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editor’snote

VOL. 31 NO. 8

JANUARY 2017

Editor-in-Chief Barbara Carss barbc@mediaedge.ca

CANADA'S SESQUICENTENNIAL arrives at a fitting time for the reflection and resolutions that milestone birthdays typically prompt. There is much to celebrate in how the country has evolved and prospered over the past 150 years, but there is also some regret to register for opportunities overlooked and actions less than noble. Thoughtful scrutiny of our performance thus far – and benchmarking against the world outside our borders – can help clarify priorities for the future.

Real estate might be seen as a living laboratory for this historical scan, providing functional examples of buildings from every era, if not every year, since confederation. Each is a tangible link to the past, containing lessons about adaptability and endurance.

Some offer instruction on outdated practices and clumsy retrofits. Others, now perceived as architectural icons, are actually lucky saves from 20th century demolition schemes. In this, the built environment seems in step with broader society, physically embodying how knowledge accumulates, tastes change and attitudes are accordingly adjusted over time.

To begin this big birthday year, our features touch on some of the uncertainties, challenges and reasons for optimism that 2017 holds for Canadians and citizens of all nations. From the real estate perspective, the environment and the economy loom large, and both pose the threat of unpredictable business disruptions. We look at capital planning considerations, the rising digital economy's impact on tenancies, and technology's accelerating influence on the delivery of and demand for services.

Meanwhile, predictable new costs are preordained with the introduction of carbon pricing in Alberta and Ontario this year and the Pan-Canadian dictate for all provinces and territories to follow suit over the next 24 months. In turn, this will generate funds that can be invested in climate change mitigation and adaptation.

The commercial real estate sector will need to make a unified and sophisticated case for its deserved share of carbon pricing proceeds. Happily, it has the rationale, the knowledge and the eloquent voices to do so.

Among those eloquent voices are the producers of Canadian Commercial Real Estate: Theory, Practice, Strategy, providing a new home grown educational resource for the generations who will guide us into the next 150 years.

Publisher Sean Foley seanf@mediaedge.ca Publisher, Greater Stephanie Philbin Toronto Area & Beyond stephaniep@mediaedge.ca Editor, Greater Michelle Ervin Toronto Area & Beyond michellee@mediaedge.ca Contributing Writers

hristina Cattana, Annie C Gales, Lisa Stanley, Wendy Waters, Raymond Wong, Anthio Yuen

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President Kevin Brown kevinb@mediaedge.ca Accounting Manager Samhar Razzak samharr@mediaedge.ca Group Publisher Mark Rumble markr@mediaedge.ca TEL: (416) 512-8186 • FAX: (416) 512-8344 Published and printed eight times yearly as follows: Feb./ Mar., April, May, June/July, Sept., Oct., Nov., Dec/Jan.

by MediaEdge Communications Inc. 5255 Yonge St., Suite 1000, Toronto, Ontario M2N 6P4 (416) 512-8186 Fax: (416) 512-8344 e-mail: circulation@mediaedge.ca Subscription Rates: Canada: 1 year, $60*; 2 years, $110* Single Copy Sales: Canada: $12* Outside Canada: US 1 year, $85 International $110 *Plus applicable taxes Reprints: Requests for permission to reprint any portion of this magazine should be sent to info@mediaedge.ca.

Barbara Carss barbc@mediaedge.ca @BarbaraCarss

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contents

10 Real Estate Resource: New textbook provides Canadian context and insiders' insight on income properties.

13 Mining Data: Smart systems ease collection, but more steps are needed to exploit its strategic value.

14 Serving a Strategic Tenancy: Growth and vibrancy of financial services flow through to commercial real estate.

16 Future-proofing Assets: Capital planning with an eye to adaptability.

18 Technology & Facilities Management: Ten trends driving change and enabling new business models.

22 Money Laundering Vigilance: Canada's financial oversight body releases guidance for the real estate sector.

Department 4 Editor’s note

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education/training

NEW CANADIAN FOR REAL ESTAT

Textbook Responds to Growing Demand for Teaching Tools and Industry

By Barbara Carss STUDENTS AWAKENING to the possibilities of a career in Canada's commercial real estate sector have typically done so through the medium of American textbooks on investment and finance.

Instructors in the handful of undergraduate and graduate level degree programs across the country that offer a specialization in real estate have long relied on imported sources for the basic theories and their own network of expertise to cover a sweeping range of uniquely Canadian market factors.

The newly released textbook, Canadian Commercial Real Estate: Theory, Practice, Strategy, now packages the universal

principles and the domestic context into one 500+-page compendium devised to impart a grounding in real estate fundamentals, transactions and the multidisciplinary oversight of income properties. With the association for Canada's leading commercial real estate companies and institutional investors – REALPAC – serving as the publisher, the textbook is held up as a tool for both prospective new recruits and their employers.

"People entering into the industry won't have to go through the serendipitous experience-based training that many of us went through early in our careers," says

10 Canadian Property Management | Part of the REMI Network

Michael Brooks, the author and REALPAC's Chief Executive Officer. "They have a baseline they can work from for all those things they previously had to learn by osmosis."

