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HIGH-PERFORMANCE BUILDINGS have become somewhat ho-hum in the 2020s. There continues to be advances in structural components, building systems and clean and smart technologies, but there is no great philosophical reset involved in adopting them. It’s just steady progress on a course of action that has already been widely accepted.
Today, the rethinking is occurring around valuation and lowercalibre assets as a spate of interrelated drivers prompts commercial real estate professionals to consider greenhouse gas (GHG) emissions and climate risk. Regulators, tenants, investors and insurers are all exerting varying degrees of pressure to bolster buildings’ resilience and shrink their carbon footprints. Then there is the certain knowledge that the carbon price will be $65 per tonne in about four months’ time and $80 per tonne 12 months after that.
The capital markets are tapped to play a leading role in the envisioned transition to a lowcarbon economy, and, in the commercial real estate sector, that’s beginning to take form in changing views on risk, value and financing. Key analysts are now grappling with the waning of some conventional perceptions and the rise of new attributes of value.
JLL Canada summarizes many of those challenges in a new discussion paper examining capital markets’ influence in the pursuit of net-zero targets. “The appraisal and financing processes can provide a strong behavioral lever if practitioners learn to integrate the real impact of the zero-carbon and ESG components, and investors are prepared to accept conclusions that may be ahead of market trends,” it observes. We include an excerpt in this issue.
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On the management and operations front, a building-by-building assessment is deemed fundamental to pegging a portfolio’s baseline GHG emissions. From there, owners/ managers can identify where best to begin finding reductions and can measure progress against that starting point. Industry insiders emphasize that the hardest work will lie in the buildings that generally seldom receive fanfare.
“It is not sufficient simply to recognize and celebrate the best assets in a portfolio, however fun that might be,” Chris Pyke, Senior Vice President with the U.S. Green Building Council, cautioned, in conjunction with the recent online release of the 2022 GRESB results. “Start at creating transparency for every asset in the portfolio.”
This issue highlights some tools and approaches for the task ahead, including the Canada Green Building Council’s efforts to create a building performance database and artificial intelligence options to potentially simplify and speed up building-level assessments. We also look at the newly promised federal tax credits that could help cushion the cost of required investments.
“Every building has one, maybe two cost-effective opportunities to transition to a cleaner future state between now and 2050, and the best way to do it is to have a transition plan at each asset,” Philippe Bernier, Executive Vice President, Strategy & Growth, with JLL Canada, asserted during the GRESB results presentation. “Don’t miss your shot.”
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Focus: Green Buildings, Sustainable Management & Operations
6 Clean Technology Tax Credits: A range of energy and low-carbon heating equipment designated for refundable tax credits, beginning in 2023.
8 Disclosure Challenge: Prominent real estate companies join effort to make building data transparent and accessible.
14 2030 and 2050 Targets: Asset-level plans map the net-zero pathway.
16 Energized Career Path: More than half of global energy sector jobs align with emissions reduction.
20 Valuing Net-Zero Assets: Capital markets ponder clean building premiums.
25 Flood Protection: Insurers respond to climatedriven risks.
26 Heat as a Service: ESCOs tapped to shoulder capital costs of decarbonization.
30 Low-Carbon Infrastructure: Canada and the U.S. invest with aim of teasing out private capital.
34 ESG Software: Reporting functionality in demand.
Articles:
38 Property Tax Mitigation: Interventions have record of creating complications and exacerbating inequities.
42 Interest Rate Repercussions: Investors await real estate pricing adjustments.
44 Office-to-rental-housing: Floorplates factor in conversion feasibility.
contemplating a switch away from gas-based space and water heating can now factor some lucrative tax credits into the business case. Canada’s fall economic statement pledges $6.7 billion over five years to support uptake of a range of clean technologies, including active solar heating, air-source and ground-source heat pumps and energy storage.
“With major investment tax credits for clean technology and clean hydrogen, we will make it more attractive for businesses to invest in Canada to produce the energy that will power a net-zero global economy,” Deputy Prime Minister and Finance Minister Chrystia Freeland asserted as she introduced the fall economic statement in the House of Commons in early November.
As proposed, claimants could receive refundable tax credits of up to 30% of their capital investment in designated clean technologies. This would become available on budget day 2023 and be phased out in gradually diminishing percentages between 2032 and 2034. The tax credits will be targeted to specified electricity generation, electricity storage, low-carbon heating and industrial zero-emission vehicles and charging equipment, which is mostly already eligible for accelerated capital cost allowance (CCA).
“A tax credit of 20 to 30% would certainly make the return on investment of projects more attractive,” observes Bala Gnanam, Vice President, Sustainability, Advocacy and Stakeholder Relations with the Building Owners and Managers Association (BOMA) of Canada. “When you factor in the future price of carbon, transitioning to clean energy makes even more sense.”
“A 20 to 30% tax rebate means a project that previously didn’t make business sense now might be ready for rapid deployment,” agrees Eric Chisholm, Principal and Co-founder of the engineering consulting firm, Purpose Building Inc.
The tax credits will be tied to yet-to-be-finalized labour conditions. It’s proposed that claimants would receive a 30% rebate if they meet the criteria, but those that fall short would be eligible for a maximum 20% credit. Further details are promised in the 2023 budget.
“Labour conditions will include paying prevailing wages based on local labour market conditions and ensuring that apprenticeship training opportunities are being created,” the economic statement advises. “The Department of Finance will consult with a broad group of stakeholders, but especially with unions, on how best to attach labour conditions to the proposed tax credit.”
Beyond potential applications within commercial buildings, zeroemissions construction machinery and associated charging infrastructure would be eligible. The electricity generation category covers equipment related to solar, wind and water-based power production and small nuclear reactors. Energy storage captures: batteries; flywheels; supercapacitors; magnetic energy storage; compressed air energy storage; pumped hydroelectric energy storage; gravity energy storage; and thermal energy storage.
“Every real estate segment in the private sector could benefit — multifamily residences, industrial buildings, office and retail,” Chisholm says. “Commercial real estate should specifically benefit from the tax credits for low-carbon heating equipment. The credits for
electricity generation systems will also benefit those companies that are putting solar on the roof. Some might benefit from battery or thermal storage, but that’ll be the minority.”
The slate of eligible technologies is to be routinely reviewed and may be revised and/or expanded in the future. That’s already spurring suggestions from groups such as QUEST Canada, which argues that district energy, biofuels and renewable natural gas have been undervalued as potential contributors to the low-carbon transition, and the Pembina Institute, which calls for high-performance windows and doors and low-carbon insulation products to be added into the mix.
“There’s also more needed to unlock other key components of grid decarbonization that could also support affordable electricity from the net-zero grid, such as transmission infrastructure and energy efficiency on the grid,” the Pembina Institute urges in its response to the economic statement.
“We strongly believe that the government should allocate special funds for utilities to undertake extensive vulnerability assessments and implement measures to increase the operational resilience of the grid,” Gnanam concurs. “With aging electricity infrastructure — from transmission to distribution — increased need for electrification, population growth and increased intensity and frequency of climate events, the resilience of our electricity grid is of serious concern.”
Additionally, the economic statement announces a pending consultation on an investment tax credit for clean hydrogen, which will consider some of the approaches taken in the recently enacted U.S. Inflation Reduction Act. It also earmarks $250 million over three years to expand the workforce in sectors integral to the low-carbon transition, including up-skilling for 15,000 workers and union-based training and innovation programs for 20,000 apprentices and journeypersons.
Future apprentices and current workers with outstanding debt for their skills training have been promised some financial relief through the proposed elimination of interest on federal student and apprentice loans. This would be a permanent extension of the two-year grace period introduced during the COVID-19 pandemic, which is due to expire March 31, 2023. As a result, it’s estimated the federal government will forego about $540 million to $556 million in annual revenue. zz
IN 2019, THE Canada Green Building Council (CAGBC) launched the Disclosure Challenge initiative to support data accessibility and transparency in the Canadian real estate market. The Disclosure Challenge called on real estate leaders to publicly disclose all their buildings’ available energy, greenhouse gas (GHG) emissions and water data regardless of the building’s overall efficiency. The participants’ commitment to the program demonstrated a heightened awareness of and need for data transparency to help the real estate sector substantially reduce energy consumption and carbon emissions.
In the first year of the Disclosure Challenge, five large portfolio owners collectively holding more than CAD $50 billion in managed real estate assets participated: QuadReal Property Group; Triovest; Concert Properties Ltd.; Colliers
International; and the Minto Group. In 2022, six additional commercial property owners/managers representing $60 billion CAD in managed assets joined, including: Kingsett Capital; Brookfield Properties; LaSalle Investment Management; Golden Properties; Shape Properties; and Hudson Pacific Properties. As well, the City of Ottawa was the first municipality to come on board.
In the first year, Disclosure Challenge participants disclosed available information from more than 700 building assets representing more than 11 million square metres (118 million square feet) of building space. For the years 2019 and 2020, data was collected on 935 and 914 buildings respectively, with approximately 17 million square metres (183 million square feet) of building space profiled each year.
The participants’ building performance data was reviewed and validated for accuracy and then made publicly available through an online visualization tool. Those buildings with complete performance data were graphically displayed in the tool and compared to overall national averages.
The visualization tool can filter the displayed buildings based on type, age, energy efficiency ratings, GHG emissions intensity and region. With this publicly available tool, CAGBC demonstrates how performance data can be effectively and dynamically shared when consistent data disclosure requirements are in place.
There are three years of data available within the tool, including during 2020, when the COVID-19 global pandemic directly impacted building occupancy. Through this data, the Disclosure Challenge enables real estate owners to identify trends
and insights related to energy use in office and multi-residential buildings, including uncovering changing energy carbon intensity values for buildings in Alberta.
The involvement of leading real estate players helped to dispel the notion that the sector was reluctant to share data, helping put the real estate sector in a more positive light when it comes to sustainability leadership. In addition, the Disclosure Challenge demonstrated that disclosure and data sharing is possible for public or private real estate managers in any jurisdiction in Canada.
Nevertheless, there can be barriers even when motivated participants want to collect and share data, especially for specific building types. Only a small portion of industrial and warehouse building types were able to submit complete wholebuilding performance information. It was also a consistent issue for retail buildings, which encountered issues that included
tenants paying their utility bills, campusstyle energy distribution where one energy meter feeds multiple buildings, and a lack of direct data connections between the utility providers and data management systems.
While industrial and warehouses made up a significant portion of the total space, a greater percentage of the buildings in the Disclosure Challenge were offices and multi-use residential buildings (MURBs), which generally did not experience these issues to the same degree. However, finding a solution that enables better whole-building data collection regardless of the building type will be important in ensuring the full benefits of data collection and monitoring.
Despite issues, the ongoing Disclosure Challenge demonstrates how data transparency and data sharing can help the development of effective policies, programs and actions to improve energy efficiency and lower GHG emissions. Globally, other jurisdictions are already taking advantage of data disclosure and benchmarking to identify opportunities for energy efficiency
Chis Pyke, Senior Vice President of the U.S. Green Building Council, draws a solid line between transparency and the ability to achieve greenhouse gas (GHG) emissions reductions. He voiced his “leave no asset behind” mantra during the online release of the 2022 GRESB results — benchmarking the environmental, social and governance (ESG) performance of real estate portfolios worldwide — earlier this fall.
That begins with a baseline measurement of every building’s emissions profile, which can then be tied to an improvement strategy and provide the starting point for measuring progress. As high-performance green and smart buildings become increasingly common, he argues there’s less to learn from looking at them. Rather, for sustainability professionals, there’s much to relish in the challenges that underperforming assets present.
“We have gotten very good at making better assets. Better assets are actually quite similar to each other and are getting more and more similar to each other,” Pyke asserted. “There is a long tail of underperformance in any given portfolio. That’s where the opportunities are. We need to know which assets are currently superior — that’s great, we know how to do that — and, increasingly, we need to have a way to assess, scope and improve the lowperforming assets.”
“It’s really about how we invest in, finance, incentivize and innovate around the brownest of our buildings and how we keep them moving forward,” concurred his co-panellist Sukanya Paciorek, a Senior Principal with the Rocky Mountain Institute. “There is a lot of work to be done in that space, including building metrics, labelling systems and benchmarking tools that work for those types of portfolios and those types of buildings.”
