and Social Development and the Minister responsible for CMHC, announced that CMHC is now ready to accept applications under the Affordable Rental Innovation Fund. “Housing is an important component of our Government’s overall approach to strengthening the middle class, promoting inclusive growth for Canadians, and helping to lift more people out of poverty,” said Duclos. “We’re excited about this initiative because we believe that innovation is important to building a strong and vibrant housing sector for Canada.” The Fund, part of Budget 2016 and administered by CMHC, totals $200 million to

help create up to 4,000 new affordable rental units over 5 years, reducing the number of Canadians living in housing need and the reliance on long-term government subsidies. “Canada Mortgage and Housing Corporation is looking for unique ideas that will transform the affordable rental housing sector,” added Simon Lahoud, Senior Manager, Innovation Fund, Canada Mortgage and Housing Corporation. “Our hope is that the Innovation Fund will help harness and support revolutionary ideas from the best and brightest of Canada’s business and housing industries. With this funding, we can take a project from brainstorm to bricks and mortar to create sustainable housing solutions for thousands of Canadians.” Funding is available to individuals and

12 | Canadian Apartment | Part of the REMI Network |

organizations who want to build affordable rental housing in Canadian communities where there is a demonstrated need. Applications for the fund must meet the following minimum criteria: • New affordable rental housing units (5 minimum) • Innovative and unique models of design or financing models • Unit affordability maintained for at least 10 years • Resource efficiencies in the design • Accessibility features included • Plans for viability and sustainability without long-term government subsidies Submitting proposals The call for proposals opened on September

CMHC 30, 2016. Online applications will be reviewed on an ongoing basis and funding announcements will be made every quarter. CMHC will require the ability to use information and ideas submitted by the applicant for research and evaluation, while taking intellectual property rights and confidentiality into consideration. Proposals that meet the criteria will be referred to the i3 Committee for further review. Proposals that may not meet all the criteria but show potential will be referred to an Innovation Lab for further refinement and potential resubmission to the i3 Committee for consideration. If your proposal is not chosen to move forward at either of these levels, you may be invited to resubmit at a later date based on the feedback received. Funds are available for five years or until all funds are assigned, whichever comes first. CMHC has final decision-making authority on the selection of proposals. For more information on the Fund, funding amounts, selection criteria, eligibility and the application and approval process please visit www.cmhc.ca/innovationfund

The average monthly rent surpassed $2,000 in the City of Toronto for the first time, reaching $2,044 in the third quarter of 2016 based on an average unit size of 717 square feet ($2.85 per square foot). In Toronto proper, average rents jumped 10 percent year-over-year to surpass $3.00 per square foot for the first time, reaching $3.10 per square foot or $2,145). Growth in the 905 region was nearly as strong, as rents increased by seven percent yearover-year to $1,749 per month or $2.14 per square foot.

Urbanation’s survey of purpose-built rental apartment projects completed across the GTA since 2005 found the vacancy rate sits at just 0.6 per cent, which is unchanged from one year ago. Rents across the sample averaged $2.45 per square foot, up five per cent annually. There were 25 purpose-built projects and 5,678 units under construction in Q3-2016, down 676 units compared to Q22016 as four projects began occupancy. The total proposed inventory increased to 20,226 units, which is double the number from one year ago.

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GTA condo rental activity slows According to Urbanation Inc.’s report on Greater Toronto Area real estate during the third quarter of 2016, the number of condo apartments rented in the GTA through the MLS system fell by nine per cent from a record high last year to 7,651 units. Activity slowed due to a 13 percent drop in listings as the number of units in new projects registered during the third quarter fell by 30 per cent year-over-year. The leases-to-listings ratio reached a new record high of 89 percent, while available listings at the end of the quarter fell to 930 units, a five-year low. Market conditions became very tight during this quarter, as the average condominium for rent spent about 12 days on the market, while the number of units renting for above the asking price more than doubled from one year ago. This resulted in a nine percent annual price increase to a record $2.71 per square foot, or $1,986 per month. “The rental market has become severely undersupplied, which is likely to worsen following the latest round of mortgage insurance rule changes,” said Shaun Hildebrand, Urbanation’s senior vice president, in a press release. “Notably higher qualification standards for first-time buyers and reduced credit availability for investors should put even more pressure on the market, even as more rental units are being built.”