That baseline follows a 12-chapter learning curve from underpinning ph i losoph ies a nd m at hem at ica l methodologies to hands-on deal-making, financing, development and asset management. In addition to Brooks, who has practiced commercial real estate law for 35 years, eight professionals from various industry disciplines contributed sections of the extensive content, while dozens of others

education/training

CONTEXT E EDUCATION Mentoring

reviewed and commented on the work in progress. The resulting representative picture of the Canadian commercial sector has received enthusiastic reviews from educators.

"I've read at least 100 textbooks in real estate and this is one of the best," Cynthia Holmes, Chair of the Real Estate Management program at Ryerson University, told a gathering at the official book launch, which also featured a panel discussion on needs and priorities for real estate education and training.

Demand for formal learning support is growing with the relatively recent advent of Ryerson's undergraduate program, which

will deliver its first class of graduates in the spring of 2017, and new master's level programs at University of Calgary and University of Toronto. Along with longer established programs and/or specializations at University of Guelph, York University and University of British Columbia, commercial real estate might be categorized as a niche academic pursuit with upside potential.

"I see students who are 19 years old saying: Real estate is my thing," Holmes reported.

"They are incredibly engaged in this topic."

The textbook's proponents foresee an even broader base of consumers including industry rookies with more general educational

backgrounds, neophyte investors seeking to augment their knowledge of the asset class, and researchers from other fields who require clarification of real estate related matters.

While math is math in any backdrop, many defining elements of the market are embedded in Canadian law, land use planning, businesses practices and culture. It doesn't take a strident nationalist to conclude that approximately USD $784 billion of institutional grade real estate (as Prudential Real Estate Investors estimated in 2012) merits a tailored insiders' perspective.

"A country the size of Canada with our mature market ought to have its own www.REMInetwork.com | January 2017 11

SOCIAL MEDIA COLUMN

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Click the gear icon in the top right corner. Under Advanced Settings, click Export LinkedIn Connections at top right, choose file type, then export. You can now add those email addresses to your Outlook.

Steven Chester is the Digital Media Director of MediaEdge Communications. With 15 years’ experience in cross-platform communications, Steven helps companies expand their reach through social media and other digital initiatives. To contact him directly, email gosocial@mediaedge.ca.

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textbook," the introductory chapter states.

"This fills a need," Brooks concurs.

"REALPAC is always about leadership, and the textbook is a good fit from the leadership perspective."

HARD AND SOFT SKILLS SOUGHT Core knowledge of real estate's more technical elements and procedures can give prospective new hires an initial edge over candidates with other educational backgrounds. Nevertheless, the associated panel discussion frequently turned to qualities that aren't tied to any specific academic regimen – notably, the ability to communicate, collaborate, and identify and exploit opportunity.

Tackling the wider topic of real estate education and training for the 21st century, the moderator, John O'Bryan, honorary chairman of CBRE, characterized the panel as two suppliers and two end-users. Holmes and Andre Kuzmicki, Executive Director of the real estate and infrastructure program at York University's Schulich School of Business, provided frontline insight on preparing new generations of professionals for the workforce, while John Morrison, President and Chief Executive Officer of Choice Properties REIT, and Norm Sabapathy, Executive Vice President with Cadillac Fairview, offered an assessment of that product.

For senior management, a pool of graduates with focused real estate education is still something of a rarity. "In my experience, people get into the industry by default, not by design," Morrison observed.

From employers' perspective, Morrison and Sabapathy enumerated some of the characteristics they often see in young employees regardless of their schooling.

Although there is much to praise about the savvy of a generation that has grown up on the status quo side of the digital divide, some skill sets appear to be flagging.

"There is a gap around grammar and basic literacy that troubles me," Sabapathy said.

"Technology plays a big part in how the generation communicates," Morrison agreed, as he made the argument that Power Point presentations do not convey information as effectively as written reports.

He also commended millennials' commitment to career advancement, but suggested their envisioned timelines aren't always realistic.

"I think young people today work hard.

They know how to put the hours in," he added. "Their level of patience is lower.

Over time, as the so-called boomer

12 Canadian Property Management | Part of the REMI Network

generation continues to shift out of the business, there are going to be opportunities.

The question is: do they have the patience to wait for that?"

Neither a textbook nor a degree program can fill in all the gaps, particularly given the variety and complexity of material directly related to real estate investment and management that is the prime teaching responsibility. For their part, Holmes and Kuzmicki endorsed industry mentoring as another important layer of instruction.

"The question of how to balance the hard skills and soft skills is very critical because there are all these hard skills that we are obligated to deliver as part of their education, but many of the soft skills are teachable," Holmes reflected.

LEARNING FLOWS BOTH WAYS "It's not about courses; it's about the entire culture," Kuzmicki said. He pointed to the annual Developers' Den, Schulich international real estate case competition, now in its seventh year, as a significant experiential learning exercise with key input from an alumni organizing committee.

Meanwhile, Holmes solicited volunteers for Ryerson's Take a Real Estate Student to Lunch program – a more informal one-onone conversation that, having participated, Sabapathy promotes as a learning opportunity for both parties. "It is a tremendously great program for an hourand-a-half investment," he affirmed.