– REMI Networkand to grow their retrofit economy. For Canada to replicate their success and supercharge the retrofit economy, reliable and consistent access to whole-building data across a wide range of building types is paramount.
In 2020, more complete performance data was available for office and multi-unit residential buildings (MURBs), as well as larger data sets for Alberta, British Columbia and Ontario. The following insights for these building types were noted:
• Overall, the median site energy-use intensity (EUI) was 242 kilowatt-hours per square metre per year (kWh /m2 /yr for participant office buildings, which was better than the national median of 294 kWh/m2 /yr or 18% more energy efficient.
• Overall, the median site EUI was 240 kWh/m 2 /yr for participant multiresidential building. National comparisons were not readily available for participant MURB buildings in 2020.
• GHG emissions intensity for both office and MURBs varied between regions. For buildings in the
Disclosure Challenge from across the country, the median value for office buildings was 24 kilograms of carbon dioxide equivalent per square metre per year (kgCO 2 e/m 2 / yr, and the median value for multiresidential buildings was 32 kgCO 2 e/m 2 /yr.
• These values ranged from a high of 111 kgCO2e/m2 in Alberta to a low of 15 kgCO2e/m2 /yr in British Columbia for office buildings, and a high of 65 kgCO2e/m2 /yr in Alberta to a low of 25 kgCO2e/m2 /yr in British Columbia for multi-residential buildings.
• Median values for GHG emission intensity vary significantly between regions and locations, due to the variety of energy utility providers and fuel sources used for electricity generation. Comparing participant office buildings to these median values indicated that they performed well, with 76% (220 out of 289) that were lower than the national GHG emission intensity median value.
• Age of the buildings indicates that median site EUIs have improved for office buildings over time due to improvements
in design and construction, while MURBs demonstrated a decline in energy efficiency. The median for pre1990 office buildings (190) was 257 kWh/m 2 / yr versus post-1990 office buildings (105) at 213 kWh/m 2 /yr, which was a 17% improvement. The multi-residential pre-1990 median (94 buildings) was 234 kWh/m 2 /yr compared to the post-1990 median (49 buildings) at 256 kWh/m 2 /yr, for a 9% decline in performance.
In the absence of consistent requirements and support for building performance data disclosure and benchmarking, owners and operators, tenants and policy-makers lack a clear picture of buildings’ overall energy use and GHG emissions. This blind spot hampers environmental footprint assessments and the development of plans to improve the energy efficiency and lower the emissions profiles of Canada’s buildings.
Ensuring access to accurate and detailed performance data for all building types could result in better insights into operational performance, operational drivers and highperformance thresholds. Regulations,
KingSett Capital has emerged as the global leader among 59 mixed office-residential real estate portfolios benchmarked in the 2022 GRESB survey of environmental, social and governance (ESG) practices and performance. This year, 1,820 entities worldwide, including private companies, property funds and REITs, reported to the annual assessment, which considers 60 indicators across 14 components of activity.
The GRESB real estate database now captures 150,000 individual assets in 74 countries collectively valued at about USD $7 trillion. The total number of respondents has increased by more than 237% during the past decade, while average scores for those reporting over that entire period have climbed from a range of 45 to 54 in 2013 up to 81 to 85 in 2022.
This is KingSett’s eighth year of GRESB participation and the second consecutive year it has been atop the office-residential category. The company also attained a five-star ranking for the fifth consecutive year, meaning that its GRESB score is in the top quintile (20%) of the total field of participants.
“We are grateful to our people, partners and customers who helped make this achievement possible,” says Jon Love, Chief Executive Officer of KingSett Capital. “We are committed to our ESG strategy and continue to expand our efforts and ambitions, seeking to make an impact and build long-term value for all our stakeholders and communities.”
Other notable Canadian results include: QuadReal Property Group, which posted the top score in the Americas region for diversified portfolios with office, retail, industrial and residential properties; and Oxford Properties Group, Triovest and BentallGreenOak, which were
all Americas region leaders in the separate development benchmark for ESG attributes in design, construction and renovation.
The five companies are veterans of the GRESB assessment, witnessing a steadily growing contingent of Canadian participants. Enrollment has nearly doubled over the course of the COVID-19 pandemic — climbing from 30 in 2019 to 59 reporting entities this year, and with 44% year-over-year growth from 2021 to 2022.
That’s a trend throughout the Americas region, as the United States gained 79 new respondents for a 26% growth rate, and Brazil recorded a 170% jump from 7 to 19 entities. The influx is also deemed a major cause for a drop-off in the region’s average GREB score, which dipped to 72, down from 73 in 2021.
“The first year of reporting to GRESB can be extremely challenging,” Reid Morgan, Manager, Member Relations, for GRESB’s Americas region, observed earlier this fall during an online summary of the results. “Another critical contributing factor to lower overall scores this year was the significant change in how buildings were used in 2021 as compared to 2020. With workers starting to return to the office and businesses reopening, we saw a decrease in likefor-like scores in the energy, water and GHG emissions aspects.”
Still the data bodes optimistically for the future. This year, the firstyear reporters collectively posted an average score of 58.3, while the average score for entities in their second year of participation was 68. At five or more years of participation, the average scores hit or surpassed 81.
–REMI Network
An increase in extreme weather patterns, along with demographic shifts and a rise in resilience practices are leading cities and buildings to address infrastructure needs, including water and energy usage
Successful building owners and managers continue to stay ahead of policy and regulatory trends by addressing these challenges through more efficient uses of resources and an emphasis on occupant health and wellbeing.
BOMA BEST is North America’s largest environmental assessment and certification program for existing buildings, with over 7,500+ buildings certified or recertified.
BOMA BEST provides a consistent framework for owners, managers & building operators to critically assess ten key areas of environmental performance and management:•
• Energy
• Custodial • Water • Purchasing • Air • Waste • Comfort • Site
• Health and Wellness • Stakeholder Engagement
reporting frameworks (such as GRESB among others) and/or tenant and owner demands are raising performance expectations and making them a part of normal building operations. As a result, data-driven insights will be critical in identifying performance requirement levels and setting operational targets on a building-by-building basis.
Data transparency and benchmarking are a crucial stepping stone to a decarbonized built environment. With greater levels of data transparency, new opportunities for building performance analysis would be gained. Increased transparency and data sharing would also support the development of new and innovative policies and programs that could drive change at scale.
Key recommendations for governments to consider include the following:
• Implement national building energy data disclosure guidelines that align to the Disclosure Challenge’s ask;
• Support the use of Energy Star Portfolio Manager for data collection and benchmarking and require direct connections to utility data to make collection and sharing of data easier;
• Mandate building data sharing as a prerequisite to associated support program approval; and,
• Develop a user-friendly system for energy efficiency and GHG emissions intensity labelling that works for all buildings and owners.
Establishing a common building data, labelling and transparency approach is a step that building owners, occupiers and policy-makers must take together. zz
The preceding is an excerpt from the Canada Green Building Council report, Full Disclosure, Real Estate’s Climate Leadership in Action. The complete text can be found at www.cagbc. org/news-resources/cagbc-news/disclosurechallenge-2022/.
The participants’ commitment to the program demonstrated a heightened awareness of and need for data transparency to help the real estate sector substantially reduce energy consumption and carbon emissions.
AMONG ITS MANY challenges, the race to meet 2030 commitments for greenhouse gas (GHG) emissions reduction could have some public relations complications. Companies that hypothetically hit their targets at 11:59 p.m. on December 31, 2030, won’t be able to reveal those results until their 2031 annual reports, which would typically be released in 2032.
“You have to report on the most recent year’s results and you’ll need 12 months of data from the projects you’ve undertaken to tell the full story,” advises Eric Chisholm, Principal and Co-founder of the engineering consulting firm, Purpose Building Inc.. “So
if you want your 2030 year to show lowcarbon emissions, you’ll need to get that done by the end of 2029.”
That accelerated schedule would elimi nate more than 12% of the currently remaining timetable. Broadly, the Canadian government’s 2030 Emissions Reduction Plan envisions a 38-megatonne (Mt) cut in the output of carbon dioxide equivalent (C02e) from the buildings sector — repre senting a 41% decrease from 2019 levels — as a key milestone toward the 2050 goal for net-zero carbon. Meanwhile, many commercial real estate organizations have announced ambitious targets of their own,
which also align with various environ mental, social and governance (ESG) imperatives and/or reduction campaigns related to the United Nations Framework Convention on Climate Change.
“Anyone who is planning on delivering results by 2030 has seven to eight years to get this done,” Chisholm says. “The clock is definitely ticking.”
He applauds the Canadian government’s recently pledged tax credits (see story, page 6) as a significant boost for tackling required work. Many details won’t be
available until the 2023 federal budget is released next spring, but building owners/ managers could receive tax rebates of up to 30% of the capital cost of various investments in low-carbon heating systems, on-site renewable energy generation and energy storage.
As well, they’d be indirect beneficiaries of the proposed tax credits for large-scale renewable generation — solar, wind, waterbased and small nuclear reactors — and a range of energy storage options since such investments would bolster the clean electricity supply that’s needed to make the switch from fossil fuels to electrification truly effective in reducing GHG emissions.
“It would be even better if the tax credit was expanded to include things like triplepane windows, high-performance insulation, low-carbon concrete, mass timber structures and other passive lowcarbon technologies,” Chisholm adds.
He also cautions that capital planning cycles are typically lengthy, so the seemingly generous term for the tax credits — which would see them on offer from 2023 to 2032, but phasing down to lower levels in the final three years — risks being squandered in corporate inertia. Companies that already have a clear picture of their portfolios’ emissions profile and where building-level improvements are needed will likely initially be in the best position to take advantage of the incentive.
“This tax credit is well aligned with owners with ready-to-go plans to deliver deep decarbonization. They could mobilize those plans as this credit is rolling out and maybe decide to get things done sooner than they originally thought was feasible,” Chisholm says. “For the owners who do not yet have plans for their assets, now there’s a good incentive for them to figure things out and try to get it done in this nine-year window.”
Other decarbonization proponents share Chisholm’s conviction in the importance of asset-level plans. Speaking during the online release of the 2022 GRESB results earlier this fall (see story, page 10), panel
discussion participants stressed that every building should have its own individual map to net zero. That should also flow into the data and transparency that’s central to establishing a credible portfolio-wide baseline starting point, from which progress can be accurately measured.
Chris Pyke, Senior Vice President with the United States Green Building Council (USGBC), defined the aspirational endpoint as “a clean, fossil-fuel-free, generally all-electric asset that is efficient, gridinteractive and high-performing”. To get there, he suggests asset managers and investors will increasingly want to monitor how each building is advancing toward that status and refer to its “carbon neutral playbook” of further required interventions.
“We are really good at demonstrating exemplary buildings. However, what we increasingly recognize is: we’re not going to achieve our climate objective or business objective by focusing only on exemplary buildings,” he mused. “The three elements are: transparency for every asset; celebration for the best assets; and a strategic approach to identify, target and improve the lowperforming assets.”
Philippe Bernier, Executive Vice President, Strategy & Growth, with JLL Canada, reiterates that net-zero goals come with a heightened degree of difficulty and exposure of less-than-stellar buildings. Yet, he foresees the more arduous exercise could be the less risky choice as the “dirty building value drop” becomes a more prevalent threat.
“A carbon-neutral portfolio is perhaps easier, where you can estimate your emissions and then substitute in carbon offsets to clean it up without necessarily systematically working on emissions reductions. A net-zero carbon portfolio follows the hierarchy where we have to start with rock-solid baselines and drive energy efficiency,” Bernier said. “The key point is: don’t wait. Now is the time to capture emerging clean building price premiums.”
On that front, he urges capital budgeters to consider net operating income (NOI) ahead
of return on investment (ROI) — a philosophy grounded in the growing complement of influential tenants with their own net-zero agendas. Drawing evidence from JLL’s tenant services’ business practice, he cited the increasing reliance on site selection scorecards that prioritize clean heating sources, smart utility controls, the building’s environmental performance relative to its peers and the landlord’s ESG commitments and outcomes.
“Tenants are going to vote with their wallets and lease in space that is aligned with their own targets,” Bernier maintained. “The concern, if you own a big portfolio, is: will you get the lease or not? If you can’t get the NOI, it’s going to undermine the value of your assets.”
To date, real estate organizations pursuing significant emissions reduction for 2030 and/or net-zero targets are largely forging their own way, albeit with guidance from industry organizations and collegial sharing of experiences with their peers. Governments have been lagging with supports and innovative financing strategies are still embryonic.