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* Sales Representative This disclaimer shall apply to CBRE Limited, Real Estate Brokerage, and to all other divisions of the Corporation; to include all employees and independent contractors (“CBRE”). The information set out herein, including, without limitation, any projections, images, opinions, assumptions and estimates obtained from third parties (the “Information”) has not been verified by CBRE, and CBRE does not represent, warrant or guarantee the accuracy, correctness and completeness of the Information. CBRE does not accept or assume any responsibility or liability, direct or consequential, for the Information or the recipient’s reliance upon the Information. The recipient of the Information should take such steps as the recipient may deem necessary to verify the Information prior to placing any reliance upon the Information. The Information may change and any property described in the Information may be withdrawn from the market at any time without notice or obligation to the recipient from CBRE. CBRE and the CBRE logo are the service marks of CBRE Limited and/or its affiliated or related companies in other countries. All other marks displayed on this document are the property of their respective owners. All Rights Reserved.

| www.REMInetwork.com | October | 13 vertical-magazine-ad-design - de changes v2.indd 1 Untitled-4 1

2/2/2016 10:38:00 AM 2016-02-08 9:04 AM

Feature

MPAC Adopts New Valuation Approach for Multi-res Low Cap Rates Underpin a Spike in Values with Reassessment By Barbara Carss

Assessment notices for nearly 16,000 Ontario multi-residential properties were mailed out in mid-October, delivering valuations determined for the first time with the newly adopted direct capitalization methodology. Property owners had been promised an advance look and non-adversarial opportunities to adjust values before the assessment roll is finalized, but that occurred on a fairly limited scale as the Municipal Property Assessment Corporation (MPAC) pushed to reassess about 5.4 million properties provincewide ahead of the next four-year assessment cycle, which begins with the 2017 tax year.

14 | Canadian Apartment | Part of the REMI Network |

Feature

Calls for reform Indeed, the Federation of Rental-housing Providers of Ontario (FRPO) advocated for the switch to valuations calculated on net operating income (NOI) in place of the gross income multiplier – a methodology that most other North American assessment agencies had already abandoned. Applying the approach that the real estate industry conventionally uses in appraising, buying and selling apartment buildings is considered generally more reflective of actual market values. “It is going to modernize how they determine the value and then make it more transparent,” submits Scott Andison, FRPO’s President and Chief Executive Officer. “It will be a great benefit in terms of catching any data errors up front and reducing the need for appeals.” The change aligns with FRPO’s campaign for property tax reform, which also focuses

on the disproportionate share of the tax burden that multi-residential ratepayers and their tenants carry. Multi-residential tax rates continue to be at least two times greater than the residential rate in most Ontario municipalities, and industry advocates acknowledge that getting local governments to narrow that ratio is a formidable and likely to be ongoing challenge. “We said: Let’s get the assessment system fixed in the meantime,” Andison explains. Among the improvements, he cites the promised accompanying policy and procedures manual to clearly set out how the direct capitalization methodology is to be applied. This is the first time MPAC has produced such a guidance document for multi-residential properties – stating rules that can be used to gauge whether

assessors have properly determined values – and Andison maintains it will be a valuable tool for property owners making a case for a revised value and for Assessment Review Board adjudicators tasked with determining the appropriateness of a value. In contrast to some negative reviews, he tells of FRPO members’ satisfaction with the values they’ve seen through the advance disclosure process. “We’re hearing: Yes, they are in the ballpark,” Andison recounts. “My understanding is that multi-res values have increased proportionately to the average value increases across all classes in many geographic areas, suggesting that, while values have in fact gone up, the relative tax burdens are relatively similar.”

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“A select few of our clients were provided a two-week window to review the topline numbers for their portfolios, but we’re still missing some pieces of the puzzle because we’re not privy to information for comparable buildings,” David Gibson, a property tax consultant with Yeoman & Company Paralegal Professional Corporation, reported just prior to the mailout. “What we do know is the assessors are being very aggressive on values.” Looking across the broader spectrum of business properties, lawyer and property tax specialist Stephen Longo concurs that jumps in value have been most pervasive in the multi-residential and retail sectors. He attributes significant spikes in multiresidential values to the new valuation approach and, more specifically, the low capitalization (cap) rates MPAC has employed. “I anticipate a lot of appeals,” says Longo, who is a partner with Walker West Longo LLP. “I’m sure this isn’t what the sector had in mind when it talked about getting away from the gross income multiplier approach.”

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Feature

Valuation assumptions questioned When used to gauge expected investment returns, a cap rate expresses the net revenue a single building will generate as a percentage of its overall value – factoring in its operating costs, looming requirements for capital expenditures and untapped potential to garner higher rents. When applied

to property assessment, analysts warn that a standard cap rate across larger groupings of buildings makes it more difficult to capture building-level variables that influence value. “You may have two buildings on a street that are almost identical, yet one has rents 20 per cent higher because it has renovated units. Using the same

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cap rate will undervalue the lower-rent building and overvalue the higher one,” observes Lorenzo DiGianfelice, a certified appraiser and broker with Commercial Focus Realty Inc. Gibson voices concern that not enough details were collected to adequately differentiate buildings’ expenses. Similar to the protocol for assessment using the gross income multiplier methodology, property owners were required to submit information about revenue and operating costs, but he characterizes it as a “top line” survey with no breakdown of key building performance indictors like electricity and water costs. Perhaps more problematically, he contends that MPAC multi-res cap rates aren’t realistic. “The cap rates we’re seeing (in advance disclosure) are in the range of 3.25 to 3.5,” Gibson says. “There’s no question cap rates are at historic lows right now, but we don’t even see them that low in the marketplace. The institutional players building new buildings are running pro formas on an 18-month lease-up at a 4.5 cap rate because that’s what they need to get a stabilized income. For MPAC to apply a 3.25 cap is way too aggressive.” “The question is: How did MPAC create these values? Where did they get these inputs from and where did they get these cap rates from?” Longo agrees. Property owners will have until February 15, 2017 to adjust their valuations through the Request for Reconsideration process, which involves informal discussion and negotiation with MPAC. Beyond that, they can formally appeal to Ontario’s Assessment Review Board – a scenario far from rare for landlords given that previous reassessments have spurred appeals on up to 40 per cent of multiresidential properties. “Smaller property owners were left out of the advance disclosure and they are the ones who tend, for the most part, to drive the appeals,” Longo notes.