Leadership also entails embracing change and relinquishing control when it is time to do so. In this, panellists noted that today's students clearly offer an antidote to what O'Bryan called the commercial real estate industry's "pale, male and stale" prototype.

"The truth is, women outperform men as graduates of all university programs right across North America. So the supply is there," Sabapathy advised.

As a downtown university in one of the world's most ethnically and culturally diverse cities, Holmes reiterated that her students reflect their community. She challenged employers to do likewise.

"Do you want the best, or do you want people who think like you?" she asked.

"Diversity is not a value just because it adds diversity. Diversity is a value because it adds something new." zz For more information about Canadian Commercial Real Estate: Theory, Practice, Strategy see the REALPAC website at www.realpac.ca.

technologyIT

REFINING DATA Broad Collection Necessitates Integration Standardized data remains key to integrating and transparently reporting information in an increasingly integrated global marketplace. Altus Group's CRE Innovation Report, released in the fall of 2016, draws on survey responses from 300+ senior executives overseeing decision making in firms with at least USD $500 million in assets under management to examine how they employ data, and how they could more effectively collect and capitalize on its potential. The following is an excerpt â&#x20AC;&#x201C; Editor.

THE COMMERCIAL REAL ESTATE industry continues to spend billions of dollars each year on advanced building automation systems and smart building technologies. At its core, this investment is being made in sensor-based, data-driven technology that will enable property managers to collect a wide variety of information about their hard assets.

Additionally, commercial real estate firms are gathering market data and research for transactions, development, leasing strategies and investment performance management.

Often these collections of data are managed separately and the benefits of an integrated view are never fully realized. The industry continues to lag in investing in software applications that will help manage and integrate all this data and transform it into information that can be used to power all strategic decision making.

Industry analysts estimate that globally 2.5 million terabytes of data is now created each day. Commercial real estate is absolutely part of this ongoing global data explosion. The opportunity begins to take shape when the time comes to process this large volume of raw, crude data into something of value. While other industries have been harnessing the power of data and analytics to drive operational efficiencies and identify strategic opportunities, real estate has been slow to embrace its potential.

In 2015, commercial real estate spent approximately $1.9 billion on big data and analytics tools, with a significant majority of that total invested specifically within the building automation and smart building category. This compares with spending ranging from $5 billion to $15+ billion in sectors such as financial ser v ic es, m a nu fa ct u r i ng, ret a i l, telecommunications, insurance and health care.

COMPARATIVE METRICS NEEDED Increasing globalization of capital flows to real estate, competition for a limited asset pool, upward pressure on valuations and yield compression have substantially increased CRE investor appetite for comparative asset performance. Investors are increasingly demanding timely, datadriven decision making and reporting transparency in assessing real estate against the other investment asset classes. To meet these expectations, commercial real estate firms must be able to benchmark performance at both the firm and asset level against the market, industry and competitors.

There is considerable untapped potential to improve real estate's ability to do comparative reporting: 83% of firms saw significant potential to improve benchmarking through better use of its data; 65% of the firms surveyed indicated they either need more data or additional metrics to accurately benchmark, with significant gaps existing in benchmarking data related to returns and valuations.

The difficulty in obtaining refined useful data to effectively benchmark is in some cases so pronounced that 28% of survey respondents report they do not benchmark.

This is a striking figure when compared to managers across other equities and debt asset classes, who all conduct at least some degree of benchmarking.

While there are a handful of adopted industry benchmarks, such as those from IPD and BOMA, other equity and debt asset classes have several core, high-level benchmarks for comparison with regards to manager versus manager and asset level performance. Boston Consulting Group provides a summary of eight key high-level benchmarks available for reference, with data available for almost all major asset managers.

As real estate's status as the fourth asset class strengthens, it continues to attract staggering amounts of global capital. With this has come increased valuations and yield compression, along with growing investor expectations for â&#x20AC;&#x153;on-demandâ&#x20AC;? data visibility and accuracy.

The need to perform in what has become an ultra-competitive environment is only getting stronger as the industry grows.

These increased pressures have left the industry with a data challenge as firms either lack information or are unable to make operational and strategic use of it.

INSIGHT LEVERAGES OPPORTUNITY The commercial real estate market itself is a fountain of data, generating insightful information on performance across the industry. There is an incredible amount of valuable insights that can and should be gleaned from the investment side in order to make better, faster transaction decisions.

The industry has already started to rapidly embrace the potential of analytics in all its forms, but the research shows 89% of leaders face impediments to collecting or utilizing more data to drive improved asset management and investment decision making.

The strides the industry has made towards integrating technology show that CRE leadership is not posing an active barrier to firms investing in information systems, data and analytics. The growing prioritization of technology is evident in the research, as 95% of firms surveyed say they have increased their investment in data and analytics (or their investment has remained stable) over the past two years and 98% anticipate their investment will either increase or remain the same over the next two years.

