CRE fall 2017 29 nov revised

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FALL 2017 / ISSUE 75

Ssshh… Ottawa’s growing: Vibrant city a great place to develop new business High appeal, low opportunity Federal real estate rooted in common ground


Cautious optimism points to brighter times ahead for Calgary Tsuut’ina give top-tier development distinctive touch From beer kegs to dog parks: Aspen Properties reimagines office space


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Coast at Lakeshore East, Chicago, IL Recent acquisition by Morguard North American Residential REIT and HOOPP

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HERE COMES THE SUN George Przybylowski Vice President Real Estate Informa Exhibitions

While economic daylight appears to be rising on the Calgary horizon, Ottawa’s similarly sluggish engine has been chugging through the downturn and is gathering speed. At this year’s forum in the nation’s capital on October 17, participants will get first-hand market interpretation and advice. The 23rd annual Ottawa forum will provide insight on trends, strategies and opportunities, in addition to focusing on the driving forces behind the growth in Canada’s sixth largest real estate market.

As such, panel discussions will delve into topics such as how the office, retail, industrial and multi-unit residential markets are faring, and the trends for 2018. The National Capital Region is experiencing one of the strongest periods of development activity in decades, leading to a number of community-building projects – large-scale redevelopment of strategic sites that transform existing neighbourhoods into attractive investment areas. These overhauls are also being seen on the investment side, as parties are asked to redevelop large parcels of land so that mixed-use properties are located near existing and planned transit and light-rail systems, as well as in close proximity to local attractions. Other topics on the discussion block include the out-of-town market, which accounts for 60 percent of the office marketplace; the growing attraction of private investors to the under-25,000-square-feet holdings; how the area’s transformation will affect retail, especially with the $360-million revitalization of the CF Rideau Centre, as well as other major updates underway; and the serge in high-tech start-ups that now account for more than 1,700 companies setting up shop in the capital city.

The National Capital Region’s economic evolution is mirrored in Calgary, where this city’s stakeholders are busy attracting more diverse investors and developers, and it seems to be working. With a 2.2 percent rise in GDP year-over-year, after a 2.9 percent decline in in 2016, the city is cautiously optimistic that the road ahead may be on an incline. The industrial market, for example, had one of its strongest volumes in investment activity last year. Like the Ottawa region, the revitalization of older buildings has become essential in Calgary if the sector wants to have any hope of filling 130 million square feet of office space. With vacancy rates exceeding 25 percent, it is indeed timely that the October 26 Calgary forum will touch on how investors and developers are adapting amid this evolution. City officials have even taken to courting tech and financial institutions to set up shop in the city, with some success. So whether you are an investor, developer, buyer or manager, the forums are the go-to places to determine your next move. ■


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Here comes the sun P


The Altus Report: Calgary fights back, Ottawa keeps chugging along


Latest commercial market statistics across Canada DATA | CONNECTIVITY


Industry standards: what’s the fuss? 58 Creating a resilient real estate sector 60 Canadian real estate industry diversity and inclusion: time to accelerate change 62 REALPAC’s new performance metrics: AFFO and ACFO

About Informa BRINGING KNOWLEDGE TO LIFE Businesses, professionals and academics worldwide turn to Informa for unparalleled knowledge, up-to-the-minute information and highly specialized skills and services. Our ability to deliver high quality knowledge and services through multiple channels, in dynamic and rapidly changing environments, makes our offer unique and extremely valuable to individuals and organizations.

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Canadian Real Estate Forum / FALL 2017

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Thank you to our sponsors

Thank you to our sponsors

18 Ssshh… Ottawa’s growing: vibrant city a great place to develop new business

34 Cautious optimism points to brighter times ahead for Calgary

20 How innovative retailers adapt and thrive

36 Energy, economy favour rebound

22 Mixed-use communities: the future of retail shopping for necessities, not pleasure

36 Alberta remains a retail hotspot

22 High appeal, low opportunity 24 Investment, exports increase amid global growth 26 Federal real estate rooted in common ground

38 Infrastructure investment spurs private initiative 40 Riding out the slump 40 Energy markets eye OPEC summit – Nov. 30

28 Ottawa office market is heating up

42 Mobility-based makeover positions Calgary for rebound

30 Ottawa’s ‘good news’ story

43 Diversification key to success of industrial sector

30 Slim pickings lead investors to purpose-built rental

44 The Amazon effect: slowdown in mall traffic not just an Alberta issue 44 Employment, population growth spurs residential rebound 46 From beer kegs to dog parks: Aspen Properties reimagines office space 48 Tsuut’ina give top-tier development distinctive touch 48 Minto Capital VP considers Calgary market to be “stable and positive” 49 Distribution demand heats up industrial assets


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THE ALTUS REPORT CALGARY FIGHTS BACK, OTTAWA KEEPS CHUGGING ALONG In this issue of the The Altus Report, we shine the spotlight on the real estate sectors in the Calgary and Ottawa market areas.

By Patricia Arsenault Executive Vice President Research Consulting Services Data Solutions Altus Analytics, Altus Group

A Glimmer of Light at the End of the Calgary Office Tunnel It’s no secret that the Calgary office leasing market is in a devastating period. With the overall office vacancy rate for the market at its highest level in this millennium, and more than double the average of the past 18 years, the Calgary office market is faced with a long, slow climb back to what could be considered a balanced market situation.

By Raymond Wong Vice President, Data Operations Data Solutions Altus Analytics, Altus Group

CHART 1 Office Space Completions and Absorption

Millions of Sq. Ft.

12 months ending June in each year • Source: Altus Group




4.0 2.0 0.0


Millions of Sq. Ft.























0.5 0.0

-0.5 -1.0


CHART 2 Office Supply Available to Fill Future Growth 10.0











Vancouver Edmonton Calgary






Millions of Sq. Ft.

Selected Major Markets • Source: Altus Group

Both demand and supply factors have been at play. The soft demand situation that has persisted in recent years (Chart 1) has been exacerbated by the long lead times for new, larger office projects to get to the occupancy stage. As a result, large amounts of new supply continue to be completed at a time when demand has been decimated. About two-thirds of the space currently under construction has been leased. However, the remainder still to be leased, plus current excess vacant space, would still represent about 10 years of supply at the average annual absorption levels of the past 10 years – this compares to 2 years or less in Toronto and Vancouver (Chart 2). There have been some positive signs however to suggest the darkest days may soon be over: • Over the 12 months ending June 2017, absorptions, yes, were still negative – but less negative than in the preceding 12 month period. More importantly, absorption turned positive in the first half of 2017. • With plans for new buildings generally on hold, the amount of new supply under construction continues to be whittled down. The new supply has mainly impacted the downtown office market, with the class A availability rate above 25%.

Excess Existing Vacant Space (above 7%) Mid 2017 Unleased Space Under Construction Mid 2017 Years of Potential Supply (at 10 year average annual absorption)


Canadian Real Estate Forum / FALL 2017

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Demand for Office Space Turns the Corner in Ottawa The office sector in Ottawa has been facing its own challenges. Almost 2 million sq. ft. of space were completed in the past 5 years (Chart 1). This came at a time when demand levels have been stagnant due in large part to reduced federal government need – thereby pushing the overall vacancy rate into double digit territory for the first time in over a decade. Tech companies have focused their attention to the downtown office market in an effort to attract and retain talent. Younger staff more often live and work within closer proximity, relying less on personal automobiles and more on public transit or walking. Even though there is no new supply in the construction pipeline, current excess vacant space could potentially fill several years of future demand (Chart 2). But, like Calgary, demand is showing some improvement. In the 12 months ending June 2017, not only did absorption turn positive for the first time since 2013 on the heels of stronger public sector job growth, but it was the strongest demand exhibited in 5 years. Ottawa Cracks Top 10 Lists for Office and Apartment Transactions The total value of investment property sales in Ottawa was down by 26% for the first half of 2017 compared to a year earlier (Chart 3). As shown on page 52 in this publication, the softer activity was across most of the various property sectors, with the exception of office and ICI land.

In recent months, Ottawa has had several significant investment property sales transactions (Chart 4) that will boost the 2017 performance, including: • Constitution Square, the 2nd largest office transaction this year in the markets tracked by Altus Group • 1203 Maritime Way/985 Great Lakes Avenue and 2018 Robertson Road - the 3rd and 10th largest apartment/multi-unit transactions this year Shifting to Calgary, transaction value was up by 14% in the first half of the year (Chart 3), thanks to stronger activity in the office, industrial and residential land sectors. The TransCanada Tower transaction early in the year helped boost the office numbers (the partial sale is the 6th largest office transactions this year in the markets tracked by Altus Group; Montreal coverage will be launching later this year).

CHART 3 Investment Property Sales Transactions

Yr.-to-Yr % Change

Dollar Sales ($Billion)

Selected Major Markets, First Half of Year • Source: Altus Group • * Ottawa data not available prior to 2016




2017 $10.5



$5 $1.5


$0 100%









35% 10% 14%

0% -50%











CHART 4 Featured Calgary and Ottawa Market Sales Transactions 2017 Source: Altus Group Market



Transaction name





TransCanada Tower

HOOPP Realty Inc.



Residential Land (High Density)

Sam Livingston Building






Parkview Village

Har-Pan Investments Ltd.


3508 32nd Avenue N.E.

3508 32nd Avenue N.E., Alberta Ltd.











Constitution Square

Greystone Real Estate Strategy, Canderel and Canstone Realty Advisors (2592935 Ontario Inc.)



ICI Land (Industrial)

110 & 119 Hines Road, 5050 Innovation Drive and 383 & 385 Terry Fox Drive

Connor, Clark & Lunn Financial Group




1203 Maritime Way and 985 Killam Apartment REIT and Great Lakes Avenue KingSett Capital



Apartment (Retirement Residence)

2018 Robertson Road

Chartwell Retirement Residences

Price ($Millions) $257.4

(50% interest)

$96.6 $58.6

Canadian Real Estate Forum / FALL 2017

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20 VIC Management is now

Cushman & Wakefield Asset Services As one of the country’s leading asset services and property management companies, 20 VIC manages over 21 million square feet of space on behalf of some of the most successful institutional and private investors in Canada. Now operating as Cushman & Wakefield Asset Services, we are excited to build on 20 VIC’s legacy and exceptional track record by continuing to provide fully integrated investment, advisory and property management services across Canada. The Cushman & Wakefield platform is built on client trust and respect and we are pleased to provide our valued clients with a deeper pool of talent and a broader array of services in Canada.