Barbara Carss is the editor-in-chief of Canadian Property Management. This article was reprinted from the REMI network.com.

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15-04-16 11:15 AM

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Back row (left to right): Garret MacGillvray, Sim Manocha, Max Vo Front row (left to right): Chad Gemmell, Matthew Bruchkowsky, Amar Nijjar

FINTECH MEET MULTIFAMILY C How R2Crowd is Disrupting the Traditional Capital Formation Process in the Multifamily Sector By Erin Ruddy

18 | Canadian Apartment | Part of the REMI Network |

Industry Influencer

TS CAPITAL | www.REMInetwork.com | October | 19

Industry Influencer

20 | Canadian Apartment | Part of the REMI Network |

Industry Influencer

Financial technology, also known as “FinTech”, is defined by Wikipedia as an economic industry composed of companies that use technology to make financial services more efficient. FinTech companies are generally startups, trying to disintermediate incumbent financial systems and challenge traditional corporations that are less reliant on software, using new applications, processes and business models. As of recently, FinTech has entered Canada’s apartment sector, inserting innovation where convention once reigned. On the cusp of this innovation is a company called R2Crowd, a strategic partner with JLL, a Fortune 500 company and an approved participant with TSX private markets. To find out more about how FinTech is disrupting the multifamily capital formation process, we met up with Amar Nijjar, Founder & CEO of R2Crowd, and his team at their head office in downtown Toronto. Matthew Bruchkowsky, Senior Director from Colliers Multifamily Appraisal Group was also on hand for the discussion. CA: Tell us a little bit about your company, R2Crowd, and what it offers Canadian apartment investors. AN: Think of R2Crowd as a technology

bridge that connects retail investors with apartment owners in need of capital to grow. The traditional capital formation process is very tedious and cumbersome. We have developed and invested in very advanced technology that can exponentially scale the distribution of investment product. The current way of capital formation in the real estate sector is like the 8-tracks of the 1960s, while we are more like Spotify. Technology is a huge enabler and it is shaking up several other traditional industries, as well. Just look at Uber versus

traditional cab companies…AirBnB versus hotels…PayPal versus traditional payment providers…Google versus the Yellow Pages. The list is very long.

CA: So, if an apartment owner comes to you with a proposal to develop or purchase an apartment building, how does your group help them? NA: We are able to raise as much as 95

CA: What does it mean to ‘crowd fund’ and what does it take? NA: First of all, let me begin by shattering

percent of the capital stack for our clients. This can be broken down into debt and equity pieces. First let’s look at debt. Debt, which is 70 to 75 percent of the capital stack—is pretty vanilla in nature and is called senior debt. We arrange that through our JLL Debt Capital Markets business. Lenders are very competitive in that space with over 50 lenders that are active at any given time. CMHC product is the real commodity in this space with over a dozen lenders competing for every basis point of pricing, and we are able to get our clients not only competitive pricing but also a very flexible structure, guiding them through each step along the way. But over the last few years, the non-CMHC (i.e. conventional financing) has seen a complete renaissance with very aggressive terms, such as 30-year amortization, twoyear IO periods, partial recourse with earn outs down the road at pricing of around 200-250 bps over the GOC. Now, let’s look at equity. Equity is like the secret sauce in every capital stack.

the two biggest myths in the industry: that crowd funding is un-regulated, and that crowd funding means going to small retail investors. Both those myths are not true. We are heavily regulated across Canada by various securities commissions especially because we are fundamentally changing the way this industry has worked in the past (for the good). Our crowd, as a matter of fact, is not retail but accredited investors, family offices and institutions. On certain deals we are able to raise capital through the retail channel by using what’s now available in Ontario (and the rest of Canada): Offering Memorandum. As much as we are disrupting the traditional capital formation process in this space, the fundamentals of our investments are still the same. We are still matching sound investments with qualified investors. What’s changed is how we go about doing that.

| www.REMInetwork.com | October | 21

Industry Influencer

CA: Tell us about your partnership with Colliers Appraisal Group. AN: I have personally known the appraisal

group at Colliers for a number of years. One of the most important due diligence items for us at R2Crowd is the valuation of properties. Colliers has done an exceptional job of ensuring that CAP rates, rental rates, expenses and allowances used in valuation are real and have a lot of rigour behind them. Moreover, Colliers is a large global real estate firm and we are pleased to work with them as they have a national research group and multiple offices across Canada. CA: How did you come up with the idea of R2Crowd? AN: Two years ago, my colleague Chad