However, research findings suggest executives may lack the understanding of what is needed to derive strategic value from these information systems and data strategies. zz The complete text of the Altus Group CRE Innovation Report can be found at www.altusgroup.com/cre-innovation-report www.REMInetwork.com | January 2017 13

FINANCIAL SERVICES REMAIN A TOWERING PRESENCE Sector's Changing Needs Moderate Pace of Office Absorption

By Anthio Yuen, Raymond Wong, Wendy Waters and Christina Cattana The vibrancy and growth of Canadian financial services have direct implications for commercial real estate, as banking, insurance and investment firms consistently represent a major share of blue chip tenancies and employ the professional services that comprise much of the remainder. A recent joint report from CBRE Limited and GWL Realty Advisors examines business and employment trends in the sector and the flow-through implications for office space demand. The following is an excerpt â&#x20AC;&#x201C; Editor.

REAL ESTATE WILL continue to play an integral role for financial service firms, especially as office space becomes increasingly used for branding and talent attraction. However, with technology, innovation and efficiency defining the financial services industry in Canada, property investors will need to take an evolved view of the sector â&#x20AC;&#x201C; one defined by diversification within the industry, as well as a more modest outlook for overall growth moving forward.

Financial institutions will continue to be an integral part of the office market in Canada, but recent trends suggest slower office demand from this sector in the short term. Consolidation, automation and a focus on operating efficiency is expected to continue defining the industry.

This is not to say the financial services sector will not grow at all; it merely indicates that the pace of growth will be slower than in past years. Accordingly,

14 Canadian Property Management | Part of the REMI Network

the typical 150-200 square feet per new employee ratio will continue trending lower.

It is expected that cities across Canada will continue to diversify as technology, health care and professional service sectors grow in importance. Financial services will be part of a more dynamic office market from a tenant perspective.

The growing influence of technology in financial services also highlights diversification within the sector as well.

A wider range of groups will be associated with financial services such as Fintech, software and data management. Banks and insurance groups will remain major players for the office market, but new leasing opportunities will also emerge with these other groups.

markettrends Over the last several years, Toronto has increased its concentration of financial service activity and global presence.

Employment growth mirrors this trend.

The Toronto area alone drives more than half of all financial sector employment growth in Canada. Looking ahead, Toronto is expected to strengthen as a financial services hub.

EVOLVING LOCATION CHOICES Evolving office demand in financial services is expected to create additional opportunities for property investors.

Downtown locations, where many major financial institutions are located, will continue to be in demand. Urbanization and transit access remain positive drivers.

The growth of Fintech is also driving demand for brick-and-beam spaces in urban-fringe locations. While brick-andbeam space is already common among other technology-oriented sectors, it does present a wider range of office investment opportunities related to the financial services sector.

A decentralization effect is also taking hold as firms in the industry think more broadly in terms of location. Satellite offices, incubators, co-working spaces and innovation labs near universities and other life science districts are other emerging investor opportunities. This trend is expected to drive office demand in secondary cities with burgeoning technology and education clusters as well.

Based on research findings, financial service firms are increasingly focused on three goals relating to their real estate needs: • Attracting and retaining talent; • Corporate branding (both internal and public); and • Optimization of technology and resources.

Office space is increasingly used as an attraction point. Creating and utilizing space that allows employees to work independently, but also promoting interaction is an emerging priority for firms in the industry. Effective spaces are ones that can create the opportunity for collaboration and interaction, and leverage technology for a flexible and mobile workforce.

According to Citrix’s 2012 Workplace of the Future report, 89% of global organizations will offer flexible work options enabled by mobile technology by

2020. Financial institutions will be a key part of this digital shift.

TALENT ATTRACTION, TENANT RETENTION Consolidation, centralization and a focus on technology and talent attraction among financial services firms are expected to continue driving demand for new office space. Investors and managers who have a strong office development progra m will benef it from th is, particularly in downtown and urbanizing locations. For existing buildings, capital investments in building systems and technology upgrades will be necessary to stay competitive.

The relationship between landlords and tenants is also changing, with collaboration and pa r tnership an emerging theme. Tenant retention is just as important as talent retention and building owners should understand both leased and common spaces are critical in fostering a positive work environment for occupants. To have a successful leasing program, investors and managers will need to collaborate with tenants on t e ch nolog y a nd a men it y ne e ds, sust a i nabi l it y re qu i rement s a nd workplace strategies.

For investors and managers, the changes that are taking place in financial services will create a spectrum of opportunity in terms of office investment and development. On one end of the spectrum, Fintechs and technology firms will lead demand for nontraditional and non-core office in emerging urban areas and will drive new leasing models such as co-working spaces and technology clusters.

On the other end of the spectrum are large, established banking, investment and insurance firms with significant downtown footprints. Property investors will need to decide what end of the spectrum they want to be in depending on size, covenant and management expertise. zz Raymond Wong is Head of Research, Canada, and Christina Cattana is Senior Research Analyst with CBRE Limited. Wendy Waters is Senior Director, Research Services & Strategy and Anthio Yuen is Senior Manager, Research Services & Strategy, with GWL Realty Advisors.

The complete text of Banking and the new digital era: What's next for Financial Services in Canada? can be found at www.gwlrealtyadvisors.com/research.aspx.

