Canadian Property Management

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VOL. 33 NO. 1 • MARCH/APRIL 2018

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MARCH/APRIL 2018

Editor-in-Chief Barbara Carss barbc@mediaedge.ca Publisher Sean Foley seanf@mediaedge.ca Editor, Greater Michelle Ervin Toronto Area & Beyond michellee@mediaedge.ca Contributing Writers Brett Jones, ReKeithen Miller Senior Designer Annette Carlucci Wong annettec@mediaedge.ca Web Designer Rick Evangelista rickr@mediaedge.ca Production Manager Rachel Selbie rachels@mediaedge.ca National Sales Sean Foley seanf@mediaedge.ca

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editor’snote COMMERCIAL REAL ESTATE literally houses the vast share of the Canadian economy — even digital commerce is routed through data centres — but the timing of leases means the impact of a downturn tends to lag what's happening in the broader workforce. Notably, Calgary's office market suffered the most significant drops in vacancy, rents and asset value a couple of years after the oil and gas industry began to slide.

Annual results for 2017 from the REALPAC/IPD Canada Property Index hint that the pace of decline is now slowing and, as we report in this issue, institutional investors express confidence in the city's comeback. Elsewhere, a wide range of industry analysts concur that Toronto, Vancouver and Montreal are flourishing.

More uncertainties lie outside the Canadian border, embodied in the triple Ts of trade, tariffs and taxes. Speaking at the Buildings Show in Toronto late last year, lawyer and trade specialist Milos Barutciski, a partner with Bennett Jones LLP, reiterated the vulnerabilities inherent in drafting off the powerhouse next door.

In that, he hypothesizes that one of the biggest threats from the demise of the North American Free Trade Agreement (NAFTA) would be the damage it might cause to the U.S. economy. "The old saying is: when the U.S. gets a sniffle, we get pneumonia," he warned.

While the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) won't be filling NAFTA's potential void any time soon, he advises Canadian firms with goods and services to sell to seize the day. "It's opening up the opportunity of entering certain markets ahead of your U.S. counterparts," he observed.

Meanwhile, he characterized the U.S. Tax Cuts and Jobs Act as a short-term "sugar high" for that country's economy. In this issue, we examine some of the possible implications for Canadian investors in U.S. real estate, for traditional cross-border business arrangements and for Canada's ability to compete for investment against what's now a considerably lower corporate tax rate.

Some participants in our 23rd annual Who's Who in Canadian Real Estate survey figure prominently among both those investors and companies with operations in the two countries. Thank you to all who submitted information this year, and thank you to Brett Jones and Daniel Ross for gathering the 2018 results.

Barbara Carss barbc@mediaedge.ca @BarbaraCarss

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Canadian Property Management | March/April 2018 3

contents

Focus: Real Estate News & Context 6 Cross-border Impact of U.S. Tax Cuts: Investors in U.S. real estate should see benefits, but the competitive landscape is altered in Canada.

10 FIRPTA Pressure: Withholding certificates can help ease the cash flow dilemma of filing U.S. taxes.

14 B.C.'s New Tax Regime: A broader range of homeowners and tenants are in line to feel the impact of new surcharges on residential development land.

20 Investment Property Liability: Capital gains will erode the small business deduction beginning in 2019.

21 Who's Who in Canadian Real Estate: The 23rd annual survey of office, industrial, retail and multi-residential portfolios and players.

32 Canada Property Index 2017 Returns: Toronto, Vancouver and Montreal pushed Canada-wide results upward last year, but even sluggish markets made gains over 2016.

36 Data Driven Leasing: Insight gleaned from tracking the process from leads to retention.

38 Women's Leadership Index: Analysts track co-relation between gender diversity and investment performance.

4 March/April 2018 | Canadian Property Management

Departments 3 Editor’s note

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tax&investment

NEW U.S. TAX RULES

COMPETITIVE LA

Change of Course Predicted in Cross-Border Arra

By Barbara Carss

TORONTO LACKS A tax advantage that the 19 other contenders on the short list to host Amazon’s second headquarters now enjoy. The recently adopted U.S. Tax Cuts and Jobs Act (TCJA) provides companies based in the United States with an effective tax rate of 13.125% on a portion of earnings derived from selling services and/or intellectual property into foreign markets.

Even while acknowledging the World Trade Organization might characterize this as “overtly protectionist”, Paul Seraganian, Managing Partner in Osler, Hoskin & Harcourt LLP’s New York office, cites it as one example of how far-reaching the overhaul of the U.S. tax system is likely to be. “The rules just reshape the competitive landscape,” he told seminar attendees in Toronto earlier this winter.

“It’s changing things, certainly. The (U.S.) corporate tax rate is going down to 21% so that should definitely improve investment returns,” concurs Bruno Godin, a Partner and National Leader, U.S. 6 March/April 2018 | Canadian Property Management

corporate tax, with the accounting and business advisory firm, Grant Thornton LLP. “Historically, on average, factoring in state and local taxes, you were looking at a corporate tax rate of just under 40% from the U.S. perspective versus under 30% from the Canadian perspective. If you were going to invest money for the purpose of earning a gain on it, it was much more beneficial to invest that money here than in the U.S.” Observers familiar with the evolution of tax policy and the pace of U.S. lawmaking marvel at the TCJA’s speedy progress last fall, from Nov. 2 introduction, through the usually cumbersome process of reaching consensus in the House of Representatives and the Senate, to Dec. 22 presidential affirmation. Previously, some adjustments to tax law — including one that had positive implications for Canadian pension funds investing in U.S. real estate and infrastructure — were approved during President Barack Obama’s tenure, but few major changes

have occurred since President Ronald Reagan last tackled reforms.

“I think it is fair to characterize this reset as the biggest transformation in the last 30 years,” Seraganian said. “We’re learning these rules alongside everybody.

Because this was rushed through, there is still a lot do.”

The significant reduction in the corporate tax rate — slashed to 21% f r o m t h e p r ev io u s 35% — i s straightforward to grasp, but it comes with a swath of other new directives pertaining to credits, deductibles and international activities, now in place for the 2018 tax year. Just like follow-up regulations guide the implementation of Canadian legislation, the U.S. Internal Revenue Service is tasked with providing further clarification and interpretation of the TCJA’s intent.

“There will be a series of aftershocks over the next few years as the regulations come out,” Seraganian predicted.

tax&investment

S RESHAPE

ANDSCAPE

angements

CASE FOR INCORPORATION SHIFTING Commercial real estate operations within Canada could experience fallout from the new U.S. tax rules simply due to the interconnectedness of the two economies, while companies with holdings on both sides of the border may be pushed to reassess some of their current financing strategies and structures. Osler’s tax experts speculate the new tax regime could boost the equity value of U.S. based companies, giving them an edge over Canadian and other international players when it comes to securing capital, and that the traditional case for incorporating in Canada could be shifting.

“For many years, the value of a $1 deduction in the U.S. was, all other things being equal, greater than a $1-deduction in Canada. This simple reality has directed the flow of billions of dollars of cross-border arrangements and payments across the Canada-U.S. border,” they advise. “The domestic U.S.

“Just by virtue of the new methodology, people will feel a squeeze on their interest deductions.” tax changes unsettle that simple premise in ways that are not yet fully appreciated.”

Among instruments potentially in flux, Seraganian identifies the leveraged blockers that have enabled Canadian investors in U.S. real estate funds (and other kinds of investment funds) to minimize tax impact and avoid filing U.S. federal income tax. Conventionally, non-U.S. investors acquire debt and equity capital in the blocker, which is structured as a limited liability company that acts as a corporation for U.S. income tax purposes. The blocker, in turn,

invests in the real estate fund, but the new rules diminish tactics for lowering the blocker’s effective tax rate.

When the real estate fund distributes proceeds down to the blocker, the portion of the distribution allocated to interest on investors’ debt can be deducted as an interest expense. However, the TCJA now places a more restrictive limit on the interest expense deductible — previously based on 50% of adjusted taxable income, but now lowered to 30% — and stipulates that it be calculated at the fund level, not at the blocker.

Canadian Property Management | March/April 2018 7

tax&investment This presents what Seraganian calls a “double whammy” hit. “Just by vir tue of the new methodology, people will feel a squeeze on their interest deductions,” he said.

Many of the other rules could prompt new k i nds of de cisionmaking. For example, Osler’s tax experts suggest a five-year window, to 2023, for 100% expensing of t a ngible depreciable proper t y (excluding land and buildings) could affect the timing of acquisitions or be

an incentive to purchase assets in order to trigger the eligibility.

Partnerships could also become a preferred option, ahead of incorporation, based on the new rule that allows individuals, trusts and estates to deduct 20% of qualified business income received through pass-through arrangements. This includes real estate, but excludes professional services or “any trade or business where the principal asset is reputation and skill of one or more of the employees or owners”.

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Together, these rules could raise the profile of some business approaches. “I think we are going to see partnerships take a greater role in the cross-border M&A scene,” Seraganian said.

FIRPTA UNCHANGED Despite some earlier calls for moderation, few changes have been made to withholding tax that applies under the U.S. Foreign Investment in Real Property Tax Act (FIRPTA). With the exception of one sizable and active group of institutional investors defined in U.S. tax law as “qualified foreign pension funds” — granted an exemption as part of the 2015 Protecting Americans from Tax Hikes Act — Canadian investors are subject to FIRPTA withholding tax on capital gains on: the direct sale of U.S. properties; sales of U.S. property fund shares; and fund and REIT distributions resulting from the disposition of U.S. properties.

As the name suggests, buyers, REITs or real property holding companies are required to withhold and submit a percentage of the value to the IRS. Subject investors can claim back any amounts that exceed their actual tax liability by filing a U.S. tax return — arguably making it more of an administrative than financial disincentive to investment. (See story, page 10.)

“Generally, in a lot of transactions, the withholding tax is mostly a timing issue. In some cases you may be able to apply to have the withholding reduced if you can demonstrate that the actual tax will be lower than the withholding amount,” Godin explains. “That could happen more and more with the reduced tax rate.”