Sponsor Equity R2: Pref Equity &/or Mezz Debt

35%-25%

Sponsor Equity - 25% minimum (of the total project equity required) Investor Equity/Sub Debt - Up to 75% Type - Equity (JV/Common or Preferred), Mezz Debt

*Crowd Includes: Institutional Family Offices Accredited Investors Eligible Investors Retail Investors

Investors - Crowd*

Senior Debt

65%-75%

Exemptions Used:

JLL Senior Debt Investors - Banks, Life Co’s, Pensions, Credit Unions, Foreign Lenders, CMBS, MICs

“

Accredited Investor Offering Memorandum $150+ Non Individual Syndicated Mortgage

In many markets the economics have shifted to make purpose-built rentals feasible, making this an attractive alternative to building condos.”

It is complex but we make it simple. We understand LP, JV, Co-tenancy structures better than anybody else in the marketplace and are able to give sound advice to our clients on the level of preferred returns, cash on cash distribution and total IRR required to

bring a project to fruition. Up until now, such complex advice was only available through large investment banks who typically did not touch projects under a certain size. At R2Crowd, we welcome them all and have different boxes to fit them in, based on their risk-return profile.

22 | Canadian Apartment | Part of the REMI Network |

Gemmell (Co-Founder & COO) and I were on a flight to Calgary to attend the Calgary Real Estate Forum. We had four hours to ponder our idea and started sketching the future. We were so excited that we couldn’t sleep. So, I guess that’s where this idea was hatched, 36,000 feet above ground. Literally from a big picture perspective. CA: In a short time, you’ve accomplished a great deal—including a partnership with JLL, becoming an approved participant with Toronto Stock Exchange, and accepted by MARS as an innovation partner. What have these accomplishments meant for your business? AN: It’s all about credibility and nothing

speaks about that better than our track record and our partnerships. JLL is not only one of the largest advisory firms globally but also one of the most well respected and ethical companies. JLL’s management is simply one of the best that I have personally come across having worked for over a decade with some of the very large financial institutions in the past…especially from the view point of recognizing talent, nurturing it and respecting diversity. When we came up with this idea two years ago and proposed it to our management it was an instant hit as it complemented our traditional business quite nicely and we loved working with JLL and our colleagues who are simply the best in the industry. Similarly, we have now formed

Industry Influencer

partnerships on multiple fronts including TSX Private Exchange, MARS, Colliers on the valuation side and many more.

has been recommended to the Minister of Finance by the Review Panel after extensive consultation in the industry.

CA. More broadly, how is technology changing the capital stack in the multifamily sector? AN: First, through disintermediation. It

CA: What shifts are you seeing in the Canadian multifamily landscape? MB: The market has shifted as renters

puts more money both in the investors’ pockets and property owners’ at the same time. Second, through efficiencies. Investors can log onto our web portal by going to www.r2crowd.com and after that they are able to do full due diligence at the property level (see drone videos, pictures of the property, complete financial and 3rd party reports, etc.) CA: Tell us about your team. It appears that you guys have a lot of fun together. AN: We are very blessed to have an

exceptionally talented, smart, dynamic and hard-working team of 11. I am personally also very proud to have a team that is diverse, not only by ethnicity but also by gender and background. My guys are happy to work on the weekend if they have to but I am also happy to let them take the time off when they want to. We work hard, play hard and have lots of fun along the way. Each of us bring a unique and complementary skillset to the team. CA: When it comes to the availability of capital, what are some areas of concern you see for the multifamily sector over the next few years? AN: Some of the shadow banks and Alt

lenders in Canada have grown quite significantly over the last decade. Both the Ministry of Finance and provincial and federal governments have been very concerned about this, and rightly so. They have made several changes to the way loans are underwritten by these institutions, for instance. These Alt lenders certainly had brought a lot of froth to the market and it would be interesting to see what additional regulatory changes are brought forward by the government. For example, the formation of a new regulatory regime in Ontario. FSRA and dismantling of FSCO

are looking for higher quality space, and have shown a willingness to spend a higher percentage of disposable income on housing. For this reason, we have seen an increased investment for purposebuilt rental, and as well, investment to common areas, mechanical and insuite programs to strengthen product quality within older stock. In many markets the economics have shifted to make purpose-built rentals feasible, making this an attractive alternative to building condos. More and more developers and lenders have been engaging the Colliers Multifamily practice to understand the value of purpose-built rentals. We expect this to be a theme going forward in the Canadian multifamily market. CA: What trends do you see evolving over next five years in the multifamily space? AN: Based on what Matthew Bruchkowsky

and his research team is telling us, it would appear that rents are continuing to go up, especially in the purpose-built rental market. CAP rates will continue to see compression until the five year GOC’s reverses the trend. Certain markets, like Alberta, face uncertainty, but the Toronto market continues to perform exceptionally well. Beyond that, as the momentum in the crowd funding space continues to build over the coming few years, we certainly see the multifamily asset class as a strong investment vehicle for a lot of investors to park their savings in. CA: Any final words? AN: I would finish off with the following

two quotes. 1. “The impact of technology is perhaps a bit overstated in the short term but is definitely understated in the long run.” 2. “It’s not a sprint but a marathon…. change is happening.”

