Canadian Apartment Magazine March/April 2007 Issue by Rick Evangelista

C A N A D A ’ S O N LY N A T I O N A L P U B L I C A T I O N F O R A P A R T M E N T O W N E R S A N D M A N A G E R S

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Multi-Unit Residential Mortgages IT’S CLOSER THAN YOU THINK...

Create A Plumbing Checklist Check Your Insurance Policy Laundry Rooms Go Green

Condo Registration Seen As Insurance Against Government Bureaucrats Read the story. Discover the real facts and how you can protect your investment.

Reach 40,000 decision makers in the property & facility management industry with a listing package.

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Vol.24 #4

Winter 2008/2009 | Vol. 2 No. 4

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Making a Difference Selling Apartment Buildings Across Canada

SOLD

QUEEN-MARGARET PLACE APARTMENTS 329 SUITES, KITCHENER, ONTARIO

Hamilton Kingston Kitchener Lindsay London

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SAM FIRESTONE

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Principal ⁄ Broker (613) 614-6434 ext. 222

AIK ALIFERIS B.B.A.

Principal ⁄ Broker (613) 724-9242 ext. 234

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BURNSIDE COURT APARTMENTS 84 SUITES, NIAGARA FALLS, ONTARIO

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LYNDEN GATE APARTMENTS 180 SUITES, BRANTFORD, ONTARIO

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Primecorp Commercial Realty Inc., Broker Primecorp Québec Commerciale Inc., Courtier Immobilier Agréé St. Thomas Toronto Vancouver

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18 Cover Story

Developers Weight the Pros and Cons of New Multi-Residential Construction Over the past 20 years few developers have been willing to invest in new apartment buildings, but that trend may be changing. In Toronto, growth is being fuelled by population growth and intensification of urban areas.

contents... 8 Check Your Insurance Policy A careful reading of your property insurance policy can pay dividends. David Truscott advises readers that replacement value is closely tied to the same site clause contained in your policy.

12 Being ‘Green’ May Start in the Laundry Community laundry rooms use less water and less electricity than in-suite washer/dryers. The eﬃciency gain gives landlords and tenants a green advantage.

16 Multifacts A poll commissioned by the Ontario Tobacco-Free Network has found that 57 per cent of those living in multiunit apartment buildings or other multiunit dwellings would support a ban on smoking inside the residence.

26 The Appraiser’s Role in Apartment Conversion When converting an apartment building to a condominium, owners and developers need to understand the importance of a proper valuation report.

28 Include a Plumbing Inspection in Your Spring Cleaning Ritual A yearly inspection of your building’s plumbing system can save money down the road. Costly service calls can be avoided if small problems are detected early.

30 Occupancy Sensors Slash Energy Waste Occupancy sensors reduce energy costs by running on economy mode when the unit is vacant. When tenants return, the sensors reset the temperature to occupied mode.

4 Canadian Apartment Magazine

editor’s note Change is a Fact of Life Regular readers will notice some changes in the look of this issue

PUBLISHER

of Canadian Apartment Magazine. We’re making these changes in order to further our goal of becoming Canada’s foremost publication in the multi-residential sector. As anyone in the business world can attest, change is a fact of life and those who don’t change with the times get left behind. Our design changes are intended to give our readers a better forum in which to discuss the issues facing the industry today. We’ve decided to take a gradual approach to the redesign. We’re making some changes in this issue and we’ll be making more in the months ahead. If you’d like to be part of the process, give us a call. We welcome your comments. My email address is listed below. In this issue we take a look at developers who are building new apartment buildings. In Toronto, expansion is being fuelled by population growth of 100,000 people per year, combined with the province’s stated goal of intensifying development in urban areas. Our regular columnist, David Truscott, tells us that a careful reading of your property insurance policy can pay dividends. Your policy’s same site clause can have an effect on your ability to collect replacement value if you have a loss. Being green in the laundry room can save you money. While most tenants would prefer an in-suite washer and dryer, there are advantages to community laundry rooms. Tenants gain increased living space and landlords can reduce operating and capital costs. Since commercial machines are more efficient, both tenants and landlords will see a green dividend. Also on the energy savings front, Nancy Han writes that occupancy sensors, recently installed in a 21-storey apartment building, have helped to reduce energy costs. When the unit is vacant, the system runs on economy mode. When the tenants return, the sensors reset the temperature to occupied mode. If you have leaking faucets or running toilets in your building, now is the time to do something about it. Making a plumbing inspection part of your spring cleaning ritual can save you from costly service calls. Paul Abrams offers expert advice on creating a plumbing checklist for your building. CA M

Marc L Côté

Randy Threndyle Editor

EDITOR

Randy Threndyle DESIGN

yidesign inc. CONTRIBUTING WRITERS

Stanley J Collini Nancy N Han Robert Helyar Randy F Radke David G Truscott

Canadian Apartment Magazine is owned by MediaEdge Communications Inc. and published six times a year by Hush Media

5255 Yonge Street, Suite 1000 Toronto, Ontario M2N 6P4 Email: info@mediaedge.ca

Tel: 416.512.8186 Fax: 416.512.8344 Copyright 2007 Canada Post Canadian Publications Mail Sales Product Agreement No. 40063056 ISSN 1712-140x Circulation ext. 230 Subscription Rates: (GST included) Canada: 1 year, $44.94 / 2 years, $80.79 Single Copy Sales: Canada: $8.00 Reprints: Requests for permission to reprint any portion of this magazine should be sent to Marc L Côté.

randy@hushmedia.ca Authors: Canadian Apartment Magazine accepts unsolicited query letters and article suggestions.

Quoteworthy “Anyone who is building a rental building today, has to decide if they want to take insurance by registering the building and if – page 25 they want to take insurance there is a certain cost.”