Real estate analysts likewise theorize that Canadian and other foreign investors will have few complaints. “While the FIRPTA rules would not be materially revised, many nonU.S. investors in U.S. real estate would see significant rate reductions under the TCJA. Since the FIRPTA rules effectively subject non-U.S. persons to U.S. taxation on sales of real U.S. real property interests, the lower rates for U.S. taxpayers would apply to non-U.S. persons,” a pwc whitepaper examining the TCJA’s impact on real estate affirms.

“A broader exemption would have been a very nice gift,” reflects Brooks Barnett, Manager, Government Relations and Policy for REALPAC, which represents Canada’s largest commercial real estate companies and institutional investors. “For Canadian investors outside pension funds, it would have made U.S. property and infrastructure more attractive. But the fact that FIRPTA remains unchanged is actually, I think, a good outcome at a time when we’re facing some uncertainty around NAFTA.” zz

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tax&investment

WITHHOLDING CERTIFICATE EASES FIRPTA PRESSURE Canadian Sellers of U.S. Real Estate Face Cash Flow Complications

By ReKeithen Miller

PRIOR TO THE ADOPTION of the U.S. Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), foreign investors who did not meet the residency requirements were often exempt from tax on real estate sales. FIRPTA triggered the collection of real taxes on real property transactions involving foreign corporations, partnerships and other entities selling U.S. real property, as well as individual sellers who are nonresident aliens.

Because the U.S. Internal Revenue Service cannot easily force foreign investors to file U.S. tax returns, FIRPTA built in a mechanism to ensure that the government gets its due. The law requires the buyer of the property to withhold a set percentage of the gross proceeds from the transaction and submit that sum to the IRS. If that percentage is less than taxes owing, the seller is still obliged to cover the difference. In the more common instance where it exceeds the tax owed, the seller must file a tax return to get the difference as a refund. The seller should file regardless, 10 March/April 2018 | Canadian Property Management

but the law’s mechanism provides more motivation to do so.

The PATH Act of 2015 raised the amount of withholding required under FIRPTA to 15% for dispositions after February 16, 2016; it was formerly 10%. Failure to withhold can make the buyer liable for the tax due on the transaction. In most instances, the closing agent will forward the withheld amount to the IRS following the closing.

SOME EXEMPTIONS The process can be a significant impediment for entities or individuals whose business involves cross-border real estate deals, as the withholding complicates cash flow — especially when getting a refund from the IRS can take more than a year, depending on the timing of the sale. However, the IRS does provide some exemptions for certain types of dispositions, including: • The buyer is acquiring a property for use as a residence at not more than USD $300,000.

• The buyer or a family member has definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer.

• The seller gives written notice that no recognition of any gain or loss on the transfer is required because of a non-recognition provision in the Internal Revenue Code or a provision in a U.S. tax treaty.

• The property disposed of is an interest in a domestic corporation, if any class of stock of the corporation is regularly traded on an established securities market, but this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations.

• The disposition is of an interest in a publicly traded partnership or trust, but this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded partnerships or trusts.

tax&investment BUFFERS Foreign buyers can also create a business s t r u c t u r e t o m it ig a t e F I R P TA withholding. To do this, a non-resident foreign individual would create a twotiered structure involving a foreign corporation and a U.S. corporation that owns the U.S. real estate. If structured and implemented correctly, the foreign i nd ividua l could avoid F I R P TA withholding on the disposition of U.S. real estate and enjoy other U.S. estate and gift tax benefits.

Alternatively, a non-resident entity wary of the complexity of such structures could apply for a withholding certificate if the required 15% withholding exceeds the seller's maximum tax liability. The IRS could then reduce the withholding amount if the deal meets any of the following criteria: • The statutory 15% amount is more than the transferor’s maximum tax liability.

• Withholding of the reduced amount would not jeopardize collection of the tax.

• All gain realized by the transferor is exempt from U.S. tax.

• An agreement for the payment of tax providing security for the tax liability is entered into by the transferee or transferor.

The IRS requires that the withholding certificate be applied for on or before the date of transfer of the property. If that occurs, the withholding need not be paid immediately. Instead, that amount, or such other amount as is appropriate, must be reported and paid the 20th day following the day upon which a copy of the withholding certificate or notice of denial is issued.

The seller must also inform the buyer in writing that he or she has applied for the certificate no later than the transfer day. If the IRS agrees with the calculations, it will issue a certificate that confirms the new amount. Note that applying for a withholding certificate does not negate the responsibility to file an income tax return.

When applying for a certificate, a seller will need to provide support regarding the expected tax liability from the sale of the property. This means providing support for the cost basis of the property by enclosing original settlement statements and receipts for any improvements that were added to the

property’s basis. In addition, if the property was used in a trade or business, a seller should provide depreciation schedules and support for the adjusted basis of the property.

ONSIDE BUYERS PREFERRED The buyer's cooperation is also key in applying for a withholding certificate. The buyer is held responsible for withholding and remitting the taxes to the IRS. So from that perspective, sending the funds to the IRS immediately may seem easier, even though the IRS authorizes the buyer to wait until a determination is made before submitting the withholding.

A seller can still file for a withholding cer tif icate if a buyer ref uses to cooperate, but doing so takes more steps and additional paperwork. The seller will then have to apply for an early refund from the IRS. If possible, it is better to avoid this situation. zz ReKeithen Miller, CFP, EA, is the Client Service and Portfolio Manager with Palisades Hudson Financial Group in Atlanta. For more information, see the website at www.palisadeshudson.com.

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“The rental market is inundated with not just energy-related concerns, but also rent control, new building evaluations and regulations, and lower vacancy rates,” agrees George Hantzis, Large Commercial Energy Solutions Manager with Enbridge, adding, “all of those things intensify the challenges to keep tenants satisfied while continuing to grow a business.”

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“There's no one thing that will improve your bottom line. That's why, when people like us go into a facility to help property owners or managers find ways to save energy, we are always looking at the issue from a holistic approach,” says Dominic DiMuzio, Enbridge Multi-Residential Energy Solutions Consultant.

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Get with the program A number of energy-saving consultation programs are available to property stakeholders at no cost. In some cases, such as Enbridge's Commercial Custom Retrofit Incentives programs, participants can receive

financial rewards for implementing energysaving measures.

“We'll work with customers, free of charge, to identify energy efficiency opportunities that save natural gas and in return save them money. And if they implement any of our recommendations, we will cover up to 50 per cent of the project cost,” explains Hantzis.

“These programs are available, and they've been proven to work – so there's no downside to trying them.” Adds DiMuzio Good tenants plus stable occupancy rates equal high property values (and happy owners). It's a simple formula that's becoming harder to apply. With some smart energy measures and assistance from those in the know, property managers can find a friendly balance.

Make smarter retrofits When it comes time to replace or upgrade critical building components, consider that an ideal opportunity to not only seek a more energy-efficient solution, but to upgrade connected systems.

“When a customer is changing their boiler, for instance, that's an ideal time to also take a look at changing the way they pump those boilers or control them,” offers DiMuzio.

As for what jobs to prioritize, Hantzis adds: “We’ve had a lot of success working with property managers on boiler efficiency upgrades, as well as installing Variable Frequency Drives (VFDs) on ventilation systems. If those have not been done, I would recommend doing those first.”

Do more with what you have There are several ways to optimize savings with existing equipment. For example, one is to introduce an advanced building automation system (BAS) that monitors, manages, and reduces energy usage on an interval level.

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tax&investment

RESIDENTIAL DEVELOPMENT LAND TAKES TAX HIT B.C.'s Affordable Housing Strategy Includes Attempt to Curb Prices

By Barbara Carss THE BRITISH COLUMBIA government expects to collect about $520 million in new annual revenue through additional residential property taxes and property transfer taxes. The measures, outlined in the 2018-19 provincial budget, are part of an effort to deter some of the forces driving housing prices upward and find funds to maintain and bolster affordable stock.

Investors and homeowners who do not pay income tax in British Columbia and/ or who own residential properties worth more than $3 million will be subject to the new levies. However, a much broader range of homeowners and tenants are in line to absorb the flow-through costs of the surcharges on sites purchased for residential development or land idling in 14 March/April 2018 | Canadian Property Management

the preconstruction stage while required approvals and financing are secured.

“It could easily add a few thousand dollars to a unit,” projects Neil Moody, Chief Executive Officer of the Canadian Home Builders’ Association of British Columbia (CHBA BC).

The new taxes will help underwrite the B.C. government’s promise for more than $1.6 billion in housing related spending over the next three years. Both the 2018 budget and an associated 30-point plan, outlining long-range intentions for a 10-year, $6.6 billion investment, place the greatest emphasis on not-for-profit supply, but the private sector is identified as a supporting player. To begin, more funding has been allocated to programs that enable low-income renters to find

accommodations in privately owned buildings, while developers of purposebuilt rental housing have been offered a potential property tax break.

The government will also attempt to facilitate more partnerships between not-for-profit and private sector players through a new office to be known as HousingHub. That’s seen as particularly instrumental for meeting a target for 14,000 low-end-of-market units in buildings that would house a mix of tenants with low and middle incomes.

“These monies do represent an opportunity for the private sector rental housing providers to house more British Columbians,” states budget analysis from the rental housing industry association, LandlordBC.

tax&investment DEMAND MANAGEMENT TACTICS Five new tax measures to be rolled out in 2018 and 2019 are aimed at cooling market demand and, thus, stabilizing the province’s soaring housing prices.

Changes to the property transfer tax will capture more high-end deals and foreign buyers at the point of purchase, while a value-triggered school property tax premium and a supplemental tax on owners/investors from outside B.C. pose a continuing tax liability.

“B.C.’s real estate market should not be used as a stock market. It should be used to provide safe and secure homes for families, renters, students and seniors,” Finance Minister Carole James told the legislature as she introduced the budget in February.