About Matthew Bruchkowsky Matthew Bruchkowsky is Senior Director at Colliers International within the Valuation and Advisory Group, and the National Lead of the Multifamily Valuations Group. Matthew has valued over $20 billion in multifamily assets and has recently focused his attention on tracking trends in the purpose-built rental world. Matthew is an Accredited Appraiser, Appraisal Institute of Canada (AACI) and a Professional Land Economist (PLE) of Ontario Land Economists.

About Amar Nijjar Amar Nijjar is the founder of Real Crowd Capital. He is responsible for strategic direction, business development, operations, and sits on R2CROWD’s Board of Directors and Investment Committee. Amar has funded over $5 billion and underwritten over $20 billion of real estate during his career. He is also an Executive Vice President at JLL (formerly Jones Lang LaSalle), where he leads the Debt Capital Markets group. Amar has an undergraduate degree in Chemical Engineering and holds an MBA from York University’s Schulich School of Business.

“

As the momentum in the crowd funding space continues to build over the coming few years, we certainly see the multifamily asset class as a strong investment vehicle for a lot of investors.” | www.REMInetwork.com | October | 23

Feature

Tapping into Water Savings Why Equipment Scrutiny is Vital when Comparing Water Sub-metering Solutions By Mike Kazmaier

Many building owners are familiar with electricity sub-metering and its proven energy and cost savings. However, few understand that much of the regulatory oversight that makes electricity submetering services easy to compare arenâ&#x20AC;&#x2122;t applied to water sub-metering.

24 | Canadian Apartment | Part of the REMI Network |

Feature

The equipment used for electricity submetering is rigorously tested by Measurement Canada before approval and sealed by a Measurement Canada (MC) certified sealing house before installation. Water sub-meters are tested initially by the manufacturer but third party meter sealing for water submeters is not required. Measurement Canada also requires that electricity sub-meters be independently inspected after installation but this is also not required for water submetering systems and is left up to the submetering service provider. When it comes to water sub-metering, equipment selection often involves ensuring it conforms to the American Water and Wastewater Association (AWWA) C-700 standard, which recommends tolerances and accuracy requirements for water meters. Unfortunately, despite this standard there can still be large differences in water sub-metering equipment, such as communication methods and accuracy that can have a dramatic effect on utility costs for building owner. In this article we intend to explore some of these differences and highlight how they may have an impact on a building owner’s bottom line. The Curious Difference: A Case Study At Clean Cut Energy (CCE) we believe that referencing your sub-metering service

to a benchmark is critical in evaluating its effectiveness. At CCE, the reference we use is how effectively do we recover the utilities that were purchased by the building from the residents (we referred to this as the building “Recovery Rate”). We believe a building owner’s value from sub-metering comes from doing an effective job of recovering those costs from residents. That starts with tracking the utility Recovery Rates of all the buildings we service and using high accuracy equipment that maximizes that recovery. This is why the engineers at CCE recently set out to discover why some inherited water meters seem to recover less water from residents than the water meters we typically employ. This led us to an in-depth investigation into the technology and the differences in both low flow accuracy and communication employed by the water meters in question. Figure 1 depicts the average difference in recovery rate that we observed between inherited water meters and the water meters we typically use in some of our buildings. Differences in accuracy This investigation found two interesting differences in the water meter technology employed in the comparison. Table 1 (page 26) shows the AWWA C-700 standard requirements for water meters and compares

Figure 1.

Recovery Rate Gap Between 3/4” Water Meters 98.0%

96.0%

Water Recovery Rate

94.0%

8% Gap

92.0%

90.0%

88.0%

86.0%

84.0% Average for buildings with Meter #2 (CCE buildings)

Average for buildings with Meter #1 (Inherited buildings)

it against the specifications for the two water meters used in the comparison study. You will note that both are ¾” meters that meet the minimum low flow water consumption value specified by the standard of 0.5 USgpm (US Gallons per minute). As you can see, the variation between the rated low flow measurements of the two water meters is more than 1500%. This is the result of both differences in technology and low flow accuracy. Table 2 and 3 show the average capital cost difference of these two meters and what the estimated lifetime cost is of using the lower accuracy meter is vs the high accuracy meter based on an 8% difference in Recovery Rate. The incremental equipment purchase cost difference for a 200 unit building is $16,000. The lifetime cost of this decision is over $400,000 with a Net Present Value of $160,000 to the building owner today. We believe this illustrates how cost cutting decisions made by a sub-metering supplier may result in expensive lifetime utility costs for the building owner. In a building with very little common area use and no leaks, CCE sub-metering systems are able to recover upwards of 97%+ of the incoming water purchased by the building from building residents, which amounts to a 10-fold return on invested capital for the building owner. The problem with pulse meters Table 1 highlights another significant difference between the two meter types. Meter #1 uses pulse output as the form of communication technology. This means that when a predetermined volume of water has passed through the meter, a pulse is produced that is picked up by an attached listening receiver. Meter #2, by comparison, uses an encoder level read that means a communication protocol asks the meter for its reading and the meter has to reply with the data which includes the entire meter reading and the meter serial number. This also means that when a reading is requested the returned value is the same value that is displayed on the top of the meter dial. Why it matters The simple answer is ‘Fault tolerance’. With Meter #1 consider what happens when the | www.REMInetwork.com | October | 25