“The transition is now disorderly. We don’t have the right policy settings and we don’t have the right mechanisms to orderly transition our built environment,” acknowledged Jorge Chapa, Head of Market Transformation with the Green Building Council of Australia. “So the question is how you can take ownership of your transition strategy and move forward quickly as possible. Because we just can’t wait.”
Chisholm likewise sees Canada’s proposed new tax credits as one component of a slate of transitional tools, which need to be put in place quickly.
“Tax credits support conservation incentives, net-zero development stan dards, green financing, carbon taxation and easy access to low-carbon energy grids,” he notes. “All of those elements have to work together to support Cana da’s transition to a low-carbon economy. Any jurisdiction that is making credible progress on that entire group of supports is going to see results.” zz
“Tenants are going to vote with their wallets and lease in space that is aligned with their own targets.”
JOBS RELATED to energy efficiency in buildings and industry accounted for about 16.5% of the global energy sector workforce prior to the COVID-19 pandemic, but conservation and demand management (CDM) is projected to create more employment and assume a larger share of overall economic activity in step with a heightened focus on reducing greenhouse gas (GHG) emissions. A new report from the International Energy Agency (IEA) is an inaugural effort to tally jobs linked to clean energy and energy efficiency, track their momentum and gain insight on emerging and long-term labour needs.
“With strategic foresight and commitment to achieving just and people-centred transitions, policy makers and industry decision-makers can provide the support workers need to transition out of declining industries and maximize opportunities for additional good quality jobs across different regions,” maintains IEA Executive Director, Fatih Birol, in the forward to the report.
As of 2019, the IEA estimates the energy sector employed about 65 million people
worldwide, representing 2.5% of the global workers. That’s further categorized into three similar sized components:
• 21 million workers involved in obtaining or refining oil, natural gas, coal or bioenergy fuel supply;
• 20 million engaged in power generation, including construction and manufacture of related facilities and equipment, and transmission, distribution and storage activities; and
• 24 million focused on end uses, including design, development and manufacture of electric vehicles and energy-saving building technologies and appliances, and a range of professional services and skilled trades involved in energy management and retrofits.
“Roughly 65% of the energy sector workforce is connected to developing new energy infrastructure, while 35% are involved in operating and maintaining existing energy
assets,” the report states. “Over 21 million energy sector employees work in manufacturing and approximately 15 million are in construction, making up 5 to 6% of their respective sectors. An estimated 14 million work in utilities and other professional services,”
Already, more than half of the jobs are aligned with reduced GHG emissions through renewable energy, electric vehicle production and pursuit of energy efficiency, and these activities are deemed to have the highest ongoing job creation potential. In 2021, global spending on energy efficiency, including building retrofits, green construction, appliances, vehicles and industrial equipment neared USD $330 billion, surpassing 2019 levels by 14%.
The IEA estimates governments worldwide have committed an extra USD $165 billion to energy efficiency programs since the COVID-19 pandemic began, including about CAD $6.3 billion for Canada’s commercial, residential and community sectors. More recently, the U.S. Inflation Reduction Act allocates more than
USD $8.5 billion to rebate homeowners for energy efficiency improvements and switching fossil fuel appliances for electric options, along with billions more in tax credits for qualifying energy investments in commercial and residential buildings and $200 million in training grants for retrofit workers.
Looking back to the 2019 stats, more than 18 million jobs tied to fossil fuel (coal, oil and gas) supply equate to 27.5% of the total energy workforce, but that ratio varies across global regions. In Europe, for example, more jobs are tied to electric vehicles (2.7 million) than any other subcategory, representing 36% of the estimated 7.5 million energy-related positions on the continent.
North America has the largest contingent of oil and gas workers (1.9 million) among seven regions analyzed, but also boasts 2 million jobs tied to energy management in buildings and industry. The total North American energy workforce is pegged at 7.9 million and is relatively evenly split among energy efficiency, oil and gas, power generation and electric vehicles, each with a share ranging from 25 to 22%. Meanwhile,
coal and bioenergy each account for fewer than 1.5% of the energy-related jobs.
China is home to more than 29% of the global energy sector workforce, including about 35% of jobs tied to energy efficiency, 33% of jobs related to electric vehicles and 54% of jobs related to coal. Africa has the lowest quotient of global energy jobs — about 5.8% — with 1.6 million jobs or 42% of its energy workforce in oil and gas.
For 2022, the report cautions that about half of the year-over-year increase in energy spending is attributable to rising costs and doesn’t flow into labour demand. However, it estimates 1.3 million new positions were added to the global energy sector workforce over the course of 2020 and 2021, and projects a further 6% growth in employment this year.
Building retrofits are identified as a particularly labour-intensive endeavour that have also suffered from recent supply chain disruptions. The report notes a growing need for skilled workers, including administrators with the ability to assess others’ credentials.
“The lack of trained personnel can be detrimental to the quality of installations or retrofits and negatively affect the energy saving potential of an intervention. This makes training and vetting vendors a major challenge, and there is a growing focus for
many efficiency programs to provide the appropriate skilling and certifications,” it advises.
Training will be a key element of enabling energy sector workforce growth given its higher ratio of technical and professional occupations. Currently, the study finds that 45% of energy workers can be classified as “high-skilled” versus about 25% of positions in the general economy, and it is projected to skew even more to high skills in the future.
Women present an underused pool of potential reinforcements. Current labour statistics, which define the energy sector more narrowly than the IEA’s scope, show women make up 16% of the workforce — far below their 39% representation in total employment.
“Clean energy start-ups show signs of change, with a greater share of women founders and inventors in clean energy, even if still far short of parity. This marks an opportunity for these growing segments to help increase female representation,” the IEA report submits. zz
The comp lete text of the World Energy Employment Report can be found at www.iea.org/reports/world-energy-employment.
In 2016, I wrote an article for a wellknown property management company on what I believed the future held for the building restoration industry and its clients. It was my "best guess" after a 40year career, and now, after the last six years, my concerns have only multiplied.
Six years ago, the future issues I predicted were on-site labour shortages, a major shift in overhead costs, and a trend of contractors not understanding the financial risks associated with the restoration Industry. All these issues have added dimensions in 2022, and they have all been amplified by the pandemic, surging inflation, fast-rising interest rates, and supply chain issues causing delays and unprecedented price hikes in all sectors.
Back then, I also thought uneducated contractors would still be prevalent. Now, I am happy to report that most contractors now understand that the restoration industry is not for the "financial faint of heart." However, for owners, property managers and condominium corporations, the days of getting a "cheap" price due to a financially uneducated contractor are over. During the pandemic, all companies focused on survival and were forced to be more attentive to finances. Due to the tightening of bonding and insurance requirements, banking facilities, and the rising complexity of the safety, labour, and tax laws, those companies had no choice but to get with the program as these issues have very real costs and have to be addressed in their pricing.
In 2016, it was also easy to predict that there would be a labour shortage. At the time, I thought the labour shortage in the future would be for "on-site" skilled labour, but now we’re seeing increased demand for employees needed off-site or in the office. Project management, accounting, estimating, HR, and all administration positions have competition like never before. In the past, employees could double up on responsibilities to run a company. Now, the expertise needed in each position makes it near impossible for these responsibilities to be completed by one person. As companies have more inoffice employees, and are paying more for
those employees due to competition, the cost of overhead surges.
This, again, adds to the overall costs of all projects.
Of course, finding on-site skilled labour in construction is still an issue today. That said, it is exacerbated in the restoration industry by the fact that many people may be skilled workers, but asking them to apply their skills on a swing stage 300 feet in the air is a non-starter for them. As a side note: 99 of 100 people who respond to a help wanted ad say "no" once they find out they will be working on the side of a building.
After 46 years (not 40) in the restoration ndustry, I'll give those predictions another shot!
For one, as we advance, I believe many people do not yet understand the speed and extent that costs are increasing and how it will affect contractors, owners, property managers and their clients. As front-end buyers, the restoration industry has seen increases in labour, materials, and supplies that are unprecedented. We have also seen what the result of competition has done to the labour pool, and why the supply chain issues are so costly. As a contractor, we have to adjust quickly to this reality and, at the same time, try to predict what all of this means to our future.
No doubt, economic headwinds will continue to impact the industry. The condominium sector may be the area that needs the most focus, specifically at the Board of Directors level. Although keeping costs under control should be top of mind for everyone, there is a big difference between controlling everyday costs and reducing funding in a reserve fund to control costs. Controlling the daily, monthly, and yearly costs of a building is important and always top of the list since we see them constantly. Yet, in the past 20 years, with inflation at 2% or less and low-interest rates, reserve funds could be set up quite easily for future costs.
This isn't the case anymore. Inflation isn't around 2%; it's 8% or more. And borrowing rates aren't 2%; they’re triple. There are dramatic price increases for "out of sight, out of mind" services that are not seen by most people in the general public. Since mid2021, we have witnessed supplier price increases of 8, 10, 30, and 50% overnight.
My concern is not a guess. Some reserve fund studies I've seen recently are based on 2% or 3% increases. While this would suffice in the past, any corporation with a reserve based on these numbers or had their studies completed before 2022 should have those studies updated to present conditions. Moreover, their board should scrutinize the results thoroughly for their corporation's long-term financial health.
As in 2016, my prediction is that many will ignore my advice and many will be fine. Even still, how much will it cost to take a good look? I predict - no, guarantee - the cost of being sure will be far less than being blindsided.
Scott Byberg is President of Dominion Caulking and Langstaff Restorations., where he has watched the industry evolve since joining it nearly 50 years ago. He and his team look forward to celebrating Dominion Caulking’s 100th anniversary in 2028.With ambitious targets and tight timelines, it’s a given that the commercial real estate industry and capital markets will have to be equally committed allies in transitioning Canada’s building stock to low-carbon, climate-resilient assets that provide haven for their occupants and returns for their investors. A new discussion paper from JLL Canada examines some of the key issues, challenges and communication gaps around valuation, financing and finding the right metrics to steer new approaches. The following is an excerpt – Editor.
A LARGE SHARE of worldwide greenhouse gas (GHG) emissions stem from the construction, operation, retrofit and decommissioning of buildings, whether that be existing buildings or new construction. The World Green Building Council estimates that buildings account for 40% of global GHG emissions, but, in a recent JLL report, titled Decarbonizing Cities and Real Estate, the authors find that, within cities, the built environment accounts for a higher proportion still.
In a sample of 32 global cities, the contribution of buildings to citywide emissions averages about 60%. In major hubs such as London and Tokyo, real estate can account for more than 70% of urban emissions. Faced with this, the CRE industry itself has stepped up and, in many cases, committed to shift its operations toward a much greater degree of sustainability.
The CRE industry faces a major disruption that requires a philosophical review of how the market behaves, values its
assets and reacts to these new demands and imperatives. The problems raised are complex. Even if corporate environmental, social and governance (ESG) commitments are a step in the right direction, there is a need to define a clear path to a solution.
The journey on this path can begin with how the CRE industry values the built environment. The appraisal and financing processes can provide a strong behavioral lever if practitioners learn to integrate the real impact of the zero-carbon and ESG components, and investors are prepared to
accept conclusions that may be ahead of market trends.
But first, fundamental questions need answers: How are appraisals evaluated and presented for green assets? Where do the funds for green loans come from? Is green capital readily available? Are conditions for green loans better than for vanilla (nongreen) loans? How might we prove a green project is loan-worthy? What types of certifications or other key performance indicators (KPIs) are needed?
The expected impact will vary across time and the type of CRE asset considered, whether buildings are new or existing, and will be especially delicate for retrofit projects.
Appraisers are not like a buyer or purchaser or broker, who establish the newest leasing or transaction benchmark. Rather, they seek to measure how such a typical market participant would price the asset, by interpreting evidence including completed lease deals and property sales, ongoing transactions and bidder trends, indices, supply/demand data and the economic landscape to come to their opinion of value. To that end, one of the biggest challenges is to identify and create this data to apply in practice, and to isolate the impact of particular aspects such as sustainable features to these metrics.
Be it the amount of capital chasing industrial and multi-family in recent years, the evolution of retail and the bifurcation between retailer winners and losers, or the work-from-home phenomenon in office, all these trends have enormous value implications. Attempting to isolate any sort of green premium/brown discount is clearly difficult. As practitioners, appraisers focus on considering the operational benefits (or penalties) that ESG can imply, while simultaneously seeking to justify the effect on capitalization and risk rates.