“Soaring prices have benefited many people. We think it is fair to ask those who have benefited from those high prices to give a bit more back.”

Expanded property transfer taxes took effect on February 21 and are projected to raise about $120 million over a 12-month period. This imposes a new province-wide premium rate of 5% on sale value in excess of $3 million.

(Previously, property transfer taxes topped out at 3% on the portion of the sale value above $2 million.) Foreign buyers, who have been subject to an additional 15% tax on the purchase of properties in Greater Vancouver since the summer of 2016, now face a 20% tariff in Vancouver and four other regions of the province, including Victoria, the Fraser Valley, Nanaimo and Kelowna/West Kelowna.

Owners/investors of residential properties in these five designated regions who do not pay income tax in British Columbia will also see a new add-on to their property tax bills, which the B.C. government has dubbed a speculation tax. For 2018, that will be equivalent to 0.5% of the assessed value, but it’s slated to jump to 2% for 2019, garnering an estimated $200 million.

Finally, a province-wide surcharge will be added to the provincial share of property tax — commonly known as school property tax because it is theoretically meant to support schools — beginning in 2019. This applies a further 2% levy on the portion of assessed value between $3 million and $4 million, and a 4% premium on assessed value greater than $4 million.

MANITOBA CANCELS TAX CREDIT Developers of purpose-built rental housing in Manitoba are losing a tax credit that has been available for the past five years. The 2018 provincial budget, released in March, announced the incentive would be cancelled as of January 1, 2019 — a move that is projected to trim about $3.1 million from annual spending.

Approved projects that are not yet constructed will still be eligible for the tax credit of up to 8% of the capital cost of the building or $12,000 per unit, provided they are available for occupancy before 2021. To qualify, at least five units must be created in a new building, a conversion of a nonresidential building or an expansion of existing rental housing building, and at least 10% of the units must have rents at or below a defined affordable level.

“Any rebate or incentive for the non-profit sector is important,” observes Laurie Socha, President of the Manitoba NonProfit Housing Association and General Manager with S.A.M. (Management) Inc., a property management firm specializing in the subsidized housing sector. “It’s always really tight in terms of capital funding. Tax credits, grants, fee exemptions, low-interest loans — it all just helps in putting these projects together.”

Private developers have also been eligible for the tax break, but they must claim it as a non-refundable credit

This, too, is expected to raise $200 million annually.

ONE-TIME AND ONGOING SURCHARGES Residential development land is likely to be a significant contributor to the envisioned new revenue. Notably, Altus Group reports $2.5 billion worth of residential land deals in Greater Vancouver in just the first half of 2017, with the largest transaction surpassing $150 million. However, school property tax surcharges are expected to be more onerous than the one-time hit of the higher property transfer tax.

“This policy is intended for multimillion-dollar homeowners, but, at current land prices, will affect almost all developers and builders who purchase land parcels for development,” Moody says. “If a property takes four or five years before it can be developed, that’s

incrementally over a period of at least five years. Non-profit entities can receive a full tax refund once the project is built and occupied.

An departmental fact sheet accompanying the Manitoba budget cites an $8.9 million increase above last year’s allocation for “affordable housing support” but that figure is not connected to specific line items in the budget. Renters in the private sector appear to be the main beneficiaries, however. Elsewhere, the budget document states: “Manitoba Housing is maintaining existing capital spending on maintenance and improvement of its social housing stock and new construction.”

Finance Minister Cameron Friesen’s budget speech confirms a $7 million boost to the RentAssist program, which provides low-income recipients with an allowance to cover up to 75% of private sector accommodations at or below the median market rent. The threshold for claiming the full $700 education tax credit on provincial income tax filings has also been lowered to include all renters paying at least $3,500 in annual housing costs. Previously the benchmark was $4,700. This will result in an estimated $100,000 drop in annual provincial revenue.

–REMI Network

four or five years of this added school tax.”

He also calls for clarification on how the speculation tax will be applied in the five designated jurisdictions. The budget promises upfront exemptions for most principal residences and “qualifying long-term rental properties” or a corresponding income tax credit that can be carried forward, but is silent on developers’ land holdings.

“There must be some sort of business exemption created that supports builders who have purchased land for development in advance. It’s not speculating if they have the intention to build on it and are delayed or are waiting for permits,” Moody asserts.

Indeed, Minister James acknowledged that persistent uncertainty for developers in her budget speech. “We will need to join with mayors, businesses and Canadian Property Management | March/April 2018 15

tax&investment community leaders to speed up approvals and find ways to build more housing, faster,” she said.

INCENTIVES FOR PURPOSE-BUILT RENTAL Both LandlordBC and CHBA BC commend the government for opening up a potential property tax break for new pu r pose -bu i lt rent a l housi ng.

Nevertheless, any mitigation of the school property tax would be contingent on municipalities having revitalization plans (enabled under provincial planning legislation) in place and designating new purpose-built rental housing among properties qualifying for property tax relief. In such cases, school property tax reductions would then be matched to the percentage amount and duration of relief that the municipality has approved for its own share of property tax.

“The budget does not indicate whether or not the province will be exerting any pressure on the municipalities to take advantage of this opportunity. Revitalization agreements are somewhat obscure so we’re not sure to what extent they will be used,” observes David Hutniak, Chief Executive Officer of LandlordBC. “A simpler

approach might be a housing agreement with the municipality with a covenant on title whereby the municipality restricts use of the building to purpose-built rental for the life of the building, or 60 years, in exchange for the exemption.”

For now, it appears that rental housing developers will continue to pay property transfer tax at the same rate as those bu i ld i ng ow nersh ip housi ng.

“LandlordBC specifically recommended that the government waive property transfer tax for purpose-built rental in a pre-budget submission to Finance Minister James and Housing Minister Robinson. We continue to liaise with the government on this matter in the hope that they will recognize that their failure to implement such waiver will impede the development of new purpose-built rental,” the association’s budget analysis affirms.

“CHBA BC continues to encourage strong incentives to help weather the unique risks to rental versus strata title,” Moody concurs.

FUELLING AN INTERMINABLE DEBATE In introducing its demand management mechanisms, the B.C. government has

been blatant about its intention to collect school property taxes for purposes other than schools. “This is what a progressive tax system looks like. The revenues from these taxes will help address housing affordability in our communities,” the 30-point plan reiterates.

This perhaps stokes the somewhat interminable debate about what property tax should pay for, and appears to conflict with the many voices demanding a sha re of income tax for local governments. Municipal advocates have long advanced the argument that the property tax base is inadequate for supporting municipalities’ social service responsibilities and an inappropriate instrument for income redistribution.

Still, constitutionally, municipalities have little option to resist.

“Definitely, there is a concern about provincial use of the property tax ,” says Almos Tassonyi, Executive Fellow with University of Calgary’s School of Public Policy and a research associate with the International Property Tax Institute.

“There are a number of aspects to this debate, but the Province, in theory, can do whatever it wants.” zz

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16 March/April 2018 | Canadian Property Management

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MINE THE BILL

How Bitcoin’s soaring energy consumption could be increasing your electricity bill

The buzz around Bitcoin is rising. Yet as more and more virtual “miners” look to make their fortune in the cryptocurrency market, their byte-sited efforts are creating massive power demands. This can be an issue in bulk metered properties, where all it takes is one Bitcoin miner’s activities to drive up the cost of everyone’s bill.

“Bitcoin mining is a growing concern for Property Managers in bulk metered buildings,” says Andrew Beacom, President and CEO of Priority Submetering Solutions. “Not only is it contributing to higher electricity consumption, it is also increasing the building’s demand. That means the building as a whole is paying higher rates for electricity and the delivery of that electricity. “

For the uninitiated, a Bitcoin is a unit of virtual currency that is rewarded to “miners” who use specialized computer software to solve complex calculations that are part of the Bitcoin network. The main appeal of this network is that it is not owned by any one entity, making Bitcoin a decentralized digital currency. That means Bitcoin owners can trade units

SPONSORED CONTENT

among themselves without the need of an intermediary (e.g., a bank).

So, what does this have to do with electricity bills? For one, it takes significant computational power to be a Bitcoin miner; ergo, it takes a lot of electricity to keep the process going.

According to the tech website Digiconomist, each Bitcoin transaction requires 235kWh, which is enough to provide power to a home for nine days.

And considering that Bitcoin miners generate an average of 75 Bitcoins an hour, it’s estimated that the Bitcoin network alone consumes an annual rate of 32TWh – or about as much energy used each year by the country of Denmark.

In short: Bitcoin mining may be the future, but it’s also becoming an energy drain.

AN ISSUE CLOSE TO HOME Bitcoin was the first cryptocurrency unit in the world when it was introduced in 2009. Since then, it has been joined by countless other players such as Litecoin and Ethereum (to name a few). What this means for the

property management industry is that cryptocurrency mining is no longer a niche activity; and if managers and owners haven’t felt the impacts yet, it’s only a matter of time.

As Bitcoin mining becomes more mainstream, the challenge for all bulk metered property stakeholders will be to address the costs. This, says Andrew Beacom, is where it makes sense for stakeholders to get ahead of the game and to move to a “user-pay” system that protects both properties and residents.

“A user-pay system involves residents having their own individual meter so that they only pay for what they use.

You wouldn’t want to pay for your neighbour’s grocery bill or pay to fill up their car so why would you want to pay for their electricity?” says Beacom.

Indeed, by billing tenants fairly for their individual energy usage, those that decide to make a virtual buck are not making the decision to raise the cost of electricity for everyone else.

NO PASSING CRAZE If you’re counting on the cryptocurrency fad to fizzle out, you might be waiting a while. As other cryptocurrencies jockey to become a worldwide standard, and more and more retailers and consumers begin to adopt digital currency, the future will include Bitcoin mining of some form or another.

Right now, notes Beacom, the reality is that Bitcoin miners need to be on condo managers / owners’ radars: “Bitcoin is no momentary fad; its popularity is increasing vastly and appears to be here to stay. As goes the Bitcoin price, so goes its electricity consumption and the cost associated with that should not be subsidized by anyone but the miner themselves.”

