Canadian Real Estate Forum Magazine - Winter Issue 2014

! CREF Winter 2014 v9 2014-11-27 4:39 PM Page 1

WINTER 2014 / ISSUE 67

THIS MY FRIEND IS YIELD Low-low-low trend to continue unabated

Tech-focused cities those to watch, invest in

Inner-city renaissance spurs retail revolution

Top considerations of foreign investment

The Altus report: What happens next? Preparing for unfamiliar outcomes

Canada prepared for long-expected market shifts

What is driving urbanization?

WWW.REALESTATEFORUMS.COM

! CREF Winter 2014 v9 2014-11-27 4:39 PM Page 2

Brian Kimmel Assistant Vice President Commercial Financing

$3.2 B

Peter Cook Assistant Vice President Commercial Financing

commercial

Darryl Bellwood Assistant Vice President Commercial Financing

loans in

2013 Do you know why? Because we focus on more than just the deal.

We invest time up front to ask the right questions, visit your property and know your portfolio and growth plans. We apply ingenuity when developing Ă„ UHUJPUN ZVS\[PVUZ ^P[O `V\ YLS`PUN VU V\Y IYVHK WYVK\J[ lineup, expertise, network and spirit to take smart risks. Most importantly, we execute. Quickly. Simply. Responsively. Every time.

Recent Financings:

firstnational.ca

CMHC insured loan to finance acquisition

Conventional loan to finance acquisition with ability to convert to CMHC insured loan

$82.0 million 1214 units, multi-res Toronto, ON

$24.6 million 216 units, multi-res Toronto, ON

Conventional CMBS loan for equity take out

CMHC insured loan for equity take out

$5.0 million 51 units, multi-res Toronto, ON

$20.3 million 297 units, multi-res Toronto, ON

VANCOUVER CALGARY

TORONTO

MONTREAL

HALIFAX

604.681.5300 800.567.8711

416.593.1100 800.465.0039

514.499.8900 888.499.1733

902.452.0776

403.509.0900 888.923.9194

Ontario Mortgage Brokerage License No. 10514

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 3

REAL ESTATE HAS NO BORDERS

George Przybylowski Vice President, Informa Canada

six weeks in advance. This leads me to believe that we are hitting the mark!

win, network and get some great insight into where the market is heading.

Our mission is to engage our stakeholders, fire up a new generation of investors, and equip them with useable information and insights that hopefully provide positive returns.

International thought leaders will also join Canadian executives to discuss investment, development and joint-venture trends, risks and opportunities in Europe, the U.S., Latin America and other growing and emerging markets. This trend is becoming more important as Canadian investment outside our borders increases substantially. Mark in your calendar the dates of May 27 and 28 when a new exposition and conference will premiere in the Javits Center in New York that will focus on all aspects of global investment activity – what North Americans are doing internationally and what investors from what countries are keen to enter the Canadian and U.S. markets.

At this year’s Forum, more than 2,350 of the top movers and shakers in commercial real estate will hear commentators, presenters and participate in interactive panel discussions about key issues, trends, challenges, risks and opportunities in the acquisition, investment, management, financing, development, and leasing of all forms of core assets – office, industrial, retail, multi-unit residential or land.

We have the pleasure of publishing this edition of our magazine in association with The Real Estate Forum in Toronto.

It enables us to provide some additional dialogue between leading practitioners in the market with all of you.

We will touch on how much growth can we likely anticipate; the changing economic, demographic and social currents and how they will impact our industry; forecasts for future growth; end-user transformations; workplace footprint reductions; urbanization drivers; the hot apartment markets; and key changes in the debt market, to name a few.

For the past nine years, the registration at the Forum has been sold out. This year, it occurred

This powerful two-day program gives you the opportunity to better understand the economy and balance your strategies to

www.realestateforums.com

Having a sold-out Forum year on year isn’t coincidence: it’s about a partnership. We are listening to your feedback, working with industry leaders and pulling everyone’s ideas together into a program that is relevant, interesting and meets the demand for experienced, thoughtful insights into our ever-changing industry.

Here’s wishing you and yours a healthy and prosperous 2015.

3

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 4

MONTREAL QUEBEC CITY OTTAWA TORONTO EDMONTON CALGARY VANCOUVER PROFESSIONAL DEVELOPMENT, MANAGEMENT AND ASSET MANAGEMENT SERVICES.

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 5

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 6

CONTENTS 3 Headline to Come Headline to Come

10 Liquefy your assets globally 12 Global markets overview 18 INREV and the growth of European non-listed real estate into a strong asset class 20 A bridge between east and west 24 Circle of life 28 Low-low-low trend to continue unabated 30 Top considerations of foreign investment 30 What’s stirring in Europe 32 Granularity guides overseas investment 32 Growth in second tier markets 34 United States core markets still growing 34 Major cities continue to attract investments 36 Tech-focused cities those to watch, invest in 38 Economic drivers improve across the U.S.

84 The Changing Face of Toronto Development 85 Real Estate and Transit: A few ‘best practice’ tips 86 It’s all about Standards; But first, a little fictional story…

About Informa FRONT COVER © Alfredo Rodriguez.

Special thanks to the artist for permitting us to use his painting: Colorado Gold Rush.

Alfredo Rodriguez 1239 W. Ontario Ave. Corona, CA 92882 USA www.alfredoartist.com

6

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. www.informacanada.com

©2014 Informa Canada Inc. Disclaimer: The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of Informa Canada.

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 7

42 46 Innovative, roll-up-your-sleeve approaches needed for year ahead 48 The Altus report: What happens next? Preparing for unfamiliar outcomes 54 ‘Mixing’ things up 54 If you build it, they will stay: one-stop urban living 56 City cores intensify as REITs follow the money 56 Competing in the office sector 58 Wisdom and predictions from a wise man 58 Canadian cities grow ‘up’

60 Getting back to the fundamentals key to strong portfolios 60 Urban migration moves from bricks to clicks 62 What is driving urbanization?

62 In praise of brick and beam 64 Inner-city renaissance spurs retail revolution 64 Plan, adapt, and then plan some more 66 Canada’s emerging energy sector

68 Value and growth in 2015 69 Opportunities abound for the fleet of foot 70 View from the top of a pension plan 71 Value trumps guess work when it comes to investment strategy 72 Diversify, innovate or decline 74 People watching helps determine current and future demands 75 Canada prepared for long-expected market shifts

68 Global real estate competition slows income growth

Advertisement Inquiries

Canadian Real Estate Forum Magazine

Informa Canada Inc.

Frank Scalisi Director of Sponsorship and Advertising Sales T: 416-512-3815 E: Frank.Scalisi@informacanada.com See our ad on page 76

The Canadian Real Estate Forum Magazine is published three times annually. Editions coincide with key Canadian Real Estate Forum and associated markets:

Will Morris, President George Przybylowski, Vice President

Conferences For more information on our Conferences visit www.realestateforums.com

www.realestateforums.com

Editor & Associate Editor

Spring: Montreal • Vancouver • Edmonton Fall: Ottawa • Calgary Winter: Canada-wide • Global

Michel Rémy Jean Pickering

E-magazines are available at www.realestateforums.com

Design Informa Canada Design Studio

7

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 8

Whether you require a mortgage solution for term, bridge or construction financing, we have over $1.3 billion under administration. We’re Romspen Investment Corporation, a non-bank mortgage lender specializing in commercial real estate in Canada and the United States. Let’s talk.