To try to informally measure that effect, JLL Canada recently surveyed senior investment and valuation professionals across the Canadian CRE industry. They
were asked how much of a cap rate premium would they be willing to pay on a net-zero carbon asset.
The survey results showed that over half the respondents were willing to pay a 22 to 25 basis points (bps) compression factor, meaning that if a traditional, non-net-zero carbon building was estimated at a 5% capitalization factor, the expected cap rate for a net-zero carbon equivalent building would be 4.75%.
This was true for the retail and office sectors; it dropped slightly when looking at the industrial and residential sectors. From a value perspective, this translates into roughly a 5% pricing premium.
The feedback gained from this survey illustrates both the market understanding that there is an underlying value to net-zero carbon assets — an element of which can be attributed to reduced obsolescence risk — and that there is a willingness to price it. However, the uncertainty surrounding the associated valuations is hindering quick adoption. It is a chicken-and-egg problem: there are few net-zero carbon (NZC) buildings so there is no market evidence of them transacting.
While the Canada Green Building Council (CAGBC) Zero Carbon Building standards exist in Canada, a general global lack of clear NZC certifications or measurement approaches also means that the market may define NZC in different ways. Therefore, there is uncertainty over how appraisers will treat such buildings.
Other important problems that make assessment difficult include: assessing the sustainable credentials of incremental improvements towards a green building in granularity; the myriad sustainability measurements that exist; and a historic lack of transparency of these KPIs in transactions. There is a need for standardized and benchmarked data, for agreement on how to use that data, and for the necessary education and convincing of market players to accept both the data and its use.
A first-principles approach could
identify and isolate the impacts of a building/project’s ESG, or NZC components, which result in significant outperformance versus a standard build. It is the impact of these components that must be demonstrated, with ways forward for valuation including but not limited to a pair-wise comparison of relative costs and impacts versus the standard or ¨brown¨ equivalent and potentially introducing new sources of value bundled into the ESG components.
As such, the NZC and ESG project components require data impacting valuation in two forms: quantitative and qualitative, as well as the relative cost of each component and the inter-component cost relationship — i.e., how pursuing one project component impacts the cost of another.
Components that can be assessed through quantitative data are easier to handle if enough data is available to model data trends. On the other hand, qualitativebased components present a more difficult challenge since their impact, even if real, is harder to define monetarily. In this last case, further work is needed often on a case-bycase basis to translate the qualitative components into the closest quantitative equivalent that is acceptable to the various market players.
In short: to get a grasp of the true budgetary impact of any NZC or ESG project, one needs to break it down into its various components, evaluate their respective impacts, and if these are sufficiently meaningful as to influence the asset valuation, to integrate them into a mapping to be compared to ¨brown¨ equivalents.
When seen in this light, the nature of the project is meaningless as it is a simple aggregation of specific project components. However, its nature will play a significant role when looking at ways to finance it. zz
JLL Canada’s discussion paper, Capital Markets Foundations and the Net-Zero Carbon Transition, can be found at www.jll.ca/ en/views/capital-markets-foundations-net-zerocarbon-transition.
The CRE industry faces a major disruption that requires a philosophical review of how the market behaves, values its assets and reacts to these new demands and imperatives.
What began three decades ago in a small office east of Toronto has grown into a multi-service enterprise serving customers throughout Canada and the US. Since 1992, Premier Elevator has risen above the competition and distinguished itself as a leader in the design, manufacturing, and installation of high-quality elevator interiors.
“The goal, originally, was to bring exceptional service and value to the market—and without a doubt, that’s what we did and continue to do,” said Dino Mele, Executive Manager and Founder. “Our knowledgeable team is fully committed to our single greatest priority: achieving 100% customer satisfaction.”
Like all businesses, Premier Elevator has faced numerous obstacles on
the road to success, including economic downturns, Building Code changes, evolving technology and even a global pandemic. But no force among them has been great enough to stand in the way of the company’s progress or ability to adapt under pressure.
As Mele put it, “Keeping ahead of trends, having a strong, reliable team, and sticking to our core values has allowed us to get to where we are today…celebrating 30 successful years in business.”
Premier’s amazing track record for achieving customer satisfaction has a lot to do with how it designs and builds interiors with a focus on longevity—both aesthetically, and in terms of quality.
“To do this, we rely on extensive project documentation including 3D renderings, graphics, illustrations, fabrication approvals and material content inventories that go beyond what any of our competitors provide,” Mele said. “Our engineers and licensed mechanics have worked with hundreds of satisfied clients over the years, bringing quality fabrications, timely installations, and designs to fit all customer needs and expectations.”
In fact, step into any number of high-rise office towers or hotels in downtown Toronto and chances are you’ll be surrounded by the craftsmanship of a Premier Elevator interior. Some notable projects include: 81 Bay Street, BMW Toronto, 1 York, 16 York, 18 York, 160 Front Street, 44 King Street W, Ritz Carlton, Four Seasons Yorkville, MaRs, M-City and Sugar Wharf, to name a few.
But each building holds a special significance for Mele. “Every custom interior we’ve designed since 1992 is one we are proud of,” he said. “It’s been a pleasure to deliver the best products and services we can to our customers—customers, that in some cases, have been with us since the beginning.”
As the world enters a new post-pandemic era, Premier Elevator is looking forward to more growth and continuing to uphold its reputation as a leading, reliable service provider.
“Buildings are changing dramatically; they’re getting taller, smarter, and more resilient to meet Canada’s net zero targets in 2050,” Mele said. “Our custom elevator interiors and how we approach design already reflect these changes, whether it’s through our materials, our processes or the way we operate with sustainability as a priority.”
For more information on Premier Elevator, visit: www.premierelevator.com
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THE GROWING frequency and severity of flood events will make it harder to protect properties using traditional insurance alone. Pre-emptive mitigation in a wetter world will require creative measures and constructive partnerships.
Flood Re, a collaboration between the government of the United Kingdom and insurance industry, has launched an initiative to make homes more flood resilient. Participating insurers reimburse up to £10,000 (CAD $15,600) beyond the cost of repairing flood damage for installing flood resilience measures.
In a similar vein, community-based catastrophe insurance (CBCI) — arranged by local government or quasi-governmental bodies to cover individual properties — is being used in the United States. In addition to improving financial recovery for communities, CBCI can provide more affordable coverage for families and businesses and could be linked to financing for community-level hazard mitigation.
Parametric insurance has been gaining traction with respect to weather- and climate-related risks. Unlike indemnity insurance, parametric covers risks without sending adjusters to assess damage after an event.
Instead of paying for damage, it pays out if certain conditions are met — for example, a specific wind speed or earthquake magnitude in a particular area. If coverage is triggered, a claim is paid regardless of damage.
Structuring and pricing requires a firm understanding of the exposures to select the best trigger. This can be hard with flood. Water depth alone is not as straightforward a measure as local windspeed since composition and pitch of the ground are significant variables. So is surrounding infrastructure.
Nevertheless, parametric coverage is being applied to flood, mainly outside the United States. U.K.-based FloodFlash writes parametric flood coverage, with each policy linked to a sensor installed at the property. When the trigger depth is reached, FloodFlash is alerted and the claims process begins, without documentation or inspection required.
“Parametric policies have been written for commercial clients for years,” notes Carolyn Kousky, Associate Vice President for economics and policy at the Environmental Defense Fund.
Firms may choose parametric solutions when they have concentrated assets in high-risk areas or to cover perils like business interruption.
“Policies can be designed with a ‘peril agnostic’ trigger to cover multiple sources of loss,” Kousky advises. “For example, a hotel might purchase a product that pays when bookings or revenues fall below some threshold.”
Parametric pilots have been trialled for farmers and small landholders in developing economies, and parametric policies also are
now starting to be offered in the developed world to residential clients to cover gaps in standard coverage and provide immediate postdisaster liquidity.
Improved data tools have increased insurers’ comfort covering perils like flood. Global positioning system (GPS) and satellite technology, the Internet of Things (IoT), and the ubiquity of mobile devices for personal and business use — combined with unprecedented computing power to harness these rivers of data — have helped streamline underwriting, pricing and claims paying. As these tools facilitate processes, they also uncover issues and trends that might once have gone unnoticed or been insufficiently quantified to be useful.
The flood protection gap must be closed through broader awareness of the nature and scope of flood risk. People won’t take action or spend funds to address issues they don’t understand or believe are too distant to matter right now. Decision-makers must understand not only the risks but the cost of failure to act.
This underscores the importance of education and collaboration. Public-private partnerships are essential, both for gaining consensus on the scope of the challenges and for developing cost-effective solutions from improved building codes and infrastructure priorities to funding frameworks that address the needs of the most vulnerable populations.
Given both traditional and emerging expertise and capabilities, insurers are well-positioned to develop cost-effective risk-transfer products for diverse customer needs. They can also help drive essential conversations and action around pre-emptive mitigation and resilience, and support policies needed to reduce the suffering and losses associated with flood.
To move these priorities forward, insurers should focus on the following four areas:
• Access data sources that provide accurate, granular, real-time risk information to inform underwriting, pricing and reserving;
• Deploy advanced technology to develop risk-prevention solutions, reduce losses and streamline claims processing;
• Partner with communities on strategies like improved building codes and CBCI programs that can reduce risk and make insurance more affordable; and
• Educate insureds on the connection between mitigation and the cost of protection by linking coverage discounts to investments in resilience. zz
Sean Keve lighan is President and Chief Executive Officer of the Insurance Information Institute. For more information, see the website at www.III.org. Dr. Seth Rachlin is Global Insurance Industry Leader with Capgemini. For more information, see the website at www.capgemini.com. The preceding article is excerpted from the report, Stemming a Rising Tide, How Insurers Can Close the Flood Protection Gap.
The World Business Council for Sustainable Development (WBCSD) — a CEO-led collective of more than 200 businesses worldwide working toward sustainable, net-zero outcomes — is promoting heat as a service (HaaS) as a next logical step after decarbonizing electricity supply for companies pursuing emissions reduction targets. The follow is an excerpt from the WBCSD’s recent primer on the subject – Editor.
HEAT AS A SERVICE (HaaS) is a potential option for companies with decarbonization targets. Rather than investing directly in a new renewable heat solution, companies can turn to a third party to bear the capital costs and guarantee its performance over the lifetime of the contract.
This provides an opportunity for companies to decouple capital allocation from their decarbonization journey, free up capital for core business investments and benefit from immediate operational cost
savings. HaaS solutions might not appear on the company’s balance sheet, which can be a critical consideration for companies keen to keep leverage ratios low.
Electricity is often the initial focus of companies’ decarbonization plans. They have used a variety of instruments to source sustainable power, from renewable certificates through to longterm offtake agreements (also known as power purchase agreements or PPAs) that have enabled renewable power developers to attract financing
and build new renewable powergenerating assets.
Heat is the next big challenge on the corporate decarbonization journey, particularly for companies in the light industrial sector, such as the food and beverage industry. Many of these companies require substantial amounts of heat for their manufacturing processes — often in the form of steam — and many have committed to decarbonizing their own asset base before 2030.
There is no one-size-fits-all solution for sustainable heat. Most companies will use a variety of commercially available technology solutions to decarbonize their thermal energy use, depending on the particular climatic conditions, market dynamics, fuel source availability and
policy environments across their asset base. Key technology solutions include: electrification through heat pumps, boilers and steam generators; solar thermal; biogas or biomass; deep geothermal; and thirdparty waste heat.
They all face some common barriers to implementation. Competing capital needs and investments in companies’ core business often take priority. As well, many lowcarbon solutions are capital-intensive and often do not meet the minimum rate of return on an investment that will offset its costs, especially in jurisdictions where there is no significant cost attached to emitting carbon.
HaaS connects investors looking for long-term, low-risk investment opportuni
ties with companies that need to decarbon ize and prefer to do so through their operating expenses rather than through their capital expenditures. Akin to power purchase arrangements, HaaS sees a third party invest in a low-carbon asset and sell the energy generated through a long-term offtake agreement.
HaaS is not just attractive from a financial perspective. Technologies providing low-carbon heat are evolving rapidly and thus need specialized expertise to design, operate or maintain. Having a third party provide that expertise and deliver an optimized, reliable service can be highly valuable.