Andrew Beacom is the President & CEO of Priority Submetering Solutions, a licensed, full-service utility Suite Metering and billing company serving multi-unit buildings across North America.

For more, www.prioritymeter.com.

1-866-836-3837 sales@prioritymeter.com prioritymeter.com

tax&investment

INVESTMENT PROPERTY IMPERILS

PREFERRED TAX RATE Passive Income to Count Against Small Business Deduction

By Barbara Carss INVESTMENT PROPERTY could cause some tax complications for small business owners, beginning in 2019. A new formula, recently announced in the 2018 federal budget, will be applied to weigh the passive income that Canadian-controlled private corporations (CCPCs) earn on investments not related to their principal active business against the small business deduction that CCPCs with less than $15 million of taxable capital currently enjoy.

This could either deplete the amount of operating revenue that qualifies for the small business rate or bump businesses entirely into the corporate tax class.

Mid-sized to large landlords will not be affected — their earnings would be classified as operating revenue generated in their principal business and/or they are already wholly taxed at the corporate rate — but the new rules do capture the demographic of investors who own small low-rise residential or mixed-use commercial-residential buildings as a sideline to their main business ventures.

Many such landlords are now in line for a tax hit they didn’t foresee when they purchased their properties.

“They could lose the ability to claim the small business rate, which will be 9% in 2019, on the operating income in their original business and will, instead, be taxed at about 26%,” observes David Mason, a tax partner with Deloitte Private. “It will make people think carefully about how they are earning their investment income.”

For small landlords, that scenario is most likely to play out when they sell and realize the gains on their investment property.

(Taxable capital gains from the disposition of active business assets — if, for example, a dentist sells the building that houses his or her practice — are excluded from the calculation of passive income.)

20 March/April 2018 | Canadian Property Management

Under the new rules, passive investment income of up to $50,000 annually will not impede a qualifying corporation’s eligibility for the small business tax rate on the first $500,000 of annual net operating revenue. From there, an incremental offsetting formula will be applied to reduce the allowable deduction by $5 for every $1 of investment income in excess of $50,000. Once passive income hits $150,000, the small business deduction will be completely negated.

NO ADDED TAX ON INVESTMENT INCOME The 2018 budget affirms there will be no changes to the existing tax on investment income, refundable taxes or dividend tax rates — a step back that Mason calls “less onerous and less punitive” than the proposal for an added tax on investment income found in last summer’s contentious consultation paper on tax reform.

“During the period of consultation, the Government heard that its proposals could be very complex and add significant burdens on businesses,” the 2018 budget document acknowledges.

However, the pledge that “no existing savings will face any additional tax upon withdrawal” falls short of other concessions that business representatives advocated.

The new approach does not offer: grandfathering of passive income from i nvest ment s m a de p r ior to t he announcement of the new rules; an exemption for investments made with funds not tied to small business revenue, such as the business owner’s inheritance; or a mechanism to spread gains over a longer period than the tax year in which they occur.

“Let’s say you buy a small rental building for $1 million and every year you more-orless just break even until you sell it for $1.7 million. All of a sudden, you’ve got

$700,000 in passive income. There is no averaging of that income over a number of years,” Mason explains.

COMPOUNDING RELUCTANCE TO SELL The new tax measure won’t be official until the budget is formally adopted into law, but it is slated to take effect for the 2019 tax year. That could push some investors to cash out now or, alternatively, it could compound the tax aversion already seen as a significant factor in the persistent low supply of rental housing properties offered for sale.

“Some small landlords might sell off in 2018,” Mason speculates. “They might try to trigger a gain in 2018 or they might just try to hang on.”

“There are already two critical tax issues that discourage a lot of people from selling their properties now,” concurs Christopher Seepe, a landlord and broker with Aztech Realty Inc. and President of the Landlords Association of Durham Region. “Number one: capital gains. That can be huge for someone who has held the property for 30 or 40 years. The second one is capital cost allowance — also known as depreciation.

You can take depreciation on your building every year and reduce your taxable income, but, when you sell, you have to pay it all back. That can take a substantial chunk out of the proceeds of the sale.”

As a course instructor for prospective investors in rental housing, Seepe characterizes the new tax measure as a nother exa mple of the sector’s complicated and sometimes intimidating regulatory terrain.

“You really need to surround yourself with people who know real estate,” he advises. “You need a real estate lawyer, a real estate accountant and a real estate bookkeeper.” zz

WHO’S WHO 2018

PRESENTED BY:

Canadian Property Management | March/April 2018 21

TOP

TEN

OWNED & MANAGED IN CANADIAN REAL ESTATE

OFFICE OWN & MANAGE

MILLIONS OF SQ. FT.

RETAIL OWN & MANAGE

MILLIONS OF SQ. FT.

APARTMENT OWN & MANAGE MILLIONS OF SQ. FT.

Brookfield Property Partners

20.300

RioCan REIT

40.955

CAPREIT

38.600

Oxford Properties Group

20.018

Smart REIT

32.786

Boardwalk Rental Communities

29.000

QuadReal

15.760

First Capital Realty

23.991

Realstar Management

28.620

Manulife Real Estate

14.867

Cominar REIT

14.657

Cadillac Fairview Corporation Limited

16.246

Homestead Land Holdings Limited

23.211

Cadillac Fairview Corporation Limited

12.218

Ivanhoe Cambridge

15.265

Northview Apartment REIT

22.669

Cominar REIT

12.048

Starlight Investments

21.156

Canderel/ HumFord

11.886

Oxford Properties Group

11.715

Killam Apartment REIT

13.283

Allied Properties REIT

11.023

H&R REIT

10.770

Minto Properties Inc.

10.588

H&R REIT

10.269

Strathallen Capital Corp

8.568

Drewlo Holdings Inc.

10.306

Dream Office REIT

8.544

Plaza Retail REIT

7.834

Medallion Corporation

9.262

INDUSTRIAL OWN & MANAGE MILLIONS OF SQ. FT.

OTHER OWN & MANAGE

MILLIONS OF SQ. FT.

Cominar REIT

17.370

CAPREIT

28.278

QuadReal

17.047

Dream Industrial REIT

16.337

NorthWest Healthcare Properties REIT

4.000

Oxford Properties Group

12.251

Kevric Real Estate Corporation

1.869

CREIT Management LP

10.190

Canderel/ HumFord

1.191

Prologis

9.200

Melchior Management

0.442

H&R REIT

8.889

Minto Properties Inc.

0.223

The Sorbara Group

7.000

Ronmor Holdings Inc.

0.210

Manulife Real Estate

5.747

BUSAC Real Estate

0.196

Skyline Commercial REIT

5.641

Lawrence Construction/Grant Management

0.142

Shelter Canadian Properties Limited

0.091

# 55 350 & 390 QUEENS QUAY WEST TORONTO, ON, M5V3A6

22 March/April 2018 | Canadian Property Management

“

Canadian Property Management keeps on top of what the commercial real estate industry is thinking, whether that’s sharing success stories or responding to the challenges of a dynamic business environment.

”

Sandi Mileta-Clancy, RPA, FMA Director Property Management Triovest Realty Advisors Inc.

TOP

TEN

OWNED IN CANADIAN REAL ESTATE

OFFICE OWN ONLY

MILLIONS OF SQ. FT.

RETAIL OWN ONLY

MILLIONS OF SQ. FT.

APARTMENT OWN ONLY

MILLIONS OF SQ. FT.

Healthcare of Ontario Pension Plan Inc. (HOOPP)

9.432

Choice Properties Real Estate Investment Trust

37.092

InterRent REIT

7.900

25.000

Healthcare of Ontario Pension Plan Inc. (HOOPP)

I.G. Investment Management, Ltd.

5.604

Pure Industrial Real Estate Trust

2.905

Manulife Real Estate

18.202

Ivanhoe Cambridge

1.303

Westcliff Management Ltd.

1.215

3.325

Crombie REIT

Crestpoint Real Estate Investments Ltd.

2.700

Healthcare of Ontario Pension Plan Inc. (HOOPP)

6.742

Fiera Properties

1.980

I.G. Investment Management, Ltd.

4.861

Lanesborough Real Estate Investment Trust

1.111

Ivanhoe Cambridge

1.433

Manulife Real Estate.

3.073

SABJOY INC

1.000

QuadReal

1.316

0.752

1.293

2.900

Oxford Properties Group

Melcor REIT

Crestpoint Real Estate Investments Ltd.

2.819

0.641

0.999

Ivanhoe Cambridge

Canadian Urban Limited

Crombie REIT

CREIT Management LP

2.218

Fiera Properties

0.592

Smart REIT

2.163

I.G. Investment Management, Ltd.

0.545

Choice Properties Real Estate Investment Trust

0.609

INDUSTRIAL OWN ONLY

MILLIONS OF SQ. FT.

OTHER OWN ONLY

MILLIONS OF SQ. FT.

Crestpoint Real Estate Investments Ltd.

12.900

Choice Properties Real Estate Investment Trust

5.107

Healthcare of Ontario Pension Plan Inc. (HOOPP)

12.726

Oxford Properties Group

3.907

I.G. Investment Management, Ltd.

Ivanhoe Cambridge

2.768

9.517

Melcor REIT

2.768

Manulife Real Estate

6.162

PRO REIT

0.274

Fiera Properties

5.860

0.188

Davpart Inc.

5.318

Cadillac Fairview Corporation Limited

PRO REIT

1.717

Lanesborough Real Estate Investment Trust

0.081

Choice Properties Real Estate Investment Trust

1.305

Shelter Canadian Properties Limited

0.035

Concert Properties Ltd.

1.227

Ivanhoe Cambridge

1.086

“

As an avid reader of Canadian Apartment Magazine since 2001, I’ve always looked forward to receiving my bi-monthly issues. The articles are informative and the industry coverage is second to none. If you are part of the Canadian apartment community, I highly recommend this publication.