Feature Table 1.

3/4” Cold Water Meters

AWWA Standard C-700

Specification Information

USGPM L/Hr

Meter #1

Meter#2

USGPM L/Hr USGPM L/Hr

Max Flow Rate

25.00

5678.12

22.00

5000.00

35.00

7949.36

Normal Flow Range (Low End)

3.00

681.37

0.18

40.88

Normal Flow Range (High End)

2500.00

35.00

7949.36

Min Flow Rate

0.50

113.56

0.45

100.00

0.03

6.81

Communication

Pulse Output

Encoder Read

Approximate Cost/Meter

$50.00

$130.00

Table 2.

Sample 200 Meter #1 Meter#2 Quantity Meter Building

Meter #1 Cost

Meter #2 Cost

Capital Cost Difference

Meter Cost Comparison

$10,000.00

$26,000.00

$16,000.00

$50.00

$130.00

200

Table 3.

Recovery Saving Meter #1 Meter #2 Comparison Lifetime Costs

$4,070,550

$4,499,615

Recovery Savings by using Meter #2

Net Present Value

$429,065

$161,618

Applies a 5% water rate increase per year, 3% high flow loss rate over 20 years, a 7% low flow loss rate over 20 years and an 8% Low flow accuracy increase for the high quality meter. Uses water rate of $3.50 / m3 as a starting point.

receiver no longer receives pulses from the meter. In this case the sub-metering service provider has a question to answer. Did pulses stop arriving because no water was consumed in the unit or because the wire was broken and the pulses weren’t received? The fact that this system does not definitively disclose when it is in a fault state is a significant problem. Meter #2 however will immediately indicate when it is in an error state because communication was attempted and no reply was received. There is no ambiguity in this circumstance and a repair must be performed. Consider also a scenario where the receiver doesn’t get all the pulses sent from Meter #1. This can create a discrepancy between what the meter dial indicates (since the pulses were sent) and the water use that appears on the customer’s bill (what the receiver picked up). The only way to discover if this error is occurring is to audit a number of meters yearly and compare the received pulse values (shown on the bill) to the meter dial reading. In the meantime the resident is likely being under billed for their usage and

the owner of the building is on the hook for this undocumented water use until a suite by suite audit is performed. Meter #2 by comparison will never have this issue since a request to the meter returns the actual meter reading. No discrepancy is therefore possible. The faults associated with pulse meter readings give rise to what we refer to at CCE as pulse meter recovery rate erosion. This occurs when pulse meters slowly fail and the recovery rate that started high when they were first installed continually decreases relative to the total water consumed by the building. A high functioning pulse water meter system requires significant ongoing yearly building maintenance and auditing. We believe that making the decision to invest in high accuracy encoder read water meters is based on easy math.

Questions to ask When selecting a water sub-metering partner, it is wise to ask for both references and meter specifications. When talking to references ask for samples of some of their building recovery rates. Don’t settle for samples from new buildings they just commissioned, ask for ones that are at least five years old and make sure they can show you results down the road that meet your expectations. Working with companies that select high accuracy equipment that is properly suited to your building is not only the water wise thing to do but it is also the best way to make sure building owners get the maximum return from a sub-metering system. That is something that our engineers don’t question.

Mike Kazmaier, P.Eng is the Director of Operations at Clean Cut Energy Corp. They are a nationwide Tier 1 water, electricity and thermal energy sub-metering firm based in Guelph, Ontario. If you would like to contact Mike or read more interesting articles about sub-metering please contact us at info@cleancutenergy.ca

26 | Canadian Apartment | Part of the REMI Network |

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A New Measurement Standard for Residential Buildings IPMS Launches Uniform Global Method to Determine Size, Dimension of Floor Space A new international measurement standard will soon offer more clarity and consistency to users of residential property services, whether theyâ&#x20AC;&#x2122;re buying, selling, renting or investing.