The opportunity for corporate carbon and cost savings within heat is huge. Almost half of total final energy consumption globally is associated with heat, and the vast majority is consumed within industrial and commercial facilities. The biggest HaaS opportunity is within companies willing to enter into longer term supply agreements, with predictable future heat demand, and in locations where heat service providers can leverage technological and power market developments to deliver immediate savings.
In a business-as-usual solution, the company owns the heat facilities and has full control over the design process, as well as its operation and maintenance. The company can elect to perform elements of the design, construction or operation or use selected contractors to perform them.
It can also tailor the construction process to its risk appetite, from taking on all the capital investment and associated risks versus a low-risk, fixed-price, datecertain, turnkey engineering, procurement and construction contract. The company is also free in its financing approach, such as through corporate lending, no or limited recourse finance or through various leasing options.
However, moving to low-carbon heat solutions often requires expertise that companies may not have. Taking ownership of a technology solution unrelated to the company’s core business
might be inefficient. Companies are often not set up to operate things like biomass boilers or secure feedstock over a 15-year contract term.
In the HaaS business model, companies engage and pay an energy service company (ESCO) to provide an optimized, tailored thermal energy solution as a service. The services an ESCO renders may vary from an energy savings performance contract (ESPC), under which the ESCO will provide guaranteed performance and operation and maintenance services, to a full HaaS solution where the ESCO takes responsibility for the design, financing, construction and ownership of the facility and for the (low-carbon) energy source.
HaaS solutions are usually tailor-made business deals between the company and the ESCO based on the business needs of the company. They often involve the ESCO to outlay substantial capital based on the projected project cash flows paid by the company to the ESCO for heat services rendered.
HaaS contracts are usually long-term because the expenses paid for the heat services need to be competitive. This means the ESCO will either require a long-term contract or a higher unit price to make its desired return on the investment. If companies cannot commit to long-term agreements, they must accept that the periodic costs or unit price for the heat will be higher.
Trust in such a long-term arrangement is key. Companies also need to commit to an appropriate development process to ensure the HaaS solution is fully aligned with corporate strategic priorities, which requires the collaboration of many company stakeholders, including the executive office, operations, sustainability, legal, procurement and finance. zz
The complete text of Heat as Service: How to decarbonize commercial and industrial heat use with third-party capital investments can be found on the World Business Council for Sustainable Development website at www.wbcsd.org.
HaaS solutions are usually tailormade business deals between the company and the ESCO based on the business needs of the company.
Building durability is affected by many factors, exposure to the elements being the primary culprit. Moisture and decay caused by rain, heat, wind, snow, and extreme temperature fluctuations make location and the surrounding weather conditions key considerations for determining the right products and materials to use during construction or renovation.
Beyond exposure to the elements, not all products are manufactured to the same quality, and when assembled poorly, there may be weaknesses. Additionally, regular maintenance may be an important requirement to prolong your asset, particularly in fluctuating climates or regions prone to seismic activity.
If building durability and long-term resilience are the goals, those looking to build or renovate should choose their materials wisely for their specific location and design. Here, Bryan Colvin of RJC
Engineers, walks us through the pros and cons of four common building materials:
MASONRY
Pros: One of the oldest and most durable building materials around, masonry either in stone or brick form, has been used in construction for centuries. Known for their high wear-resistance and thermal insulation, they come in a variety of shapes, sizes, and categories including larger blocks for foundations and the classic burnt clay bricks often used in walls.
“Masonry offers numerous advantages beyond their aesthetic appeal. They have excellent high compressive strength and they are porous, meaning they are able to release and absorb moisture to regulate temperature and humidity within the structure,” says Colvin. “Another benefit of masonry is that it has a high fire protection rating.”
Cons: Working with masonry can be time-
consuming, and it is not recommended for high seismic zones. Another disadvantageous is that it absorbs moisture, which can lead to mold-growth and the regular need for cleaning.
Pros: One of the great things about wood is that it comes from a natural resource abundantly found in Canada. Thanks to engineering advances, new protective treatments for lumber, and a collective desire for “greener” buildings, building codes are changing to allow for taller structures made predominantly of mass timber. As a result, we are seeing a revival of wood construction—but is wood safe and durable?
Not only is mass timber lightweight compared to other materials, but it is also incredibly durable. Wood is simple to work with and can be cut right on site, speeding up the construction process and potentially saving money.
Cons: Age, temperature, and environmental humidity are all factors that can make wood warp. Additionally, it is a plant-based substance, meaning it is more sensitive to pests. Of course, then there is the matter of flammability — wood is a material that burns unlike others. But new treatments and innovation are making these issues less of a concern.
Pros: Concrete has a lot going for it, largely because it is widely available and inexpensive compared to other construction materials. Made of cement, water and aggregates, fresh concrete is flowable and can be poured into various forms, making it extremely versatile and easy to work with.
“Concrete can withstand water better than wood and steel, therefore it less prone to deterioration,” Colvin says. “When reinforced with rebar, concrete is an ideal material for walls, beams, slabs, foundations, frames and many other applications, and it’s also the most economical.”
Cons: Compared to other binding materials, the tensile strength of concrete is relatively low, requiring rebar, which can corrode if left unprotected with good concrete cover or other surface treatments to reduce permeability.
Pros: Steel is immensely strong and does not easily warp, buckle, twist or bend. In other words, steel buildings are highly durable, allowing them to withstand extreme weather conditions including hurricanes, blizzards, and even earthquakes. Steel is also resistant to termites, cracks, splitting, and rotting.
Cons: “The cost to produce steel may be higher than other materials, and when it comes to fire resistance steel is weaker compared to concrete,” says Colvin. “Another disadvantage is that steel is heavy and expensive to transport.”
In conclusion, Colvin says that while all building materials offer numerous advantages, ultimately location and design will have a direct effect on building durability. “Additionally, regularly maintenance will help extend the functional life of any building,” he says.
To find out more about how to improve, restore, or maintain the durability of your building, contact Bryan at bcolvin@rjc.ca or visit www.rjc.ca.
Bryan Colvin BSc, P.Eng. | Managing Principal RJC Engineers
PROSPECTIVE PROJECT proponents in the United States are looking to Canadian models for facilitating publicprivate partnerships (P3s) as they contemplate the infrastructure investment that two recently enacted spending bills are designed to trigger.
Speaking during the Bloomberg online Canadian finance conference earlier this fall, Mac Bell, Director of Infrastructure Investments with Fengate Asset Management, identified Infrastructure BC and Infrastructure Ontario as frameworks that could help U.S. state and local governments take advantage of the vast new pots of funding.
“In Canada, these agencies work on behalf of governments everywhere to procure infrastructure. They have the documents. They have the process. They have the expertise to manage execution of the project and the procurement to pick a private sector partner through the P3 model,” he said. “The U.S., I think, is still at a very early stage. It would be very
helpful if there was a SWAT team of experts, perhaps domiciled in a federal agency or a state agency somewhere, where states, counties and cities have access to expertise and best practices around procurements.”
An onslaught of transportation, telecommunications, energy, utility, facilities and decarbonization projects are foreseen in the months and years ahead as state and local governments and a range of broader public sector and communitybased players tap into capital grants and tax incentives conveyed through the U.S. Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Bell and fellow panellist Anthony Phillips, Co-head of Public-Private Partnerships and Projects with the P3 investor and manager, John Laing Group, predict that P3s will be central to the rollout of many of those projects.
For public partners, P3s are a means to transfer capital and ongoing operational risk. For the private sector, infrastructure’s
recession-proof profile dovetails with expectations for a prolonged building spree.
Clean energy, grid capacity to enable the electrification of transportation and space heating/cooling, and broadband for realtime smart control of almost every ele ment of the transmission and distribution system are chief among the required components to achieve the ambitious tar gets for curbing greenhouse gas (GHG) emissions that both the Canadian and U.S. governments have embraced. As well, massive amounts of investment is needed in facilities and civil engineering to rein in carbon footprints and improve climate change resilience.
“The asset class is highly attractive both to industrial and financial investors given its core characteristics — given the sector tower winds, the strong ESG profile and attractive investment characteristics,” Phillips submitted.
“Infrastructure is a good long-term investment for those contemplating the
class and this is why: public policy; fiscal policy; and a secular growth story,” Dave Wahl, a Director and Portfolio Specialist with ClearBridge Investments, reiterated during a recent webinar sponsored by the NEO Exchange.
In the U.S., Bell and Phillips cite opportunities in education facilities and campus energy systems, transportation hubs including airports, rural broadband and electric vehicle (EV) charging infrastructure. In the near term, the majority of states now have federally approved EV deployment plans, giving them access to a share of the USD $5 billion allocation for 2022-23 earmarked for charging networks.
“We’ve started to see that money rolling out to support that infrastructure,” Phillips reported. “There needs to be a robust charging network and this is where we think P3 can play a role supported by the federal funding.”
EV charging is also on the Canada Infrastructure Bank’s (CIB) wish list for joint investments with private sector partners. The 2022 federal budget affirmed that $500 million of “existing resources” in the CIB’s green infrastructure envelope would be dedicated to “large-scale urban and commercial zero-emission vehicle charging and refuelling infrastructure”, while the government commits an additional $400 million over five years (2022-23 to 2026-27) to its zeroemissions vehicle infrastructure program (ZEVIP) to subsidize installations in less densely populated areas of the country.
Speaking during the Bloomberg online finance conference, CIB Chief Executive Officer, Ehren Cory, summarized the bank’s five priorities — clean energy; green infrastructure; transit systems; trade and transportation; and broadband — and mandate to leverage CAD $35 billion to stimulate further investment. He characterized the fund as a lubricant.
“What we are really trying to find is those good projects that deliver public value that are stuck. They might be stuck because they are too risky or uncertain or have really long paybacks,” Cory noted. “Those are the sorts of things that government money can help solve — patient capital, long-term capital, risktaking capital — to pair with that private sector money in those five sectors.”
Thus far, the CIB has invested in nearly 40 projects, of which about 20 are now under construction. That includes a number of deals for commercial building retrofits and municipal transit fleets, which Cory called “almost the base load” of agreements to date, but low-carbon fuel and EV charging projects are expected to come on soon.
The latter could epitomize the “stuck” project, presenting a scenario in which prospective investors look for assurance of demand for chargers, while prospective EV purchasers hesitate to buy before they have assurance of an easily accessible charging network.
“To me, this is like a perfect use case for the CIB,” Cory maintained. “There’s a real chicken-egg problem in that investment case, but in the long run, there’s a great business.”
Inflation and rising interest rates have also emerged to complicate investment in ways not felt when the CIB was launched in 2018.
“The role of the CIB gets even bigger in periods like we’re in right now of high market uncertainty and risk because that’s what we can help manage. We can help insulate to some extent, or share in that risk,” Cory asserted.
“Investment in infrastructure is really important in times like these,” he added “It is one of the few truly cycle-proof kinds of asset classes. Infrastructure helps bring us through economic downturn and recessionary periods because it grows our competitiveness. It grows our economy.”
From a P3 perspective, Phillips commended the trend to inflation riders in Canadian contracts so private and public partners share the impact of rising material and equipment costs, and argued the practice would also serve U.S. proponents well.
“The alternative is that our contractors will just choose to focus on other projects and away from what they consider to be a position that’s just got too much risk for them,” he said. “It goes to market appetite and the mechanisms that clients can provide to ensure that they have the world’s best turning up to their projects.”
“There are mechanisms that have been developed elsewhere to allow contractors to address that risk and it’s for the benefit of the public sector also because it allows for more competitive pricing from contractors to deliver these projects,” Bell concurred. zz
Thirteen electricity utilities and system operators across Canada have agreed to share experiences and learnings around expanding grid capacity for decarbonization through renewable power sources, energy storage and smart technologies. The Canadian Renewable Energy Association (CanREA) is coordinating the collaborative effort through a newly established electricity transition hub, launched with a $1.6 million funding injection from the Canadian government.
“CanREA is uniquely positioned to gather global knowledge on wind energy, solar energy and energy storage integration, and then to translate these resources effectively to be relevant in all of Canada’s different regions and electricity systems,” says Phil McKay, who will serve as Senior Director of the electricity transition hub.
CanREA has also contributed $300,000 to the initiative with the aim of building a repository of transferrable knowledge related to decarbonizing the electricity grid and delivering sufficient and reliable supply for the electrification of transportation and space heating/cooling. The hub will
provide a forum for utilities and system operators to connect through quarterly meetings and an annual summit, and will also publish quarterly reports.