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Calgary New Condominium Market Starting to Pull Out of Its Rough Patch With the Greater Toronto Area headed for another record smashing year for new condominium apartment sales, it’s easy to lose sight of the fact that other new condominium apartment markets have also shown some pickup this year. And among those is Calgary. After total new condominium apartment sales dropped in 2016 to just under 1,500 units (less than half the levels recorded in 2013 and 2014), the first half of 2017 saw a 41% increase in sales compared to a year earlier (Chart 5). In Ottawa, starts of condominium apartment strengthened in the first half of the year compared to 2016. However, as housing starts are a lagging indicator of new home demand (given that in general new condominium apartments are pre-sold before constructed), these numbers reflect sales in previous years. Altus Group does not currently track new home sales in Ottawa, however anecdotal information suggests that sales levels are likely up as well this year, but by a smaller margin than the starts numbers show. Looking Ahead Both Calgary and Ottawa are well-positioned for increased real estate activity over the next 12 months.

More Jobs= Additional Space Demand Employment prospects are key to all types of real estate activity - leasing, investment and homebuying. Calgary’s job losses bottomed in mid 2016, and have been on a general climb since then (Chart 6). This year is expected to end with job growth that more than recaptures (at least in numbers), the losses in 2016, followed by additional improvement next year. Ottawa’s job growth rate is expected to keep on its path of steady, modest, improvement. Investors Now Less Hesitant on Calgary, Ottawa Remains Attractive Altus Group regularly asks the commercial real estate community about whether they would currently be a buyer or a seller in various markets and product segments.

CHART 5 New Condominium Apartment Sales Selected Major Markets, First Half of Year • * Ottawa is housing starts (CMHC) • Source: Altus Group

Unit Sales (000s)





18 12


6 0


Yr.-to-Yr % Change





Vancouver Edmonton
















0% -60%



Vancouver Edmonton







CHART 6 Employment Growth Selected Major Markets, Year-over-Year % change * Includes Gatineau • Source: Statistics Canada (2016) and Altus Group (2017 and 2018)





4% 3% 2% 1% 0% -1% -2%








Canadian Real Estate Forum / FALL 2017

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Our latest results show that, overall, Calgary has moved into a more “balanced” buy vs. sell situation – this follows 2 years with more desired sellers than buyers. Unlike Calgary, Ottawa in recent years continued to be, on net, attractive to potential buyers (Chart 7). CHART 7 Location Barometer for Real Estate Investment Selected Major Markets • * A positive ratio above 1 indicates more interest in buying than selling; a negative ratio below -1 indicates more interest in selling than buying • Source: Altus Group

Q2 2016


Q3 2016

Q4 2016

Q1 2017

Q2 2017

Buy %/Sell %

2.0 1.0 0.0 -1.0 -2.0







CHART 8 Top 5 and Bottom 5 Favoured Real Estate Segments Q2 2017 • Source: Altus Group

Calgary Top 5

(in order from most favoured)


Multi-Tenant Industrial

Suburban Multiple Unit Residential

Suburban Multiple Unit Residential

Multi-Tenant Industrial

Single Tenant Industrial

Single Tenant Industrial

Tier I Regional Mall

Tier I Regional Mall

Industrial Land

Food Anchored Retail Strip

Suburban Class "B" Office

Suburban Class "B" Office

Downtown Class "B" Office

Enclosed Community Mall

Suburban Office Land

Suburban Class "A" Office

Downtown Office Land

Downtown Class "B" Office

Suburban Class "A" Office

Tier II Regional Mall

Bottom 5

(in order from least favoured)

For both markets, the situation however varies by product type (Chart 8): • Industrial, multi-family residential and Tier 1 regional malls properties provide the most interest to investors. • Not surprisingly, office properties are least favoured, with more interest in decreasing than increasing investment in the office sector in these markets. Although, as shown by actual investment this year (where the top deal in each market has been a Class A office building), if the right deal comes along there are willing buyers. The Multi-Family Residential Glass – Half Full or Half Empty? Fewer renters in Calgary and Ottawa are planning to buy a first home this year than was the case a year ago (Chart 9). Local market conditions aside, there have been changes over the past year – including mortgage rates starting to move up and tighter lending criteria for insured mortgages – that make it more challenging for potential first-time buyers. Somewhat softer homebuying intentions are a negative factor for the demand side of new multi-family condominium apartment development in Calgary and Ottawa. However, the other side of the coin is that softer homebuying intentions are positive for rental housing demand – which reinforces the interest investors are showing in acquisitions in the apartment sector. ■

CHART 9 First-Time Homebuying Intentions Selected Major Markets, % of Renters Planning to Buy a Home in the Next Year • Source: Altus Group


Summer 2016

Summer 2017

25% 20% 15% 10% 5% 0%








Canadian Real Estate Forum / FALL 2017

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Where are the opportunities in U.K. real estate? By Paul Crosbie, Fund manager, M&G Real Estate

The final outcome of the Brexit negotiations and the eventual shape of the business landscape after the U.K. exits from the EU are still unknown. Despite this uncertainty, the U.K.’s economic and market fundamentals remain compelling for investors. U.K. real estate continues to look attractive relative to bonds, where the spread of the IPD All Property equivalent yield over 10-year gilts is around 500bps1. Moreover, further value can be extracted by targeting supply constrained submarkets which are set to benefit from macroeconomic drivers of demand.

The U.K. investible property universe is the third largest in the G7 and accounts for a quarter of European real estate. It is rated top for transparency, technological advancement and performance 2. This favorable operating environment is facilitated through the time zone, common language and accessible legal, tax and government system. Therefore, in terms of liquidity and scale, the U.K. remains a favorable environment for investors to explore. At a time when political and economic uncertainty is high, it is important to distil the underlying macro trends, which are structural drivers of growth and demand, from the noise. The U.K. is densely populated with 83% of residents living in cities/towns3. Urbanization has reduced

the amount of available land on which to build, restricting the supply of quality office, residential and logistics space. This trend will intensify, driving increased densification. Improvements in transport connectivity are essential to service such densification. The U.K. Government plans to spend £26bn on transport and infrastructure to improve the connectivity of major cities outside of London to the rest of the U.K. Healthy occupier demand is driving a shortage of Grade A office space in the Big 6 (first tier regional centers) cities outside of London, supporting rental and capital value growth in these cities. Manchester, Leeds, Birmingham and Bristol are appealing from a value perspective, particularly for urban logistics, as occupiers look to serve these

Big 6 office vacancy


Vacancy (%)







Total Vacancy – Q2 2017


Source: Bloomberg, MSCI (IPD) August 2017. Source: 2016 JLL transparency Index. 3 Source: Worldbank. 4 Source: CBRE Millennials: Myths and Realities. 2


Grade A Vacancy – Q2 2017

Source: JLL Q2 2017.


In an uncertain environment, less versatile space in weak locations is at risk of obsolescence, with some occupiers demanding flexible workspace that can expand and contract with their business growth cycle, such as through co-working. For asset managers, a redevelopment opportunity exists to reconfigure sub-optimal space into a tech-ready, flexible and efficient working environment, enhancing the income profile of the property. Aside from the lack of clarity created by Brexit, the labor market is in rude health with unemployment reaching its lowest level in 42 years. The U.K. remains a global market for finance, advertising, accounting, legal services and is the headquarters for 70% of the FTSE 100. It is home to 164 universities with 2.3 million students, underpinning a highly skilled and innovative workforce.



major conurbations. The U.K. is a growing market for TMT and creative industries, with Manchester ranking third globally for start-ups. The affordability of space in these regional cities, when compared with London, is driving take-up, as occupiers search for flexible workspace at the right price that can meet their requirements.



Previous Peak

For millennials, the desire to live, work and play in the same area, to facilitate busy- but enjoyable- lifestyles, is driving urbanization. This group is important to consider for real estate investors, as half of the global workforce are anticipated to be millennials by 20204. Current requirements for space are evidenced by this group’s preferences. For living, millennials look for flexibility and convenience with a broad range of amenities on-site. For work, a 30 minute

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Non-core asset values diverge from core across all sectors RETAIL




90 Jun 2016



Capital Growth Index (June 2016 = 100)

Capital Growth Index (June 2016 = 100)

Capital Growth Index (June 2016 = 100)


Aug 2016 Core

Oct 2016

Dec 2016

Feb 2017

Apr 2017

Jun 2017






90 Jun 2016

Aug 2016 Core

Oct 2016

Dec 2016

Feb 2017

Apr 2017

Jun 2017



90 Jun 2016

Aug 2016 Core

Oct 2016

Dec 2016

Feb 2017

Apr 2017

Jun 2017


Source: CBRE (data to July 2017).

commute time is preferable. For play, millennials tend to choose convenience and experience-led retail first and foremost. For real estate investors, evaluating such occupier preferences alongside structural drivers, such as urbanization, technological advancement, infrastructure investment and multi-channel retail, is fundamental to the analysis of investment opportunities. In a market where consumer spending power has already been eroded through inflation, the exponential growth of e-commerce has created another pressure contributing to the evolution of the retail market, while simultaneously increasing the demand for logistics space to meet consumer demand for ‘everything, everywhere, anytime’. However, this has not eradicated the role of the store in the multi-channel retail chain. According to research from Verdict, 89% of all U.K. retail sales touch a store at some point. This supports the need to complement online with offline. Given such challenges and the need to respond to changing consumer habits, there is a growing polarization between better performing retail, including dominant shopping malls with a diverse experience-led offering, and poor retail, such as high street shops in oversupplied

second tier towns. Ultimately, strong catchment areas are necessary to capture strong performance. We, as asset managers, can take advantage of the divergence in pricing by targeting good schemes in the right location – currently considered to be non-core due to a short income profile or imminent capital expenditure requirements and where we can make improvements. New build development or refurbishing existing buildings can create high quality assets in a country where Grade A stock is scarce, as is the supply of available land. This has driven innovation, particularly in the logistics sector, where both the way space is used and the requirements for space are changing. Asset managers initiating any form of reconfiguration of a property are likely to intensify the building’s use, improve efficiency and involve a combination of different uses to maximize rental income. Subterranean warehouses, drone deliveries, automation and the advent of driverless vehicles are just a few technological advancements which will change the face of logistics. The U.K. expects to phase out gas and diesel cars and replace these with electric vehicles by 2040, but it could be much sooner. Like all things tech, the speed, scale and impact will be dramatic, and

the pace of change is accelerating. As real estate investors, we need to ensure we understand these trends to take advantage of the opportunities that emerge. We can also capitalize on the potential to add value by taking advantage of the deeper divergence in pricing between core and non-core assets (those with perceived risk), driven by investor risk aversion. Yields on core, or ‘safe haven’, assets have been pushed downwards by investment demand, particularly by overseas buyers attracted by the relative value of weaker sterling and attractive U.K. fundamentals. The definition of core has narrowed, and so the prudent investor should be able to target well-located real estate currently considered non-core and reposition through asset management to enhance the capital value. So what is necessary for investors to succeed in the U.K. market? An indepth understanding of the underlying occupational market is crucial to identifying the best opportunities. Knowing how to price risk is essential and comes from extensive research and experience in evaluating a particular submarket’s fundamentals. Finally, timing entry into a particular sub-sector and always having sight of an exit will ultimately determine strong returns.