Blake Cassidy or Pierre Leonard 800 494 0389 | romspen.com

License # 10172

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 9

$78,000,000

$10,775,000

$35,000,000

$15,000,000

Commercial Centre PHILADELPHIA, PA

Residential Condominium Construction SASKATOON, SK

Land Assembly Re-Development Site TORONTO, ON

Industrial Warehouse Building RICHMOND, BC

GRANITE? GLASS? STEEL? ALL BUILDINGS ARE MADE WITH MONEY.

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 10

10

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 11

LIQUEFY

YOUR ASSETS GLOBALLY

Eric Plesman Senior Vice President, Investments, Oxford Properties Group Inc.

In this highly competitive market, real estate’s volatility is largely a function of people not knowing what the future may have in store for each of the different economies. Today’s low interest, low growth environment could last longer than initially expected.

In Europe, some of the countries that were hit in 2008—including Spain, Italy, Greece—seem to be back in favour. So is India, whose government recently approved REITs. In Latin America, Mexico is currently in favour. Our forecasts point to a bumpy 2015 in Brazil, though in the mid to long term people have favourable expectations for that country.

We expect that as capital continues to flow into North America, the U.K. and Continental Europe, investment activity will focus on gateway cities offering liquidity and above average economic growth. www.realestateforums.com

Louis Voizard Senior Vice President, Emerging Markets, Ivanhoé Cambridge

One interesting global trend is that while funds remain popular, larger investors are more prone to direct investments, to be closer to the asset and have more control over decision making. Having “boots on the ground” is the best way to truly understand a market, and many feel that this advantage will yield success in the longer term.

Thinking long term is key, particularly in periods of uncertainty. Successful institutions, for example, invest through cycles. They don’t try to cycle time. That is what differentiates them from those opportunistic or private equity buyers who ultimately try to time the markets.

Granted, there is a lot of money to be made through market timing as well. Institutions have a lower target return for their real estate portfolio but aim to acquire real estate assets that withstand the test of time.

■ Michelle Morra-Carlisle 11

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 12

GLOBAL MARKETS OVERVIEW

By Simon Fairchild and Brent McElreath

Rising capital flows and strong performance across most markets have again made real estate a favoured asset class. Global returns averaged 8.4% over the past 4 years, with pricing back to levels last seen in 2007/8 in many markets, and this has occurred amid a resurgence of cross-border investment. This strong performance of recent years continues into 2014 in many markets. In at least three markets for which a quarterly series is available—the UK, the US, and Ireland—annualized returns at 2014 Q3 ran at double-digit levels. Together these markets provide a useful, but perhaps volatile, indicator of the likely trajectory of the IPD Global Index through the year.

Although many markets continue their strong runs, others continue to lag, certainly to the end of 2013. Thirteen of the countries in the IPD Global Index, all in Europe, 12

experienced some capital declines over the year, with the worst affected being Spain, the Netherlands, and Portugal. The Netherlands is the only one of these three markets for which we have quarterly data in 2014, and there are signs of modest improvement in total return, though Dutch capital growth continued to be marginally negative through the third quarter. The Asian markets performed far more strongly than Europe in 2013, although the formerly strong markets of China and Hong Kong experienced a slowing to 8.0% and 7.3% respectively, putting them more in line with the overall IPD Global Index at year-end. Though resilient during the financial crisis, these markets were dragged back by run-ups in pricing over recent years, low income yields, and concerns over excess supply.

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 13

Others settle for best.

We Choose Better. www.wechoosebetter.ca

Follow us on Twitter and Instagram @JLLCanada www.jll.ca

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 14

At a city level, quarterly data are available in several countries through mid-2014.

Performance in most cities is near where it was at the end of 2013, but other cities are on the move. Two trends have emerged this year. One is the recent breakout Canada performance among cities in the British 9.1 Isles. Dublin, one of the most volatile cities in any cycle, has surged. London and the Global secondary cities of England and Scotland 8.4 have followed a similar pattern, with returns picking up strongly over the course of 2014.

Total returns across global markets to 2013 (and beyond) Annualized total returns (%) • Source: IPD Global Intel 40 30 20 10 0 -10 -20 -30 -40 2000 2001 2002 2003 2004

2005 2006 2007

2008 2009 2010 2011 2012 2013

Canadian real estate performance in global context 32 national markets as of 2013 in local currencies • Source: IPD Global Intel

Total return (%) 20

Income return (%)

20

12

15

Capital growth (%)

15

10

10

10 8

5

5 6

0

0 4

-5

-5 2

-10 -15

1

3

5 10

0

Years (annualized)

-10 -15

1

3

5 10

1

Years (annualized)

3

5 10

Years (annualized)

Total returns across global cities since year-end 2013 Annualized total returns (%) • Source: IPD Global Intel

30 2013 year-end 2014 Q1 2014 Q2

25

A second and very different trend has also emerged during the year. The commodity cities that performed so well during this cycle have begun to lose momentum. This is certainly true in Houston. It was the top performing US city less than two years ago, but by 2014 Q3, performance had slipped below the overall US property index.

Calgary has also lost some of its momentum as well. As of the third quarter, it was at the cusp of slipping below a double-digit rolling return. The same pattern holds true for Perth, where returns eased in the first two quarters of 2014.

The breakout performance in Ireland and the UK correlates to some extent with capital flows. Ireland’s plunge in values persisted for quite a long period, but the write-downs also produced one of the highest income returns of this cycle, which has, in turn, lured investors back to Irish property. The UK is also drawing substantial amounts of cross-border capital. Asian and Middle Eastern investors, among others, view London as a safe haven for real estate investment. The city has also attracted Canadians looking to expand their cross-border property portfolios. As of 2014 Q3, Real Capital Analytics reported London as the top outbound destination for Canadian property investors. Canadians have ploughed US$3.7 billion into London real estate in the past two years alone.

20 15 10

14

Paris Tokyo Amsterdam Rotterdam

Edinburgh Washington DC

Montreal Melbourne Wellington Philadelphia Brisbane Atlanta Manchester Birmingham

Portland Miami Vancouver Chicago Toronto Seattle San Diego Sydney Minneapolis

0

Houston Dallas Dublin London Denver San Francisco Calgary Boston Auckland New York Los Angeles Perth

5

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 15

YARDI Voyager

®

Our most advanced property management platform with full mobility.

Voyager Procure to Pay

Screening

Orion BI

Energy Solutions

RENTCafé

T ak e advantage adv an tage of Yardi Yar di V o y ager, our adv anc ed S of t w ar e as a S er vic e Take Voyager, advanced Software Service instan t ac ou’ll gain instant c ess (S (SaaS) aaS) mobile pr property op er t y management managemen t platform. pla tf orm. Y You’ll access ow or k from fr om your y our mobile tto o yyour our da data ta using an anyy br browser, o w ser, with the fr freedom eedom tto work oduc ts fr om the Yardi Yar di devic device. e . Achieve A chiev e a business-wide business- wide solution b byy adding pr products from Multifamily Yardi Commercial Suite. learn more, e .™ TTo M ultifamily Suite™ Suit e™ and Y ar di C ommer cial Suit o lear n mor e, visit www.yardi.com/voyager. w w w.y ar di.c om/v o y ager.