EMERGENT FINTECH

Though formal definitions vary, Fintech refers to a new category of flexible and scalable companies focused on using technology to provide financial products and services. They differ from traditional financial firms such as banks due to their primary reliance on digital technologies and software to operate.

Based on 2015 data from OMERS Ventures, there are approximately 100 known Fintech firms existing in Canada, with more than 60 located in Toronto.

The rise of Fintech is expected to influence the market in various ways.

Some Fintech companies compete with traditional financial institutions in core market segments such as wealth management and payments, while other Fintech companies provide complementary services such as data, security and management software that help traditional financial services firms become more efficient. Entirely new financial markets and products such as blockchain and cryptocurrency are also being created by firms in the Fintech sector.

Fintech companies are expected to be both collaborative and competitive with traditional financial institutions depending on the market segment.

Some firms will partner or be acquired by larger financial institutions, while others will grow independently and be major competitors to incumbents.

Financial institutions are also actively developing their own competitive Fintech products and digital innovations to stay relevant to consumers.

Given the relatively small size of the Canadian Fintech market, the industry is not expected to be a significant driver of office demand over the short term. According to CBRE Research, stand-alone Fintech companies occupy approximately 260,000 square feet in downtown Toronto with the average tenant at less than 10,000 square feet.

Most of these tenants are fairly dispersed across downtown Toronto, and many occupy incubators and shared offices. Part of the popularity of incubators and shared office space for Fintech companies is due to their unpredictable growth. Some Fintechs scale very quickly so standard leases and covenant requirements are not always accommodative to their business structure.

www.REMInetwork.com | January 2017 15

resilience

PLANNING FOR "WHAT IF" SCENARIOS Adaptability Critical to Future-proof Assets

By Barbara Carss CLIMATE VOLATILITY, energy costs and a growing backlog of required capital expenditure are projected to drive real estate investment decisions in the near and long term. Industry insiders recently charted how Canada's building stock will need to adapt to changing times in two thematically linked seminars at The Buildings Show in Toronto â&#x20AC;&#x201C; tallying a fairly ominous list of challenges, but also identifying potential to leverage existing strengths and ongoing technological advances.

"Canada has some of the most resilient cities in the world," observed Doug Webber, Vice President, Sustainability and Energy, with WSP Canada Inc. This reflects a country with a wealth of resources, including a large share of the global fresh water supply, where the majority of major population centres are located well away from potentially

vulnerable coastal areas. Nevertheless, increasingly frequent and severe weather related events have policy makers and frontline implementers planning and preparing for the inevitable next big one.

Starting with this 'what if' scenario, Webber and his WSP co-presenters explored some current and pending c o n s i d e r a t io n s fo r d evelo p i n g, repositioning and maintaining building and infrastructure assets into the future.

In a separate but largely complementary session, Peter Willmott, a seasoned commercial real estate professional now teaching at Seneca College, and Bill Roth, Managing Partner of the consulting firm, Roth Integrated Asset Management Strategies, tracked the industry's evolution since the previous boom and subsequent down cycle in 2008-2009 and pointed to some trends and patterns that bear watching.

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CLIMATE CHANGE ADAPTATION Stating the obvious to set the context, WSP Sen ior Consu lt a nt Ad r ia n Lightstone backed it up with data analytics to illustrate the increasing likelihood of extreme weather. Rising temperatures are visually changing the shape of the graphs that plot historical trends, and distor ting traditional calculations of so-called 10-year or 100year storms.

"Climate change means: the climate changes," he said. "The mean temperature curve is shifting and, along with it, the probability curve. The tails of the probability curve are getting wider."

Or, in other words, significant storms once viewed as a 10% (10-year) or 1% (100-year) possibility over the course of the year can now be expected more often. Toronto recorded an average monthly rainfall of 66 millimetres in the

resilience period of 2000-2009 and is projected to reach a monthly average of about 170 millimetres by 2040. However, that's not expected to fall in consistent, steady increments.

"We have downpours now that we never used to see," Webber noted. "There are going to be longer droughts and then these deluges."

In turn, the built environment will need flexibility for both extremes and more day-to-day weather variability.

Location, location, location is taking on new connotations, while Canadian climatic quirks like freeze-thaw cycles, which already stress buildings and infrastructure, could become even more common.

"One consideration will be: are you in a flood plain?" Webber added. "I think Calgary now knows."

By nature, long-term fixed assets are at something of a disadvantage when the status quo shifts.

"Cities are particularly vulnerable to climate change because they are not mobile," said Jeff Seider, Vice President with WSP's strategic consulting group – an observation that circles back to the presenters' premise that it is important to raise questions and start testing solutions as early as possible.

"It's a matter of being able to adapt," Seider submitted. "How do we plan and put in place a structure that is supportive of that?"

MARKET REALITIES In keeping with those needs, Peter Willmott outlined how real estate operators could have something of an experiential edge. A product that fundamentally exists to give shelter is inherently in tune with the environment – even if over-reliant on mechanical syst em s to mo der at e it s ef fe ct s.

Meanwhile, volatility is practically embedded in the industry's business model.