For more information, please contact Paul Crosbie, Fund Manager, M&G Real Estate +44 (0)20 7548 6614 – This article presents the author’s present opinions reflecting current market conditions. It has been written for informational and educational purposes only and should not be considered as investment advice or as a recommendation of any particular security, strategy or investment product. SEP 17 / 236003


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Hugh Gorman Chief Executive Officer Colonnade BridgePort



Canadian Real Estate Forum / FALL 2017

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Hugh Gorman wants to tell the world a well-kept secret. Long perceived as a sleepy government town, Ottawa is actually an incredibly dynamic environment for career and business development. “People should be out telling the world about how great a place this is to work in and live,” says the Chief Executive Officer at Colonnade BridgePort. In fact, Gorman recently produced a three-minute video of interviews with local thought leaders who do just that, talking about why they’ve chosen Ottawa as a place to build and grow their business. The video will be showcased at the Ottawa Real Estate Forum and includes appearances from entrepreneurs ranging from billionaire Terry Matthews to executives from Shopify, Bridgehead fair trade coffeehouse chain and the Ottawa Senators. “Basically we want those who control the deployment of capital, who don’t work and live here, to gain a better understanding of how dynamic and diverse the industries are here,” says Gorman. “The intent of this video is to say there’s a lot going on here – from the diversity of the population and our educated workforce to the energy and liveability of the city that’s

attracting bright young minds from other places. “It’s not just about the hard-driving work life. It’s about finding an appropriate balance where you can afford to buy a house or condo, and still have money left over to enjoy a very active, vibrant life.” Gorman says he’s very bullish on Ottawa, in part due to major investments in infrastructure that he describes as “major game-changers” as it grows up to be a big city. “Both federal and municipal governments are bullish in developing infrastructure and Ottawa is a major recipient of that money. Industry leaders in technology and federal government are piggybacking on that, thinking long-term on how they’re going to occupy that space. “In both private and public sectors, people are very optimistic in their hiring. Ottawa was largely known as a one-horse government town but we’re seeing huge economic diversification - growth in technology, education and services as main drivers.” Much of the city’s development is stimulated by the new LRT line, including large-scale, mixed-use projects at Bayview Yards and along the corridor from Bayview to Westboro. All of LeBreton Flats is currently under consideration for redevelopment too, says Gorman. ■ Barbara Balfour 19

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Cindy VanBuskirk General Manager CF Rideau Centre


Ottawa is a very solid market boasting focused on the same things: use of attractive demographics and a stable local technology to develop omni-channel economy, factors that make it an attractive capability, innovating through store design place for retail investment. In recent years, and in-store experience and delivering three of the city’s four major regional centres service-driven, shareable engagements with have been expanded and renewed, their customers,” she says. “Now more than including the $360M revitalization of the CF ever, retailers and landlords are true Rideau Centre. Add to this the partners in the evolution of the in-mall transformation of Lansdowne Park, the new experience.” Tanger discount Landlords are outlet centre and the “Now more than ever, retailers incubating new proliferation of urban and landlords are true partners concepts and retail in mixed-use back-filling vacant in the evolution of the in-mall developments across space with "pop-ups" the inner city. “In experience.” that keep the mall total, over 1.7M sq.ft. offering fresh and of retail space has interesting customer been added to the inventory over the past options. They are also being more flexible three years,” says Cindy VanBuskirk, with desirable retail brands, allowing them to General Manager at CF Rideau Centre. occupy space on a short-term basis to test Retail investors are continually adapting to the market with minimal investment and the implications of online shopping, commitment. concerns about tapped out consumers, and “With change comes opportunity... for those the closure of national chains like Target, bold enough to try something new,” Future Shop, and many apparel retailers. VanBuskirk says. “The challenge will be for How is a retailer to stand out? Beyond landlords to think creatively in terms of significant reinvestment in existing assets, merchandising – beyond banks and VanBuskirk points out that just as landlords drugstores – and challenging retailers to are looking to technology, innovation and deliver exceptional design to enhance the shopper experience to differentiate from the pedestrian experience at grade.” competition and grow sales productivity and, by extension, rents, “retailers are ■ Michelle Morra-Carlisle Canadian Real Estate Forum / FALL 2017

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Stuart Craig Vice President of Planning & Development RioCan REIT

Despite recent bankruptcies and the “We flag properties adjacent to a LRT station disappearance of several historic players, as potential for more than just a suburban Stuart Craig believes the retail sector shopping centre, if that is what it was in the remains fairly strong in past. We’re building new Canada – but with a caveat. “There will always be forms of mixed-use retail a role for retail stores across the country and That involves focusing on Ottawa is no exception,” centres where daily in Canada.” says Craig. necessities are available, rather than on larger retail malls where While losing Target was a big hit – they had people shop for pleasure. over 20 stores in their portfolio – Craig says they improved their position by backfilling “Items that are not necessities tend to be them with tenants willing to pay higher rents. what shoppers are inclined to acquire in other ways,” says the Vice President of “Target took over old leases when they Planning and Development at RioCan REIT. inherited Zellers stores, and weren’t playing a lot of rent. Because of our size, we had “But they still have to get their groceries and direct access to a larger spectrum of visit the drugstore. We’re moving towards potential replacement retailers we were able the introduction of residential onto those to capitalize on – from similar sized stores kinds of sites, creating a mini-community like Loews, to a combination of mid-sized where people can live and literally walk box stores, like Dollarama or Pet Smart that downstairs to get their groceries.” are 20,000 or 40,000 feet. The retail leasing giant is currently building an apartment complex at the Gloucester Silver City Shopping Centre, near the future Blair LRT station in Ottawa.

“We’ve been taking a glass half-full approach and adapting to changing retail. There will always be a role for retail stores in Canada.” ■ Barbara Balfour


Nico Zentil Vice President National Investment Team CBRE Limited

“There is a premium on the return you can get in this market.”

Asked about opportunity in Ottawa real estate, Nico Zentil, Vice President, National Investment Team, CBRE Limited talks about relative value compared to other markets in Canada. “If you look at Vancouver continuing to defy gravity from a pricing standpoint and the GTA is getting extremely expensive,” he says, “returns are getting lower and lower in these markets, so groups are happy to look elsewhere, which includes Ottawa. There is a premium on the return you can get in this market.” Ottawa has great appeal – if you can access it. It’s solid, stable, but not riddled with opportunity. “The office sector is performing very well and is probably the easiest to get to,” Zentil says. “Industrial is performing very well, but there’s very limited industrial. As for retail, again, we have some of the strongest household incomes in the country, retail is very solid here, but nobody sells.”

He describes Ottawa as being “diversified market, a good balanced market, and an equalizer market for somebody.” The federal government continues to grow. Unemployment is slowest it has been in five years. Zentil believes having such a good market fundamentally should bode well for investment capital, but that the city needs to encourage more private sector growth as well. Investors wanting in should expect a competitive environment. Zentil says investor groups are really “digging in up front” and doing as much due diligence as possible. “Groups are investing on a speculative basis,” he says. “For the best product, vendors at this point are demanding very tight due diligence, timelines and pricing. There’s no funny business. People have to come prepared and willing to spend a little bit of time and money up front with the hope of landing some of these deals.” ■ Michelle Morra-Carlisle


Canadian Real Estate Forum / FALL 2017

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could pose risks to individual economic sectors.” While Canada is unlikely to see a reprise of the nearly four percent growth it has posted during each of the past quarters, the cooling off augurs well for continued economic expansion, albeit at a slower pace. “At that pace, you run the risk of raising inflation and interest rates, which is precarious with so much household debt in the Canadian economy,” Holt cautioned. “Canada will probably slow down to a more sustainable two percent growth rate during the next couple of years.” Two economic indicators are especially encouraging: a revival in investment and exports.


Derek Holt Lead Economist, Capital Markets Scotiabank

Prospects look promising during the coming year, as worldwide indicators for industrial production, economic momentum and gross domestic product are all pointing in the right direction. “We’re seeing pretty decent growth numbers coming out of the main drivers of the world economy,” reported Derek Holt, Scotiabank’s Lead Economist for capital markets. 24

Confidence is up in Canada, the United States and Europe, where markets have shrugged off concerns about upcoming elections in Italy, and fears over North Korea, Iran and Brexit

“We’ve closed off most of the room to grow without butting against capital constraints,” he said, “so to grow, companies have to invest.” That’s bolsters an economy that had relied too heavily on two sectors; housing and consumer spending.