”

Randy Daiter Vice President Residential Properties, M&R Holdings

Canadian Property Management | March/April 2018 23

TOP

TEN

MANAGED IN CANADIAN REAL ESTATE

OFFICE MANAGE ONLY

MILLIONS OF SQ. FT.

RETAIL MANAGE ONLY

MILLIONS OF SQ. FT.

APARTMENT MANAGE ONLY

MILLIONS OF SQ. FT.

Brookfield Global Integrated Solutions (BGIS)

129.450

Brookfield Global Integrated Solutions (BGIS)

38.931

MetCap Living Management Inc.

20.565

The DMS Group

CBRE Limited

34.072

CBRE Limited

29.151

18.769

GWL Realty Advisors

27.909

Bentall Kennedy (Canada) LP

12.451

Société de Gestion Cogir

13.900

11.340

Briarlane Rental Property Management Inc.

Colliers International

27.331

Colliers International

11.160

Bentall Kennedy (Canada) LP

17.982

Triovest Realty Advisors

15.063

Morguard

7.736

Greenwin Inc

10.276

Société de Gestion Cogir

5.144

Triovest Realty Advisors

4.501

Gateway Property Management Corporation

Avison Young Real Estate Management Services

7.225

9.693

Avison Young Real Estate Management Services

3.725

GWL Realty Advisors

9.574

Morguard

6.480

EPIC Realty Partners

4.500

Shape Property Management Corp.

8.714

3.632

Sterling Karamar Property Management

Colonnade BridgePort

4.190

GWL Realty Advisors

3.137

Shelter Canadian Properties Limited

5.522

Berkley Property Management Inc.

5.100

INDUSTRIAL MANAGE ONLY

MILLIONS OF SQ. FT.

OTHER MANAGE ONLY

MILLIONS OF SQ. FT.

CONDO MANAGE ONLY

MILLIONS OF SQ. FT.

CBRE Limited

27.048

Bentall Kennedy (Canada) LP

26.078

Brookfield Global Integrated Solutions (BGIS)

43.505

FirstService Residential Management Canada

116.244

GWL Realty Advisors

18.736

CBRE Limited

19.345

77.154

17.075

13.168

Crossbridge Condominium Services Ltd.

Triovest Realty Advisors

KDM Management Inc.

4.434

58.95

14.192

Colliers International

Del Property Management Inc.

Colliers International Morguard

10.495

Richmond Community Management Services Corp.

3.723

Rancho Management Services

34.519

Blackwood Partners Corporation

8.226

Martello Properties Services Inc.

2.210

Pacific Quorum Properties Inc.

27.189

Realspace Management Group

6.015

Harvard Property Management Inc.

1.757

ICC Property Management Ltd.

21.783

EPIC Realty Partners

AWM-Alliance Real Estate Group

21.375

Avison Young Real Estate Management Services

Gateway Property Management Corporation

19.697

Icon Property Management

11.700

4.265

Avison Young Real Estate Management Services

1.325

4.000

Lionheart Property Management Inc.

0.824

Downing Street Property Management Inc.

0.605

24 March/April 2018 | Canadian Property Management

Wilson Blanchard Management Inc. 40.569

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Canadian Property Management | March/April 2018 25

CANADIAN PROPERTY PROPERTY MANAGEMENT MANAGEMENTWHO’S WHO’SWHO WHO2018 2017 OFFICE TOTAL SQ. FT. MANAGE (MILLIONS)

OWN

INDUSTRIAL BOTH

MANAGE

OWN

RETAIL BOTH

MANAGE

OWN

APARTMENT BOTH

MANAGE

Brookfield Global Integrated Solutions (BGIS)

211.886 129.450

FirstService Residential Management Canada

116.244

CBRE Limited

111.061

Crossbridge Condominium Services Ltd.

77.154

CAPREIT

68.341

Colliers International

61.798

27.331

14.192

11.340

2.022

GWL Realty Advisors

59.356

27.909

18.736

3.137

9.574

Del Property Management Inc.

58.950

Bentall Kennedy (Canada) LP

58.172

17.982

26.078

12.451

1.661

Oxford Properties Group

57.224

QuadReal

50.062

34.072

27.048

1.316

29.151

1.442

12.251

15.760

17.047

Cominar REIT

44.464

14.657

RioCan REIT

42.890

1.935

0.609

0.316 6.475

1.305

10.495

2.538 2.072

1.197

11.715

0.752

6.043

0.469

10.132

37.092

7.736

17.370

0.757

12.048

0.389

1.238

0.645

0.249

0.110

1.192

0.174

2.154

3.244

Triovest Realty Advisors

36.991

15.063

17.075

4.501

Smart REIT

36.347

Manulife Real Estate

34.891

3.325

Healthcare of Ontario Pension Plan Inc. (HOOPP)

31.805

9.432

Gateway Property Management Corporation

30.470

Ivanhoe Cambridge

30.104

1.433

5.252

Cadillac Fairview Corporation Limited

29.948

0.395

12.218

H&R REIT

29.928

Boardwalk Rental Communities

29.000

Realstar Management

28.620

Pacific Quorum Properties Inc.

28.321

Homestead Land Holdings Limited

23.211

Société de Gestion Cogir

22.956

CREIT Management LP

22.553

ICC Property Management Ltd.

21.943

I.G. Investment Management, Ltd.

20.847

The DMS Group

20.843

MetCap Living Management Inc.

20.565

0.142

0.505

1.255

14.867

6.162

5.747

12.726 0.049

0.009

5.107

7.119

40.955

42.817

23.841

4.434

3.907

0.001 6.281

41.349

23.991

28.278 2.474

5.338

Wilson Blanchard Management Inc.

First Capital Realty

19.345

38.600

Rancho Management Services

Northview Apartment REIT

0.003

0.844

20.018 0.045

25.000

BOTH

58.950

6.480

Pure Industrial Real Estate Trust

OWN

43.505

0.619

46.557

25.182

MANAGE

77.154

46.540

26.499

MANAGE

OTHER

116.244

Morguard

Starlight Investments

BOTH

38.931

Choice Properties Real Estate Investment Trust

AWM-Alliance Real Estate Group

OWN

CONDO

32.786

3.037

0.700

10.269

0.384

0.177

9.693 2.819

15.265

0.901

16.246

8.889

0.633

2.905

0.127 1.086

0.006

34.519

0.351 2.163 6.742

0.196

40.569 0.067

0.204

19.697

1.303

2.768 0.188

10.770 29.000 28.620

0.180

0.022

0.233

0.697

27.189

5.343 0.625

21.156 0.580

1.185

1.417

21.375

25.000 23.991 1.172

22.669 23.211

3.379

0.280 0.019

0.030

5.144

3.011

10.190

13.900 2.218

7.075

0.007 5.604

0.123

0.322

0.292

0.253 0.040

9.517

4.861

1.162

21.783 0.545

0.621

18.769 20.565

Brookfield Property Partners

20.300

Canderel/ HumFord

19.794

20.300

Crombie REIT

19.201

0.999 2.700

11.886

Crestpoint Real Estate Investments Ltd.

18.500

Dream Industrial REIT

16.337

Avison Young Real Estate Management Services

16.275

Davpart Inc.

15.126

Shelter Canadian Properties Limited

14.650

Greenwin Inc

14.556

Apollo Property Management Ltd

14.218

0.560

Minto Properties Inc.

14.188

0.911

Sterling Karamar Property Management

13.285

0.565

Killam Apartment REIT

13.283

KDM Management Inc.

13.168

2.920

3.796

1.191

18.202 12.900

2.900 16.337

7.225

4.000

3.725

1.573

0.052

0.074

0.889

0.127

0.160

0.180

0.101

0.112

0.140

0.470

26 March/April 2018 | Canadian Property Management

5.318

1.644

1.751 0.415

1.041 1.294

1.325

5.370

2.431

0.011

1.062

0.180

5.522

0.200

0.347

10.276

3.380

0.462

0.962

1.954

4.880

0.580

10.884

0.210

10.588

8.714

0.035

0.091

0.223 0.281

13.283 13.168

CANADIAN PROPERTY MANAGEMENT WHO’S WHO 2018 OFFICE TOTAL SQ. FT. MANAGE (MILLIONS)

Briarlane Rental Property Management Inc.

12.971

Icon Property Management

11.700

Concert Properties Ltd.

11.504

Allied Properties REIT

11.346

Westcliff Management Ltd.

10.906

Drewlo Holdings Inc.

10.384

Fiera Properties

10.142

Skyline Apartment REIT

9.554

EPIC Realty Partners

9.265

Medallion Corporation

9.262

Prologis

9.200

Park Property Management Inc.

9.174

Vertica Resident Services

9.153

Royal Property Management

9.000

The Sorbara Group

8.975

Skyline Apartment REIT

8.880

Blackwood Partners Corporation

8.849

Strathallen Capital Corp

8.568

ONNI Group

8.568

Berkley Property Management Inc.

8.550

Dream Office REIT

8.544

OWN

INDUSTRIAL BOTH

0.151

MANAGE

OWN

RETAIL BOTH

0.900

MANAGE

OWN

APARTMENT BOTH

OWN

BOTH

0.066

0.167

2.355

7.118

1.215

0.760

MANAGE

0.067

1.568

0.256

11.023 0.941

1.227 0.371

5.615 0.299

0.001 0.236

0.726

0.078 1.980

5.860 0.674

4.500

8.880 4.265

0.500 9.262 9.200

0.050

1.500

0.048

7.576 9.153 4.500

0.200

7.000

1.625

8.226 8.568 0.845

0.750

4.042

2.177

1.505

0.400

0.250

5.100

0.151

Colonnade BridgePort

8.318

4.190

2.400

1.200

0.528

0.005

2.442

Warrington PCI Management

8.194

3.105

1.622

8.080

0.253

0.220

InterRent REIT

7.900

Mainstreet Equity Corp.