6 Canadian Apartment Magazine

Manufacturers: Those wishing to have their products reviewed should contact the publisher or send information to the attention of the editor. Sworn Statement of Circulation: Available from the publisher upon written request. Although Canadian Apartment Magazine makes every effort to ensure the accuracy of the information published, we cannot be held liable for any errors or omissions, however caused. Printed in Canada

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risk management

Check Your Property Insurance Policy by David G. Truscott

Replacement value tied to same site clause From time to time, an owner of an apartment building may find it necessary to “crack the cover” on their property insurance file to determine if certain coverage is present. If not to satisfy their own curiosity, a search through their insurance file might even be undertaken to determine if their mortgagee’s interest is properly protected. It is on a factfinding mission of this sort that an apartment building owner may discover a hidden gem that can, when properly addressed, significantly improve the effectiveness of their insurance program. This month’s column will focus on that one condition that should be addressed in every building owner’s insurance program, but is, unfortunately, often overlooked. Within the insurance profession, it is known as “the same site clause”. This particular clause ties closely with a building owner’s need to have their claims settled without deduction for depreciation; in other words, to have their claims settled for the “replacement cost” of their lost property. While total losses are rare, they do from time to time occur. Should it happen to one of your buildings, you would no doubt want your claim settled fairly, without forfeiting any settlement funds that you were, in fact, entitled to. Picture this: Your building, built in 1968, is presently insured for $3 million on what you were told is the “broadest form of coverage available”. This would include “replacement cost” coverage, which means that your claim will be settled with “no deduction for depreciation”. This is your right, as declared 8 Canadian Apartment Magazine

in your insurance contract, but it is subject to certain conditions. Let’s take a quick look at some excerpts of those conditions, as found in IBC Form # 4005, the Insurance Bureau of Canada’s Replacement Cost Endorsement for Commercial Fire Insurance. The relevant excerpts are below:

The Insurer agrees to amend the basis of settlement from actual cash value to replacement cost subject to the following provisions: • Replacement shall be eﬀected by the Insured with due

diligence and dispatch. • Replacement shall be on the same site or on an

adjacent site. • Settlement on a replacement cost basis shall be made only when replacement has been eﬀected by the Insured and in no event shall it exceed the amount actually and necessarily expended for such replacement. • Failing compliance by the Insured with any of the foregoing provisions, settlement shall be made as if this endorsement had not been in eﬀect. • In this endorsement, “replacement cost” means the cost of replacing, repairing, constructing or re-constructing (whichever is the least) the property on the same site with new property of like kind and quality and for like occupancy without deduction for depreciation. • “Replacement” includes repair, construction or

re-construction with new property of like kind and quality.

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IT WOULD BE PRUDENT TO PROVIDE THE CLAIMS ADJUSTER WITH REGULAR PROGRESS REPORTS Loosely translated, what do the previous points mean? 1. (a) the Insured (you) must arrange for replacement of your building, and you are responsible to conduct your own research for your own beneﬁt, and you must do so in a timely fashion. This means that you must engage in the entire process without any unreasonable delay on your part. It goes without saying that it would be prudent to provide the claims adjuster with regular progress reports, and to receive their approval to continue at appropriate stages along the way.

1. (b)Replacement shall be on the same site or on a site adjacent to where your damaged building was situated. This point is crucial. If location were a factor in the success or lack of success of your investment property, while you would be eager to rebuild, you may not be quite so eager to rebuild on the same site, especially if you were in possession of an alternate site that was better suited to your purposes. According to the terms of the Replacement Cost Endorsement excerpted above, you could apply the proceeds (your $3 million limit of coverage on your building) to replace the damaged building with one of the same kind and quality, and your insurer will pay up to $3 million to do so. Notwithstanding some other conditions that may come into play, all that is required of you is to undertake the project in a timely fashion, and to do so on the same site, or on a site adjacent to the original location. What if you wanted to build elsewhere? Please refer to point #1 (b) above. If you don’t rebuild on the same site, you don’t get replacement cost coverage. This means that the 10 Canadian Apartment Magazine

insurance settlement for the replacement of your 40 year-old apartment building will be settled on an “Actual Cash Value” basis. In plain language, that means your insurer will pay for the “building’s replacement cost, less depreciation”. That will involve a detailed calculation involving the remaining life of the roof, the walls, the HVAC system, the windows, doors, balconies, etc. assuming your building hadn’t already been destroyed. Eventually, you can determine what’s left over and accept a cash settlement; this is your entitlement for having not followed the conditions of the replacement cost clause to the letter. Does it have to be that way? Not always. If, during the negotiations for placement of your insurance program, you had insisted on the removal of the “same site clause” described above, then you, as a claimant, would be entitled to settlement with replacement cost, and you would not be tied into rebuilding on the same site where your old building was located. While most insureds are unaware of the workings of this clause, those insureds who have incurred “total loss” claims are familiar with the potential discomfort of a claim settlement based upon the necessity of rebuilding on the same site. Where this “same site” clause is deleted from an insurance program, it is often done at the insistence of a lender on their borrower’s behalf. Please note that while the “same site clause” can often be deleted, it is done so at the insurance company’s discretion. For a number of reasons, an insurer may decide that in certain cases the deletion of this clause is not appropriate. To do so is of beneﬁt to the lender because it increases the likelihood of the borrower (the apartment building owner) being able to maximize their opportunity for success based on the location of their business. Its deletion enables the building owner to choose the best course of action to follow to ensure the success of their soon to be rebuilt property; in this case by allowing the building owner the freedom of choice as to where to locate their revenue-producing investment property. In months to come, we’ll take a closer look at some of the other “insurance conditions” that lenders to real estate investment properties often request. In the vast majority of examples, those conditions are there for the long-term protection of the borrower, as well the lender. CA M

David G. Truscott, CAIB, CRM is the President of Risk Review Inc., a risk management consulting practice. Their website and contact information for David can be found at www.riskreview.ca

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maintenance

Being ‘Green’ May Start In the Laundry by Randy F. Radke

While most tenants would prefer an in-suite washer and dryer, there are advantages to community laundry rooms. For tenants, they include more living space in the apartment and the possibility of lower rents. For landlords, it can mean lower operating and capital costs. Both groups will benefit from the “green” advantage of community laundry rooms. Regardless of the use of the space being built or rehabilitated, developers increasingly are placing a heavy emphasis on taking a “green” approach. Not only does this tack make sense, but in some cases this type of development actually saves money. In fact, earlier this year the Ontario Power Authority (OPA) and Canadian government announced a new program to encourage energy conservation in construction of aﬀordable housing. The program sets a rebate value of up to $850 per unit to help subsidize purchase of energy-eﬃcient products. Across the United States as well, rebates and incentives from municipalities and utility companies have spurred multi-housing owners to take a more energy-conscious path in construction and upgrading, particularly with laundry equipment. And depending on the property’s approach to laundry, savings can be great.