“Even Japan performed well during the Timing will be everything, Holt explained, as second quarter,” he the Bank of Canada now noted, “and we’re still weighs whether to “We’ve closed off most of fairly upbeat about increase interest rates, the room to grow without Europe next year; because there’s despite seeing some butting against capital typically a 12-month or slowing there.” more lag between constraints, so to grow, interest rate increases Likewise, despite recent companies have to invest.” and inflation subsiding. trade policy jitters, the Some tightening is in the United States is poised offing, possibly as soon to post growth of two percent or more during as December. Holt expects that the central the coming year, matching or outpacing bank will make at most three such hikes Canada’s prospects and perpetuating during the coming year and that it will likely demand for Canadian products. limit increases to a quarter percent, to avoid undermining the precarious pile of “That’s key, because one-third of the household debt that Canadians have Canadian economy is driven by exports – accumulated spurred during a decade that three-quarters of which go to the United has witnessed the lowest interest rates in States,” Holt explained. “If the United States history. performs reasonably well, then Canada should do likewise.”

Crossborder concerns about a border tax failed to materialize after last year’s American presidential election, and checks in Congress and the US business community have offset recent White House trade rhetoric. “The United States, particularly the northern states, depend significantly upon the North American Free Trade Agreement for their fortunes,” he reminded, “though trade policy

The Ottawa real estate market remains well-insulated from the vicissitudes elsewhere in the Canadian market, Holt concluded, due to the stabilizing effect of public sector investment. “It’s the Goldilocks economy,” he quipped, “neither too hot nor too cold. The Ottawa housing market will grow in 2018, but is nowhere near as stressed as hot-button markets in Toronto and Vancouver.” ■ Robert Frank Canadian Real Estate Forum / FALL 2017

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Kevin Radford Assistant Deputy Minister – Real Property Public Services and Procurement Canada

The focus is now more on creating a collaborative workspace. For example, Treasury Board Secretariat’s entire top floor of its new digs at Canadian Building (219 Laurier Ave) will be fit-up as unassigned space. Staff will simply plug in at the first convenient spot in various types of work points. This includes: focus pods, telephone booths, active workstations, quiet rooms, teaming areas, lounges, communal areas, project rooms, touchdowns, and chat points.

Real estate trends combined with government priorities are revolutionizing the way that the federal government works. From now on, the workplace will be all about putting people together based on whom they need to collaborate with, not simply based on their organization for which they work.

“We’re integrating human resources and information technology (IT) in the planning of our realty assets”, explained Public Services and Procurement Canada’s Assistant Deputy Minister Kevin Radford, “we are ensuing that the IT in our new workspaces is available to any public servant. This allows us to put people together who traditionally didn’t work in the same space. For example, through this new unassigned space, we were able to co-locate various departments,

“We’re hoping to start Confederation Heights in a few years, where security agencies might be consolidated,” he added. “We’re also looking at new projects and major refits like Terraces de la Chaudière, 875 Heron Road, Place du Portage and Lester B. Pearson.”

who work in close collaboration, in Vancouver and in Ottawa here at L’Esplanade Laurier.” “The outcome we want is to improve service to Canadians”, Radford said. “Consistent with results of international studies, Public Services and Procurement Canada’s findings showed that office space was often being underutilized. With the new workplace design which provides unassigned seating as well as collaborative and quiet spaces, the use of space is expected to increase.” Although it will take time to achieve the requisite culture shift, the added flexibility will make the workplace healthier and more productive. “This new collaborative space also helps improve work-life balance”, added Mr. Radford. Ultimately, he anticipates that federal workplace solutions will influence the way private sector office space is organized, including sustainability – particularly in the National Capital, where Radford oversees 37.7 million sq. ft. of the 60.3 million sq. ft. managed by the federal government (a quarter of it located in Gatineau). “Our department has put out a standing offer for smart building technology”, Radford said. “With the goal of maximizing our carbon-neutral portfolio, this technology will improve the way we monitor and control mechanical, heating, cooling and lighting systems in federal buildings across the country.” That gives the federal government a leading role in influencing sustainability throughout Canada’s $285 billion construction industry, as well as in improving accessibility to its installations. It also aims to recruit and retain highly qualified civil servants who will be able to choose where to work from, whether in city core, suburban or rural settings. In the National Capital Area, the Crown owns 52 % of its properties and leases 41 %. The remaining 7% are lease-to-own arrangements. By 2025, the Government aims to make 1 million sq. ft. of new space available in the first phase of a massive redevelopment of Tunney’s Pasture. ■ Robert Frank


Canadian Real Estate Forum / FALL 2017

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“Transportation improvements in Ottawa and the LRT will be a big game changer in terms of bringing people downtown.”

Trevor Blakely is a firm believer in the resurgence of the office market in Ottawa. It’s no wonder, since Forgestone Capital was part of a consortium that recently closed the largest real estate transaction in Ottawa’s history. Their $480 million acquisition of Constitution Square, a downtown three-building office complex on Albert Street, offers more than one million square feet of space near the Lyon Street LRT station set to open next year. “Transportation improvements in Ottawa and the LRT will be a big game changer in terms of

bringing people downtown,” says Blakely, the CEO of Forgestone Capital. “Because we live in a car-dominated society, the immediate impact may be slower than anticipated but over time, anything located along the LRT will be beneficial.”

government continues to spend money and provides more jobs going forward, and as we see new renewed growth in Kanata and the industrial sectors. Our concerns are more global - retail is suffering across the country, but it is challenged everywhere in most major cities.”

Ottawa is also seeing greater diversification of tenants with technology-based companies coming into the fold. And it’s certainly no stranger to urbanization, says Blakely. “It’s not so much an Ottawa trend as an urbanization trend across North America, where the biggest cities are benefitting the most in terms of the growth. Companies are choosing to locate in areas where they appeal to the millennial employees.

Blakely noted the shortfall of student accommodation also poses an opportunity, and that there is an interest in rental and student housing, especially close to public transportation hubs.

“Opportunities here will grow as the

“Our strategy is to provide a better price point to get in for replacement cost and yield relative to the alternatives. If I can buy at 100 basis points cheaper or a better cap rate than I can get elsewhere, that is an opportunity.” ■ Barbara Balfour 29

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Oliver Kershaw Principal, Ottawa Avison Young

Oliver Kershaw described Ottawa’s commercial real estate opportunities as “…a good news story.” While the high concentration of assorted high tech companies continues to dominate commercial real estate within the city’s west end Kanata suburb, Kershaw said that there’s already a growing surge of movement that’s bound to pull the region’s already prosperous tech companies towards the city’s downtown core. As ever, public transit will propel another wave of prosperous development opportunities as Kershaw - the Principal partner of Ottawa’s Avison Young - went on to predict another wave of growth along the city’s new LRT (Light Rail Train) line that will do a lot to relieve the pressure on the city’s already crowded real estate community. While he agrees that there’s still a steady demand for the city’s ‘A’ level office space, he also mentioned that there is bound to be some movement within Ottawa’s ‘B’ level buildings as landlords begin to consider what they can do to improve their property in order to attract the kind of tenants that don’t necessarily need any kind of ‘A’ level space. “Although there is a lack of funky exposed brick space in some of the B class inventory, non-institutional local owners are taking the lead to refresh their buildings for the tech workforce.’’


Aik Aliferis CEO and Co-Founder Primecorp Commercial Realty Inc.

Ottawa’s multi-res market is continuing in the same vein that it has for about the past 10 years, with plenty of land but very limited supply of product. In other words, 30

it remains very difficult to acquire and increase any reasonable mass in the region. “We’re finding that existing landlords and portfolio holders are now looking at other opportunities, namely conversion, construction and new product,” says Aik Aliferis, CEO and Co-Founder of Primecorp Commercial Realty Inc. “So we’re seeing a lot of investigation and activity in the purpose-built rental game.” One minor trend in that vein is that owners of condo buildings are converting some of their units into rental – but it isn’t happening everywhere. “The softening of the condo market of late has propelled that thought,” Aliferis says, “but I’m not sure if the economics are still valid for the condo guys going to purpose-built rental, so we haven’t seen too many of that going on.”

“Although there is a lack of funky exposed brick space in some of the B class inventory, non institutional, local owners are taking the lead to refresh their buildings for the tech workforce.”

He also went on to describe how others are doing what they can to expose their ceilings and build modern shower facilities in order to create the kind of “…cool and funky” buildings that are so popular among young ‘tech’ companies that have already established themselves in both Montreal and Toronto. According to Kershaw, both the city’s east end suburbs as well as some south side sectors are bound to see some development along the city’s new LRT line. While the government, as ever, continues to dominate and determine the relative health of the city’s real estate market, Kershaw also mentioned that new ’high tech’ initiatives such as new automated driving systems will continue to maintain and expand their place in the city’s suburbs as well as within its downtown core. ■ P.A. Sévigny

Purpose-built rental is gaining more momentum in the area of student housing. There is new stock in Sandy Hill, for example, and in other areas, impacting on the viability of multi-purpose rental across the board. Changes in the region influence the decision of where people want to intensify their portfolios. Today this includes proximity to the LRT, which developers definitely consider advantageous. One project being built close to the LRT is at the Train Yards, where Controlex Corporation is set to build up to 2500 purpose-built rental units over the next 10 years. Aliferis says that given the lack of product, an offering of brand new, purpose-built rental stock is helping to appease strong investor interest. “It’s a way for investors to increase their portfolio sizes in the Ottawa region,” he says. ■ Michelle Morra-Carlisle Canadian Real Estate Forum / FALL 2017

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Darryl Schmidt Vice President, National Leasing The Cadillac Fairview Corporation Limited



Canadian Real Estate Forum / FALL 2017

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As the weather cools and we settle into autumn, many real estate investors share a refreshing outlook: that the worst of the economic downturn in Alberta and Calgary seems to be behind us. A number of signals indicate this. “We’re seeing positive net migration into our city and into the province. The rash of layoffs that the oil and gas sector has experienced in the last 36 months has virtually come to a stop in the last six months, which is very positive. The office market in Calgary, after almost two years of inactivity, is finally showing some signs of life. And in the shopping centre industry, traffic and sales seem to have bottomed out in the spring and are now making positive comp gains in most of the major shopping centres’’, says Forum Chair, Darryl Schmidt, Vice President, National Leasing, The Cadillac Fairview Corporation Limited. These, we believe, are all great reasons for optimism. While the rebound is not dramatic, all signs point to a light at the end of the tunnel. A number of new projects are in the ground across Alberta. Given the long lifecycle of those projects, it’s fairly safe to assume they will continue to finalization. And yet there will be an air of caution in the office market, which is

seeing new inventory on stream but not much new development. The same goes for the retail market, which continues to adapt – not only here but globally – to shifting spending patterns among millennials, and the growth of online shopping. Perhaps we can expect continued growth in warehouse logistics, and on the residential side in multifamily and single family, but the next 12 to 24 months are unlikely to bring any major, dramatic development announcements. This seems to be a climate of “digest what you’ve got,” promising only very moderate absorption and growth. Many participants at this forum will surely want updates on how the Canadian and Alberta economies will likely perform in the next 12 to 18 months – information that will frame everyone’s decision-making going forward. Our lineup of expert panelists will provide valuable insights into every facet of the Calgary commercial and residential real estate market and how each element is performing. And amid all of this information sharing, the icing on the cake is the opportunity to network by reconnecting with old acquaintances and forging new relationships within your industry. ■ Michelle Morra-Carlisle


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will not see substantial changes,” predicted KingSett Capital’s CEO. Indeed, there’s little rationale stateside to sever trade ties, given that for 39 of the 50 American states, Canada is already their largest customer. In addition, Canada has a trade deficit with the United States, once you exclude the energy sector. Love is also optimistic on the energy front.