7.887 7.834 7.803

1.039

7.621

3.192 1.710

Globe Property Management

6.702

SDM Realty Advisors Ltd.

6.475

M&R Holdings

6.192

0.077

1.247

Northam Realty Advisors Limited

6.130

5.504

0.464

5.400

Shindico Realty

7.200

7.737

0.749

7.422

A.A Property Management

0.057

7.834 6.015

McCor Management

5.417

0.605

0.840

0.300

0.134

Harvard Property Management Inc.

Menkes Property Management Services Ltd.

0.184 0.050

0.016

Realspace Management Group Inc.

5.536

2.861

7.900

Plaza Retail REIT

Melcor REIT

1.800 8.500

Canlight Management Inc

5.612

0.250

8.544 0.906

5.641

0.050

8.880 0.624

2.802

Skyline Commercial REIT

4.500

0.100

1.048

Nadlan-Harris Property Management Inc.

BOTH

0.592

8.373

6.033

OWN

10.306

1.710

8.505

6.000

MANAGE

11.700 0.506

GPM Property Management Inc.

MF Propety Management

MANAGE

OTHER

11.160

Downing Street Property Management Inc.

Crown Property Management Inc.

CONDO

1.640 0.060

2.481

0.840

2.525

0.207

0.894 2.850

0.100

2.161

1.757

0.300

6.402

0.183

4.329

1.100 0.356

0.162 6.033

2.205

3.795 5.641 5.612 1.293

0.222

1.254

2.410

0.352

0.797

1.692

5.352

0.246

0.128

0.115

0.138

Landmark Properties Inc.

5.301

1.063

Devon Properties Ltd.

5.294

0.234

BTB Real Estate Investment Trust

5.262

2.768 0.166 5.400

3.747

Bayshore Property Management

5.161

Osgoode Properties

5.137

Times Property Management Inc.

5.000

Kevric Real Estate Corporation

4.954

0.087

Martello Properties Services Inc.

4.887

Centurion Apartment REIT

4.626

Canreal Management Corp.

4.421

0.183

0.008 2.050

0.577

0.521

3.074

0.467

0.176

0.158 1.500

0.085

0.001 0.132

4.723

0.171

1.711 0.673

4.487

0.034

5.104 5.000 2.700

0.233

0.030

0.730

0.720

0.850

0.144

3.209

1.068

0.035

1.869 0.377

2.210 0.328

4.298

Canadian Property Management | March/April 2018 27

CANADIAN PROPERTY MANAGEMENT WHO’S WHO 2018 OFFICE TOTAL SQ. FT. MANAGE (MILLIONS)

OWN

INDUSTRIAL BOTH

MANAGE

OWN

RETAIL BOTH

MANAGE

OWN

APARTMENT BOTH

MANAGE

OWN

CONDO BOTH

MANAGE

MANAGE

0.135

CitiGroup Properties Limited

4.182

0.349

0.029

0.227

0.825

2.617

Prospero International Realty Inc.

4.084

0.264

0.284

1.141

2.255

0.140

0.010

0.233

0.069

Richmond Community Management Services Corp.

4.035

NorthWest Healthcare Properties REIT

4.000

Dayhu Group of Companies

3.994

Canadian Urban Limited

3.786

Hollyburn Properties Ltd.

3.700

MenRes Property Management Inc.

3.680

Shape Property Management Corp.

3.632

0.623

0.675

2.996

2.161

0.200

3.700 3.680 3.632

3.386

Old Oak Properties Inc.

3.348

0.154

0.064

0.021

PRO REIT

3.189

0.154

1.717

1.043

1.567

3.071

Royop Development Corporation

3.041

0.131

Gulf Pacific Property Management Ltd.

2.687

0.731

Aspen Properties

2.650

Kings College Management Limited

2.560

Skyline Retail REIT

2.556

0.072

0.231

0.125

0.995

0.644

0.395

1.210

0.055

0.255

0.065

0.231

0.111

0.856

0.725

0.413

1.112

0.450

0.220

Skywater Property Management

2.430

Arnon Corp.

2.410

1.279

0.409

The Enfield Group Inc.

2.382

0.161

0.105

0.983

0.431

0.020

0.009

0.543

1.292

0.442

0.052

0.397

0.266

0.041

2.224

0.007

2.363 0.100

0.330

0.006

0.374

0.091

1.800

1.546

0.059

0.210

2.219

2.216 2.190

0.075

CLV Group

2.180

0.180

0.179

0.100

State Building Group

2.100

O’Shanter Development Company Ltd.

2.025

Groupe Axwood

2.001

0.431

Richmond Property Group Ltd.

2.000

0.500

WJ Properties

1.865

1.469

0.276

0.292

0.175

1.940 2.000

1.000

1.000 0.405

0.364

0.434

0.275

0.200

0.071

1.831

0.726

Summit Properties

1.828

0.155

Meritus Group Management Inc.

1.785

Metcalfe Realty Company Limited

1.741

1.620

0.427

0.600

0.700 0.148

Tillyard Management Inc.

1.712

1.890

0.117

Atlantis Realty Services, Inc.

1.705

0.142

2.430

Williams and McDaniel Property Management

Madison Properties Inc.

0.002 0.473

2.556 0.502

Around The Lakes Property Management Limited

0.350

0.270

0.228

2.219

1.250

0.017

0.067

Ferguslea Properties

0.274

0.023

0.011

2.280

2.078

0.041

0.185

Ronmor Holdings Inc.

1.031

0.392

2.535

2.363

0.108

2.650

2.444

2.236

0.065

3.071 0.021

Brown Group of Companies Inc., The

Greenrock Property Management Ltd.

0.325

3.316

Melchior Management

Partners REIT

1.067

0.070

KRP Properties

2.619

3.723

0.641

3.560

2.563

BOTH

0.054

0.361

Melcor Developments

Lawrence Construction/Grant Management

OWN

4.000 0.068

Kelson Group

Westcorp Property Management

OTHER

1.010

1.716

0.095

0.578

0.021

0.043

1.031 1.785

1.501

0.147

0.092

0.800

0.450

0.455

1.712

BlueStone Properties Inc.

1.655

Equitable Real Estate Investment Corporation Ltd.

1.650

0.303

0.215

Lameer Management Inc.

1.575

0.138

Huntington Properties Ltd.

1.504

0.105

Steeves and Rozema

1.375

IMP Group International

1.360

0.056

BUSAC Real Estate

1.359

1.163

Southwest Properties Ltd.

1.346

CJM Property Management Ltd.

1.308

Tower Building Management

1.305

0.615

0.825

0.816

0.530

0.013

0.103 0.870

0.022

0.901

0.398

0.110

0.419 1.375

1.218

0.087 0.196 0.071

0.135

28 March/April 2018 | Canadian Property Management

0.280

0.060

0.060

0.415

0.120

0.052 0.355

1.216 0.411

0.725

0.059

CANADIAN PROPERTY MANAGEMENT WHO’S WHO 2018 OFFICE TOTAL SQ. FT. MANAGE (MILLIONS)

Antrev & Associates Inc.

1.258

Gillin Engineering & Construction Ltd.

1.240

Lanesborough Real Estate Investment Trust

1.232

Lionheart Property Management Inc.

1.161

OWN

INDUSTRIAL BOTH

0.772

MANAGE

OWN

RETAIL BOTH

0.311

MANAGE

OWN

APARTMENT BOTH

MANAGE

OWN

CONDO BOTH

MANAGE

0.017

0.041

0.337

1.106 1.063

0.250

0.100

Provincial Property Management Limited

1.060

Niot Investments Holdings Ltd.

1.050

0.050

Concorde Group Corp.

1.010

0.100

Rathcliffe Properties

1.000

SABJOY INC

1.000

MARCARKO LTD

0.971

Twin City Management Ltd.

0.965

Dove Square Property Management Inc.

0.965

0.010

Armadale Property Management Inc.

0.933

0.167

OWN

BOTH

0.576 1.111

Preston Group

MANAGE

0.175

0.647

York Heritage Properties

OTHER

0.081 0.824

0.756 1.063 0.560

0.500 0.100 0.100

0.540

0.370

0.300

0.600

0.900

1.000 0.971 0.076

0.889

0.006 0.190

0.160

0.020 0.307

0.045

0.929 0.064

Tandem Group

0.907

0.907

Kroma Management Ltd.

0.822

0.822

HighPoint Property Management

0.810

Merkburn Holdings Ltd

0.769

0.118

Taft Management Inc.

0.663

0.189

Aldgate Group

0.660

0.810 0.184

0.097

0.356

0.013 0.227

0.195

Timbercreek Asset Management

0.617

0.307

Fana Group of Companies

0.600

0.600

Plaza Côté des Neiges Canada Inc.

0.543

0.113

Condominium Living Management Inc.

0.518

0.430

0.246 0.035 0.290

0.020

0.430 0.518

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Canadian Property Management | March/April 29 2018-03-26 2018 4:10 PM 2017-11-14 12:34 PM

CANADIAN PROPERTY MANAGEMENT WHO’S WHO 2018 OFFICE TOTAL SQ. FT. MANAGE (MILLIONS)

OWN

INDUSTRIAL BOTH

MANAGE

OWN

RETAIL BOTH

MANAGE

OWN

APARTMENT BOTH

MANAGE

Northland Properties Inc.

0.496

Bedford Properties & Estates Ltd.

0.493

Summa Property Management

0.475

0.035

0.189

Vancor Group Inc.

0.455

0.008

0.105

Lloyd Zerker Realty Ltd.

0.440

Gitalis Group Inc.

0.376

0.013 0.240

0.225 0.100

0.352

0.300

0.052

0.004

0.021

Edie & Associates

0.344

0.201

0.143

0.283

0.022

0.251 0.342 0.202

0.036

0.350

0.279

0.208

0.325

0.014

0.040

0.018

R.W. Commercial Property Management Inc.

0.250 0.250

0.250 0.080

Leimerk Developments Ltd

0.245

0.046

SMAR Holdings Ltd.