Upfront Costs It’s no secret that when given the choice, most of us would select the convenience of having a washer and dryer in our apartment versus ones located in a community laundry. However, if the question were posed with options that our usable living space could increase and rent lowered with the latter choice, our decision might be diﬀerent. “Building and remodelling costs are the biggest roadblock to aﬀordable housing,” said Dick Casey, director of multi-housing sales for Huebsch brand laundry equipment. Casey, who has 36 years in the laundry business, says even a small project alteration such as deciding against in-unit laundry equipment can pay big dividends, especially in large-scale projects. “From extra walls to keep washers and dryers separate from living spaces to the additional plumbing required, in-unit 12 Canadian Apartment Magazine

hook-ups can increase costs,” he said, adding that that’s even without factoring in the purchase of a washer and dryer for each apartment. Leah Werry, an account representative at Phelps, a laundry equipment supplier to many multi-housing dwellings across Canada, concurs with Casey. She added that, the requirements for plumbing are “significantly reduced” by opting out of in-unit hookups in remodelling projects. In addition, residents appreciate extra closet space because, “it’s always a closet that becomes the laundry room.” Couple those costs with the expense of operating inefficiencies for in-unit machines, and community laundry rooms may make more fiscal sense.

Community Concept Community laundries come in a number of sizes, shapes and arrangements that are based largely on the type of property, its demographics and number of living units. Casey said the basic design calls for installing washer and dryer pairs for a set number of living units in the building. Generally, a guideline for a low-rise building would be one set per 10 to 12 living units. In a high-rise development, the guideline would call for one set per 20 to 25 living units. However, for dwellings with a high percentage of families renting, the units served number would drop to eight or 12 per set. Multi-housing properties with a heavy population of seniors could get by possibly with one set per 25 to 40 units. In high-rise apartment or condominium properties, developers may opt for a large centralized laundry on a ground level or decide on several smaller laundry rooms, each serving a block of ﬂoors.

ATTENTION APARTMENT BUILDING OWNERS CONFUSED BY THE NEW RESIDENTIAL TENANCIES ACT? EXPERIENCING HIGHER THAN AVERAGE TURNOVER? VACANCY ISSUES? MetCap Living Management Inc. is a leader in the professional management of rental apartment properties. We’ve been managing residential buildings for over 15 years and are Canada’s fastest growing and most sought after manager. Our sole focus is on rental apartment properties so we understand your unique needs and that of your residents. We concentrate on revenue growth, controlling expenses, and reinvesting strategically in your property to maximize your net operating income over the long term. Our goal is simple…to make owning a residential investment property proﬁtable and worry-free year after year. If your goal is similar, call us today. Contact, Anne Meinschenk Director, New Business Development MetCap Living Management Inc. 416-993-4305 anne.meinschenk@metcap.com

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Canadian Apartment Magazine 13

maintenance Efficiency by Design Werry sees overall better efficiency on the part of residents when they utilize a community laundry room. “When you’re paying for your laundry, you make sure you have a full load,” she said, versus doing smaller loads more often with the in-unit setup. “There’s definitely a direct connection. And in a building where the owner is paying water and sewer costs, that can really add up.” For properties where older homestyle washers still may be operating in-unit (or even in community laundry rooms) those costs could be even more striking. Old homestyle topload washers could use as much as 151.4 litres to 189.25 litres of water per cycle. By contrast, Casey said Huebsch commercial toploading washers average 89.70 litres per cycle, while the ultra-high efficiency commercial frontloader uses just 55.6 litres per cycle and is Energy Star qualified. “This efficiency makes a big difference when it comes to sewer and water costs,” Casey said. While property owners or condominium associations may not fully appreciate those savings at present, Werry said future hikes in water and sewer fees may have many owners considering the large efficiencies gained through the community laundry room concept. “Many municipal water rates are artificially low,” said Werry, who formerly worked as a water efficiency coordinator for the city of Toronto. In that capacity she oversaw development and implementation of the residential and multi-unit Wash ‘n’ Save program. Werry said in coming years, water rates will rise significantly as municipalities ready to replace aging system infrastructure. Last year, Ottawa experienced double-digit percentage rate increases, while Toronto will see a nine percent rise, with additional hikes planned in the future. “Water is becoming a huge issue for this country,” Werry said. And, as water prices rise, conservation and energy efficiency programs likely will become more common. Casey said because Huebsch has poured resources into redesigning its washers to meet the 2007 U.S. Department of Energy standards of efficiency for commercial laundry equipment, these machines can help properties going the community laundry room route keep costs in check. “We’ve become more efficient to meet their needs,” he said, adding that Canada has announced plans to adopt similar standards for commercial washers.

Getting the Basics Right Property owners likely are drawn to the community laundry room concept due to impending water and sewer rate increases. But their main concern may be how to sell the idea to current and prospective residents in markets where in-unit hook-ups are the norm. “Those who are doing these rooms right are going in with a designer or interior decorator,” Werry said, of the goal of making the spaces bright, attractive and inviting. Even inexpensive items such as new lighting and paint can change the look of a laundry room tremendously. She added that, installing doors with large windows also can help improve the overall feeling of safety. Casey recommends a good mix of quality equipment, including frontloading and toploading washers as well as a variety of fast, eﬃcient dryers. 14 Canadian Apartment Magazine

“You need to send the message that not only will this equipment help residents perform the laundry chore faster, but the commercial quality of the machines will net them better and cleaner finished results,” Casey said. The efficient commercial machines have benefits to property owners as well. “These huge water and energy savings are much easier on building systems,” Werry said, adding that community laundry rooms give owners better control over equipment, versus residents installing their own less-efficient machines in-unit.

Calling in a Pro For developers desiring commercial quality equipment but turned oﬀ by the up-front purchase costs and headaches of maintenance, contracting with a professional Huebsch route operator like Phelps can be the perfect arrangement. “Professional route operators will provide the equipment, install it, service it and in some cases even rehabilitate your laundry room,” Casey said, adding that property owners pay utility fees and may even receive a percentage of the revenue generated.