John Love Chief Executive Officer KingSett Capital

The continent’s supply chains have become so intimately integrated during the past thirty years, that Jon Love anticipates little threat to Calgary from the ongoing negotiations over the North American Free Trade Agreement. “My bet is that tension will diminish over NAFTA because we


Clint Elenko Vice President, Western Canada CT REIT Despite the economic downturn of the past few years, people are still spending money in Calgary. As long as retailers continue to reinvest in their businesses and make an effort to understand rapidly changing consumer behaviour, they should remain viable and relevant, says Clint 36

“Oil will likely reach and sustain a price of $60 per barrel in the near term,” he forecast. “Globally, producers have underinvested in resource replenishment. That will work in sync with the coming global economic recovery to eliminate the imbalance between supply and demand that we have witnessed in recent years. Together, those factors will increase upward pressure on commodity prices.” The prospect of continued unfettered trade and increased energy demand augurs well for Calgary, as do increased restrictions on immigration to the United States, which has made Canada a destination of choice for American corporations that find it increasingly difficult to bring in top-notch talent from abroad. That has made it increasingly attractive to locate their foreign

talent nearby in Canada factor that will increasingly bolster demand for Canadian real estate. The timing couldn’t be better for lean and motivated Calgary. “Calgary is particularly good at attracting business to come here – and not merely for the lifestyle. This city has an entrepreneurial flair for spotting and seizing opportunities. So, recover we will,” Love insisted, though he acknowledged that “it will take a different amount of time for each real estate asset class, due to differences in supply and demand.” There is an emerging opportunity to adopt a new vocation for real estate assets that are perhaps not best suited for the use that they were initially built for,” he added. Unlike in previous downturns, the city has been spared a massive exodus this time around. The population continues to crow, albeit at a slower pace than before. Consequently, residential real estate has held its own, save for premium properties, which typically take the hardest hit, positioning it well for the pending recovery. ■ Robert Frank

“The level of creativity and consumer stimulation from top of class retailers has increased exponentially over the past “Across the retail spectrum, merchants are couple years and put enormous pressure on seeing moderate gains. I think the less innovative retailers,” says Elenko. “This turbulence of the past couple years is is causing landlords to explore other starting to smooth out and Calgary seems to avenues in their real estate beyond the be settling into the new normal of lower oil traditional stores of the past, including the prices,” says Elenko. addition of more “Alberta went from great to dining and “The high-end luxury entertainment. pretty good. Our consumer market has taken a Elenko, Vice President of Western Canada for CT REIT.

bit of a hit in Calgary, spend is still one of the strongest “Cineplex’s Rec but shopping for Room concept is a in the country.” ‘everyday life’ great example, a remains strong. Are very cool offering people still buying the $200 dress shoe and a significant traffic driver.” versus the $100 dress shoe? Maybe, but While developers will have to get more some of those spending decisions get more creative and retailers will have to up their scrutiny than in the past. Calgary has had a game, Alberta remains a hotspot for retail. wonderful run for the better part of 20 years. The consumer is still spending and our hope “Alberta went from great to pretty good. Our is that it keeps up in concert with a consumer spend is still one of the strongest decreasing unemployment rate. It’s all about in the country,” says Elenko. “We have an jobs!” amazing ability to rebound and thrive.” That said, differentiation from the ■ Barbara Balfour competition is becoming increasingly important in this era of omni-channel retail.

Canadian Real Estate Forum / FALL 2017

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INFRASTRUCTURE INVESTMENT SPURS PRIVATE INITIATIVE city plans to showcase its destination-oriented development strategy.

Jeff Fielding City Manager & Chief Administrative Officer City of Calgary

The city is also pumping hundreds of millions into its road network, including new, innovative interchanges which will smooth vehicle flow and ease congestion. An avant-garde interchange on the MacLeod Trail will showcase more efficient methods to channel urban traffic. An Alberta first, it could set an example for highway engineers elsewhere.

So far, the strategy seems to be working. Building permits are up, with the hottest real estate money moving into improving commercial and institutional properties. Close behind is new development of townhouse and single-family properties, to house a population that continues to grow, albeit more slowly than during energy’s heyday. “We’re investing in our community, creating jobs and keeping people working,” Fielding said. Intelligent city Coupled with its capital spending, Calgary has also put its operating budget under the microscope.

Calgary’s bold capital investment strategy is a lynchpin in the sustained optimism for the city’s future. “We’ve upped our game,” declared City Manager & Chief Administrative Officer Jeff Fielding. “We have a whole team devoted to sharpening our capital strategy. They maximize return on taxpayer dollars and identify the prospects for private sector partnership.” Foremost is the city’s $4.65 billion light rail transit extension, known locally as the Green Line. The biggest giga-project in Calgary’s history, it will reshape its urban landscape during the next ten years. “The first trains ought to be operating by 2026,” Fielding anticipates. “It’s a very significant investment that will reap rich dividends long into the future.” Greenfield growth and downtown revival “We’re trying to stimulate investment,” he explained. “We’re finding private-sector partners for whom it might be timely to invest, in step with the city’s projects.” Well-suited to situate new commercial-residential clusters, the new mass-transit hubs will dovetail with several large-scale undertakings underway on Calgary’s periphery, where the 38

“Our municipal investment strategy aims to support our strong, youthful entrepreneurial ethos and diversify our economy by supporting our private sector.” Young, educated, prosperous To fill the void that the energy downturn has left in the downtown Calgary, the city continues to court industries that would gain a competitive advantage by locating in the urban core. “We’re still growing,” reminded Fielding, despite the drastic setbacks that have hammered Alberta's energy economy. “Calgary’s demographic fundamentals remain remarkably solid: Our average age is 36 and family income remains above the norm. Our municipal investment strategy aims to support our strong, youthful entrepreneurial ethos and diversify our economy by supporting our private sector.”

Two years ago, it instituted its Innovation Lab, to find ways to deliver better service to its citizens – for less. “Anyone can have a good idea, regardless of what job they hold in the city administration,” Fielding explained. “We encourage experimentation and thinking outside the box.” Innovation Lab has already identified and implemented ideas like tailoring the frequency of trash collection to the amount of refuse that neighbourhood residents generate. ■ Robert Frank

Canadian Real Estate Forum / FALL 2017

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Greg Kwong Executive Vice President & Managing Director CBRE Limited This time last year, the office vacancy rate in downtown Calgary was approximately 22 percent. Today it’s close to 30 percent. “It’s just a function of

allowing the oil and gas industry to try to cope with low oil prices, trimming costs – which includes laying off people – and also reducing overhead expenses, which is office space,” says Greg Kwong, Executive Vice President & Managing Director, CBRE Limited. Kwong doesn’t expect the situation to improve by year end but believes, as others do, that this is the bottom. “It’s just a matter of how long we’ll stay at the bottom,” he says. His advice to landlords in such an environment? Pull all levers. “If you’ve got a completely vacant building, look at maybe repurposing your building,” he says. “Also look at doing really low rent lease deals with tenants that you normally wouldn’t look at, but who could financially backfill a space for maybe a few years.” His advice also depends on whether a landlord is optimistic

ENERGY MARKETS EYE OPEC SUMMIT – NOV. 30 “That puts a ceiling on prices. The Saudis

want oil priced at $60, but having witnessed it sink to $27, they are will to take $50.” Eventually, this dynamic will run its course, because the shale oil boom stunted long-term investment in conventional extraction.

Helima Croft Managing Director & Chief Commodities Strategist RBC Capital Markets What has changed in the energy sector? Plenty, according to Helima Croft. “After the Saudis fired their oil minister Ali Al-Naimi in 2016, they switched from seeking market share to trying to put a floor on prices through active market management,” said RBC Capital Markets’ Managing Director and Chief Commodities Strategist. The problem, for now at least, is that whenever crude prices rise to $50 a barrel, American domestic production ramps up. “Even if the company’s cash flow is negative, at $50, it will still hedge its production,” she said. 40