"There have always been market adjustments. This will always be the way our market will go," Willmott asserted. "We all survive it, but we have to recognize that it does happen on a regular and reoccurring basis."

Su r v iva l t a ct ics f r om t he la st downward adjustment now reverberate in a stock that suffers from deferred maintenance and loss of skilled trades during the ensuing period of inactivity, but has also been reenergized with a

PROMISE AND DISRUPTION Technology holds promise for enhanced building performance with cost-effective, environmentally benign inputs, but the steady pace of advancement also contains the threat of early obsolescence. Property managers already grappling with shortages of skilled trades as the baby boom cohort reaches retirement are experiencing new maintenance challenges and costs associated with computer-controlled systems and components.

"Manufacturers are now producing stuff that's less repairable," industry veteran, Peter Willmott, told seminar

new influx of owners/investors. The 2 0 0 8 f i n a n c i a l c r i si s sid el i n e d t rad it iona l lender s just a s ma ny buildings from the ea rlier 1980s' building boom were reaching an age when upgrades and system replacements were required.

Pension funds and REITs stepped in to claim some lucrative Class A office towers and retail malls. However, as Willmott recounts, other building types, particularly industrial, teetered more toward obsolescence.

"A lot of these buildings built in the late '80s were not 100-year buildings," he said.

"There are some great examples of r e n ewe d i nve st m e nt i n ex i st i ng buildings, but nowhere near what's needed," Roth concurred. "Until you get a r ibb on cut t i ng for a r o of replacement or a boiler, it's always going to be sexier to build a new building."

CHANGE AGENTS A convergence of more 100-year storms and fewer 100-year buildings is not completely dire, but it will demand some reinvestment, some culling of stock and more aggressive commitment to curbing carbon emissions. Webber cautioned against self-congratulation for achievements thus far – i.e. a 6% reduction in carbon equivalent over the past 20 years – given the remaining distance to Canada's national target.

"In the next 34 years, we need to drop 74%," he said. "We're not making the

attendees at The Buildings Show last fall.

Other knowledgeable observers foresee impending transformational changes that should prompt developers and designers to rethink how they might use below-grade space.

"Driverless technology is here and it is here to stay," asserted Jeff Seider, Vice President with WSP's strategic consulting group, as he championed the qualities of adaptability and nimbleness. "It is going to have profound impact on how we design and build our buildings. We may need no parking sooner rather than later."

level of change that we need to hit this target."

Steadily rising energy costs could be one of the key agents of change. As an added incentive, an overtaxed electricity grid requires upgrades and expansion.

"There's a massive amount of risk out there," Roth said, in making a case for net zero buildings.

Webber likewise endorsed renewable energy and emerging electricity storage technologies, and foresees the not-sodistant day when new development will include on-site generation.

"We're at a tipping point right now where you would do this as a business decision," he said. "Thirty years out from now, self-generation at your facility is probably cheaper [than gridconnected supply]."

Technology now provides the means to model what's achievable, track actual performance and pinpoint where gains can be made. Roth traced the industry's growing comfort with and reliance on software, leading to a more sophisticated understanding of its applications.

"Ten years ago, a lot of people picked the software first. It was: let's go out and buy a piece of software and figure out what to do with it," he recalled.

Today, software is more likely chosen to meet needs mapped out in strategic capital plans. However, its role in facilitating transparency makes it a still powerful pace setter.

"People will have more information," Roth said. "There is not going to be any hiding." zz www.REMInetwork.com | January 2017 17

2017 INNOVATION ALERT

Technological Advances for Facilities Management

By Annie Gales

THE RAPID PACE of technological innovation will continue in 2017, modernizing and driving change in facilities management along the way. More connection and more automation will influence how business is conducted and investment decisions are made. Ten key trends and developments for facilities managers include:

The Internet of Things (IoT) The Internet of Things is just at the beginning of its lifecycle, connecting data, objects, processes and people. As smart devices linked together on a single network become the new normal, buildings and work environments will become smarter, constantly adapting to employees’ needs.

LiFi is among major developments – providing super-fast wireless network connectivity through LED lighting. LiFi, or Light Fidelity, provides the

1.

18 Canadian Property Management | Part of the REMI Network

opportunity to incorporate devices with LiFi capability into a large number of LED environments and applications in commercial, industrial and government facilities.

LiFi can be incorporated into existing lighting systems, expanding network coverage, complementing WiFi access (or in some cases making WiFi access points redundant), minimizing infrastructure commitment, lowering the associated capital expense and ongoing operating costs, also reducing emissions and waste.

technologyIT

BLOCKCHAIN COMING TO REAL ESTATE

By Lisa Stanley

2.

Increased Mobility Arguably, this trend is not new, but it's moving to a new level. C EO s have often talked about running their entire business from a smartphone, and facilities managers will soon be able to work with a degree of mobility that means a more ef fe c t ive a n d ef f ic ie nt way of m a n a g i n g wo r k o n t h e m ove .

W hat ever t he dev ice of choice, managing assets, collaboration with c o -wo r k e r s o r c u s t o m e r s , a n d m a n a g i ng wo r k fo r c e a l lo c a t io n becomes accessible anywhere, any time.