Turning a Necessity into an Amenity Transitioning to a community laundry room needn’t be viewed as giving up convenience. Adding elements such as card payment systems can help owners deliver user-friendly, timesaving features. “They’re seen as a huge amenity and luxury for upscale buildings,” Werry said of the systems that eliminate the need to carry change to pay for wash and dry cycles. Instead, residents utilize a debit-style card for activating machines. Because residents no longer need to carry pockets full of change, the card system adds an element of security as well. Casey and Werry agree properties seeking the greatest impact will link these high-tech laundries with additional offerings. “We’re starting to see the pairing of the laundry and workout facilities,” Werry said. Such a design takes into account the fast pace of our society and the increased emphasis on multitasking. In this case, the opportunity to perform a necessary household chore while getting in fitness workout. In some markets, condominiums are linking amenities such as play areas and coffee shops in their developments. “Creating communities within a building is big in Toronto,” Werry said, adding that locating a laundry room near such features adds greater amenity value and further cultivates the community atmosphere. “People tend to get to know each other better,” she said. Overall cost savings in remodelling as well as better water and energy efficiency may make community laundry rooms an attractive, “green” option for developers, but perhaps the greatest benefit may come to residents themselves. Properties may generate a greater sense of community — an element often missing from today’s condominium and multi-housing developments. CA M For more information on Huebsch products visit www.huebsch.com/ route or for more on route services provided by Phelps, visit www.phelpsappliances.com

multifacts CAP REIT Releases Year-End Results Canadian Apartment Properties Real Estate Investment Trust (“CAP REIT”) has announced its results for the year ended December 31, 2006. Acquisitions and cost controls generated solid accretive growth for the REIT while occupancy remained strong at 97.2 per cent Operating revenues rose 9.7 per cent to $283.7 million in 2006 from $258.7 million for 2005. The increased revenues are primarily the result of acquisitions completed over the last 12 months as well as stable occupancies and higher average monthly rents. Primarily due to the increase in revenues, net operating income for the year ended December 31, 2006 rose 10.5 per cent to $147.3 million Operating expenses were lower as a percentage of operating revenues in 2006 due to lower property taxes and stable energy costs offsetting a modest increase in repairs and maintenance, payroll and advertising costs. Average monthly rents increased to $886 compared to $877 last year as CAP REIT’s sales and marketing initiatives generated growth across all segments of the portfolio. Overall average occupancy at December 31, 2006 remained stable at 97.2 per cent compared to 97.4 per cent last year. “We are pleased with our financial and operating results in 2006, another year of steady accretive growth and solid performance across our portfolio,” commented Thomas Schwartz, President and CEO. “We also met our portfolio expansion and geographic diversification objectives during the year, and anticipate further accretive growth in 2007 and going forward.”

“Fundamentals continue to strengthen in the majority of our markets. We remain confident in our ability to maintain occupancies in the 97% to 98% range and to generate steady increases in average monthly rents, resulting in sustained same property and cash flow growth for our Unitholders over the long term,” Mr. Schwartz concluded.

TransGlobe Announces New Head Office Location TransGlobe Property Management Services has announced it will move its head office to 5310 Explorer Drive in Mississauga. The larger location, will allow the company to better serve its tenant base. The need for a larger location is due to both recent growth and expected future growth. The two storey office building provides 75,000-square feet of space, all of which will be occupied by TransGlobe. This acquisition adds to the 5-million square feet of commercial space already owned by the property management company. In addition to addressing future growth, the new location will house TransGlobe’s 24/7 Customer Care Centre and all other centralized departments functioning at the national office. “Our growth mandated a move. Our new location will support our future expansion plans by providing a first-class environment where our employees can thrive now and in the future,” says Daniel Drimmer, TransGlobe President.

Distributable Income (DI) rose 7.0 per cent to $66.2 million or $1.170 per Unit compared to $61.8 million or $1.161 per Unit for the same period last year.

“This is a place that better reflects how TransGlobe excels in meeting and exceeding the needs of our tenants, our team and our rapidly growing portfolio.”

Capital expenditures of $36.5 million in 2006 were lower as compared to $41.6 million in the prior year despite the significant increase in the size of the property portfolio and increased overall suite turnovers, as management increasingly subcontracted its in-suite renovation programs to reduce costs. CAP REIT currently estimates it will invest approximately $40 million in capital expenditures in 2007.

The renovation plans include full exterior upgrades, landscaping, complete renovation of the interior and new signage and branding treatments. The newly modernized facility will house a fully equipped fitness facility, stateof-the-art presentation room, dedicated employee training facility, and additional features for the comfort of employees. “We are excited to be establishing our new national head office where our tenants can benefit from personalized attention and quick response,” says TransGlobe CEO Leonard Drimmer. “You can expect to see more growth in the near future.” The company also has regional offices in Toronto, Kitchener, London, Halifax, Saint John, Ottawa, Calgary, Vancouver and Victoria.

Majority of Residents Would Support Smoking Ban in Apartments A poll commissioned by the Ontario Tobacco-Free Network has found that 57 per cent of those living in multiunit apartment buildings or other multiunit dwellings would support a ban on smoking inside the residence. Smoking is currently prohibited in elevators, hallways and other common areas in Ontario, but not in apartment residences. The poll detected widespread annoyance over second-hand smoke seeping into the residences of non-smokers, with half of those surveyed saying they’ve had tobacco smoke odour enter their units from elsewhere in their buildings, and 70 per cent of those saying they’re bothered by it. The pollster who conducted the survey predicted the next big move against smoking will be in multiunit dwellings, with increasing pressure for buildings to be designated as smoke free. “What the research clearly shows is that you’ve got six out of 10 people out there that, if you hang out a shingle that says smoke-free apartment or condominium complex, you’re going to have people decide to move into that,” said John Wright, a senior Vice-President of Ipsos Reid, which conducted the survey. The poll surveyed 1,800 people across the province who live in multiunit residences, and is considered to be accurate within 2.9 percentage points, 19 times out of 20. It was conducted in November and March of 2006, with the second round of questioning done to confirm the findings. The poll also found that 64 per cent of those living in multiunit dwellings would choose, when looking for a place to live, a smoke-free building over one where smoking was permitted.