Founding partners include: Alberta Electric System Operator; BC Hydro; City of Medicine Hat; EPCOR; Essex Power Corporation; Fortis Inc.; Manitoba Hydro; NB Power; Ontario Power Generation; Qulliq Energy Corporation; SaskPower; Toronto Hydro; and Utilities Kingston.
“The renewable energy industry has a critical role to play in helping Canada meet its net-zero commitments, and we must build new wind energy, solar energy and energy storage projects at an unprecedented pace,” observes Robert Hornung, CanREA’s President and Chief Executive Officer. “Now is the right time to bring together Canada’s electricity utilities, system operators and the renewable energy industry for capacity-building activities related to the deployment and integration of these technologies within electricity grids. There is not a moment to waste.”
Even the toughest commercial buildings can fall prey to Canadian winters. Harsh storms, heavy snow, and heightened water damage risks can jeopardize critical systems and infrastructure while putting occupants and visitors at risk. Still, as is always true in property management, being proactive pays.
“Every winter introduces a host of potential hazards, all of which can affect the safety and structure of your properties. And if winter-related damage isn’t prevented or detected until spring, you could be looking at additional issues and costly repairs,” says Craig Smith , Director of Commercial Business Development with FIRST ONSITE .
Surely, by identifying and addressing potential winter risks, commercial property managers and owners can take preventative measures to protect their assets and keep tenants safe and comfortable.
The first step in winterizing a commercial property is to create a game plan. Collaborate with your facilities team and disaster prevention specialists to design a winter-preparedness plan that your teams can follow throughout the winter to ensure your building and its occupants stay protected.
Key components of a commercial property winter plan include:
• Building assessments & routine inspections: Knowing where your building is most vulnerable to winter damage is the first step in cold-weather preparedness. Walk the
property with your facilities teams and specialists to size up potential structural issues and maintenance needs that need addressing before the snow, sleet, and cold set in.
And don’t just stop at one. Continue conducting building inspections throughout the cold months to keep track of your building’s condition. This is especially important after a storm or during extreme temperature dips when even the slightest damage (e.g., cracks, tears, water leakage, etc.) can evolve into costly and unsafe issues.
• Prevent flooding and water damage: Water from melting snow and ice can damage commercial properties if given a chance to seep in. Seal, repair, or address any deficiencies on your roof, building envelope, or foundation that may facilitate water infiltration (e.g., cracks, holes, weaknesses, etc.), and remove snow piles on the roof or near the foundation that may thaw and pose additional water issues.
Remember: when a water emergency happens, you need to catch it quickly. For this reason, many multifamily property managers/owners have found it beneficial to install water monitoring and leak detection technology that alerts the appropriate responders to potential water events the moment they begin to occur.
• Control exterior water access: Turn off water access to outside faucets to avoid pipes from freezing and bursting, which could lead to flooding. Similarly, shut down irrigation systems to preserve them through the winter and avoid problems in the spring.
• Protect your pipes: Seal or block drafty areas in a building where pipes may be exposed to freezing temperatures, and wrap pipes to insulate them from freezing or cracking. Doing so will keep heating systems in working order and will go a long way toward preventing the aforementioned risks of water damage.
• Install backwater valves: Melting snow or ice can push municipal water systems to their limit, sending dirty, unsafe water back into a building’s system and necessitating a property restoration team and sophisticated cleaning methods. Avoid backwater by installing a mainline sewer backup valve that makes sure sewage travels on a one-way path out of the building.
• Prevent snow and ice build-up: Prevent snow from piling up on roofs and supporting structures. Heavy snow loads can lead to structural damage or collapse, leading to costly repairs and - more importantly - putting building users at risk. Similarly, excessive ice build-up on roofs can jeopardize the integrity of the building and pose safety risks for residents below.
On the topic of ice, inspect meters, door locks, and door handles on the ground level, as they may freeze due to melting water from higher surfaces dripping down and reforming as ice.
• Keep entrances and exits clear: Make sure all points of entry and exit are continually cleared of snow and ice so they can be used safely in the case of an emergency. This can be done by placing sand, salt, and shovels in an accessible area or hiring a snow removal company ahead of time to clear sidewalks, parking lots, and roads when needed.
• Don’t forget about fires: The risks of a fire are always a concern. Collaborate with your fire department to mark the hydrants close to your business property above the snow line so they’re easier to locate. Also remember to clear space around hydrants after a snowstorm and check that all building extinguishers are full and working properly.
• Crack a door: While it may seem common sense to keep doors closed in a commercial building to keep the area warm, it is advisable to leave them open in areas prone to condensation and precipitation, as the continuous air flow will minimize cold spots and help prevent moisture build-up.
Even the most prepared commercial property may experience an emergency. Herein, one of the most important things to consider as winter approaches is that an emergency plan is in place.
Emergency preparedness plans include considerations for evacuation plans and routes, ensuring life safety systems are working (e.g., alarms and sprinklers), and that people are assigned to close off water, gas, and electricity to avoid property damage from fires or flooding. They should also include contacts for emergency services (fire, ambulatory, and police), insurance reps, and a trusted property restoration partner.
“There are a lot of steps you can take to prevent a winter disaster, but when an unpredictable winter event occurs, it is also imperative to have an emergency preparedness plan for your business,” adds Smith.
www.firstonsite.ca.
MORE THAN HALF of respondents to a recent survey on environmental, social and governance (ESG) trends in commercial real estate and facilities management confirm that their companies have ESG commitment targets, but just one third have a plan and strategic process for monitoring performance and outcomes.
Building management software provider, Planon, draws the findings from 605 industry professionals in Europe and the United States, including 384 building owners/managers and occupiers, 177 investors and 44 service providers, who were surveyed in April 2022. Notably, about 20% of respondents indicated that most of their job activities/responsibilities are related to ESG.
Environmentally, the priority for more than 70% of respondents is on ‘resource efficiency’, ‘value and supply chain’ and
‘transportation’. Within the social dimension, the priority for over 70% of respondents is on ‘health & safety’ and ‘comfort’. Governance priorities appear more varied, but top picks included ‘compliance’, ‘carbon performance’, ‘project management’ and ‘disclosure’.
Other findings include:
For building owners/occupiers the number one selected reason for buying ESG-related software is ‘improving transparency and accountability’ (26%), followed by ‘save time and resources’ (23%). For service providers the main reason for buying ESGrelated software is to ‘save time and resources’ (32%). Real estate investors selected ‘improve transparency and accountability’ (24%) as the number one reason, but placed less importance on ‘save time and resources’ (12%).
All three categories of prospective pur chasers placed similar importance on ‘iden tifying ESG improvement opportunities’ (21%, 22%, 24% respectively) and on ‘monitoring ESG performance over time’ (22%, 18%, 21% respectively) — i.e. data insights to identify areas in which they can improve their performance.
Sensors appear to be the most common hardware application, with 97% of respondents having sensors in at least some of their buildings and 65% reporting sensors in all buildings. There is also a significant deployment of meters within buildings, with a majority of businesses having energy (59%) and water (57%) meters in all or most of their buildings. However, there is less uptake of waste meters (40%).
Q: What is available to help real estate owners/managers track and manage climate risk data and/or other kinds of data required for ESG reporting, both at the individual building level and across portfolios?
Software platforms that enable collection of data into a single location, then push this data to ESG reporting systems are most efficient. By eliminating the need to combine or integrate data across multiple systems, users can improve efficiency.
When seeking a platform for reporting ESG, it is important to choose a solution that will maximize automation, reduce any manual intervention in the data and automate key processes, such as: data aggregation; tracking of key data components; and automation of difficult calculations like Greenhouse Gas Scopes.
Q: What will be required to implement it?
First-time ESG reporters must perform a significant amount of work to collect and analyze data, then upload the data into a reporting system. Companies with longer-term experience in ESG reporting can often reuse previously reported data, making updates where needed.
ESG is a complicated and evolving field so having expert insight on what’s new can be an advantage when navigating the
Small-to-mid-size businesses tend to have the highest percentage of hardware across all or most of their business. That’s possibly because they have more resources available than very small businesses and less ground to cover than larger businesses and enterprises.
Integrated workplace management sys tems (IWMS), computerized maintenance management systems (CMMS) and com puter-aided facilities management (CAFM) are the top focus of software investment, with 57% of all businesses planning to begin or augment investing in these products.
Big organizations are most likely to report on ESG, with only 4% indicating that they are ‘not reporting currently’. However, small and medium-sized businesses aren’t far behind. Ninety percent of owners/occupiers indicated that they are ‘already enacting ESG reports’, with more than 70% indicating they are using ‘standard reporting methods’ to report or disclose their company’s ESG performance and 19% opting for a ‘custom reporting framework’
On average, respondents reported that their companies are using at least two reporting frameworks, and plan to add three new ones, showing a need for services that can offer high level reporting functionality. zz
For more information about Planon, see the website at https://planonsoftware.com.
details of submitting information for reporting. Large real estate portfolios often have in-house expertise, while smaller ones tend to use third-party consultants to assist with the challenges of ESG reporting.
Q: How can it be integrated into asset management platforms and harnessed for financial and ESG reporting?
When ESG reporters have all data in the same system as their financial information, management is easier than when combining data from multiple platforms. Once all data is in a single system, combining financial and ESG data becomes a much easier task. On the other hand, combining data from multiple platforms usually requires more manual intervention, adding to the already significant effort.
When considering an ESG reporting platform, users should consider now many additional systems will need to be synched compared to what is built into the primary reporting system. Each additional data system that must be integrated will likely require additional translations/customizations and manual intervention to ensure data integrity is maintained.
For more information, see the website at www.yardi.com
A British Columbia proptech company is touting its goal to create a net-zero plan for every building in North America. The approach harnesses analytics, geospatial imagery, an extensive library of digital twins for a range building types, vintages and systems profiles, and the intuitive learning of artificial intelligence to conduct energy audits on a mass scale.
The company, Audette, was part of the 2021 inaugural cohort of Google Canada’s cloud accelerator program for start-ups, and has recently secured investors and seed funding to propel its efforts. Enthusiasts argue that proptech will be indispensable to finding and enabling greenhouse gas (GHG) emission reductions in line with the hugely ambitious targets for 2030 and 2050, which will entail a 38-megatonne reduction within Canada’s building stock, relative to 2019 levels, over the next approximately seven years.
“Hundreds of billions of dollars are spent annually on energy audits and retrofit planning, and Audette is directly reducing those costs on a per-building basis,” says Allison Myers, Co-founder and General Partners with Buoyant Ventures, the lead investor among the company’s backers.
“It presents data at both the macro scale, for economic planning, and to building
owners themselves, who use their records to create custom carbon step-down plans for their portfolios,” adds Vida Asiegbu, Principal with another key investor, Energy Impact Partners.
Uninvested onlookers likewise express hope that proptech will both ease and speed the net-zero pathway, but caution much will depend on building-level smart systems with open protocols, which are still far from universal. Nor can macro-level data address pertinent individual building characteristics.
“If the goal is to locate rooftops that could house renewable energy generation, for example, this kind of AI tool could make the choices clearer, but it is unlikely to identify where structures are sound enough for the additional equipment or if the grid can support the added loads,” says Andrew Pride, an engineer specializing in energy management and strategic sustainability plans. “There is a niche, where everything lines up, that will benefit greatly from these kinds of developments. For the rest, we still have human work to do to make them ready for the AI intervention.”
For more information about Audette, see the website at https://audette.io.
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This September, Kelson Group became the first property management company in Edmonton and Northern Alberta to have its multifamily apartment buildings recognized under the Canadian Certified Rental Building Program (CCRBP); specifically, its buildings in Edmonton, Leduc, Sherwood Park, and Grande Prairie, AB.
The Kelson Group celebrated its first CCRB-designated buildings in BC in 2016, shortly after the program expanded to BC in 2015. Kelson Group President Jason Fawcett says its newest certified properties in Alberta represent a win-win for its apartment renters and all property management companies, noting, “Our objective with the national CCRBP-approved apartment building program is to provide Edmonton, Sherwood Park, Leduc, and Grande Prairie renters with the peace of mind and a clear quality assurance alternative when selecting their rental apartment home.”