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 16

Awareness that Canada’s long bull run may be waning could be one factor luring real estate investors abroad. Global performance was good across many domestic markets in 2013, but the same view in Canadian dollars looked especially enticing due to the shifting exchange rates.

Outbound Canadian investment in real estate as of 2014 Q3 Most recent 24-month outbound investment totals by city, USD billions • Source: IPD Global Intel

London Los Angel es s Angeles n Manhattan on Boston ey Sydney go Chicago e Melbourne as Dallas ix Phoenix

3.7 3 3.1 2.9 2.7 1.9 1.4 1.3

T! HO

1.0 0 0.8 8

But capital flows can be ephemeral. The London market may well be a good long-term investment over a long holding period, but its cycles can be highly volatile in the interim, just like US cities. Variations in global performance reflect shifting capital flows across property sectors and countries. Investment allocation choices involve overweighting stronger performing countries and sectors and underweighting the laggards.

The more volatile UK and US markets as well as the commodity-oriented markets of Australia and Canada have contributed to stronger relative performance over recent years while the markets in Continental Europe (and the office sector in general) weighed on global performance.

The outside world looked better in 2013 in C$

Awareness that Canada’s long bull run may be waning could be one factor luring real estate investors abroad. Global performance was good across many domestic markets in 2013, but the same view in Canadian dollars looked especially enticing due to the shifting exchange rates.

Risks associated with foreign exchange can be managed to some extent. Other risks require greater scrutiny, and these are sometimes overlooked. Increasingly aggressive pricing in some markets poses a notable risk for real estate investors, particularly in the context of rising bond yields. By some measures, global real estate is more aggressively priced than at any time over the past five years (though not as severe as the peak years of 2007/8).

Aggressive pricing is a legitimate worry in some markets, particularly Canada, the UK, and the U.S.

16

Total return (%) to direct property in local currency vs. CAD as of 2013 • Source: IPD Global Intel

Total return (%) in local currency

Total return (%) in CAD

-10 South Africa Ireland USA Canada UK Taiwan Australia Singapore China South Korea Hong Kong Sweden Japan Switzerland Norway Germany France Poland Czech Republic Belgium Denmark Italy Hungary Portugal Netherlands Spain

0

10

20

30

A further risk relates to the potential for markets to continue their recent strong runs. Canada’s market now appears to be easing a bit, but the US has posted returns near or above its long run average for each of the past four years. Other countries such as Hong Kong have seen momentum ease during this period. Still others, such as Ireland and perhaps Japan and Spain, hold better cyclical positions as 2014 draws to a close.

■ Simon Fairchild and Brent McElreath, IPD

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 17

“With these tax incentives, it’s like we already filled 10 units.”

People who know Real Estate & Construction, know BDO.

The Real Estate & Construction Practice at BDO Real estate markets globally are undergoing a period of virtually unprecedented turmoil.

Now more than ever, it is crucial to have proactive financial guidance to help you address these issues. BDO’s Real Estate & Construction Practice combines in-depth knowledge of the industry with a truly global network of support. All through a single point of contact.

Assurance | Accounting | Tax | Advisory www.bdo.ca/real-estate-construction

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 18

INREV AND THE GROWTH OF EUROPEAN NON-LISTED REAL ESTATE INTO A STRONG ASSET CLASS But above all, we have created a community of over 3.000 individual representatives.

Over the past 10 years INREV has supported investors, fund managers and advisors engage with one another in a dialogue that has delivered tremendous value.

By Matthias Thomas

Matthias Thomas, INREV Chief Executive Officer explains who INREV is, what non-listed vehicles are and why investors should invest in this asset class.

INREV is the European Association for Investors in Non-Listed Real Estate Vehicles and represents a community of over 350 companies committed to advancing the European non-listed investment industry.

Over the past 10 years, INREV has helped to build an asset class almost from scratch. We have supported the development and maturing of the non-listed arena.

INREV: • Brings information to members about European non-listed vehicles • Develops guidelines, best practice standards and benchmarks to help members deploy capital via non listed strategies in European real estate • Advocates for the appropriate legislative and supervisory frameworks • And delivers thought leadership and educational programmes that ensure understanding

18

We have helped members answer a simple question that is absolutely fundamental to investing: can we get a better return on our investments?

We’re proud of this track record of achievement for our members. And we are already looking forward to our next 10 years.

Key facts: • Investors make up 25% of the membership • Global reach with members from 28 countries • Investors drive INREV strategy What are non-listed real estate vehicles?

Non-listed real estate is exactly that – real estate investment vehicles which are not listed on any stock exchange. They are less well known, yet they provide access to a wide range of opportunities that can help to build an optimal real estate portfolio and bring returns from different sources.

Non-listed real estate investment vehicles come in different structures such as funds, funds of funds, club deals, joint ventures and segregated accounts – and they can be tailored to reflect bespoke levels of discretionary control.

Many European vehicles act like close ended funds where there is a specific investment timetable culminating in exit at maturity - where the fund is liquidated, assets disposed of and returns distributed back to investors.

Non-listed vehicles allow access to detailed management expertise focused on specific property sectors and risk strategies, and are an important building block in making the

full range of real estate opportunity available. For the past 10 years, INREV has been committed to furthering the transparency and professionalism of non-listed real estate investments. And that’s important in making the property asset class accessible to investors.

Why invest in non-listed?

We’re still being asked why invest in non-listed real estate vehicles – what is the benefit. And we take this as a sign that there is more work to do. At INREV, we are committed to making non-listed vehicles an obvious part of the overall real estate as well as Alternative Asset Class mix.

But why restrict yourself to direct real estate and listed funds – when there’s literally a universe of opportunity in non-listed.

The benefits are clear: • Non-listed vehicles help to diversify a real estate portfolio by offering low tracking errors relative to direct investments • They provide access to a much wider range of sectors and specific markets • They give investors access to specific management expertise and allow for bespoke strategies and governance structures The key thing is that investment in non-listed vehicles can be made with the same level of assurance as any other real estate investment. Our commitment to developing best practice investing guidelines and global standards, and our efforts to promote and publicise the range of available investments has meant that non-listed is now considered mainstream. What we’ve done – is open up and mobilise a new asset class – and that is an advantage for every institutional investor.

■ Matthias Thomas is the Chief Executive Officer of INREV. To speak to Matthias during The Real Estate Forum or afterwards, e-mail him at matthias.thomas@inrev.org or contact liz.middleton@inrev.org / + 31 20 799 3966.

Find out more on INREV and the non-listed real estate industry at www.inrev.org.

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:40 PM Page 19

Who is a global leader in sustainable property investment?

A global leader: first globally, first in North America and first in the United States in the 2014 Global Real Estate Sustainability Benchmark.

We recognize that sustainability issues are material to our clients at both portfolio and asset-specific levels. Incorporating ESG factors into portfolio management creates an additional level of discipline that allows us to better address risks and identify opportunities to maximize long-term investment

1 st

out of 157

Bentall Kennedy Globally / Diversified

returns in light of emerging issues such as climate change, resource scarcities, regulatory uncertainties, public sustainability awareness and new

1 st

out of 40

clean technologies.

Bentall Kennedy North America / Diversified

Sustainable property investment is simply better business. It supports an increase in net operating income through energy savings, it provides advantages in managing the impact of future competitive and regulatory change, and it helps build strong relationships in all aspects of our work on behalf of our clients.

1 st

out of 36

MEPT (Core Open-End Fund) United States / Diversified

Simply better business.