16 Canadian Apartment Magazine

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multifacts The Ontario Tobacco-Free Network is a coalition of three prominent public health organizations: the Canadian Cancer Society, Heart and Stroke Foundation of Ontario, and the Lung Association. Network spokeswoman Irene Gallagher said the health organizations found they were starting to deal with a large number of unsolicited complaints from members of the public about second-hand smoke drifting among residences in multiunit dwellings. The health groups wanted to check how widespread these concerns were. According to Ms. Gallagher, the large number of respondents preferring not to come into contact with smokers in home settings suggests an unfi lled need in the housing market. “There is a big demand in the market for smoke-free buildings,” she said. Currently, there is nothing to stop landlords from offering smoke-free buildings or having non-smoking clauses in leases, and some building owners in both Canada and the U.S. have begun seeking this status for their residences, as have some new condominium developments

New Residential Tenancies Act takes effect in Saskatchewan The new Saskatchewan Residential Tenancies Act and Regulations came into law in March. The Act replaces one passed in 1973 and is intended to help meet the changing needs of residential landlords and tenants in Saskatchewan. “This legislation strikes an important balance between the needs of tenants for safe, secure and affordable living accommodations, and the legitimate need for landlords to earn reasonable profits from their rental properties,” Justice Minister Frank Quennell said. “The purpose of this new legislation is to help maintain a viable and profitable residential housing industry in Saskatchewan that benefits both tenants and landlords.”

Housing Money Released Nearly $400 million in public housing funds, which had been frozen in a trust account, due to a dispute between the federal and provincial governments, will be released. Ontario Premier Dalton McGuinty made the announcement at the Toronto city summit, held in late February. He also announced that the province will put an additional $4.8-million into a rent supplement program that he said has kept 8,000 low-income families from being evicted. The housing monies – $312-million for new public housing and $80million for aboriginal housing – were part of a $6.8-billion, six-year package that the province signed with former prime minister Paul Martin in May of 2005. While Ottawa has promised it would honour the agreement, the two governments could not agree on whether the housing money was covered by the agreement. Provincial and federal opposition leaders also addressed the summit. Ontario Conservative Leader John Tory told the audience of city leaders that Toronto has been patting itself on the back for too long on the issue of diversity. The socioeconomic map of the city shows a growing number of neighbourhoods are falling behind and many of the people in them are immigrants and minorities, he said. Federal Liberal Leader Stephane Dion echoed many of Mr. Tory’s themes. The Opposition Leader told the meeting that being a gateway city for new immigrants to Canada – the GTA takes in just under half of those who come to this country – is a major challenge. “Immigration is a federal responsibility, but the cities do the heavy lifting,” Mr. Dion said.

The new Act sets out tenant and landlord rights and obligations in plain language and simplifies and streamlines procedures. It is also meant to provide flexibility regarding future changes and provide clarity to landlords and tenants concerning their rights and obligations.

Canadian Apartment Magazine 17

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feature

Developers Weigh the Pros New Multi-Residential Construction by Randy Threndyle

Over the past 20 years few developers have been willing to invest in new apartment buildings, but that trend may be changing. Despite high land and construction costs, some companies have decided that the investment is worth the risk. In Toronto, population growth of 100,000 people per year, combined with the province’s stated goal of intensifying development in urban areas, is fuelling the growth.

After decades in the doldrums, Canadian multi-residential developers are sticking a tentative toe in the apartment construction market. In Ontario, were the aftertaste of rent control legislation kept new apartment construction at near zero levels for over 20 years, several developers have tested the waters by investing in new buildings. And in Western Canada, boom times fuelled by high energy prices, have led investors to take a close look at the economics of building new apartment units. Some companies have taken the route of building new apartment buildings, while others have purchased newly completed buildings and taken over management of them. Both pension-fund controlled and privately-owned developers are involved in the trend. In Toronto, where several new buildings have either opened or are contemplated, developers are looking to their existing portfolios as a route to expansion. In most cases it makes sense to build on a site you already own, as there will likely be little or no land costs. 18 Canadian Apartment Magazine

Given the relatively slim margins in the multi-residential sector and ever increasing construction costs the strategy can be a cost effective way to add to a company’s portfolio. The approach has two other advantages. It makes a good fit in with the Ontario government’s policy of intensification in urban areas and, in many cases, existing properties are in demand areas that are either close to subway lines or in popular neighbourhoods.

Long-Term Opportunity With a population growth in the Greater Toronto Area of over a 100,000 people per year, many companies see a longterm opportunity in new rental projects. While many developers have expanded through acquisition of older properties, there are some advantages in building or purchasing a newly completed building. Since the buildings are new, there is little, is any capital expenditures required for repairs or renovation and there is strong leasing demand and therefore low vacancy rates for the newer suites.

and Cons of

In addition, new buildings command premium rents, which help compensate for development risk. But of course there is risk in building new units, especially in Ontario where the spectre of rent control legislation is still very real for many developers. In an eﬀort to minimize the risk, some developers have adopted novel strategies. Several have chosen to protect themselves by entering the high-end market or aiming the building at seniors, a relatively wealthy demographic. Other companies have decided to register the buildings as condominiums, but maintain them as rental buildings. With condominium registration the developer has a way to sell the units should new legislation be announced. The disadvantage to going the condominium route is that it increases costs. Units must be registered and there is little if any tax advantage. The only real advantage to registering a building as a condominium is that it gives the building owner a form of insurance, which allows them to sell the building as individual units, rather than as a complete apartment building.

Condo Registration Seen as Insurance One company that has taken out insurance, in the form of registering rental buildings as condominiums is Minto Urban Communities Inc. Its President, Alan Greenberg, says the reason for doing so is very simple. “It’s called insurance. In 1976 the provincial government took away our property rights. At the time we owned 8,500 apartments and they were all rental units. All of a sudden the government said you cannot convert them to condo and sell them as individual units. “Ever since then, every rental we’ve built has been a condominium. That way we can, at any time, instead of being an investor in a condominium, go out and sell the individual condominium to someone else, either to live in or as an investment.” The Ontario-based company recently completed a new building at Roehampton and Redpath, in the Yonge and Eglinton area of Toronto. In mid-February the ﬁrst tenants moved in, shortly after the 148-suite building had completed the condo registration process. Canadian Apartment Magazine 19

feature Greenberg says registering the building as a condominium safeguards the company’s investment. “If the government ever comes and puts a rent control on that building, we then have the ﬂexibility of saying we don’t want to continue to operate in that environment.” While some might view the method as a ploy to defeat or short circuit government legislation, Greenberg points out that tenants who rent condo units have the same protection under Ontario’s Residential Tenancies Act as tenants in any other type of building. The only diﬀerence is, buildings, or rental units, constructed after 1991 are not subject to the province’s rent control legislation.