“We’re still seeing the product of previous investments,” Croft said. “Kazakhstan production is coming online, plus we’re seeing more production from Brazil – but several years out, we’re not going to have additional conventional production. Once shale alone is insufficient to balance the market, we’ll see the prices tighten.” Nearer term, next month’s OPEC meeting in Vienna will prove decisive. If the cartel continues to hold together and extends its supply management agreement from March to June, or opts for even deeper cuts, the repercussions will be profound for Canadian producers. Russia reinforces role Russia has also engaged in a hitherto-unheard of leadership role, she suggested, having witnessed Russia’s oil minister standing shoulder to shoulder with his Saudi counterpart to announce OPEC’s sea change in policy. “It went from saying ‘under no circumstances will we cooperate’, to where

toward the future. If so, he says, this could be a good time to renovate a building; and if not, consider selling. Another sign of the times is that tenants are seeking economy, and not necessarily quality. “Companies will move anywhere that saves them money or perhaps provides them with a little better value for same price,” Kwong says. The general consensus that the market has hit bottom has, according to Kwong, actually generated optimism that now might be the time to renew a lease at a lower rate, or that maybe it’s time to buy. “The good thing is, no one has lost their long term vision for Alberta,” Kwong says. “It’s just that in the short term we’re going to have some tough times. ■ Michelle Morra-Carlisle

the Russians effectively co-preside OPEC,” Croft observed. Another significant wild card is Venezuela. With shrinking GDP, triple-digit inflation, scarce essential goods and a possible famine waiting in the wings, South America’s biggest oil-producer faces imminent economic collapse. “What does this do to oil production?” Croft questioned. “Petróleos de Venezuela (PDVSA) has about $3.5 billion in sovereign debt coming due now. It doesn’t have the cash to pay that debt. Could PDVSA default? Russia has bailed it out before. I’m inclined to expect that Russia will do so again – but the markets have priced-in default.” Venezuela also faces the prospect of tighter American sanctions that would further impair its ability to export oil. “If fewer Venezuelan barrels end up entering the United States,” Croft said, “the net beneficiary will be Canadian heavy.” American foreign policy toward Iran is another wild card. Non-certification that Iran is compliant with the nuclear deal signed during the Obama administration would means that Congress will have to decide whether it wants to re-impose sanctions. Extraterritorial sanctions would make Iran less attractive to investors and have a noticeable impact on its ability to sell oil and potentially cap its production gains. ■ Robert Frank Canadian Real Estate Forum / FALL 2017

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Bruce Nelligan President Watt Consulting Calgary’s decades-long lag in infrastructure funding is no more. Today, the city hums to the tune of a $15 billion set of infrastructure improvements that have opened up entire swaths of the city to new development and major renewal. “This will help Calgary to catch up, especially on the transit side,” endorsed Watt Consulting President Bruce Nelligan. “From a real estate perspective, it will create opportunities to develop areas that like Providence and the Tsuut’ina nation in the southwest of the city – desirable but hitherto undevelopable locations because they lacked adequate infrastructure. A main piece of the puzzle is the completion of the southwest sector the ring road that circles the city.

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“It’s been needed for nearly two decades,” Nelligan observed. “It will certainly reduce commute times and give southwest residents more options to get to work from that part of the city.” He hailed the province’s pact with Tsuut’ina leaders as a model of mutually beneficial collaboration. “The nation long aspired to retail and office and institutional uses for its land,” Nelligan recalled. Recent construction of a hotel and casino demonstrated that development could prove a good economic engine for the Tsuut’ina. Their success helped to spur longstanding negotiations that culminated in their agreement to relinquish land within their boundaries to permitting ring road construction. That decision enabled the Tsuut’ina to embark on a $5 billion buildout there the next quarter-century. In addition, Nelligan welcomed the city’s decision to proceed with its green line commuter rail project will open up opportunities for the real estate sector to seize transit oriented development opportunities in the vicinity of the new stations. He noted that Calgary is also in the process of overhauling 27 of its main arteries. “They’re going beyond mixed-use commercial-residential development and taking a serious look at how to make entire neighbourhoods more people friendly with better transit, cycling and pedestrian infrastructure,” he concluded. “That opens the door to private-sector real estate entrepreneurs to invest in intensification projects that will transform this city.” ■ Robert Frank


Canadian Real Estate Forum / FALL 2017

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DIVERSIFICATION KEY TO SUCCESS OF INDUSTRIAL SECTOR Despite the economic downturn of recent years, Calgary’s industrial sector has done much better than its oil and gas counterpart, and continues to sustain strong interest.

Chris Saunders Senior Vice President – Industrial Cushman & Wakefield

This is largely because the industrial market is much more diversified compared to the office market, says Chris Saunders, Senior Vice President of Industrial at Cushman & Wakefield.


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“All of the activity in manufacturing and distribution help keep the engine turning here, and the employment rate in these sectors is almost at, or has even recently surpassed, that of oil and gas employment in Calgary. “This has really contributed to the amount of space being absorbed; it houses the employment. With employment being higher in these sectors, industrial space is consequently highly occupied in general.� While there has been an increase in vacancy rates to +/-9.0 percent over the past few years, Saunders says this is not so much due to major downsizing and bankruptcies, but rather added supply. “We’ve seen a heavy amount of speculative construction. The five and a half million square feet that came to market in the last few years really increased the supply side.

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“However, we’ve also seen an increase in the leasing activity of spaces of more than 50,000 square feet in recent months, which will certainly bring down vacancy rates in the large bay sector and help to stabilize the market for the balance of this year and in 2018.�





Saunders expects that the market should get ramped up for another development cycle in the last half of next year.


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“There is a 50/50 mix between owners/users buying land to build new facilities to house their business and developers buying land to build speculative product. Both bode well for our industrial market and the overall economy in Calgary.�

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THE AMAZON EFFECT: SLOWDOWN IN MALL TRAFFIC NOT JUST AN ALBERTA ISSUE for brands, retailers, and shopping centre owners,” he says.

Roman Drohomirecki Executive Vice President & Chief Operating Officer, Retail Ivanhoé Cambridge Modest traffic increases over the summer months and a three per cent rate of growth in Alberta are indicative of a gradual recovery. But Roman Drohomirecki, Executive Vice President and Chief Operating Officer of retail at Ivanhoe Cambridge, says he’s cautiously optimistic, given the changes in how people are choosing to shop globally. “While the roaring double digit increases we saw before won’t be seen again for some time, the ‘new normal’ can be sustainable

“We’re very fortunate to own great shopping centres in Calgary, and we expect our occupancy will improve modestly. But the problem with vacancy for us, is it’s not entirely an Alberta issue. “We’re not only suffering from a downturn in our economy but also the downturn in the US. And thanks to the ‘Amazon effect’ – the effect online shopping has had on shopping centres in general – the issues are more global than they have ever been.” To stay competitive, over the next 12 months Ivanhoe Cambridge plans to continue reinvesting in their shopping centres. This summer, they completed a brand-new food hall for the CrossIron Mills mall, an outlet/full-priced hybrid that is only seven years old. “We wanted to offer something more to our shoppers,” says Drohomirecki. “Today we are operating in a world where consumers can get what they want instantaneously delivered to their door with the click of a mouse.


Richard Cho Senior Housing Economist Canada Mortgage and Housing Corporation

Calgary’s housing market turned the corner this year, with developers breaking ground on 30 percent more residential units than they in 2016. The city has also seen a resurgence in resale activity, reported Richard Cho. 44

“The majority of the multi-residential construction that we have been seeing is on the apartment side,” said Central Mortgage and Housing Corporation’s head of market analysis. “Most of that is in the suburbs and outlying communities. We have also seen some increase in construction in the semi-detached and row-house segments of the residential real estate market.” During the last few years of downturn, many condo owners here have also placed their units on the residential market, which has given prospective tenants a broader range of options from which to choose. “We’ve seen quite a lift,” Cho remarked. “Condo rentals continue to increase, which has an impact on the overall rental market. The supply of housing has increased in both purpose-built as well as in the secondary

“Shoppers have become more fickle than ever before, so it’s important to offer a meaningful experience that gets them off their sofas and into our buildings.” Those differentiated experiences include common areas to congregate and entertainment like yoga, cooking demos, food and beverages and a relaxing environment. “We’re also spending time and money on analytics to get to know our shoppers better, and scouring the world for the next new brands to come to Canada. Calgary has a very good reputation as a city to start or continue a new brand – unfortunately the last little while, the economy has given some folks pause. “Whether you are a consumer, a pension fund or entrepreneur, you don’t like uncertainty. We’re climbing out of a pretty deep hole, but the caveat is we still rely heavily on oil and gas. There needs to be progress on the pipelines to further restore some confidence in this market and with our shoppers.” ■ Barbara Balfour

condo rental market.” With Calgary vacancy rates already elevated, the added supply on the market has intensified downward pressure on multi-unit residential housing prices. “We are seeing rent reductions in Calgary, as well as more incentives being offered,” he indicated. Larger apartments are attracting particular interest, with sales picking up steam. “Price is very important, as is location, as we continue to witness increases in demand,” Cho concluded. “Overall, the housing market in Calgary has been recovering, partly due to how the economy here has grown and improved. Calgary has seen some increase in employment and the population continues to grow, which supports some of the housing demand that we’re seeing.” ■ Robert Frank Canadian Real Estate Forum / FALL 2017

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Scott Hutcheson Executive Chairman Aspen Properties

“We rolled out all the creative things – making the building dog-friendly, putting a golfing range on the top floor. These are all fun, friendly concepts that are not corporate, but targeted towards the future of what we think the office will look like, which is more playful. “We need new ways of thinking to get ahead of the changing demographics and the desires of the millennial workforce.” The good news for Calgary, says Hutcheson, is that it is finally at the bottom of the business cycle in the market. “Most of the big layoffs are behind us, and consumer confidence and spending have started to rise. “From a real estate standpoint, there are still some supply side additions coming to market so we expect vacancy rates to continue to go up, but the business cycle won’t erode any more than it has. Housing stock seems to be picking up in terms of absorption. “Overall, we can see a more stable 12 month ahead.”