Learn more about how we are continuing to improve, innovate and ensure strong implementation across all of our sustainability programs. Visit: cr.bentallkennedy.com

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 20

A BRIDGE BETWEEN EAST AND WEST

By Anna Amin

In just 25 years, the Polish economy has developed into a competitive capitalist market economy and along with it; the country’s real estate market has evolved into a mature sector with ample investment opportunities.

If we compare Poland to other members of the European Union, especially to Mediterranean countries such as Spain or Greece, we can say that in times of the recent crisis, Poland is doing very well.

A post-communist member of the European Union (EU), Poland is the only economy in Europe which has avoided the recession following the global economic crisis. Whilst GDP in the EU fell by 0.4 percent on average, Poland witnessed an increase of 0.6 percent.

According to the DTZ Poland Investment Market Update for H1, 2014, in the first quarter of 2014, Polish GDP increased by 3.4% y-o-y, mainly due to a higher level of domestic investment and an increase in individual demand.

“Among the most important factors behind the economic recovery in Poland are improving business confidence, a decrease of the unemployment rate and low interest rates, which have triggered demand for loans and an overall improvement of the financial situations of Polish households. These factors have managed to sustain the gradual 20

growth of the Polish economy, and offset negative influence of the recent developments in Ukraine,” the report reads.

In the first half of 2014, the economic revival was accompanied by a gradual decline in the level of unemployment, which stood at 12.5%, says DTZ. The growing demand for labour in Poland also led to an increase in the average gross monthly salary in the enterprise sector, up 3.5% y-o-y at PLN 3,943 [USD 1,186].

Furthermore, due to the overall improvement of the economic situation in Poland, in the first quarter of 2014, the zloty appreciated against the euro, decreasing imbalances in the current account and an easing of the European Central Bank’s monetary policy.

Lastly, FDI in the first three months of 2014 increased significantly, amounting to EUR 1.8 billion [USD 2.3 billion], compared with the same period of 2013, when FDI stood at EUR 182 million [USD 230 million]; growth was driven by the economic revival in the Eurozone and the improving economic situation in Poland, DTZ reports.

Investment Destination Poland Poland is a strategic link way to Russia and Europe and a corridor to East European countries. Not surprisingly, this is having an effect on the country’s attractiveness as an investment market.

According to DTZ, as much as EUR 1.39 billion was invested in Poland’s commercial real estate market in the first half of 2014, which represents a growth of almost 10% in comparison with the corresponding period in 2013.

“The continuing high level of investment activity is in line with the general market trend observed in the majority of European countries and reflects the improving opinion of investors about the economic situation.

Entities investing in real estate are more willing to deploy their capital and turn towards markets where they stand to achieve higher yields (including Poland),” DTZ reports.

But let’s look at the factors that make Poland an attractive market for investment in general.

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 21

Expect More.

We are experts in com mmercial buildings and structures.

We help clients design n them, build them, lease them m, occupy them and sell them—in every major market around the world.

Tel: 416 863 1215

www.dtz.com

DTZ, a UGL company, Real Estate Brokerage

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 22

According to Sławomir Majman, Director of the Board, Polish Information and Foreign Investment Agency (PAIiIZ), these include economic and political stability of Poland, educated, competent and productive human capital, a favourable location in the centre of Europe, and a 38-million strong Polish consumer market – one of the biggest in Europe.

Furthermore, there are several incentives for investors looking to place capital into Poland. The country is also named the third best quality location in the world (after China and the USA) for manufacturing projects.

Lastly, Poland's status as a member of NATO and the European Union make it a reliable and important business partner, says Majman.

Poland and Europe Since Poland’s gradual transformation from a socialist-style planned economy into a market economy, a process which started in 1989, the country’s real estate market has begun to develop alongside the economy and today, 25 years onwards, is said to be on par with the rest of Europe.

Commenting on the advantage of Poland as a real estate investment market compared to other CEE markets, and the rest of Europe, Majman said: “Poland has a large number of expanding cities, which stands out among the rest of Europe.

Compared to other CE countries, Poland stands out in terms of quality, volume and price of modern space across all [real estate] sectors.

Particularly the Polish office sector offers better prices for modern spaces than other European countries, Majman stated.

“Poland has the largest office market in CEE. A comparison of the capital cities in CEE shows

22

“The Polish real estate market may be regarded as mature and demanding. Investors appreciate how stable it is - not just when it comes to legal regulations, but also with regards to specialised expert advice; advisory services in this market (legal, tax, commercial and technical) are highly specialised.” that Warsaw is clearly the largest market, with almost 4.0 million sqm of space, followed by Budapest (3.2 million sqm), Prague(2.9 million sqm), Bucharest (2.0 million sqm) and Bratislava (1.5 million sqm),” he said.

“The Polish real estate market may be regarded as mature and demanding.

Investors appreciate how stable it is - not just when it comes to legal regulations, but also with regards to specialised expert advice; advisory services in this market (legal, tax, commercial and technical) are highly specialised,” Majman added.

Real Estate Opportunities Why should real estate investors turn to Poland?

As previously mentioned, compared to other CEE countries, Poland stands out in terms of volume of modern space across all sectors.

And as the economy develops, the same applies to the commercial real estate market, Majman stated.

Attractive opportunities in Poland’s real estate market stem from a variety of sources, and exist across all sectors.

“Pinpointing the golden rule of property markets, Poland has a very convenient location in the centre of Europe. It is also one of the world's top spots worldwide when it comes to location of Business Process Outsourcing (BPO), Shared Service Centres (SSC), Research & Development (R&D), Information Technology (IT) and other back-up function offices, which all need office space.

“The retail scene has evolved from stand-alone retail warehouses into a diversity of retail formats, including urban malls, factory outlets, neighbourhood centres and retail parks.

“The warehouse and logistics market in Poland, which follows the country’s major transportation corridors, totals 7.5 million square metres,” Majman said.

To put things into perspective, in 1989 in Warsaw, office space could only be rented in the Palace of Culture and Science, and in the building of the Marriott Hotel. In 2004, tenants already occupied 2.5 million sqm of modern office space whilst today, Poland has 6.5 million sqm of office space, with nearly one million sqm construction, Majman explained.

Looking a the logistics sector, while in 1996, the total supply of warehouse space in Warsaw was only 30,500 sqm, in 2004, there were already one million square meters, and in 2008, this figure stood at five million. Today, the number has already reached nearly eight million square meters, said Majman.

The European Union further impacted on the development of the Polish real estate market; the development of road infrastructure based on EU funds contributed to the rapid development of the logistics sector.

Looking Ahead The Polish government is actively trying to further increase investment into various sectors of the Polish economy. The sentiment in Poland’s real estate market is partly dependent on the country’s ability to do so.

“The ability to attract investors will increase the demand for office space. If more companies settle down in Poland, more office space is needed, and this will keep a positive trend in the real estate market.

“If we are talking about the future it would be good to add that an increasing number of investments will improve the condition of the whole economy. More jobs for people will enable them to provide for a convenient place for them to live in,” Majman said.

As Europe's real estate industry continues its upward growth trend for 2014 in general, it is more confident about its prospects and its ability to improve profits, which applies to Poland as well, Majman concluded.

■ Anna Amin

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 23

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 24

CIRCLE OF LIFE

They were the unlikeliest of pioneers.