Customers Protected “Our customers are protected, like any other customer living in a rental building,” says Greenberg. While registering the building as a condominium increases costs, Greenberg says each developer has to weight that expense against the possibility of future legislation. “Anyone who is building a rental building today, has to decide if they want to take insurance by registering the building and if they want to take insurance there is a certain cost,” he says. As a private, family-owned business, Greenberg says that the company would not build a rental unit today unless it was registered as a condominium. And, given that there are thousands of individual investors who have purchased condominiums and are now renting them, Greenberg thinks it’s unlikely the provincial government would make any changes to condominium legislation. Despite the fact that condo registration allows Minto to sell any or all of the units at any time, Greenberg says, “Our present strategy is that we are keeping that building for the long term. But we have paid insurance so that if any government takes away our property rights. We have an exist strategy.” As to his customers, Greenberg says whether the building is condo rental or conventional rental is largely irrelevant as the features being offered in a condo rental are no different from those that would be offered in a conventional rental building.

Concert Opens Two Properties Another company that has made a commitment to add to its multi-residential portfolio is Concert Properties Ltd. The pension-fund owned company has about 2,600 units either completed or under construction. In Toronto Concert has completed two projects. One is 26-storey 306-unit building in North York called Prelude. The second is a 28-storey 388-unit building called Jazz at Church and Shuter. In Etobicoke two more buildings are under construction. The ﬁrst is a 21-storey, 278 unit building that will be complete later this summer and the other is an 11-storey, 168 unit seniors independent and assisted living rental community expected to be completed in early 2008. Brian McCauley, Executive Vice President of Concert Properties Ltd., says the company made a decision in 2001 to construct new buildings rather than going the route of acquiring existing properties. At that time the Vancouverbased company formed an alliance with the Ontario Municipal Employees Retirement System, commonly known as OMERS, to build new multi-residential units. The British Columbia-based Concert Properties Ltd. is owned exclusively by BC union and management pension plans. They represent over 200,000 British Columbians. McCauley says in 2001 the vacancy rate in Toronto was less than one percent. In addition, a lot of existing apartments were being converted to condominiums. With little new rental stock being added to the market, the company saw an opportunity.

Pension Funds Invest $600 million “The economics, certainly at that time, and to some extent today, were achievable. The rental rates were high enough to support the cost of land acquisition and construction in this marketplace,” says McCauley. In 2001 Concert and OMERS agreed to invest $300 million in new rental buildings. They recently announced that they have doubled that amount to a total potential investment of $600 million.

The economics of a retirement building, says Balahood, are better than for a standard apartment building. That’s because the building will be aimed at upscale retirees who are looking for a higher level of service.

20 Canadian Apartment Magazine

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feature CALGARY IS SLIGHTLY DIFFERENT SITUATION. CONSTRUCTION COSTS ARE HIGH. Given the size of the investment, Concert looked at registering the new buildings as condominiums. “We were warned when we came here about the challenges of the Ontario government and changes over the last couple of decades with rent control. What we’re doing is getting all approvals necessary with the city to register them as condominiums, but our decision to register them is really dependent on where the marketplace is at that time.” McCauley says the company did the numbers on condo registration and found there was an economic advantage in not registering the units. First, says McCauley, there is the cost of registration and maintaining the condominium corporation on an annual basis. Secondly, under the new multi-residential property taxation classiﬁcation in Toronto there still is an advantage for rental buildings.

“It’s very unlikely we would sell these assets, but if we sold them we would likely sell them as entire buildings as opposed to individual units. “If we took a proposal to our board today, to sell rental apartments, we would not be looked at favourably,” he says.

Higher Costs Block Western Development Concert also owns about 1,450 multi-residential units in Western Canada but is currently not adding to its portfolio in that region. “We would be very keen to build more rental in Calgary or Vancouver, but the numbers just don’t make sense today,” says McCauley. The problem is that land and construction costs in both of those locations make it uneconomic to build rental properties. The land values in downtown Toronto, he says, are about $35 a square foot buildable, whereas land values in downtown Vancouver are in excess of $100 per square foot buildable. Construction costs for a typical highrise in downtown Toronto are in the order of $150 to $160 per square foot to build. Construction costs for a similar highrise in Vancouver would be in excess of $250 per square foot, says McCauley. Added to that are rental rates, which average about $2.25 per square foot in Toronto but only about $2.10 in Vancouver. “Doing the math you can see that the economics just don’t’ make sense today.” Calgary, he says, is a slightly diﬀerent situation. Construction costs are high, but an even bigger obstacle is the availability of labour. “For anyone considering doing multiunit residential in Calgary today is very diﬃcult. The economy is so strong that the availability of trades is just not there.”

Little Opportunity for Market-Priced Units

The only advantage in registering units as condominiums is, if the marketplace changes, or rent controls were imposed, the units can be sold individually, something McCauley describes as “a good exist strategy.” McCauley, however, sees very little possibility that Concert would need a quick exit strategy. as the intent of the investment is to create income properties that will meet the needs of the pension groups the company represents. 22 Canadian Apartment Magazine

With 25,000 units under management, Greenwin Property Management is one of Ontario’s largest landlords. The company’s CEO, Mike Bolahood, says Greenwin has, over the years, looked at the economics of building new rental units but has seen little opportunity to build new market-priced units. Balahood says “To go out and buy the land and build the buildings, we just couldn’t get the rents to get a decent return.” The only project the company is considering is a proposal to build a rental building aimed at retirees. The project would be an intensiﬁcation project on one of the company’s existing sites in the Yonge and Eglinton area of Toronto. The economics of a retirement building, says Balahood, are better than for a standard apartment building. That’s because the building will be aimed at upscale retirees who are looking for a higher level of service. “If you look at the economics of that operation, it made sense, to do a retirement/nursing facility as opposed to a conventional apartment rental,” says Balahood. A conventional rental building, he says, would have to command rents that, while not stratospheric, would certainly have been near the top end of the market. And, in what is already a highly competitive market for high end condo-style rental product, Greenwin felt the retirement type of facility was a better investment. CAM