While granite towers filled with cubicles will do little to lure the next generation of office workers, a lounge filled with beer kegs can go a long way. So, too, can basketball courts, golf simulators and an outdoor dog park – all features of the former Encana Place Tower, acquired by Aspen Properties. “We tried to be innovative, possibly even disruptive, in the things we’re doing to change office space, and it really paid off,” says Executive Chairman Scott Hutcheson. Their tenants range from law firms to a San Francisco-based accelerator called Rocket Space. 46

Calgary is among a handful of Canadian cities that has submitted a bid for consideration as the host of Amazon’s second headquarters. The Seattle-based e-commerce giant will pick the location for its home away from home by next year. “If Calgary could attract Amazon to this market, it would replace the 50,000 jobs we’ve lost in the oil business with jobs in a future growth sector with one of the best organizations in the world. That would be a once in a generation opportunity in this community,” says Hutcheson. “The odds are quite slim because we’re competing against 51 cities across North America, but we’re putting together the best possible package to get Amazon’s attention. “Amazon would be well served to look to Canada. We’re a friendly nation to the very people US public policy on minorities and international employees discriminates against and is turning away, located two hours away from Seattle. We have lots of available office space, highly educated

“We need new ways of thinking to get ahead of the changing demographics and the desires of the millennial workforce.” engineers and other labour, and available housing stock that is really not expensive relative to other cities in major markets.” While Calgary is on the rise again, Hutcheson cautions some challenges lie ahead with regards to the erosion of valuation of office buildings and the subsequent renewals of debt that need to occur. “My concern is where the debt market is going. The list of lenders is getting shorter and shorter over time– what will be the effect on our community? We’ve renewed three pieces of debt and were lucky to get it done because there’s not a long list of lenders giving us debt exposure in Calgary. “It continues to be relationship-driven and not everyone has those relationships with the lending market or institutional partnerships. So that is certainly one of the biggest challenge will see in the next 18 months.” ■ Barbara Balfour Canadian Real Estate Forum / FALL 2017

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William Briscoe Chief Executive Officer Canderel MDC Development Management The native elders southwest of Calgary had a great, win-win vision for their nation. The scale is staggering: Over the next 25 years, three massive developments will rise on Tsuut’ina land. “We’re planning 17 million square feet on a total of about 1,200 acres, with an ultimate build-out value approaching $5 billion,” said The Canderel MDC Development

Management CEO William Briscoe. “This is as high-quality project as you will find.”

diversify as it emerges from the current energy downturn.

In the year since Canderel signed an agreement to partner with Tsuut’ina on the project, Briscoe has worked closely to map out a development plan that will bring a unique, native quality to the top-tier, state of the art facilities that it envisions.

“As the economy changes, we’ll be in a position build campuses that focus on innovative uses as well as health and wellness,” he highlighted, “and we have the scale with which to do something really transformative.”

“We want to take it beyond its sheer scale to yet another level. We’ve spent a lot of time listening in order to gain a deeper understanding of the Tsuut’ina history and culture, something that this project will definitively express,” he explained. “When you enter, you will feel that you are on Tsuut’ina land – a special place where you will want to return. The transition from bordering Calgary will be seamless, subtly emerging into a natural landscape lined with pedestrian and cycling spaces that coexist with automobile access.” The three mixed-use projects are: • Tsuut’ina Park, in the north with six million square feet on 500 acres • Tsuut’ina Crossing, in the middle, with eight million square feet on 360 acres • Tsuut’ina Centre, in the south, with three million square feet on 350 acres Briscoe underscored that the time is ripe to tailor the trio while Calgary continues to

MINTO CAPITAL VP CONSIDERS CALGARY MARKET TO BE “STABLE AND POSITIVE” was in a good position to talk about the western real estate market because Minto has already invested in three new Alberta development projects – two of which are located within Calgary. Jaime McKenna Senior Vice President, Finance and Investments, Minto Capital Jaime McKenna described Calgary as a stable and positive market for future real estate development projects. As McKenna is a Senior Vice President (Finance and Investments) of Minto Capital, she 48

“It was a tough slog for a couple of years,” said McKenna, “… but we’re starting to feel really good about Calgary right now.” Following the company’s initial move (2012) out West, McKenna said that the city is slowly beginning to pull itself out of the doldrums that were the inevitable result of the global collapse of the energy sector that used to propel the Alberta economy. Two years later, she said that “…it’s not a big comeback,” but the city’s economic environment is “…stable and positive,” and that the city will provide

Tsuut’ina recognized the economic benefits it could reap by selling some of its land to enable Calgary to develop its ring road and developing its adjacent property. “One of our major strengths is access,” Briscoe acknowledged, adding that the Tsuut’ina quest for prosperity could serve as a template for other first nation communities. “It is hard to exaggerate how impressed I am with their abilities and professionalism,” he commended. “These are wonderful people who are very self-sufficient in what they do.” “They operate their own police, fire and other essential services and we are working very hard to elevate aspects of their administration such as property taxation and public works to respond to the challenges of a development of this scale,” Briscoe concluded. “We’re not merely building physical infrastructure. We’re also developing the administrative infrastructure that will bring this project to life. It enables them to compete at a very high level for tenants and development.” ■ Robert Frank

plenty of interesting development opportunities for future investments within both Calgary and the rest of the province. Aside from an initial condo development project, Minto also bought a well-known hotel in order to convert it into rental units. As the local population is taking advantage of the recently depressed market to “…move up” into better and more spacious accommodations left vacant by previous owners and tenants who were the incidental casualties of the 2015, the vacant space provides excellent opportunities for any investor who is willing to convert the available space into assorted condo and rental housing projects. When asked about what she considered to be the important factors behind a successful development project, McKenna said that proximity to services were as important to the millennial generation as were the common spaces that quickly begin to define the heart and soul of the building’s social life. ■ P.A.Sévigny Canadian Real Estate Forum / FALL 2017

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DISTRIBUTION DEMAND HEATS UP INDUSTRIAL ASSETS While Calgary’s office real estate market will continue to face considerable headwinds for the foreseeable future, the city’s retail assets continue to perform well, while the industrial side continues to grow unabated. Peter Zorbas Executive Vice President, JLL

“There’s still insatiable demand for industrial properties in Alberta, especially higher quality product,” reported Peter Zorbas, who leads

JLL Canada’s capital markets activities. “We just don’t have the supply to satisfy it at this point. One deal had 26 bids on it.” Despite the energy downturn, Calgary continues to consolidate its role as the distribution hub from the Pacific to the Lakehead, with rumours rampant that retail giant Amazon’s is about to set up its Western Canada distribution centre here. “Alberta is a one-day truck drive to both British Columbia and to Manitoba,” he explained. “Calgary tends to become a distribution hub. You can serve the whole region from here along the TransCanada highway.” Investors who locate here get a low cost-of-living, inexpensive office space and a highly educated workforce, coupled with Calgary’s high quality-of-life and the Rocky Mountains just an hour away.


“Alberta is a one-day truck drive to both British Columbia and to Manitoba, Calgary tends to become a distribution hub. You can serve the whole region from here along the TransCanada highway.”

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“All those things are a pretty good inducement,” Zorbas declared. JLL itself is listing about 460,000 sq.ft. of industrial in Calgary and Edmonton. With more than 11 million sq.ft. of office assets available, buyers are looking for bargains, not yield. “Asset that have near-term expiries or higher vacancies lose value significantly,” he said. “Anything with a perceived risk.” Most investors are out-of-province, particularly from lower-yield British Columbia. “Many transactions will remain off-market, because of failure risk,” Zorbas concluded. “Rising interest rates will put pressure on capitalization rates. It will be interesting to watch the impact on evaluations, because Alberta fundamentals aren’t as strong as some other markets.” ■ Robert Frank


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FALL 2017 / ISSUE 75

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Michael Brooks Chief Executive Officer REALPAC

REALPAC participates in, believes in, and contributes extensively to the growth of global standards. While one can debate the merits of guidelines, principles, standards, or other comparable tagline, they all have the same goal in mind: Convenience, comparability, acceptability, universality, and efficiency. Since 1915, BOMA (Building Owners and Managers Association) has been publishing office measurement standards, and by the time you are reading this article, BOMA International will have released BOMA 2017 for Office Buildings. Being able to reference detailed measurement criteria for office space in a commercial building would


otherwise be tedious, but since 1915 we’ve been able to refer to a dated BOMA measurement standard well understood in the marketplace and generally agreed to by landlords and tenants. The interesting fact about BOMA 2017 for Office Buildings is that it was drafted to align with the new IPMS (International Property Measurement Standards) office measurement standards released late last year by the International Property Measurement Standards Coalition (IPMSC), membership of which includes REALPAC, BOMA Canada, and BOMA International, among more than 80 organisations from around the world, who work together to develop and implement international standards for measuring property. Run by the Royal Institution of Chartered Surveyors out of the UK, IPMSC has been instrumental in ensuring property assets are measured in a consistent way, creating a more transparent marketplace, greater public trust, stronger investor confidence, and increased market stability. Capital is made more mobile to the extent that more standards are adopted globally. Having a set of accepted global property measurement standards allows investors, who now move capital around the world, to do so much more efficiently as the learning curve from country to country is much shorter, collaboration much easier, and regulation more aligned. REALPAC was deeply involved when Canada adopted International Financial Reporting Standards (IFRS), and have continuously offered training in IFRS for real estate entities since 2010. Our VP, Financial Reporting & CFO, Nancy Anderson, is on Canada’s Accounting Standards Board, and is a key spokesperson for the listed real estate with the International Accounting Standards Board in the UK. REALPAC has also been active with international tax standards, generally represented by the OECD (Organisation for Economic Co-operation and Development) Model Tax Code.

REALPAC has championed international sustainability standards, previously as represented by the Global Reporting Initiative, and as a member of their special Construction and Real Estate Sector Supplement team, in turn comprised of individuals from around the world. More recently, we have become the Canada partner for GRESB (Global Real Estate Sustainability Benchmark), as that program now represents $3.7 trillion USD in real estate value, 77,000 assets, and is a standard way of ranking and rating sustainability at the enterprise level. There are now new initiatives underway in International Ethics Standards, and deeper initiatives around the United Nations’ Sustainable Development goals and the Principles of Responsible Investing. The United Nations also has standards for sustainable stock exchanges and very recently, a Guide to Banking and Sustainability. At the asset level, the industry certainly has sustainability proxies, such as LEED and BOMA BEST in Canada, and new emerging standards in connectivity (the WIRED standard), health and wellness (the WELL standard and the FITWEL standard), accessibility (the Rick Hansen Foundation), and many others at the building level. A core tenet of REALPAC is to support the Canadian real property industry by providing smart tools, meaningful benchmarks, best practice guides and practical voluntary standards to enhance management practices and results. As an industry that continually strives for best practice and leadership, all of these standards discussed are worthy of review and consideration in business practice. Without them, we lose the legitimacy and perception of sophistication that many other industries possess. Quality industry standards elevate our game, bringing more investors and tenants to our buildings, ultimately advancing the long-term vitality of Canada’s real property sector. That’s the fuss. ■

Canadian Real Estate Forum / FALL 2017

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CREATING A RESILIENT REAL ESTATE SECTOR identified climate change as a major area of concern when thinking of the future of their asset portfolios.