Technology is expanding the ability to collect, analyze and transfer information in ways not previously imagined. From building sensors to smart contracts to cryptocurrency transfers, blockchain technology is shaping up to be a powerhouse and a major disruptor to the real estate industry and the world.

Blockchain is a distributed digital ledger that changes the way information is stored and shared between parties with no central database to hack. It resides on a virtual network, not within a single organization and uses encryption with both private and public keys for access.

This distributed ledger approach includes a time stamp and stores value exchanges in a permanent record, making it extremely difficult â&#x20AC;&#x201C; some say impossible â&#x20AC;&#x201C; to alter a record as it would require rewriting the entire history of the record with all participants watching.

Bitcoin is one of the most recognized applications of blockchain technology. Others include Bitshares, Ethereum and Abra, a smart wallet application.

On the continuum of technology-based evolution, the Internet of Things is now moving toward the Internet of Everything. With blockchain technology driving bitcoin and other cryptocurrency applications, the Internet of Finance is next.

The financial services industry likes the security and other features of the technology, and some institutions have already heavily invested in it. One large financial player has more than 35 patents either approved or pending based on this emerging technology. Goldman Sachs, which has a history of innovative platform development, is also among the leaders in this initiative.

Regulators are looking at the technology with interest, and a Blockchain Innovation Center opened in September 2016 in Washington, DC, as a joint venture between the Chamber of Digital Commerce and Technology Incubator 1776. The center is focused on fintech applications, aiding regulators and governmental agencies at all levels to understand the benefits of the technology and address issues including asset registry, cybersecurity and identity management.

In August 2016, the World Economic Forum estimated that about 80% of top global banks will have launched blockchain projects by 2017, describing the technology as the future "beating heart" of the financial sector.

US-based banks are proactively engaged in building a blockchain-inspired platform and are driving an international initiative through the R3 Consortium. This commercial venture includes more than 70 of the largest financial institutions globally with the heaviest concentration of members from North America. Blockchain is based on a single source of truth, and mandates a standardized approach to the collection and distribution of information that populates the ledger and drives decision making. Standards implementation is a critical step to prepare for this new technology that will no doubt change the way business is conducted globally. The stakes are high.

Lisa Stanley is Chief Executive Officer of OSCRE International, the developer of real estate data standards. For more information, see the website at www.oscre.org.

www.REMInetwork.com | January 2017 19

technologyIT

3.

Rise of Ruggedized Devices T here will be g reater adoption of new mobile hardware technology, the ‘ruggedized device’, enabling new mobile device attachments such as thermal imaging cameras and tracking devices. It is no longer acceptable to operate without connectivity, even managing facilities in remote places such as on an oil rig or underground.

Developments in battery power also continue to move quickly, enabling more reliable on-the-go access to all the services that facilities managers can use at their desks.

Standardized Operational Data 2017 will yield even more i nt eg rat ion of CA F M (computer-aided facility management) and other systems within a building. Effective management of the facilities life cycle is often cited as an enterprise’s second largest expense, and system integration will allow better access to information with intelligent

4.

workflows automating processes for h igh eff iciency. Data across a ll applications will be standardized, driving the market forward in areas such as Automate d Gu ide d Veh icles, increasing productivity and workplace safety.

5.

BIM Level 3 While BIM Level 2 is far from matur ity a nd foundations are still being put in place, the results are promising. Level 3, or Open BIM is a fully collaborative model, allowing more complex and extensive data to be used and shared. In addition, the data could also be used in a wider sense to provide asset information for Smart Cities or Smart Grids.

6.

Wearable Technology Wearable technology has entered the public c o n s c io u s n e s s m a i n ly through the fitness industry, but will soon play a part within facilities management. Wearables hold full

potential to improve workplace safety, security access and collaboration, while also supporting data collection in different physical work environments. A challenge for the wearable environment will be to ensure it doesn’t cross any personal boundaries but makes the most of the overall work experience and helps drive efficiencies.

Location, Location, Location Location-based services (LBS) is part of the mobile evolution. In retail it has changed customer services beyond all recognition; in facilities management, it’s set to do the same. For example, for the facility manager who manages multiple sites, an app could be used that delivers up-to-date inventory of supplies at multiple sites. When a mobile phone enters the site boundaries, the app would pull up a list of available materials, flag supplies that are not sufficient to meet immediate needs for the users of that building and facilitate ordering.

7.

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8.

Bigger Big Data Big data will soon become a necessa r y asset for companies in the FM sector, as it turns data into insight. Big data is used on a daily basis to make predictions about customers, who may not even be aware this is happening. Two big users of this are Amazon, which predicts item purchases based on shopping habits, and Netflix, which makes suggestions of what to watch next.

These principles can be applied to facilities management. Imagine a future where energy consumption in hospitals or business premises is predicted and managed according to the weather, a day of the week, or time of day. Individual employee daily facilities usage profiles could also be created to help model and employ the most effective workspace.

9.