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by Robert Helyar

Today’s real estate market is an ever-changing, ever-growing industry. In order to keep your properties alive in the competition, you need to be up-to-date on current trends and technology. “What’s Hot & What’s Not” will discuss topics that are of both interest and importance to the owners and managers of residential apartment buildings. Some of these topics that will be covered in future issues include: • The importance of having a “Green” building – How to make your building

environmentally friendly • The dying art of providing good service – How to revive it in your apartment staﬀ

and the diﬀerence it can make • Presenting your building in its best light – Get the biggest WOW possible • Marketing your property eﬀectively – Get the biggest bang for your

marketing dollar • How to get tenants in your front door and keep your back door closed

What’s Hot & What’s Not is written by Robert Helyar, President of DALA Group of Companies. Over the past 30 years Mr. Helyar has held a number of executive positions with development and real estate holding ﬁrms. He has assisted clients with asset-management, development and advisory services. Mr. Helyar’s professional credentials include RPM (Registered Property

24 Canadian Apartment Magazine

Manager), SCV (Senior Certified Valuer), RIM (Registered International Member), CEI (Certified Environmental Inspector), CCI (Certified Construction Inspector) as well as previously being a licensed Quebec Real Estate Broker and an SIOR Associate (Society of Industrial and Office Realtors).

apartment appraisal

The Appraiser’s Role in Apartment Conversion by Todd Crawford

When converting an apartment building to a residential condominium, it is important to know that the valuation of an apartment building, compared to a condominium residential unit varies at several levels. Residential apartment building values are largely based on investment parameters. Condominium residential units are typically purchased on a direct comparison approach using relevant market sales data. The bottom-line values will likely differ vastly depending on market drivers. Hence owners and developers need to understand the importance of a proper valuation report and the role the appraiser plays in a residential apartment conversion appraisal or consulting report. Our goal is to better assist a potential client, especially if the report is a requirement of a lender. There are several reasons for converting a residential apartment building to a residential condominium. In the case of a divestment strategy, the sale of the entire asset will trigger substantial capital gains and recapture taxation. Individual unit sales will be on a smaller scale over a period of time – hence deferring the tax. Developers often look to conversions of apartment buildings for a short-term profit as this type of strategy can allow a quicker turnover of capital. Current Value Assessment and municipal property tax considerations can also facilitate a conversion plan. This results from mill rate differentials between residential and multifamily. Lastly, a conversion can be done for future considerations. Often owners do parts of the process over several years in anticipation of future market demand. 26 Canadian Apartment Magazine

The appraiser can be engaged in several steps of the process. Prior to the purchase of the asset the appraiser can evaluate factors such as: estate planning; strategic placement in the local market; construction/renovation ﬁnancing; analysis of local market; feasibility study; calculation of absorption rates; and due diligence of market competition. In most cases a combination of these requirements would be done in one narrative appraisal report. However, other types of reports are listed below for cost considerations.

Types of Valuations 1. Narrative: The most comprehensive, it clearly guides the reader to the logical conclusion of the report. It is the most expensive and is for clients with detailed requirements or limited knowledge of a direct market. Investigative methods are more exhaustive and it uses the highest standard of business requirements of the Appraisal Institute of Canada (AIC). 2. Short Narrative: Limitations are imposed on the report and investigative methods are reduced. It has lower fees and is for clients that understand the market or have comfort with the developer/owner. Typically it has a quick turnaround time. 3. Verbal Analysis: This is the most inexpensive as no written report is provided. A working ﬁle is retained by the appraiser for seven years and possibly upgraded to a written report.

apartment appraisal When you have to engage an appraiser to complete a conversion report several questions should be addressed to determine what his role should and should not be. In the case of financing, consideration should be given to the needs of the lending company. Ask yourself: 1. Is the appraisal firm – or appraiser approved? 2. What type of report would the banker like to review? 3. The type of valuation parameters: There are two choices. An “AS IS Market Value” and a “Hypothetical Prospective Market Value” as if the conversion is approved. Do not assume a short report will satisfy most lenders as they normally have different requirements and changing corporate directives. Hence, ask the questions up front or have the appraiser consult with the lender prior to starting a report. A Short Narrative report can be upgraded to a Narrative report however this can create additional expense and delays. Based on a Narrative Report being undertaken, clearly the main role of the appraiser is to estimate the market value of the property as if converted from an apartment building to a residential condominium building. The final estimate of market value is the ultimate role of the appraiser and several key steps in the valuation must be taken. The appraiser is bound by AIC appraisal standards as they are the Canadian Uniform Standard of Appraisal Practice. These guidelines play a large role in all valuations particularly in complex scenarios. In the case of a conversion the appraiser must hypothetically act as if this is already the case with the subject. It must be clear to the reader that this is not actually the situation and that loans need to be granted if the work required to convert is not complete. Therefore the appraiser must identify that the estimate is contingent on the successful completion of the conversion. Further, the appraiser is obligated to select a probable or future date on which this can reasonably occur. In some cases the scope of the proposed conversion is only the planning, legal and architectural work required for the project. The appraiser merely has to consider the valuation of the units as they are at the time of the inspection. However, some proposed conversions include detailed or minor renovations; general building improvements; additional units; structural change; added amenities; and site improvements. Projects that include several of these modifications can result in a drastic change in the valuation of the building. The appraiser needs to clearly understand the pertinent details of the proposed project in order to correctly apply the market data references, as well as convey these issues to the reader. Items such as revised unit layouts, building elevation, site plans, building specifications list, conceptual drawings, are a few items that could be outlined in the report. A detailed section of the report outlining the overall conversion project is critical for the reader to, in theory, see the completed building. The data investigation section of the report now links the regulatory section and the project section. The goal of the

appraiser is to clearly tell the reader a story of what is going to take place up to the conversion process. When the two sections are linked the logic of the data selected to support the ﬁnal estimates of market value are without question. The appraiser has to carefully select the right data for the ﬁnal product. The goal is to simply apply the direct comparison method to each proposed condominium unit. The typical residential appraiser is best suited for this analysis. This is where clients requesting these types of reports need to understand that the standard commercial appraiser is best suited for large apartment valuations, while the residential appraiser is best suited for the residential condominium valuations. Clearly an appraiser with some residential background and one familiar with standard residential apartment building valuations is the ideal candidate. CA M

Todd Crawford is a Partner of J.J. Barnicke Niagara Limited and a graduate of Brock University. He is a Licensed Broker and a designated AACI appraiser with the Appraisal Institute of Canada. He can be contacted via email at todd.crawford@jjb.com

Canadian Apartment Magazine 27

Include a Plumbing Inspection in Your Spring Cleaning Ritual by Stanley J. Collini

Early Maintenance Prevents Costly Problems

A yearly inspection of your plumbing system can save money down the road. A lot of costly service calls could be avoided by early detection of small problems. The spring cleaning ritual is a great way to get organized. Roto-Rooter, North America’s largest provider of plumbing and drain cleaning services, recommends taking a few minutes this spring to make sure your plumbing system in your building is ready to provide trouble-free service for the rest of the year. “A lot of costly service calls could be avoided if minor maintenance issues are handled before they become big problems,” said Larry Rothman, master plumber for Roto-Rooter.