0.234

Canahahns Company Limited

0.202

Sluis Properties

0.187

17A Properties

0.145

Oak Bridge Properties Inc.

0.144

Atlas Properties

0.141

Vero Property Management

0.104

Regency Group

0.101

Percel Inc.

0.038

0.035

Whitehill Residential

0.021

0.010

0.170 0.067

0.132 0.234 0.014 0.020

0.188 0.167 0.145

0.080

0.014

0.050

0.016

0.125 0.104 0.030

1

0.071 0.003 0.011

2017-03-20

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CM

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0.239

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C

MANAGE

0.493

Goodwood Property Investment Ltd. Glenview Management Limited

BOTH

0.496

Gold Castle Holdings Ltd.

Chester Developments Ltd.

OWN

CONDO

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investment

RELATIVE REBOUND 2017 Real Estate Returns Show Improvement in Even the Bleakest Markets

By Barbara Carss

CAPITAL GROWTH nudged up 2017 investment returns for the 43 portfolios participating in the REALPAC/IPD Canada Property Index. Annual results, released in Toronto earlier this winter, show a 6.7% total return across 2,455 directly held standing assets — an improvement from the 5.7% total return the index posted in 2016 — even as income yields slipped to an alltime low.

Robust economies in Toronto and Vancouver, a continuing slump in Calgary, retailing challenges and sustained high demand for rental housing all play into index-wide capital growth of 1.8% and income return of 4.8%. Simon Fairchild, Executive Director with the index producer, MSCI, parsed out some of the components of the big picture.

“There are strong returns from residential and strong improvement from industrial.

We’re left with retail being the worst performer last year,” he told the gathering on hand to hear the results. “The geographic picture is pretty much what we’ve been accustomed to in the past few years. The range of returns has narrowed somewhat 32 March/April 2018 | Canadian Property Management

and this, in part, is because Vancouver has slowed down. While it seems like the values in Calgary aren’t falling as fast as they were, they are still falling.”

Pointing to the index participants’ historic total return of 9.2% since 1985, Fairchild qualified expectations for the future. “If 9.2% is ultimately to be met going forward, we would have to see some truly exceptional rental growth over the next decade,” he advised.

Industry insiders enlisted to provide on-the-spot feedback likewise scrutinized underlying details of the 6.7% total return — comparing markets and sectors, connecting performance to broader economic forces and grounding it in the context of institutional investors’ pursuit of stable, predictable returns over the long term.

“The averages are misleading at best, dangerous at worst,” cautioned Colin Johnston, President, Research, Valuation and Advisory with Altus Group, one of three panellists polled in the discussion.

RETAIL SLUMPS, CALGARY SLOGS ON He tagged “headwinds for retail”, somewhat

surprising gains for industrial, upbeat prospects for multi-residential and Montreal’s improving dynamics among distinct trends that bear watching. He also looked beyond the latest round of numbers to pronounce his confidence in Calgary’s future rebound — a sentiment the other panellists shared with some qualifications on timing.

“You have a disequilibrium in the market that is going to take some time to work off,” submitted Carl Gomez, Senior Vice President, Research and Strategy, with QuadReal Property Group.

“I think in the retail space, it is too early to go there,” concurred Laetitia Pacaud, former president of Strathallen Capital Corporation.

Alternatively, there’s plenty of retail repositioning potential in more lucrative markets. In 2015, retail was the index’s best performing property type with a total return of 8.8%, and capital growth accounting for 4.4%. Two years later, the total return was 5.3%, with capital growth at 0.8%.

Panellists were reluctant to label e-commerce as the culprit, particularly

investment

RETAIL RETAINS SOME COMPETITIVE STRENGTHS Retail real estate has continued to deliver stable returns in the United States despite steady e-commerce gains. Recent analysis from MSCI finds that retail asset performance actually edged slightly ahead of non-retail assets in the 20122017 period, delivering an annualized total return of 10.4% versus 10% for non-retail properties.

In part, this reflects the culling of weaker properties in what is characterized as the “over-retailed U.S. landscape”.

Whole categories of merchandizing, such as video rentals, have disappeared, while services such as banks and pharmacies are slashing their real estate holdings. On the flipside, however, investors and asset managers have been pouring capital into flagship properties and are finding new types of tenants.

“Recent doom-and-gloom predictions may have overstated the current stresses facing retail asset investors,” surmises Will Robson, Executive Director and head of real estate applied research with MSCI.

since it’s also seen as a contributor to the industrial sector’s recent gains, but suggested that many mall operators do need to get a strategy in place while e-commerce still accounts for a fairly modest fraction of retail activity.

“It’s up to the asset manager to value-add.

There are going to be people who own assets out there who don’t have managers in place to survive the hit that’s coming,” Pacaud warned.

“There are some really good retail performers and there are a lot of bad ones,” Gomez agreed. “One of the things (asset managers must do) is unlocking the value.

Many of the malls that are performing badly were built in the ’60s and ’70s. We have to figure out what to do with these properties. Some of them are in very strategic locations.”

PULLING UP THE AVERAGE Even if market divergence is less pronounced than in 2016 when Vancouver boasted chart-topping total returns of 12% and Calgary bottomed out with a 2.8% loss on investment, there is still a discernible split

between the cities pulling up and lagging behind the index average. “If you took out Calgary and just looked at Toronto, Toronto would be stronger than the TSX,” Gomez observed.

Toronto registered total returns of 10.4%; Vancouver followed with total returns of 9.3%; and Ottawa was in harmony with the index at 6.7%. Montreal’s 6.5% total return fell just short of the national average, but the climb from the previous year’s 3.3% total return was the greatest gain of any market.

Vancouver’s slip may factor into other markets’ improved results as the city’s high costs increasingly pose barriers to prospective investors. Meanwhile, some index participants cashed out.

“There is a net disinvestment in Vancouver, but this isn’t the market.

This is just a group of portfolios,” Fairchild affirmed.

“We have a very small market that is dominated by foreign capital. I call Vancouver the Monaco of Canada,” Gomez said. “If you can crack that nut or you have a position there, it yields you very good returns.”

He outlines some key contributing factors to retail real estate resilience, noting that expansion in the thriving market segments is counterbalancing closures in others. Accordingly, many savvy retailers are using their physical space in new ways to complement and brand their online business.

Big data is another burgeoning factor, as Wi-Fi and associated tracking systems give mall managers more information about shoppers’ preferences and points the way to new potential service offerings. For now, U.S. census data shows that 9% of sales are occurring online, meaning that there is still plenty of market share to be divvied up in bricks and mortar.

High-quality retailers and a healthy consumer base are almost inextricably linked. “Tenants may continue to be drawn toward those malls that generate the highest traffic as new concepts are introduced,” Robson reasons.

–REMI Network

In turn, Johnston speculated Montreal is capturing a share of investors shut out of Toronto and Vancouver, but he listed several other plausible reasons for their interest. These include the city’s healthy job growth, renewed investment in infrastructure and growing confidence in Quebec’s political stability.

“The provincial (Quebec) government has done a bang-up job of cleaning up the financial turf,” Gomez added. Like Vancouver, he termed Montreal “a burgeoning tech capital”, but, in contrast to the “Monaco of Canada”, its metaphor might be the aging, iconic building with upside potential.

Investors a re now tapping into repositioning opportunities in sync with a broader urban rejuvenation.

“We are seeing a lot of interest from foreign capital and domestic capital,” Johnston said.

GEOGRAPHY OVERRIDES SECTOR On the downside of the index average, Calgary was alone in suffering a 0.3% loss on investment. “Values are now down, Canadian Property Management | March/April 2018 33

investment

“Trophy assets will continue to retain their yields. Really good quality investments make up the majority of the index.” cumulatively, 15% over the past three years. For office, it’s 27%,” Fairchild reported.

Winnipeg, Edmonton and Halifax achieved total returns of 4.9%, 1.4% and 0.6% respectively, but joined Calgary in recording negative capital growth. Office properties in both C a lga r y a nd E d mont on t o ok a disproportionately harder hit.

Sector trends were relatively consistent in all markets, with multi-residential and i ndust r ia l prop er t ies genera l ly outperforming office and retail, but this translated into a varying range of returns.

Industrial properties emerged particularly

strongly in Vancouver and Toronto, recording capital growth of 10.5% and 9.7% respectively. On the flipside, Calgary’s industrial sector simply lost asset value to a lesser degree than other property types, recording 0.1% negative capital growth.

“Geography is really the overriding factor,” Fairchild reflected. “It’s about where the assets are whether there’s a sector gain across the country.”

Nationally, residential surpassed its 2016 sector-topping performance, delivering a total return of 10.3% driven by 5.8% capital growth. Industrial was just one notch behind, with a total return of

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10.2% that represented a big step up from a 5.8% total return in 2016. Office also recovered from the previous year’s loss of capital value to record an improved total return of 6.2%.

A PAUSE, NOT A SERIOUS DOWNTURN In a comparison with other investment opportunities, the index fell short of the 9.2% return on equities last year but significantly outperformed bonds. Looking to other property markets, it trailed the 7.8% return for listed companies in the REALPAC/IPD Canada Fund Index and the returns on standing assets that MSCI monitors in the United States (7%) and the United Kingdom (10.2%).

Meanwhile, the drop in Ireland’s index, from a 12.4% total return in 2016 to 6.4% last year, seems to support Fairchild’s reading of Canadian properties’ performance. “The current slowdown looks like a pause, like 2001 to 2003, rather than a very serious downturn,” he said. “Each of the last years has now shown positive if relatively modest capital growth.”

From a three-year perspective, the index and equities are largely in step with returns of 6.8% and 6.6% respectively. Equities outperformed the index over the five-year horizon (8.9% versus 7.7%), but pushing out to 10 years, the index delivered a 8.1% return versus 4.6% for equities.

Hints of inflation, the narrowing yield spread between the index and 10-year Canada bonds, uncertainties over NAFTA and other potential economic upheavals are all wrapped into institutional investors’ contemplation of the future. “Is real estate still the best game in the country?” Michael Brooks, REALPAC’s chief executive officer, asked — garnering responses that leaned toward yes.