28 | Canadian Apartment | Part of the REMI Network |

Newsworthy

The International Property Measurement Standards (IPMS): Residential Buildings will provide a uniform global method to determine the size and dimension of floor space measures that can be used anywhere in the world. Currently, the way residential property is measured can vary significantly from one market to the next. As a consequence, owners, occupiers and investors in domestic property are often left confused or misinformed when it comes to the reported floor space. This causes substantial issues when property is listed off-plan or bought by investors, but it has also led to disputes where rental calculations and service charges have relied on erroneous measurement information. Published by a Coalition of more than 80 property organizations around the world, and drafted by an independent group of 18 experts from 11 countries, IPMS: Residential Buildings is the second in a series of global opensource standards aimed at creating a uniform approach to measuring buildings. Representing many hundreds of thousands of property professionals globally, the IPMS Coalition conducted a public consultation giving property professionals everywhere a chance to have their say on this landmark residential standard. “IPMS: Residential Buildings addresses a simple but challenging reality: How do we provide transparent and consistent measurements for domestic properties when the methods used to perform these measurements differ across global markets? For many, owning a home is the most important investment they’ll make,” says Alexander Aronsohn, RICS Director Technical International Standards. “This new standard will enable investors, estate agents, developers, consumers and other users of professional property services, to make more informed decisions. IPMS: Residential Buildings is ultimately about protecting the investments we make as individuals, investors or industry leaders.” Evidence of the variance in residential measurements is also highlighted in a new RICS Research report, “Residential Property Measurement Practice” (September 2016), written by Dr Lesley Hemphill and Dr Jasmine Lay Cheng Lim of Ulster University. The report investigated local measurement practice in locations across the world and compared the variance to using the new globally benchmarked IPMS: Residential Buildings. The difference in measurement for residential apartments, for example, varied by as much as 27 per cent while measuring residential homes can vary by up to 58 per cent. To provide a little more detail on this issue for multifamily investors, this report shows a marked difference in practice on apartment floor plans between the Americas and Asia/Middle East compared to mainland Europe, the U.K. and Oceania. The Americas and Asia/Middle East have a much higher prevalence

of including dimensions for the core living space such as living rooms, kitchen/dining room, bedrooms, and bathrooms (all 78 per cent). This compares to just 38 per cent for the same rooms in mainland Europe and the U.K., and only 29 per cent in Oceania. Earlier this year, RICS Property Measurement, 1st edition, which incorporates IPMS: Office Buildings, became the mandated standard to use for all RICS Professionals who perform measurements on commercial properties. A number of governments, corporate occupiers and employers of property professionals are adopting IPMS to benchmark their property measurements around the world. Over the coming months RICS Professionals will be encouraged to share their expertise and shape the Professional Statement to include IPMS: Residential Buildings as an update to the Code of Measuring Practice.

Visit ipmsc.org/standards/residential for more TakeCover_CAM_August_2013_FINAL.pdf 1 information. 13-07-22 2:54

| www.REMInetwork.com | October | 29

Enhancing the ApartmentFinder Experience How Digital Technology Has Made Renting Easier for Landlords and Tenants

Over the past decade, companies and industries globally have seen a dramatic shift in disruptive technology and digital media. According to Internet Live Stats, around 40% of the world population has internet connection today. In 1995, it was less than 1%. The number of internet users has increased tenfold from 1999 to 2013. The first billion was reached in 2005. The second billion in 2010. The third billion in 2014.

Over the past decade, the real estate industry has been seeing a fundamental transformation in technology and digital media. TechCrunch recently reported that the apartment industry is now the hot new sector. With almost all homebuyers and renters today starting their searches online, real estate search websites and apartment finders—such as Canadian- based apartment finder and real estate marketing websites RentSeeker.ca and Zillow.com, Apartments. com, and Realtor.com in the U.S.—have been seeing a lot of investor demand and acquisitions. With CoStar’s purchase of Apartments.com in 2014 for $585 million, Zillow’s acquisition of Trulia for 3.5 billion and subsequent multiple acquisitions of a number of smaller apartment finders, and News Corp’s purchase of Realtor.com for $950 million, the web-based real estate

Internet Users in the World 4,000,000,000

Internet Users

3,000,000,000

2,000,000,000

1,000,000,000

30 | Canadian Apartment | Part of the REMI Network |

3 199 1995 1997 1999 2001

03 005 007 2 20 2

09 2011 2013 20

5 201

Marketing According to a recent report, renters are using video to...

86% 70% 54% 44% 38% 30% 25% 24% Find out more about a specific community

Tour the inside of a home

Obtain general information

market is a sector which is seeing a lot of continued interest for capital investment with a lot of room for growth. Additional opportunities and companies that have launched continue to support the growth in real estate marketing and technology, such as web-based property management software firm, Property Vista, which offers landlords cloud-based applications such as online application forms, credit checks, and lead management solutions. Renters can now even pay rent online using debit or credit cards with companies like PayQuad. With over 90% of renters and homebuyers starting their research and property search online, realtors, property managements firms and REITs are now spending most of their marketing budgets on digital and web-based advertising tools and features that provide for an increased return on investment (ROI). In 2012, The National Association of Realtors and Google did a joint study, and provided a report titled, “Consumer and Market Trends in Real Estate” to better understand the evolving role of digital media in the consumer home search and apartment finder experience. The report highlighted key points such as how 51% of home-buyers and renters are using videos to research properties and area amenities. Renters and buyers are also using Google and property address searches to review a property and management company prior to buying or renting. Above is a snapshot from the report showing some interesting, informative and compelling stats about how homebuyers and renters are using videos in their research process.