Back in the 1980’s, the life insurance companies were the first wave of institutional real estate investment managers.

Characterized as a sleepy bunch, they likely were oblivious to the global industry they had just launched.

By Catherine Ann Marshall

But the so-called “Lifecos” lost their leading position in the 1990’s as a new kind of manager offering higher octane closed-end funds emerged. Some Lifecos even exited the third-party management business completely.

But in the aftermath of the Global Financial Crisis, the Lifecos are back. Globally, they are the fastest growing segment of the real estate investment business (see chart) as investors again want mortgage and core real estate investments.

The old Lifeco approach to private real estate was often a “one size fits all” formula of open-ended funds for pension plans.

Today, Lifecos offer a broad range of strategies and have clients ranging from Sovereign Wealth Funds to individual investors.

Early Life Veteran investor Charles Dillingham said that his first real estate investment was through Great West Life (GWL) in 1982. When the Consolidated Bathurst Pension Fund he managed allocated to direct real estate, he heard GWL was trying to get into investment management. The two sides came together on an interesting investment opportunity.

But because the life company had never worked with an outside investor, Mr. Dillingham’s group had to provide GWL with the legal documentation to make the investment. After that, GWL used aspects of that initial structure as the basis for bigger deals like the Halifax Purdy's Wharf development, said Mr. Dillingham. The GWL open-ended fund, the Canadian Real Estate Investment Fund, followed in the mid-1980’s (and continues unbroken through to today).

Other early real estate funds included Sun Life, Mutual Life Assurance, and Confederation Life.

However, the heyday for life company investment managers was short-lived.

Starting in the late 1990’s, one Lifeco after another either withdrew from offering real estate services to third parties. The most high-profile exit was the bankruptcy of Confederation Life. Prudential of America, Prudential of England and Aetna exited Canada, MetLife sold Morguard, Mutual Life sold its fund, and Sun Life closed its fund.

Growth in Global Real Estate Assets Under Management 2010-13 $US • Source: Institutional Real Estate, Towers Watson, company reports, NCREIF Townsend Closed End Real Estate Fund Index, Catherine Marshall.

20% 15%

20%

10% Bank-owned Managers

5%

12%

0% -5%

Insurance-owned Managers

-17%

Independent Managers*

Opportunity Fund Managers**

-7%

-10% -15% -20% *representative sample of independent investment managers ** December 31st data except Opportunity Funds

24

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 25

THANK YOU TO OUR SPONSORS Title

Platinum

Gold

Silver

Biographies

Mobile App

Journal

Charging Station

Concurrent Session

Corporate

Closing Roundtable

Lanyard

Bronze

Supporting Associations

Zero Ze Z er ero W Waste aste a eS Spo Sponsor on nso n sor or

Multimedia

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 26

The old Lifeco approach to private real estate was often a “one size fits all” formula of open-ended funds for pension plans. Today, Lifecos offer a broad range of strategies and have clients ranging from Sovereign Wealth Funds to individual investors.

Carl Bang President, Sun Life Investment Management

Kevin Adolphe President and CEO, Manulife Asset Management Private Markets

Coming Back to Life So Sun Life Financial (Sun Life) came full circle when it launched its Sun Life Investment Management (SLIM) arm this year which includes real estate and mortgages among its private investment institutional pooled funds. Carl Bang, SLIM’s President, says that there are marked differences from the earlier era, which made this a good time for Sun Life to re-enter third-party real estate. When Sun Life wound down its first fund, real estate was volatile and some institutions did not have the long-term commitment needed for illiquid, private market investments. Today, institutions continue to diversify away from tradeable securities into private assets, understanding their cyclicality and the need to consider them as long-term investments.

Real Life Examples Manulife has been a consistent investor in real estate throughout the company’s history. Its Manulife Asset Management Private Markets unit opened its real estate up for third-party investment in 2011, and now manages a total of about $11 billion in real estate equity on behalf of Manulife and external investors. Less than four years after its launch, for example, the firm’s Canadian Real Estate core property fund has grown to more than $600 million. In addition, Manulife acquired third-party management of agricultural and timber lands when it bought insurer John Hancock in 2004. Kevin Adolphe, the group’s President and CEO, said the success of these investment management platforms, which also include commercial mortgages along with other private assets, means that he is focused on “growing the third-party footprint” by raising another $20 billion globally over the next five years.

Mr. Bang said that one reason SLIM is seeing early success is that it offers innovative and client-centric investment solutions – the opposite to a “one size fits all” approach. Furthermore, Mr. Bang describes the SLIM corporate culture as “entrepreneurial” and “agile” – a far cry from the “sleepy” life companies of yesteryear.

26

He said that among the many differentiators that Manulife offers are: long-term thinking consistent with Core real estate (including not using leverage), having a full, vertically integrated real estate management platform, which includes property and asset management, and being global with its own staff in all its international investment markets. Another key feature is a Liability-Driven Investing (LDI) investment philosophy.

long-term, quality investments is consistent with institutional investors’ needs to redeploy large allocations to real estate quickly, as they reduce their exposure to long-dated bonds that have traditionally hedged their liabilities. “Core to Core-plus is where you can put the money to work.

These are assets that are appropriate for their funds and will pay out over the next 40 years.” He also said that vertical integration, on-the-ground staff, global reach, and strategies helping investors implement LDI programs were important features attracting institutions to SLIM. Life Cycle Mr. Bang adds that co-investment, or the investment manager’s willingness to invest its own capital alongside investors, is a value-added feature of SLIM’s program. He said that SLIM thinks like an investor, and that having an “ownership” mentality allows for a stronger relationship with clients.

Mr. Adolphe says the ability to “co-invest at a significant level” by a global company with well-known financial strength is attracting clients to Manulife. “Large defined benefits pension plans want to invest with managers who have skin-in-the-game.”

He added that investors are looking for partners who are financially strong enough to re-invest in buildings in the worst of times.

So as investors come “back to life” for investment management services, it may mean they are already thinking about a down cycle in the real estate market that is sure to come.

■ Catherine Ann Marshall, CFA, is an investment consultant specializing in global real estate, and is the Vice-Chair of the CFA Society Toronto Risk Management and Alternative Investments Committee.

Sun Life’s investment program goes back to the 1880’s. Mr. Bang said the focus on Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 27

G A I N T H E P R I VAT E M A R K E T A D VA N TA G E

W I T H E X P E R I E N C E O N YO U R S I D E At Sun Life Investment Management we have a wealth of experience on our side.

Our investment teams manage over C$110 billion* in assets for the Sun Life Financial group of companies in both public and private markets. We bring this experience to defined benefit pension plans and other institutional investors in Canada – with three private asset class funds and a full spectrum of liability driven investment (LDI) strategies.

S U N L I F E P R I VAT E F I X E D I N C O M E P L U S F U N D S U N L I F E C A N A D I A N CO M M E RC I A L M O RTG AG E F U N D S U N L I F E C A N A D I A N R E A L E S TAT E F U N D L I A B I L I T Y D R I V E N I N V E S T M E N T S T R AT E G I E S It’s all about helping clients achieve their goals.

*As at December 31, 2013

Sun Life Investment Management – solutions for institutional investors. sunlifeinvestmentmanagement.com

Sun Life Investment Management is the brand name under which the investment operations of Sun Life Assurance Company of Canada and Sun Life Investment Management Inc. operate. Sun Life Investment Management Inc. is a Canadian registered portfolio manager, investment fund manager and exempt market dealer and is the manager and distributor of the funds. Subscriptions for units of a fund will only be considered on the terms of the offering memorandum of the fund, which will be available to qualified Canadian institutional investors. This communication is intended to be general in nature only and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained herein.