Kris Kolenc Co-ordinator, Research and Sustainability REALPAC

From increasing temperatures to more frequent extreme weather events like Hurricanes Maria, Harvey and Irma, the effects of climate change are becoming more apparent to our industry. Property owners now need to actively consider climate risks like flooding, warmer temperatures, heavier snowfall, and potential power outages to avoid future costs and damages to their building stock. From an investor perspective, buildings that are more susceptible to climate change could also be less attractive to invest in and require higher insurance costs. Many REALPAC members have

Mitigation has been the focus of many environmental movements thus far, but because we are already experiencing the effects of climate change and will continue to do so in greater frequency, adaptation is becoming a stronger focus. More specifically, “resilience” is becoming the new sustainability buzzword in the industry. The Intergovernmental Panel on Climate Change (IPCC) defines resilience as the “ability of a system and its component parts to anticipate, absorb, accommodate, or recover from the effects of a hazardous event in a timely and efficient manner.”1 Applied to the real estate industry, a resilient building is one that is able to adapt or has adapted to the anticipated effects of climate change so that impacts are minimized when they happen. Some early progress has already been made to support climate resilience. On the asset level, different design principles and technologies can be implemented to create resilient buildings. Obviously, buildings should not be developed on flood plains or even low lying, poorly drained areas to avoid the risk of flooding. The use of permeable surfaces, such as green roofs and

permeable pathways and parking areas, allow absorption of rainfall, reducing the immediate burden on storm sewers and drainage swales and rivers, reducing flooding. In many cases, delaying runoff will help avoid flooding downstream. High risk buildings, such as hospitals and seniors homes, can be equipped with back-up power supplies in the event of a power outage, to maintain heat or air conditioning over an extended period. Climate resilience can also be supported on a policy level. Building codes can be updated to require climate adaptation measures in buildings. Municipal climate adaptation plans can be created to guide a municipality’s adaptation approach. The City of Toronto created a climate adaptation plan in 2008 and adaptation plans are mandatory for municipalities in Nova Scotia and Québec. Governments could also provide funding and incentives to assist building owners in making their buildings resilient. Although the theory exists on climate resilience, its implementation is still early. Much work is yet to be done, but the sooner the industry adapts to climate change, the fewer risks will be experienced. REALPAC will continue to do research in climate resilience and keep the industry informed on this growing issue. ■

1 IPCC, 2012: Glossary of terms. In: Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation [Field, C.B., V. Barros, T.F. Stocker, D. Qin, D.J. Dokken, K.L. Ebi, M.D. Mastrandrea, K.J. Mach, G.-K. Plattner, S.K. Allen, M. Tignor, and P.M. Midgley (eds.)]. A Special Report of Working Groups I and II of the Intergovernmental Panel on Climate Change (IPCC). Cambridge University Press, Cambridge, UK, and New York, NY, USA, pp. 563.


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By Sandra Dos Santos Director Industry Affairs & Compliance REALPAC

Look around the room at the conference you are attending. The Canadian real estate industry, particularly at the senior ranks, and in most cities, is largely represented by male and mostly white individuals who entered the workforce 20 or 30 years ago. But the labour pool across Canada has changed dramatically in the last few decades. Women often make up more than half of graduates from professional schools. How can the commercial real estate industry catch up and mirror the diverse demographics we have in Canada? How can we ensure underrepresented segments don’t feel excluded by those ahead of them on the career ladder? How can we make an industry that is welcoming and offers opportunity for all? The benefits derived from having diverse and inclusive real estate organizations are numerous. Diversity of thought and skill sets at all levels of an organization,

including at the board, management and staff levels, allows for an increase in innovation and creativity and reduces “groupthink”, which can be detrimental to an organization. Diversity is about valuing differences in individuals, including those based on gender, race, religion, sexual orientation, ethnicity, physical ability, parental status, age, or geographical representation, to name a few. Inclusion is about proactively creating environments that meet the needs of diverse groups, allowing them to achieve their full potential. Diversity and inclusion work together to ensure fairness of opportunity. Successful diversity and inclusion initiatives should be spearheaded and supported by the senior leaders of an organization. It is essential to have buy-in at the top, to affect a culture shift below. Commercial real estate has begun to address the issue, but has started with a more narrow focus on gender issues and elevating women in the sector. We need to go further than that. We need to look at the issue of diversity and inclusion holistically, rather than piecemeal. We need to address issues for all the underrepresented groups and affect change

that will result in a diverse and inclusive commercial real estate industry as a whole, at all levels. Several REALPAC sister organizations around the world have begun to address the issue. The Property Council of Australia has developed a comprehensive initiative, including a panel pledge to restrict male dominated panels that focuses on gender inclusivity in real estate. The Pension Real Estate Association (PREA) of the United States has partnered with Sponsors for Educational Opportunity (SEO), an organization that provides trained interns, to bring diversity to institutional real estate businesses with a focus on the underrepresentation of African American, Hispanic and Native American groups. Other organizations such as the National Association of Real Estate Investment Trusts (NAREIT) and Commercial Real Estate Women (CREW) have initiatives in place to support the recruitment, inclusion and advancement of women in commercial real estate. Having a diverse workplace seems like the right thing to do, but there are also proven economic benefits. Employers are



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continuously trying to attract and retain top talent. The commercial real estate industry is no different and we need to grow that talent pool for the industry to thrive. McKinsey & Company has found that companies with a diverse workforce perform better financially. In its 2015 Diversity Matters report1, it examined data from 366 public companies in Canada, Latin America, the United Kingdom and the United States, and found that top quartile diverse companies perform better than their counterparts. Specifically, the top quartile racially and ethnically diverse companies are 35% more likely to have returns above their industry medians and the top quartile gender diverse companies are 15% more likely to have returns above their industry medians. The research examined metrics such as total revenues, earnings before interest and taxes and returns on equity for the years 2010 to 2013.

Why is diversity an indicator of strong economic performance? According the Diversity Matters report, diversity has a positive impact on many elements of organizational performance. Diverse companies are more likely to attract top talent, increase productivity, and improve customer satisfaction, employee engagement and overall decision making, thus resulting in higher returns. Diversity brings with it a competitive market advantage for companies. So how do we get the Canadian commercial real estate industry up to par or above other industries on this issue? REALPAC carried out an HR Pulse Survey on diversity and inclusion and found that over 90% of the respondents lack a dedicated diversity and inclusion team and almost 80% of respondents lack a formal diversity and inclusion policy or strategy. REALPAC recognized the need for change and established the REALPAC Diversity & Inclusion Advisory Committee to assist the Association in developing national diversity and inclusion guidance for the commercial

real estate industry. The committee members are leaders in the diversity and inclusion space and executives of some of the top real estate companies in Canada. The Advisory Committee’s mandate is to examine the issues affecting underrepresented diverse communities that limit their ability to grow and advance in the industry and develop guidance to increase diversity and inclusion in the Canadian commercial real estate sector. There are some very interesting initiatives that can be implemented at different stages such as recruitment (e.g., name blind recruiting, unconscious bias training, etc.), advancement (e.g., mentorship and sponsorship programs), recognition of leaders (e.g., diversity awards) and at the environment level through inclusive design in new or retrofitted buildings (e.g., prayer rooms, wellness centres, mother rooms, etc.). The focus should be on having commercial real estate companies benefit from making the work environment diverse and inclusive on all levels, reflecting Canada’s diverse society. ■ 61

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Nancy Anderson VP, Financial Reporting & CFO REALPAC

Recently, there is increasing discussion on the use – and misuse – of non-GAAP metrics in financial reporting. These concerns have been raised by various stakeholders, including investors, analysts, security regulators and the media. Without standardization in the industry, it would be up to securities regulators to take action to effect change. Instead of waiting for this to happen, REALPAC made the decision in the fall of 2016 to lead a change initiative that would be in the best interests of the industry. While Funds from Operations (FFO) has been defined by REALPAC since 2004 (and periodically updated for new IFRS pronouncements), most – if not all – Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs) made adjustments to this common metric to reflect their own formula for Adjusted Funds From Operations (AFFO). AFFO has long been used by analysts and investors as a key earnings measure for evaluating REITs and REOCs. However, faced with a multitude of differing calculations in the industry, comparability was seriously lacking among entities. Not only were the calculations different, but the underlying uses behind AFFO calculations varied, with some viewing it as an operating metric, some as a cash flow metric, and others as a hybrid of both. While sorting out these discrepancies had proven too great a stumbling block in the past, REALPAC worked with key players in the industry to develop a solution. The

answer resulted in a succinctly defined AFFO metric and the introduction of a new metric: Adjusted Cashflow from Operations (ACFO). In April 2017, REALPAC published two new white papers defining both AFFO and ACFO. Now, we have clarity of definitions. AFFO is defined as a recurring economic earnings measure, calculated as REALPAC FFO less: CAPEX, leasing costs, tenant improvements, straight line rent and non-controlling interests in respect of the other adjustments. ACFO is intended to be used as a sustainable, economic cash flow metric, and is calculated from IFRS cashflow from operations with adjustments for capital operating requirements and other specific cashflow amounts. Also included in the white papers are additional best practices guidance around Capital Expenditures (“CAPEX”), leasing costs and non-cash distributions. The goal of both the definitions and the best practices guidance is to bring greater consistency and transparency to the operating results of REITs and REOCs, and their ongoing ability to sustain distributions. The new AFFO and ACFO standards reflect the positive market outcomes that can happen when the public REIT and REOC CFOs and industry analysts seek to improve overall industry governance. REALPAC is a perfect platform for these types of collaborations. ■


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Our focus: your objectives your business your growth Being more than a lender means exploring with you, questioning the obvious and surfacing the alternatives to find the right solution. It means providing trusted advice and being unafraid to say no, when the deal isn’t right. It means communicating transparently, so you’re as informed as we are. It means executing seamlessly, so you never experience any complexity. And it means being inventive and entrepreneurial, so you get the right money, for the right property, at the right time. More than 5,500 clients look to First National as their real estate partner and rely on us as more than a lender to provide solid advice, fresh perspectives and innovative alternatives that drive them toward their real estate goals.

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