Compare features across multiple companies

Understand specific features

Real Estate owners and managers have also been using popular social media networks to promote brand awareness, engage with residents, advertise promotions, and generate leads and website traffic. While social media is a term that is used very loosely, referring to many social media networks like Facebook, Twitter, Pinterest, Instagram, YouTube, Snapchat, LinkedIn, etc., the truth is each social media network has its own great features that work in its own unique way and style. For example, Facebook is a fantastic tool to post news, engage with residents, post contests, etc., and by using Facebook advertising by boosting posts and using their geotargeted tools, you can drive a lot of website traffic to a very specific audience. Twitter is an incredible tool to use as a micro-blog, which companies can use to provide news, property updates, and create polls. And while Twitter also offers advertising, based on its core function, it tends to be less valuable than Facebook

Watch customer testimonials

Decide which company to purchase from

Watch instructional videos

or Google advertising. Other social networks, like LinkedIn, are great to use for posting job opportunities and corporate updates, and Pinterest is great for showcasing property photos. Each social channel has some value, and while it’s worthwhile to be on as many as possible, having a corporate marketing strategy is always a great start to help you determine your goals and objectives, and allow you to choose the right channels that fit your strategy. The real estate industry has been going through a revolution and those changes and trends are pointing to high growth rates and opportunities for the companies servicing this space. Traditional methods of connecting buyers and renters with property owners and landlords has now fundamentally changed to digital media and technology, and real estate owners and managers that have not adopted these changes, should get started, as the saying goes “better late than never.”

RentSeeker.ca is Canada’s Leading Apartment Finder and Real Estate Marketing Company Servicing Canada’s Largest Landlords, Property Management Firms, and REITs.

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| www.REMInetwork.com | October | 31

Ask the Expert

Prepping for the Deep Freeze

Mark Kesseler, Vice President, Construction & Physical Operations at Greenwin

Seasonal Heating & Maintenance for Property Managers Although heating systems are probably the last thing on a property manager’s mind during the warmer temperatures of summer and fall, there are some very important preventative maintenance measures that must be completed to ensure system efficiency and longevity. Mark Kesseler, Vice President, Construction & Physical Operations at Greenwin, provides the following expert insights. Essential maintenance: when to begin In my experience, each summer, we task our mechanical service providers with the strip down maintenance of in-suite heating and domestic hot water boilers. This essential maintenance provides the main cleaning scope of work for all of our heating boilers. The equipment is completely opened, inspected and cleaned, and all of the deficiencies are identified and repaired. The same inspections should be conducted on all gas-fired duct heaters, usually located on rooftops that supply heated air to the corridors. With the typical life span of these units ranging between 15 and 20 years, you’ll want to stay on top of their upkeep to ensure a long life. Now that fall is in full swing, suite heating will be required at night. According to bylaws, suite heating must be available after September 15, and particularly if your property is unable to maintain a consistent temperature of 21˚C inside of the suites. It is imperative that your indoor/outdoor suite heating controller is set properly to provide a low supply temperature to the suites (but not sweat tenants out of their homes). On

days where the mercury lands above 15˚C, site staff can inspect the systems to see if heat is still being distributed to the suites. Underground parking Heated parking garages should have their unit heater fans inspected and controls calibrated. Typical garage heating setpoints for the winter months should range from 8˚C to 12˚C. To get more granular, you will need to ensure that all pipe heat tracing systems are tested at the electrical source, while heat tracers with built in thermostats must have proper on/off operation. Additionally, fan coil heaters require washing of the coils and testing of the fan motors and thermostats. For non-heated parking garages, fall is the ideal time to drain the condensate that has accumulated within your dry sprinkler system. Heating pumps Probably the most important preparation you need to make this fall is to ensure your heating systems are ready to provide heat to the suites. The heating pumps need to be inspected, greased, oiled and turned on.

32 | Canadian Apartment | Part of the REMI Network |

In buildings that have controls, you must ensure the pump starters are in the auto position for the controls to turn them on and off. Check with your property’s service provider to ensure the closed loop heating system is properly pressurized. They’ll test the water make-up to the heating system and ensure that the expansion tanks for the heating system and are not flooded. Expansion tanks should be drained down to 1/3 capacity to allow for expansion when the heating system turns on. Exterior considerations Last but not least, winterization of lawn sprinklers, exterior hose connections and snow melting products should be arranged within the next 60 days. Don’t let last year’s late start to winter fool you—in Canada, it can start snowing as soon as Halloween arrives (or even earlier). In fact, the Farmer’s Almanac for this year is predicting a very cold and snowy winter. Whether you choose to believe their predictions or not, it’s certainly better to be safe than to be sorry.

Insurance

Personal Asset Exposure is Real

SOCIAL MEDIA COLUMN