“There are still people with a lot of money to place,” Johnston observed. “Trophy assets will continue to retain their yields. Really good quality investments make up the majority of the index.” (Currently collectively valued at nearly CAD $149 billion.)

“If underlying NOI growth is there then it can withstand some of these market forces we’re seeing,” Gomez said.

When asked to peg the 2018 total return, Johnston came in at the high end at 7%, Pacaud predicted 6.5% and Gomez projected something in the range of 6 to 6.5%. Closing out the results presentation, Nic Aaviku of HOOPP was revealed as the annual contest winner for most accurately foreseeing the 2017 total return.

His February 2017 prediction also sets him out as something of an optimist among last year’s contest participants, as 94 of the 104 submissions predicted a return in the range of 5 to 6%. “It shows a consensus, but it’s true that these 94 people were wrong,” Fairchild quipped. zz

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tenant-centricmanagement

DATA MEETS THE REVENUE FUNNEL Tracking the Leasing Process from Leads to Retention COMMERCIAL REAL ESTATE is moving from an industry driven by spreadsheets and intuition to one that is digital-first and powered by technology, data and analytics. It is also pivoting from a property focused industry to a tenant-centric one.

In many instances, landlords and brokers are focused on tracking late-stage or signed deals only. What they may be forgetting is that there are hundreds of activities and decisions made prior to those leases coming to fruition that, if done more efficiently, can significantly impact their effectiveness. An optimized leasing process should yield greater revenue.

Landlords and brokers need to be able to measure and optimize activity at three stages: attracting prospects; signing deals; and retaining and expanding tenants. These stages form a framework sometimes referred to as the revenue funnel — a concept businesses across numerous industries have used to improve the effectiveness of their customer acquisition strategies.

The revenue funnel comprises all of the business activities that leasing and asset management teams are already doing every day to attract and convert new tenants, and retain and expand in-place tenants. Tracking every stage of that process positions landlords to act on opportunities faster, proactively address portfolio risk before it becomes an issue and reduce downtime.

ATTRACTING LEADS The “attract” stage is the top of the revenue funnel. There are a variety of different marketing and direct outreach approaches a leasing team can employ to generate interest from potential 36 March/April 2018 | Canadian Property Management

tenants. Alongside these efforts, landlords and leasing teams also need to understand demand in the market and position their assets accordingly.

Traditionally, without the existence of true metrics or a centralized system to track them, it has been difficult to evaluate the effectiveness of messaging and tie the marketing spend directly to interest received on a space. There hasn’t been any way to know whether expensive broker gift cards and dinners actually led to more inquiries and tours. Tracking the right metrics at the top of the funnel, across assets portfoliowide, provides leasing teams with the insight to position space to attract the best prospects, well-matched to the space.

SIGNING DEALS The faster leads are converted into tenants, the faster revenue will be coming in the door. There are numerous reasons deals can get held up, but, with insight, these issues can be addressed. It's important to identify bottlenecks or inefficiencies that are preventing good deals from closing and fix them in as timely a way as possible.

Tracking key metrics at the deal-making stage will reveal where the leasing team may be losing qualified tenants — i.e. Is it earlier in the process as it moves from tours to proposals? or Is it later as proposals are converted to executed leases?

Empirical insight can inform honest, collaborative conversations about the challenges the leasing team faces. That might be: • The physical condition of a property and its common areas – are they showing well enough to entice tenants to make an offer?

tenant-centricmanagement • The performance of the brokerage team – could technology help them share listing information, follow up with leads or answer questions faster?

• Internal processes – do teams (e.g. analyst, legal, accounting) have the tools they need to get deals negotiated and approved efficiently?

Adjustments can be particularly important in the shift to a customer-centric model. With every other purchase a tenant makes completed with relative ease, a long drawn out leasing process is fast becoming unacceptable.

SECTORS COMPARE AND CONTRAST OPERATING PRESSURES While commercial property managers grapple with the opportunities of big data and the risks of cyber-adversaries, the rowdy partier, courtesy of Airbnb, may be the most prevalent and unnerving face of digital disruption in the multifamily environment. Senior real estate executives participating in a panel discussion late last year at PM Expo in Toronto rated emerging and age-old operating pressures differently depending on their business focus and their tenants’ key demands.

“It makes it much more complex when you are actually managing someone’s home,” acknowledged Cheryl Gray, who comes to her new role as Executive Vice President, Enterprise Resources and Innovation, at QuadReal Property Group with extensive grounding in residential management.

“It’s like running a small city — 120,000 people — across four time zones,” concurred Jonathan Fleischer, Executive Vice President, Operations, at CAPREIT, in reference to the size and geographical dispersion of the portfolio he oversees. “When you’re in residential, it’s not a job, especially at the building level; it’s a lifestyle.”

Taking a somewhat inverse career path to Gray, he moved from commercial to residential management in 2015, and describes it as a challenging and invigorating new milieu.

Notably, there is a greatly restricted capacity to pass costs through to tenants, but also opportunities to reposition that open up with more frequent turnover.

“Residential is more creative,” Fleischer asserted. “If you suddenly have a problem in residential, like we had in Calgary about 18 months ago, you can turn that around on a dime.”

Meanwhile, in-house and contracted “subject matter experts” can help to manage regulatory compliance. “There is just a ton of it and no one person can know everything there is to know,” he advised.

“The legislation that gets added, which makes it even more complex, is the Landlord and Tenant Act,” Gray added. “Tenants are acutely aware of their rights and, because they are voters, you’ll find that any level of government will happily support them.”

However, tenants’ sense of community and protectiveness of their homes frequently supports management. “You will be notified quite quickly when unusual activities occur,” she reported.

Other best practices for operations and customer service are consistent in the commercial and multifamily sectors.

“The simple answer would be: Invest in your people first and foremost,” submitted Lachlan MacQuarrie, Vice President, National Programs, with Oxford Properties Group. “If we listen to our people, they are going to act differently and they are going to engage differently. If engagement goes up, customer service benefits. It’s the ability to tap into their discretionary effort.”

–REMI Network

RETENTION AND EXPANSION Interactions with a tenant shouldn’t stop when the lease is signed.

Savvy landlords need to understand tenants’ wants and needs, and easily answer questions like: • How happy are they with their experience in the building?

• Do they have space in other buildings in our portfolio and what is their experience like there?

• Do they need more or less space?

• How is their business performing?

• What is the work-style of their employees?

The landlords and brokers who emerge as leaders will be those that commit to measuring and optimizing activities at every stage of their revenue funnel. Some of these changes may seem small at the asset level, but optimizing portfolio-wide activity will enable a team to work smarter, not harder. zz The preceding article is excerpted from the VTS whitepaper, The Rise of Data-Driven Leasing. For more information, see the website at www.vts.com.

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Canadian Property Management | March/April 2018 37

investment

GENDER DIVERSITY INSIGHT FOR INVESTORS Real Estate Represented in Inaugural Canada Women's Leadership Index

REAL ESTATE companies comprise 7.3% of the membership of the newly launched MSCI Canada women’s leadership index, which benchmarks the performance of select stocks in Canadian equity markets against MSCI’s broader investable market index (IMI). The 95 participants reflected in the inaugural index results meet qualifying criteria for the number of women in senior executive roles and the percentage of women on their boards of directors, and are flagged as free from any “severe controversies” related to discrimination, labour rights or workplace diversity.

MSCI offers both performance evidence and market theory to support the addition of this new index to its portfolio of indices — which also includes the Canada Property index, Canada Fund Index and the Green index — providing investment information worldwide. Notably, inaugural results show the women’s leadership index delivered a 10.1% return in 2017 versus the total IMI’s 8.78% return.

“Companies failing to employ women — at any level — in numbers proportional to their availability are, by definition, limiting the size of their talent pool. In contrast, higher numbers of women, particularly in senior positions, might indicate a savvier approach to talent — one that just might promote productivity and economic growth along with gender equality,” an MSCI statement asserts.

This new product to provide gender diversity insight for investors is aligned with the index producer’s environmental, social and governance (ESG) research and ratings.

MSCI also points to the United Nations’ sustainable development goals as an underlying buttress, along with the need for women’s unencumbered participation in the labour force to drive global economic growth and productivity.

Since only publicly traded entities are part of the analysis, many of Canada’s largest real

38 March/April 2018 | Canadian Property Management

estate players are excluded. However, other requirements to make the list of what MSCI terms “gender diversity leaders” would eliminate several of them anyway.

Participation in the women’s leadership index is contingent on meeting or exceeding a leadership quotient of: three female directors; 30% female directors; or two female directors and a CEO or CFO who is a woman. These companies’ boards of directors must also report a higher percentage of female members than the overall average for the 317 entities in the Canada IMI. This will be tabulated quarterly, at the end of January, April, July and October.

Numerically, about 30% of the parent index is represented in the women’s leadership index, but it carries considerably more clout from the perspective of market capitalization.

The top 10 constituents of the women’s leadership index account for 39% of the weighted value of the parent index. (Royal Bank of Canada and Toronto-Dominion Bank are ranked one and two in both indices.) From May 31, 2016 to January 31, 2018, the women’s leadership index collectively outperformed the Canada IMI, with gross returns of 12.65% versus 11.25% for the larger index.

As part of the sector-neutral design of the women’s leadership index, real estate is given a 1.9% weighting among the 11 GICS sectors — equivalent to its weight in the parent index. Financials carry the most weight, at 37.6%, while health care falls into the 11th position at 0.87%.

Seven companies carry real estate’s banner in the inaugural index: Brookfield Asset Management; Cominar REIT; Dream; Extendicare; First Capital Realty Inc.; RioCan REIT; and Sienna Senior Living.

Some service providers to the real estate industry are also participants, including: Altus Group; DIRTT Environmental Solutions; SNC-Lavalin Group; Stantec; and WSP Global. zz

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