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 28

LOW-LOW-LOW TREND TO CONTINUE UNABATED

For years, those factors have induced investors into metropolitan gateway markets, a trend that Gordon expects will continue.

“The top thirty cities get more than half of all real estate capital inflows,” he reported.

“The top ten get a substantial amount of that, with a significant portion going to the top five: London, New York, San Francisco, Paris and Tokyo.”

Gordon noted that Los Angeles has currently bumped San Francisco from the top five, a shift that he considers transitory.

“They shuffle around,” he said. “The important point is that investment in gateway markets is getting bolder and more risk-tolerant. Investors are more willing to try new things like development or alternative property types.”

Jacques Gordon Global Investment Strategist, LaSalle Investment Management There’s no end in sight to the post-financial crisis appetite for increased risk, as investors chase ever more-elusive real estate returns.

“The market is spreading beyond iconic buildings in, say, central Paris or west end London, New York’s Park Avenue or San Francisco’s Market Street to innovation zones at the edge of core districts,” Gordon continued.

“We’re all still adjusting to this world of low growth, low inflation and low returns,” observed Jacques Gordon.

Large Canadian, American and Australian pension funds have also been increasing their allocations by 100-200 basis points.

The funds’ heightened appetite for alternatives has directed more their capital into real estate and infrastructure.

“In the 30 countries that we watch closely, the common thread is the challenge channeling historic capital flows into real estate while historic low interest rates reduce debt service costs, driving prices up and pushing returns down to all-time lows,” said LaSalle Investment Management’s global investment strategist.

“In general, it’s the alternatives basket that is growing the most,” Gordon said. “Real estate is part of that growth and fights for its allocation within the alternative basket alongside the other types of investment.”

Japanese pension funds are particularly well positioned to unleash their pent-up real estate investment potential, in the wake of bold fiscal reforms by the Abe government.

“Japanese pension funds have historically held lots of government bonds and not much real estate,” Gordon explained. “If Japan’s new consumption tax moves the government closer to balancing its budget—or, at least, issuing less debt—then it will free these pension funds to emulate their counterparts elsewhere and allocate 5-7% of their portfolio to real estate.”

He extolled the Japanese for the red carpet that they roll out to foreign real estate investors.

“They have a very enlightened attitude and see real estate investment as a cornerstone of their economy,” Gordon said. “It’s a very orderly market with strong rule of law, respect for foreign capital and a consistent, predictable regulatory régime, so long as you play by the rules. That helps Japan to attract capital.”

In contrast, Brazil is not for the faint-hearted.

Chaos intrudes unpredictably, as the real estate industry there continues to mature.

“It’s not an easy market,” Gordon acknowledged. “Those who are willing to do the hard work of setting up offices in Brazil, to form close ties with its people, their government and its dynamics, can do really well. But, as a regulatory rich environment, it remains a work in progress.”

■ Robert Frank

Direct Commercial Real Estate Investment – Regional Trends Source: JLL, October 2014

% change $US Billions Americas

% change

% change YTD

Q2 14

Q3 14

Q2 14-Q3 14

Q3 13

Q3 13-Q3 14

YTD 2013

YTD 2014 2013-YTD 2014

67

79

17%

63

25%

153

208

36%

EMEA

62

59

-5%

53

13%

135

175

29%

Asia Pacific

32

30

-5%

30

1%

89

85

-5%

TOTAL

162

168

4%

146

15%

378

468

24%

28

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 29

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 30

TOP CONSIDERATIONS OF FOREIGN INVESTMENT

Brad Olsen President, Atlantic Partners

Investing outside of Canada is a growing trend for medium-sized institutional real estate investors and for Canadian REITs. Foreign investment requires careful consideration. Even before doing your due diligence and finding prospective partners comes the big question: Will my investment be secure in that country?

WHAT’S STIRRING IN EUROPE

Michael Rodda Head of EMEA Retail Investment, Cushman & Wakefield

Global capital is coming at the European real estate from various angles, driving down yields.

Where that capital goes will depend largely on consumer market recovery, says Michael Rodda, Head of EMEA Retail 30

“The countries that have attracted the greatest amount of foreign capital are those with established rule of law, where the capital investment is safe and secure,” says Brad Olsen, President of Atlantic Partners.

Canadian investors turn to the U.S. and the U.K. first and foremost, he says, where they understand taxes and growth prospects and where their investment will be protected by the legal system.

One exception seems to be China, where there is no rule of law. According to Olsen, Canadian investors in China are typically willing to take a chance, banking on growth and the fact that others before them have succeeded in China over the past 20 years.

He points out another factor of great relevance to Canadian investors: the “investable universe.” Because Canada has a lot of capital and relatively little real estate, investors look to markets where they can deploy capital in large scale, namely the U.S., the U.K. and Western Europe

“Most outbound capital from Canada goes to markets where it is possible to invest in scale, because it’s much more efficient to do repeat business in a country than to start over every time.”

(Germany in particular). While some Canadian funds are invested in central Europe where the markets are smaller, most outbound capital from Canada goes to markets where it is possible to invest in scale “because it’s much more efficient to do repeat business in a country than to start over every time,” Olsen says. Larger markets also offer greater liquidity, and therefore a clearer exit strategy.

Investors wishing to expand outside of Canada can expect to run into a host of unfamiliar or unforeseen issues. “Look before you leap,” Olsen says. “Explore all of the alternatives and evaluate the risks as well as the opportunities.”

■ Michelle Morra-Carlisle

“The old rule book for how cycles behave is almost redundant these days.”

Investment at Cushman & Wakefield.

Meanwhile, the market is experiencing something entirely new. Rodda describes it as “mini explosions” of consumer recovery being led by specific assets or specific tenants. He says that unlike classic real estate, they are driven by consumer trends.

“It might also be the result of social media led hype,” he says. “The old rule book for how cycles behave is almost redundant these days.”

Looking to more traditional real estate drivers, the flow of money into Europe, particularly from Asia and North America, increased to an unexpected level this year.

“And we’ve increased our expectations for next year,” Rodda says.

Outlets are booming and proving to be cyclical. Two key players, McArthurGlen and Value Retail, dominate the sector while other outlets are owned by real estate

investors or smaller property companies.

Rodda compares running an outlet to running a retail business, with income coming largely from stores. “To reposition and market their malls, owners shop their tenants around like a retailer would shop its brands around,” he says.

Online sales—a whole different animal—also do well in Europe. Recently, internet retailers who are not present in shopping centres are taking advantage of showrooms and branding opportunities within shopping centres. Social media, a separate entity, and is proving a retail force unto itself. Rodda mentions a newly opened Trimark sportswear store in the U.K., which he says received 1.7 million social media hits for one particular product. “You can imagine the impact that has on your footfall in the store in the following day,” he says. “It’s pretty basic stuff but very effective.”

■ Michelle Morra-Carlisle Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 31

It’s not just about the numbers.

It’s about the know-how.

No matter the size of the deal, what truly counts is the expertise that made it happen. GE Capital is a leading force in commercial real estate lending because we’re more than a bank. We’re part of GE, a company that understands what it takes to succeed. With over 20 years of experience in Canada and a passion for the industry, we can help your business grow.