C

Civic FM 2017 will see increased access to end-user mapbased services such as ‘Fix IFMA_CPM_November_2016_FINAL.pdf my street’, a community-led

ex t e n s io n of s el f- s e r v i c e F M .

Applications developed by groups such as mysociety will grow to include logging issues, notifying relevant parties to enable scheduling of remedial services, and will become part of a daily occurrence for the general public. Users can track the progress of reported i ncidents, d r ivi ng a com mu n it y empowerment explosion.

10.

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Conversational Systems Robotic receptionists are becom ing increasingly com mon. Next, t he technology will allow user and machine to interact using spoken or written natural language. As with consumer conversational technology from major providers, for example, Apple (Siri) and Google (Google Now), the world of FM could one day deliver an increasingly intelligent contextual experience.

The interaction may be a simple request or question such as "Stop!" or "Can you open the door, please?” with a 2016-11-14 5:31 PM simple result or answer. However, the

interaction could also become complex such as collecting workplace data from a large number of employees. This would deliver a highly detailed set of results for the creation of new and improved workplace plans or a printed 3D structure driving facilities decisions. zz Annie Gales is the Marketing Director of Service Works Group, a global provider of facilities, property and workplace management software.

For more information, see the website at www.swg.com/can.

For investment news and performance results, see

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2016-03-24 2:17 PM

regulatoryupdate

MONEY LAUNDERING VIA REAL ESTATE SCRUTINIZED FINTRAC Releases Guidance for Reporting Suspicious Activity

CANADA'S OVERSIGHT body for suspicious financial activity is calling for heightened vigilance to detect money laundering via real estate. Recent guidance from the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) sets out 39 indicators that should prompt parties involved in facilitating real estate deals to contemplate purchasers' or vendors' motives.

"FINTRAC, through its compliance examinations, has observed deficiencies in most aspects of the real estate sector's compliance programs that render it more vulnerable of being used by criminals to launder illicit funds," states a briefing document released in November 2016.

"Although illicit funds seem to be laundered primarily through residential homes, corporate properties also play a role."

Indeed, qualities that make real estate attractive relative to other investment asset classes may also appeal to criminals. Income properties can leverage ill-begotten seed money to generate ongoing returns, house other profitable illegal activities and/or provide a means for future money laundering through renovation and retrofit projects that simultaneously increase building value.

FINTRAC received 279 reports of questionable practices related to real estate in the 10-year period between 2003 and 2013 – a volume that the new guide characterizes as "minimal filings" suggesting "a clear need for operational guidance" among the extensive range of disciplines obligated under Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) to report suspicious transactions or attempted suspicious transactions.

Mandated parties include: real estate brokers, agents or developers directly involved in a sale; financing entities; and professional services, such as lawyers, notaries and accountants. Beyond that, nondesignated observers, including buyers and sellers themselves, are urged to voluntarily

OPERATIONAL BRIEF:

Indicators of Money Laundering in Financial Transactions Related to Real Estate

submit information that could point to nefarious intent.

Canadian concern is in sync with the international Financial Action Task Force premise that real estate can be relatively easily manipulated to convert unlawful revenue into seemingly legitimate gains. In general, the sector has a comfort level with complicated ownership structures involving anonymous numbered companies and sometimes volatile market dynamics that can help disguise price fixing.

Transactions encompass a number of distinct steps – from deposits to lending to loan repayment – where laundering could occur. Thus, FINTRAC needs the full slate of mandated reporters to build a complete picture.

"Reaching reasonable grounds to suspect that a transaction or attempted transaction is related to the commission or attempted commission of a money laundering offence, and submitting a suspicious transaction report to FINTRAC requires more than a gut feel or hunch, but does not require evidence that money laundering is actually occurring," the guidance document counsels.

22 Canadian Property Management | Part of the REMI Network

The 39 indicators outline tactics that should encourage watchfulness and checks for associated patterns of conduct.

These are grouped into broader categories of suspicious practices such as: extreme efforts to maintain anonymity; discrepancies between the market value and the loan amount or the officially recorded sale price; unusual loan terms; property flipping; the push for speedy transactions; and circumventing conventional players such as brokers and financial institutions.

Observers are also instructed to be wary of foreign buyers or sources of funds from "a jurisdiction with strict bank secrecy laws, weak anti-money laundering schemes or with a high level of political corruption."

Cash payments are frequently a red flag, but FINTRAC emphasizes that they should not be the only trigger for taking a closer look. "What is required is to consider the facts related to a transaction and its context that can, when taken together, stand out as unusual," the guidance document reiterates.

Collectively, the 39 indicators form a checklist that parties obligated to report to FINTRAC are urged to consult and incorporate into training programs. In turn, FINTRAC will use the indicators to assess compliance with reporting obligations and whether dubious activities could have reasonably been detected.

With penalties for failing to report up to $2 million and/or five years of imprisonment, individuals and entities designated in the PCMLTFA legislation are urged to pay attention. "Reporting entities should build and maintain training programs that ensure the submission of high-quality suspicious transaction reports," the guidance document advises. zz The complete text of the guidance document can be found at www.fintrac-canafe.gc.ca/ publications/operation/real-eng.pdf

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