CCRBP is North America’s first quality assurance program that specifically promotes and acknowledges quality for rental housing consumers, as well as professionalism for multifamily property managers and their staff. The program is a huge game-changer when it comes to the rental industry in Canada. Apartment shoppers who choose a CCRBP building enjoy enhanced peace of mind, knowing that their apartment community meets defined standards for quality and service.
In short, says Ted Whitehead, CCRBP Certification Director, “The designation means tenants can rent with confidence. With the added impetus of an increasing number of multifamily companies adopting Environmental, Social, and Governance (ESG) as a strategic business imperative, we expect that over the next 18 months this program will help build a national network of professional multifamily property managers whose focus will go far beyond financial measures to incorporate factors measuring the sustainability and ethical impacts of their investment.”
For a multifamily apartment building to qualify as a Canadian Certified Rental Building, it must meet five mandatory requirements:
Abide by the Program’s Member Code of Conduct
• Adhere to the Program’s Mandatory Standards of Practice
Successfully comply with a mandatory thirdparty audit process
Have identified staff successfully complete the program’s training and education component.
Agree to market and identify their building as a Canadian Certified Rental
• Building to prospective tenants.
“We are happy to have our members participate in this important ‘for-renters’ initiative,” said Donna Monkhouse, Executive Director of the Albert Residential Landlord Association (ARLA)” At the heart of the Canadian Certified Rental Building Program are 54 standards of practice and associated requirements to which all organizations and buildings must adhere. These requirements translate the concepts of environmental, social and governance into concrete measures that focus on environmental and social responsibility and enhanced corporate accountability.”
“We want renters to recognize that ARLA landlords care about their renters and the buildings in which they live,” Monkhouse adds.
In today’s competitive real estate marketplace, internationally recognized ESG benchmark programs like the Global Real Estate Sustainability Benchmark (GRESB) are taking on increased relevance and importance. Not only can CRB certification help enhance an organization’s
GRESB benchmarking score, but now, in line with its national expansion, the program has moved from a recognized and approved green building certification program to officially becoming a GRESB Real Estate partner.
Explains Whitehead: “As all levels of government gain greater awareness of the ESG mantra across all industries, there is little doubt that they will soon be asking – or perhaps, demanding – what our industry is doing collectively on this front. Ours is the foremost ESGfocused accreditation program supporting the multifamily industry. And, with many of the REITs, institutional and investor-driven members leading the multifamily industry’s transformation to an ESG discipline, it became imperative to expand this program across Canada.”
“Adopting a strong multifamily ESG framework across the industry is necessary for the industry’s longterm regulatory survival,” he continues. “The multifamily industry provides apartment homes to one in three Canadians, or approximately 4.4 million people. When you take in these numbers and couple them with Canada’s strong public commitment to environmental stewardship and mending the social issues of the day such as diversity, equality housing shortages, income disparities.”
Whitehead says there is little doubt that there will be increased pressure on the multifamily industry to demonstrate what it is proactively doing to address these challenges on all fronts. To date, he adds nearly 13 per cent of multifamily industry companies in Canada have adopted a formal ESG way of doing business.
“That number must dramatically increase if we are to proactively state our case on these fronts,” Whitehead said. “The good news is that most professional property management organizations practice ESG-related activities daily and they just don’t think of them that way. We believe the Canadian Certified Rental Building Program provides a visible grass-roots pathway for professional property managers/ owners to move forward with confidence and success on the ESG front.”
CANADIAN MUNICIPALITIES are facing increasing costs and deferred capital expenses. These two factors combined have led to some significant tax shifts for 2022, while even more dramatic changes are expected for the next year or two.
Municipal and provincial governments have the ability to intervene to manipulate assessments or tax rates in an effort to limit the impact of tax changes. This intervention occurs via various mitigation tools — including assessment phase-in, tax rate adjustments and capping or rebate pro grams — to adjust the amount of taxes some segment of properties will have to pay.
Consequently, this creates a pool of win ners and losers as some properties benefit from tax mitigation and others must subsi dize those benefits. Mitigation tools can have significant negative impacts on the transparency and efficiency of the tax sys tem, but, more fundamentally, tax mitiga tion sacrifices fairness and equity in the pursuit of stability.
In an assessment phase-in system, signifi cant increases in assessment are phased in over time. For example, Ontario first imple mented its four-year assessment phase-in in 2009 after backing away from its intention to move toward annual assessments.
Under the rules, value increases related to reassessment are phased in over four years, while assessment reductions are imple mented immediately. In the final year of the cycle, the tax rate can be based on the full current value assessment (CVA), but the tax rate must be higher in years one to three to account for the amount of assessment yet to be phased in. This higher tax rate effectively counterbalances the decrease in assessment so properties with reduced assessments don’t realize full relief until year-four when all properties pay taxes based on their full market values.
Elsewhere, the Halifax Regional Munici pality is contemplating a phase-in of reas sessment-related increases of more than
5%, beginning with the 2023 taxation year. This would cap allowable assessment increases at $500,000 per year, over three years, complicate tax calculation and delay full implementation of market value for several years.
Typically, phase-ins artificially slow the growth of the assessment base, compelling municipalities to increase the tax rate in order to raise the same amount of revenue from the tax class. Thus, all property own ers pay taxes at a higher rate than would have been the case with full implementa tion, and some property owners pay taxes at a higher percentage of current market value than their competitors.
Land assessment averaging adjusts a prop erty’s taxes to reflect average land values over a number of years. In Vancouver, for example, land averaging applies to residen tial (class 1), light industrial (class 5), or business and other (class 6) where the tax
able value has increased over a specified threshold.
For 2022, that threshold was a 20.78 % increase for residential properties and a 21.24% increase for the light industrial and business classes. Taxes for properties falling into that category are calculated using an average of the assessed land value for the current and prior four years, plus their cur rent assessed improvement value.
Land averaging makes taxation less transparent, greatly complicating the tax calculation for impacted properties, and obscuring the relationship between assessed value and taxation. Again, because averag ing reduces the total amount of taxable assessment, the tax rate must increase to compensate.
In practice, properties with assessment increases below the specified threshold will pay that higher rate of tax on the full
assessed value. Properties with value increases above the specified threshold also pay the higher rate of tax, but it will be applied to a reduced average value.
Extreme shifts in market value or issues for vulnerable businesses are sometimes addressed through the application of differ ing tax rates for various categories of prop erty. For example, Montreal and Toronto both provide reduced commercial tax rates for properties below a threshold of value.
For 2022, these thresholds were $900,000 in Montreal and $1 million in Toronto. In addition, for 2022 taxation, Toronto implemented a new small busi ness property tax sub-class, which pro vides a 15% reduction in the municipal and provincial portion of the tax rate for eligible properties.
Ottawa has also implemented a small business sub-class for select types of prop erty in the commercial/new construction commercial (CT/XT) or industrial/new construction industrial (IT/JT) classes. For some types of properties, the assessed square footage must be 25,000 square feet or less. Ottawa’s 15% reduction is being phased in over two years.
In both Toronto and Ottawa, the munici pal portion of the rate reduction is funded through an increase in the tax rate applied to all other non-residential properties. The size and value thresholds for inclusion in sub-class means that small business tenants in larger properties will be among the rate payers absorbing those added costs.
Ontario municipalities can also enact a number of optional classes for business properties, including (among others): vacant land; parking lot; industrial; large
Property tax relief could be short-lived for New Brunswick’s commercial and industrial ratepayers. Beginning in 2023, municipalities will have flexibility to pull more revenue from their non-residential tax base, potentially cancelling out a phased 15% reduction in the provincial property tax rate that was introduced earlier this year.
“The provincial tax rate in New Brunswick was the highest in Canada. It was offside,” says André Pouliot, Senior Manager, Property Tax, with the Atlantic Canada based real estate advisory firm, Turner, Drake & Partners. “Basically, 50% of the [property] taxes you paid in New Brunswick went to the province.”
That’s a burden assigned to residential landlords, commercial and industrial property owners since owner-occupiers of residential properties have long been exempt from the provincial levy. Notably, non-occupierowned residential properties are now in line for a phased 50% provincial tax cut, to be complete by 2024, in tandem with the phased 15% decrease for non-residential properties.
The provincial property tax reduction is one of just three new measures the New Brunswick government adopted in a roughly six-month period between December 2021 and June 2022. That began with a move to stretch out the allowable residential-to-non-residential property tax ratio from the traditional 1-to-1.5, so that municipalities now have leeway to tax non-residential properties at anywhere from 1.4 to 1.7 times the residential rate.
Next, the provincial government carved out a new heavy industrial tax class. It encompasses a range of defined activities such as manufacturing, mining, milling, electricity generation, oil/natural gas extraction, processing and storage, along with the manufacturing/processing of “products,
material or substances” and other uses that might be prescribed in future regulations.
This allows for the application of differing tax rates on heavy industrial versus commercial/light industrial properties. However, the latter uses will be taxed at the heavy industrial rate if they are located on an integrated campus with heavy industrial activities.
Municipalities will have these new taxing opportunities in place for the 2023 tax year, presenting the possibility that some non-residential ratepayers could see further tax relief if local councils opt to adjust the rate down to 1.4. However, most informed observers suggest that won’t be the prevailing trajectory.
Pouliot also notes that New Brunswick’s residential-to-non-residential ratio is deceptive in the context of national surveys that peg the average discrepancy much wider — for example, at 2.8 times the residential rate in 2022.
“1.5 times is actually a pretty competitive multiplier if you look at it compared to other jurisdictions, but when you factor in that non-residential pays provincial taxes and homeowners don’t, the multiplier ends up being close to three times,” he advises.
Creation of the new heavy industrial tax class is seen as a response to active lobbying from the City of Saint John. Elsewhere, Pouliot speculates most municipalities wouldn’t derive a lot of extra revenue from singling out such properties for a steeper tax allocation. Alternatively, it might be used as a means to give those industries a tax break compared with commercial/light industrial properties.
Phase-ins artificially slow the growth of the assessment base, compelling municipalities to increase the tax rate in order to raise the same amount of revenue from the tax class.
Municipalities in British Columbia have new options to provide tax relief in cases where development pressure has escalated the assessed value of commercial or light industrial properties or sites, such as meeting halls, owned by non-profit organizations. Newly enacted amendments to the B.C. Community Charter and the Vancouver Charter allow local governments to apply a reduced tax rate on properties if the assessed value based on highest-and-best use surpasses the value based on the current use by a specified margin.
Municipalities will have to pass a bylaw for every tax year they choose to take advantage of this flexibility. Through this mechanism, they can establish different tax rates for “different areas, properties or kinds of properties” to provide an even more precisely targeted degree of relief.
“Local governments have been asking for a tool to help support small businesses and non-profits in their communities under the weight of increasing costs,” reports B.C. Finance Minister Selina Robinson.
“Local governments were consulted as a part of the process of developing this legislation,” affirms Jen Ford, President of the Union of B.C. Municipalities. “This change enables local governments to provide tax relief for commercial properties that have seen dramatic increases in the assessed value of their land.”
The new tax relief option will be available beginning in the 2023 tax year. Properties that meet the criteria will be eligible for up to five years. Municipalities can also require commercial and industrial landlords to notify their tenants about relief received.
“In addition to the dramatic increases in assessed value experienced over the past number of years, businesses are facing a number of financial challenges including higher inflation, rising interest rates and increased labour costs. All steps to provide relief are welcome,” notes a statement from the BC Chamber of Commerce following the introduction of the legislation earlier this fall.
– REMI Networkthrough appeal since any reduction in taxes was subject to clawback.
industrial; office; and shopping centre. Each of these classes may be taxed at a dif ferent rate, and, within certain limits, the tax rate can be used to increase the share of taxes borne by a sector of businesses.
When assessments shift between classes, the resulting tax shifts can be moderated by increasing or decreasing the tax rate. For example, if the next reassessment shows a sharp increase in the value of commercial warehousing, an Ontario municipality could choose to reduce the general com mercial rate by increasing the tax rate applied to sectors experiencing declining values, such as shopping centres and office.
Halifax is proposing to provide relief to small business through tiered tax rates. The city has designated five business zones: Small/Medium Enterprise (SME), High Density (Downtown), Industrial Parks and Business Parks (retail focused), and is pro posing varied tax rates depending on the value tier and the zone. The proposal reduces taxes for all properties valued at less than $2 million, as well as properties
located in the SME and High Density zones.