GE works.

$580 Million | Loan Portfolio Acquisition

3RUWIROLR RI ORDQV RQ RČťFH DQG LQGXVWULDO DVVHWV DFURVV &DQDGD

$128 Million | Multi-Family Portfolio of 10 multi-family assets in Toronto & Ottawa, ON

$97 Million | Retail Portfolio 5HÂżQDQFH UHWDLO DVVHWV ORFDWHG DFURVV 4XHEHF

$24 Million | Student Residence

5HÂżQDQFH RI QHZO\ EXLOW VWXGHQW UHVLGHQFH LQ :DWHUORR 21

$21 Million | Hotel

$FTXLVLWLRQ ÂżQDQFLQJ IRU KRWHO DVVHW LQ 5HJLQD 6.

+1 416 842 1700 gecapitalrealestate.com

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 32

GRANULARITY GUIDES OVERSEAS INVESTMENT

Tom Boytinck Managing Partner, Allegro Capital

Tom Boytinck counsels clients to look beyond short-term macroeconomic forecasts.

“The European real estate market is much more granular than those figures imply,” he asserted.

Allegro Capital’s managing partner has guided more than $7 billion in capital investment by seeing beyond the headlines.

“All kinds of factors are in play. Yes, the economy is one of them,” Boytinck acknowledged. “You also need to consider the tenants, the physical condition, the mortgage cost and the lease length, for example. That could vary the value of properties on four corners of a single intersection—quite dramatically in some instances.”

He cited France as an example of where investors would be wise to be wary of doomsayers who discuss decline.

“While in some sense that might be true, France won’t be leaving the list of major economies any time soon,” Boytinck noted.

“Underneath that lie French sectors that are world-class competitive; tourism, luxury goods, aerospace, nuclear engineering as well as luxury wine, food and fashion. Those are considerable strengths that won’t go away while we await fiscal reform.”

Germany, in contrast, invariably gets good

GROWTH IN SECOND TIER MARKETS

& Wakefield. “Where the capital used to stop, get used to a market, mature and stay, now it kind of moves on within just a few years. So it really is a global market with capital moving in all directions.”

New York City remains the top choice for investors, with 7% of the entire global trading taking place there.

London was in second place, with a 40% increase in investment over last year.

David Hutchings Head of EMEA Investment Strategy, Cushman & Wakefield

“There were also strong increases for Tokyo, which is in 3rd place and also for some North American cities like Dallas, which was over 30% as well,” said Hutchings.

Global investors spent 788 billion dollars last year, a 17% increase over 2013.

“But the strongest growth was actually outside of the top 25 [world cities]. That’s the first time we’ve seen that in a number of years. It’s the first time we’ve seen investors having faith in a broader spread of markets and looking around in each region for opportunities.”

“There are just no borders,” said David Hutchings, Head of EMEA Investment Strategy at Cushman

Germany and the UK were top European targets for investment, with France coming in just behind, thanks to large prime lots in

32

marks for its broad trading relationships, sound legal structure and well-managed government. Boytinck nonetheless cautioned investors against complacency about their investments there.

“Germany hasn’t engaged in reform because it hasn’t faced the same pressure as other countries,” he observed. “Ireland took its medicine. Portugal and even Greece have made some adjustments. The Germans have basically done nothing.”

Boytinck also singled out six safe-haven cities that systematically defy cyclical swings.

“London has long served as a sanctuary for all manner of world capital,” he said. “Paris is increasingly doing likewise, of late.”

Beyond Europe, Boytinck said that New York, Singapore and Miami are also on the safe haven shortlist.

“In addition, Vancouver is viewed as a safe haven in Hong Kong, Taiwan and mainland China,” he added.

■ Robert Frank

“It’s the first time we’ve seen investors having faith in a broader spread of markets and looking around in each region for opportunities.”

Paris, the retail market and parts of the office segment.

Many investors began purchasing in Madrid and Barcelona too, so that 2014 investment in Spain went up by more than 100% over 2013.

“There’s really a spreading of interest to the south,” said Hutchings. “We expect that to move to other areas. Central and Eastern Europe have started to see an increase but they’re a little further behind the curve.”

There was also lots of investment in United States’ second tier cities, particularly those with energy or technology resources.

■ Tracey Arial

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 33

YOU SEE A COMMERCIAL OPPORTUNITY

WE SEE THE NEED TO MANAGE YOUR RISK

Appraisal Institute of Canada designated appraisers–AACI and CRA–are Canada’s professional real estate appraisers of choice.

Our on-site appraisals, extensive research and detailed analysis provide reliable, in-depth and independent valuations on all property types– helping you make informed real estate decisions.

When property is involved, involve us.

VALUATIONS APPRAISAL REVIEW CONSULTING FEASIBILITY STUDIES DUE DILIGENCE

Learn more about AIC-designated appraisers by visiting

AICanada.ca

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 34

UNITED STATES CORE MARKETS STILL GROWING

Susan Wallace USAA Real Estate Although the gateway markets are the most popular investments in the United States, other cities offer more growth potential.

When foreign investors from Asia,

MAJOR CITIES CONTINUE TO ATTRACT INVESTMENTS John Carrafiell Founder and Partner, GreenOak Real Estate

Cities are having a major impact on investment portfolios, says GreenOak Real Estate founder and partner John Carrafiell.

“Major cities, in major economies, which have comparative strengths and will grow at a higher rate than other competing cities in-country — regionally and globally — are being favoured for investment opportunities,” he says.

34

the Middle East and Europe look at the United States, they examine four key gateway markets: New York City, Washington D.C., San Francisco and Seattle. Of those, Manhattan is the most popular.

Susan Wallace, from USAA Real Estate, wants them to consider purchases in nine other places instead.

“We think it’s very difficult to find excellent opportunities in Manhattan, primarily because it’s being priced to perfection,” she said. “In other words, the assets that you purchase have to perform exactly as you’re underwriting them or you’re not going to get returns, and even then, its low returns.”

Wallace says that the primary core markets of Los Angeles, Orange County, Dallas, Houston, Denver, Chicago, Atlanta, Miami and Boston should be considered too. They have the most job creation and population growth in the United States right now.

Value-add based strategies that venture across the major asset classes are key, says Carrafiell.

Next year will be another good year for certain cities, including New York, Boston, Los Angeles, San Francisco and Miami (or other coastal cities) in the U.S., he says, and in Europe, Madrid and Barcelona are primarily the cities to watch.

“They’re trading significantly below trend and below replacement costs. The country will be among the only growth countries in Europe in 2015, and it’s gone through six years of radical reform, which has positioned these two cities among the 10 to 15 most competitive cities in the world,” says Carrafiell.

London is a global heavyweight city with strong short- and long-term growth characteristics, he adds, making it still a solid investment prospect, even though prices in the absolute city centre have risen above long-term trend lines and replacement costs.

In Asia, Tokyo continues to retain its investment favour, which is mainly due to its attractiveness in which to do business, he adds.

“The low borrowing costs, along with prospects for rental growth, and limited competition for assets in a market with 800

In the coming year, she believes that the economy will continue growing marginally to make these markets good bets for investment.

The only potential hiccup to growth in those markets in the coming year would be if interest rates were to rise too quickly or if a major catastrophe were to happen again in one or many of those markets.