Kitchen/Bathrooms • Check faucets for drips or leaks. Make repairs to save water. • Ensure that all drains have strainers to prevent hair, soap and debris from clogging the drain lines. • Check toilets for hidden leaks. Add six drops of food colouring to the toilet tank. If the toilet is leaking, colour will appear in the bowl within 30 minutes. 28 Canadian Apartment Magazine

• Inspect toilet tanks and bowls for cracks or leaks. • Exercise water supply valves under sinks and toilets and in basements to prevent them from sticking. • Make sure toilets flush properly. If the handle must be held down for a thorough flush or jiggled to stop the water from running you may need to replace worn tank parts. They’re inexpensive and you’ll notice a lower water bill. • Clean mineral deposits from showerheads. Unscrew the showerhead and soak in vinegar or fill a plastic baggie with vinegar; place it over the showerhead and hold in place with a rubber band. Soak overnight, then remove and gently scrub with an old toothbrush to remove deposits.

Appliances • Check the temperature setting on water heaters. It should be set no higher than 125° F (52° C) to prevent scalding and reduce energy use.

• Carefully drain several gallons from water heater tanks to ﬂush out corrosion causing sediment, which reduces heating eﬃciency and shortens the life of the

heater. CAUTION: They don’t call it a water heater for nothing. The water draining from the tank will be very hot so take precautions to protect yourself. • Consider replacing water heaters that are more than 15 years old. (The first four numbers of the serial number represent the month and year it was made.) Newer water heaters are more energy efficient. • Make sure flammables are not stored near water heaters or furnaces.

• Install flood alarms. Like a smoke alarm, a flood alarm is a battery-operated device that sounds an alarm when it comes in contact with water. It alerts you to potential flooding or leaks (available at www.rotorooter.com).

Outside • Make sure yard drains, gutters and downspouts are cleaned out, open, and free of debris. • Check for bird nests in plumbing vent pipes. • Check faucets and hose bibs to make sure water ﬂows freely. If an outdoor faucet drips or if there is leakage inside the building the ﬁrst time the hose is turned on, you may have had a frozen pipe that cracked and needs to be replaced. CA M

Stanley J. Collini is the owner and operator of Roto Rooter Plumbing and Drain Service in Toronto. To contact Stanley, visit www.rotorooter.com or call him at 416-503-4444

• Check dishwasher, washing machine and icemaker supply hoses for bulges or leaks. Replace hoses showing signs of weakness or older than ten years. • Clean out washing machine lint traps, if equipped, and place a wire trap or a piece of pantyhose over the end of hoses that drain the washers.

General • Pour a gallon of water into infrequently used drains (including floor drains) to fi ll the trap and prevent odors from entering the building. Slow floor drains should be snaked to ensure they will carry away water quickly in the event of a flood. • Check exposed pipes under sinks and in the basement for signs of leaks. • Check sump pump operation by pouring a few buckets of

water into the sump pit. The pump should quickly turn on, discharge the water then shut off without any problems. • Install a backflow valve in the floor drain in areas where sewers sometimes back up into buildings. This device will prevent future backups. Canadian Apartment Magazine 29

energy efficiency

Occupancy sensors slash energy waste at GTA housing complex by Nancy N. Han

Occupancy sensors help reduce energy costs by running on economy mode when the unit is vacant. When tenants return, the sensors reset the temperature to occupied mode. “We always challenge ourselves to manage energy and resources better,” said Zev Shafran, President of Devonshire Properties. “Today’s newer technologies, like the Energex sensors, allow us to tighten costs without impacting our tenants. We are exploring more opportunities for occupancy sensors throughout all our buildings,” Shafran added. Rami Belson, CEO and founder of Energex, is thrilled to have been picked by a leader like Devonshire properties. “Their commitment to innovative technologies and energy efficiency has opened the way to many housing operators throughout Canada to find a much needed relief from largely unchecked energy waste,” says Belson. The Energex technology, which has been implemented in thousands of hotel rooms throughout the world, has also caught the attention of Enbridge Gas Distribution, which is initiating innovative technologies to help their commercial energy users meet their sustainability and energy efficiency efforts.

About Energex Inc.

Faced with spiraling energy costs and the need to reduce its environmental footprint, Walden Circle, a 215-unit multidwelling complex teamed up with Energex Inc. a Richmond, BC developer of advanced Passive Infra-Red (PIR) sensors for energy management. The Walden Circle building is a 21-storey highrise containing mostly two and three bedroom apartments which are equipped with central heating and air conditioning systems. Energex PIR sensors were installed in each room, monitoring the occupancy status. Once the room becomes vacant – the temperature is automatically set to ‘economy’ mode. When the tenants return to their suite, the sensors automatically reset the temperature to occupied mode in which all functions of the heating, cooling and ventilation are restored. Since the installation was completed eight months ago, the building has saved over $32,000 in gas and electricity - almost 13 per cent of its total annual energy budget.

Energex is a BC-based developer and manufacturer of advanced energy, information and security solutions for the hospitality industry. Since 1992, Energex has been developing advanced energy management occupancy sensors for use in hotels, time share units, assisted care living homes and other residential developments. The Energex system makes it possible for the world to signiﬁcantly reduce energy waste, via a simple yet eﬀective system that monitors occupancy. The Energex technology, which is worth two LEED (Leadership in Energy and Environmental Design) credits, is deployed in over 14 countries and has been tested and approved by major North American utilities, including BC Hydro. CA M

Contact: Energex Inc.Technology Solutions for Intelligent Buildings 604.214.7810 Toll free: 866.787.1836 www.energexinc.com or sales@energexinc.com

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