The reductions would be funded by tax ing higher valued properties in Industrial Parks and Business Parks at rates up to 16.8% higher than currently. This proposal will not only create inequitable taxation between properties in different value cate gories, but also between regions within the municipality.
When Ontario finally updates assessments from the 2016 values now in place — an exercise that will occur no earlier than 2024 — new valuations are expected to bring extreme shifts between property classes. That is also expected to trigger a resurgence of the tax caps and clawbacks initially implemented in response to the provincial general reassessment in 1998, which updated values for the first time in 50 years in some jurisdictions of the province.
In the first three years of that era, caps restricted tax increases to 2.4%, 4.8% and 7.2%, while many regions invoked 100% clawbacks — with no possible relief
Over the ensuing decades, most Ontario municipalities have been able to eliminate the capping and clawback mechanism as assessment-related tax shifts evened out. However, the City of Toronto was compelled to re-institute a 10% cap in 2018 after a new four-year assessment cycle brought large tax increases for some properties. (That tax cycle has now been extended past the intended 2021 end date.)
Effectively, caps and clawbacks preserve historic inequities between properties, with the result that properties with declining values or in struggling industries end up subsidizing those that are successful. They are also a cautionary example of the poten tial fallout when reassessment is delayed or changes in relative property values are not quickly reflected in assessment.
Tax mitigation complicates tax calcula tions, and prolongs and exacerbates inequi ties. Inequitable tax treatment may drive businesses to regions offering more com petitive tax treatment — particularly those businesses that have been hardest hit by the pandemic. The best way to avoid resorting to tax mitigation tools is to conduct frequent reassessments and to encourage a robust appeals process. zz
Kyle Fletcher is President, Property Tax, Canada, with Altus Group. His firm’s 2022 Canadian Property Tax Rate Benchmark Report can be found at www.altusgroup. com/reports/canadian-property-taxbenchmark-report.
DEPUTY
Freeland is not an outlier in asserting that Canada is well positioned to curb inflation and recover from a downturn. Nick Axford, Chief Economist with Avison Young, concurs — predicting that a likely “technical recession” will be less severe than the prospects in Europe and that inflation will be on a downward trajectory by the spring of 2023.
“I think we’ll see inflation easier to tame in Canada,” he hypothesized during an online presentation earlier this fall. “Canada will probably be seeing declining GDP toward the end of this year and into the early part of next year, but we are not, in North America, expecting to see a really, really hard decline coming through. We are not expecting to see mass unemployment and business failures, but we will see
some stress coming through in the economy.”
Real estate is in line for a share of the fallout, which has already taken form in a drop-off in investment transactions over the past couple of months. That’s in contrast to the first two quarters of 2022 and much of 2021, during which deal volume surpassed pre-pandemic levels. However, the steepest and most rapid rise in interest rates thus far this century has undermined that momentum.
“What we’re seeing at the moment is many investors stepping back and just waiting for the adjustment in pricing that they see coming to materialize in the market,” Axford said.
Looking at current economic dynamics — inflation, rising interest rates and the spectre of recession — he reiterated that inflation is the underlying ailment, while
interest rates are the medicine with discomforting side effects.
Central bankers are attempting to reintroduce some slack into the system to avoid scenarios like the wage-price spiral of the 1970s. In doing so, they’re closing out an unparalleled era of low government bond rates and upending some comfortable assumptions. Axford characterized the years since the financial crisis as a “gravy train” in which real estate and other asset classes were benchmarked against rates of return that even fell into the negative zone in some countries.
“We need to start thinking about the fact that we are entering a different era in which interest rates are certainly going to be higher than the ultra-low, freemoney level of rates that we got used to over much of the last 10 years,” he
submitted. “What we’re heading back into is not an unusual blip that is likely to be quickly corrected. Interest rates as low as they have been over the last 10 years is actually the thing that is unusual.”
In the months ahead, he expects a recession could diminish tenant demand, particularly for Class B office and assets in secondary and tertiary markets, while inflation could improve real estate’s profile for some types of investors planning to hold it for the long term. He also foresees rising cap rates across all property types as lower demand, higher financing costs and changing perspectives on risk and returns relative to other asset classes filter through to values.
“We are absolutely going to see cap rates coming under upward pressure,” Axford maintained. “The implication is that we’ll see, on average, 100 basis points minimum likely to be added to the benchmark cap rates that we’re thinking about for real estate, which a) will take some time to come through and, b) will come through unevenly. Some sectors will be more affected than others.”
Among those potentially harder hit, he cites a trifecta of challenges shaping investors’ outlook on Class B and aging Class A office buildings including climbing vacancy rates, more difficulty obtaining financing and higher costs (due to inflation) for required capital upgrades. On the flipside, he credits the trophy assets for bolstering market-wide average occupancy rates.
Avison Young’s proprietary Vitality Index — which tracks visits to locations via mobile phone data — shows a steadily growing influx into urban cores and downtown office buildings. Axford
suggests the balance will continue to shift in favour of formal offices as each new wave of returnees exerts more pull on colleagues working from home. The shadow of job uncertainty in an economic downtown could also boost employees’ desire to be seen in the workplace.
“Broadly speaking, our cities are coming back to life and they’re coming back to life to the same level, if not more, than the period before the pandemic,” he observed. “The high-quality assets with great sustainability credentials and attractive, amenity-rich, accessible locations, I think they’re going to thrive. I think they are going to outperform. If I was buying anything, they would be very high on my list.”
Nevertheless, buyers are expected to be hesitant at least until the spring. A further 50 or 75 basis point boost in interest rates is also anticipated.
Axford noted that the Bank of Canada was the global frontrunner in raising interest rates — perhaps swaying both the Bank of England and the U.S. Federal Reserve to follow suit — and is a good bet to take the lead on cutting them again. However, given that the impacts of interest rate adjustments typically take 12 to 24 months to work through the economy, he advises that central bankers are also in watch-and-wait mode.
“We expect to see that inflation is less endemic in Canada. They’ll be able to start cutting probably by the end of 2023, which isn’t something that we’re likely to see in many other parts of the world,” Axford said. “That said, don’t expect them to drop rates back to 1% or below. The cuts are going be a quarter point and they are going to be largely symbolic to start with. It’s going to take some time to get back to what they reckon is a neutral rate, which is somewhere around 2 to 3%.” zz
The search for cleaner, greener energy is giving rise to rooftop solar panels on all property types. And while there are clear advantages to harvesting renewable energy from the sun, important design and installation considerations must be made to ensure those benefits shine.
The first consideration concerns the type of solar panel technology used to convert sunlight into energy. Today, primary methods include:
• Photovoltaics (PV): solar panel technology that generates power by using materials that absorb light and produce electrons (aka the photovoltaic effect), such as silicon and arsenide.
• Concentrated solar power (CSP): panels comprised of mirrors and tracking systems that concentrate sunlight onto a small heat collector.
Adding rooftop solar panels to any building, new or old, comes with design and cost discussions. Addressing these early into the design process and ensuring all stakeholders recognize the benefits of solar energy generation helps teams embrace clean energy solutions.
Discover more rooftop solar panelling insights, and learn how RJC Engineers works with clients across Canada to design bespoke and sustainable solar panel racking solutions. Visit www.rjc.ca
“We are entering a different era in which interest rates are certainly going to be higher than the ultra-low, free-money level of rates that we got used to over much of the last 10 years.”
OFFICE-TO-RESIDENTIAL building conversions have been gaining momentum in cities like Calgary, which suffers both a glut of vacant downtown office space and a paucity of affordable housing. To contend with these challenges and help to revitalize its downtown core, the city launched the Downtown Calgary Development
Incentive Program in 2021, offering grants to support office-to-residential building conversions.
As of autumn 2022, a total of seven projects had received grants, and 665,000 square feet of unused office space has since been replaced with 707 new homes.
Among those projects is Neoma, an office-turned-affordable-rental-building
run by the non-profit housing provider, HomeSpace Society.
The conversion took about six months to complete at a cost of $30 million.
Funding came from multiple sources, including $16.6 million from the federal Rapid Housing Initiative; $2 million through the Canada-Alberta Bilateral Housing agreement under the National
Housing Strategy; and $5.5 million from the City of Calgary’s downtown revitalization program. Private donors also raised nearly $6 million toward the extensive renovations required to repurpose the 10-storey building into private, livable homes.
“By investing in projects like Neoma, we’re creating a downtown where lowincome families, seniors and newcomers can build their lives with access to key amenities just a short walk away,” said Calgary Mayor, Jyoti Gondek, at the official opening in September. “Calgary is proud to be leading the country with this project that will serve as a blueprint for cities looking to address both the housing crisis as well as downtown revitalization.”
While not all building conversions will offer this same mix of affordable rental units, shelter spaces and transitional housing to help families in need, there is no question that more rental housing is needed arguably everywhere. Will building conversions
pick up speed and be widely embraced as
housing solution?
The answer, according to Sheila Botting, Principal & President, Americas Professional Services, Avison Young, is complicated.
“Given most governments are taking an active role in spurring rapid housing development, we could certainly see more conversions happening in Canada,” she says. “On its own as a single solution, it won’t deliver the substantive number of new housing units needed to meet the demand across Canada’s major cities, but every little bit helps.”
First off, Botting points out that some properties — i.e., those of a certain vintage — are more likely to be considered for an office-to-residential project than others, particularly if they are welllocated.
“Office tenants today are drawn to trophy, A-Class buildings with higherquality amenities like fitness centres, cafeterias and coffee shops — spaces that foster opportunities for collaboration, brainstorming and engagement,” she says. “Employers and building owners that want to attract back their current employees and bring in new talent are relying on these things to help them achieve that goal.”
Increasingly, this flight-to-quality presents challenges for older C-Class buildings as leases come up for renewal, making them obvious targets for officeto-residential projects, especially those buildings with historic significance or character in downtown and midtown areas. But regardless of age or quality, Botting says there are some practical challenges building owners should be aware of before considering a conversion.
“Floor plates should be in the 8,000 and
14,000 square feet range for a project to be feasible,” she advises. “Buildings with very large floor plates are impractical in that they are too deep with limited windows. Also, inserting plumbing for kitchens and bathrooms can be expensive, and older buildings may not have the required infrastructure for a residential environment, with sufficient parking, staircases, access, etc.”
In some cases where the infrastructure is inadequate, it might make more sense to demolish the pre-existing building and replace it with a new high-rise apartment to deliver the needed housing units, particularly in Toronto and Vancouver where higher density land values justify conversion.
“Challenges in these cases might arise from municipalities reluctant to give up commercial space and employment land with high tax-paying, job-creating tenants,” she warns. “So, while this strategy represents one of many options to bring more housing to market, it isn’t a viable solution on its own to meet housing need across Canada. Other solutions include unlocking surplus land and dedicating this to future affordable housing, which we are now seeing happening by the City of Toronto and Province of Ontario. Converting employment land could provide another similar option from the private sector.”
Ultimately, Botting’s take on building conversions is that if the project checks all the boxes in terms of the physical asset, infrastructure, zoning, location and having support from partners and government funding, it will likely see a successful outcome worthy of the initial investment. But unless all the boxes are checked, the risks of undertaking a conversion project will likely outweigh the rewards. zz
Erin Ruddy is Editor of Canadian Apartment.“While this strategy represents one of many options to bring more housing to market, it isn’t a viable solution on its own to meet housing need across Canada.”
a viable
Canadian Real Estate Industry’s Major Players & Portfolios.
Whether they’re direct holders, listed companies, owner/operators, investors/investment managers outsourcing their property management functions or third-party managers, the 28TH ANNUAL WHO’S WHO IN CANADIAN REAL ESTATE SURVEY will reflect the gamut of players providing and overseeing the spaces that drive Canada’s economy and house its populace.
Last year, more than 200 respondents reported portfolio data — including more than a dozen with inventories surpassing 50 million square feet and a roughly equivalent complement that maintains less than 500,000 square feet. Big or small, all share similar priorities to enhance asset value, generate optimal income, retain tenants and operate efficiently.
The survey will be viewed by more than 100,000 real estate professionals through our award-winning print and online properties: Canadian Property Management; CondoBusiness; and Canadian Apartment Magazine, all part of the REMI Network
It will also highlight the top 10 portfolios of commercial, retail, industrial, apartment, and condominium properties.
Thank you in advance for your participation. We appreciate your continued support.
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