Terrorism, natural disasters and even very cold winters, like the one last year that hurt retail sales, are unpredictable, she says. She also doesn’t believe that the Fed will increase rates too fast, choosing instead to increase them gradually.

For their part, USAA Real Estate has plans to set up a European purchasing platform in Luxembourg. The company is considering purchasing assets in Germany to add to those they already have in London and the Netherlands.

■ Tracey Arial

million square feet of space” are all major reasons for Tokyo’s popularity.

Those cities are among the fastest growing, most competitive cities in the world, explains Carrafiell.

“They attract workers and businesses; they have exceptional infrastructure; it's where businesses and people want to move to and where people want to work,” he says.

“It's interesting to note that the cities I mentioned have approximately 120 million people in their metropolitan areas and, therefore, comprise a 50-per-cent larger population than the entire country of Germany.”

When looking at investment opportunities, it isn’t just about bodies, says Carrafiell “It's about what the population contributes to the economy,” he says. “Indeed, many of these cities are the drivers of their country’s economy.

For example, London has more than 20 per cent of the GDP of the entire U.K.; Tokyo is even a larger driver of than all of Japan.”

GreenOak will continue to focus on countries with developed economies that are undervalued from a long-term perspective and trade at a discount to replacement cost, explains Carrafiell.

■ John Carrafiell & Karen Petkau Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 35

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 36

TECH-FOCUSED CITIES THOSE TO WATCH, INVEST IN “It is not necessarily those cities where an investor would necessarily flock to right now” that are ranked high on the CMI, says the CMI report’s contributing author Rosemary Feenan, International Director, Global Research Program, JLL. Rosemary Feenan International Director, Global Research Program, JLL To thrive as a city of choice for investment and commercial real estate, urban centres have to jump on the technology and innovation bandwagon or risk being left in the dust, notes a recent city research report.

Cities have to become meccas for technology and innovation and, in so doing, attract highly educated and talented populations, foreign investments and high-value businesses and financial services, according to JLL’s Cities Research Centre’s City Momentum Index (CMI) report released in the first quarter of this year.

The CMI looks to short-term/medium-term future forecasts with regard to elements of change, says Feenan.

In order to quantify this evolution, the CMI tracks a city’s economic base and commercial real estate market and their speeds of change.

“Cities that have got that kind of tech feel around them; that have that sustainability; that are really doing interesting things with their education and technology” are ranked high on the CMI, she says. “I think the important thing to say is there are clusters of cities that are emerging as very interesting in the market today.”

CMI’s Top 20 list of elite cities includes London, New York, Tokyo, Hong Kong, Singapore, Dubai, San Francisco and Los Angeles.

The tech-heavy San Francisco Bay Area took top marks for getting onto the technology-trends train before its urban competitors. Kudos also went to San Francisco and San Jose, with San Francisco expected to show the strongest rate of office rental growth in North America this year.

Austin, TX, the seventh smallest city in the CMI Top 20, is one of the most successful small- to mid-sized cities among the advanced nations, due to its highly skilled population, favourable business environment and low costs which support a strong city momentum, particularly in Austin’s high-tech sectors.

“Rather than looking always at size, there is a very simple calculation that if you divide GDP ratio by the investment volumes, to our way of thinking, it gives you perhaps a more interesting measure that we call intensity,” says Feenan. “These cities are perhaps punching above their weight.”

The new silicon geography is everywhere, she says, and isn’t contained to North America.

“From Africa through to Russia through to just about any country you can name is trying to create its own little silicon valley,” she says.

■ Karen Petkau

The CMI Top 20

City Momentum Index – Global Top 20*

Source: Jones Lang LaSalle, 2014

Source: Jones Lang LaSalle, 2014 * out of 111 cities

36

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 37

Your world.

Bigger. Bolder.

Better. With us. ey.com/ca

Š 2014 Ernst & Young LLP. All Rights Reserved.

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 38

ECONOMIC DRIVERS IMPROVE ACROSS THE U.S.

By Steven G. Cochrane

The third quarter marked a solid improvement in economic conditions across most of the country. Job growth accelerated; it improved the most in the South, but every region enjoyed some acceleration during the quarter.

Unemployment rates continued their five-year recovery in the Midwest and the West but backtracked a bit in the South, particularly in the South Atlantic states. The relatively slow pace of growth in the Northeast kept the jobless rate steady, but it has not fallen in recent months.

The West stands out for strong income growth, driven by technology-producing industries in the San Francisco Bay Area and Denver and Boise, aerospace in Seattle, and energy exploration and production in the central and northern Mountain states. Falling farm commodity prices are

38

limiting income growth in the middle of the country, and the quality of job creation in the South—mostly leisure, retail and hospitality—keeps income growth below average, except where manufacturing—in Texas and parts of the mid-South—creates better earnings.

Household balance sheets also continued their long-term improvement in the West, as well as in the Northeast. Rates have stabilized elsewhere. Delinquency rates on all consumer lending have fallen to their lowest levels since late 2006 in the Midwest and West, and they are 1 to 1.5 percentage points below those in the Northeast and South. Strong income gains and house price rebounds in the Northeast, particularly in the greater New York to Boston corridor, and throughout the West have helped to shore up household wealth and balance sheets.

Manufacturing Manufacturing is assuming the driving role in the regional economies that it did during the early years of the recovery. Back in 2010 and 2011, however, it was largely

concentrated in the auto industry as federal fiscal policy supported flailing domestic producers and subsidized auto purchases.

The manufacturing turnaround has grown more broad-based and enduring as U.S. nonresidential investment spending has accelerated this year, rising nearly 8% over the year in the third quarter, its fastest rate in two years. Investment in nonresidential structures is up by a similar pace. Together, they broaden the base of domestic demand for the industrial sector. This is reflected in the various regional Federal Reserve surveys of manufacturers. All of the composite indexes are pointing to expansion and are at levels not seen since mid-2011. Thus, demand for labour in the industrial sector is rising again as well.

Manufacturing employment is increasing at an accelerating pace in the Midwest and South and at a modest but steady pace in the West. Only in the Northeast are manufacturing jobs declining.

Manufacturing accounts for the largest

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 39

POWERED BY

May 27-28, 2015 Javits Center, NYC, USA

150+ EXHIBITORS

5,000+

2,000+

EXHIBITION VISITORS

CONFERENCE DELEGATES

North America’s International Real Estate Investment Expo & Conference The North American investment community including institutions, REITs, funds and HNWIs represent the largest investors in international real estate. Global Property Market provides unique access to these key decision-makers, while being THE meeting place for real estate professionals to network, share knowledge, and conduct business in a dynamic corporate environment.

Enquire about participating now!

ORGANISED BY

W : www.gpmevent.com T : 888 670 9800 (U.S. Toll Free) : +1 941 554 3473 (Rest of World) E : info@gpmevent.com Global Property Market

Global Property Market - North America

www.gpmevent.com

@GPMEvent

! CREF Winter 2014 v9 2014-11-27 4:41 PM Page 40

share of total new jobs in the Midwest, particularly in Michigan, Ohio and Indiana. This is one reason why the pattern of job growth by wage tier is most balanced in the Midwest. The Midwest is not a leader in overall job growth, but the balanced pattern of job creation bodes well for consumer spending and housing demand relative to the pace of economic growth. A nearly even balance of low-, midand high-wage jobs means a higher share of the newly employed will be earning enough to encourage new household formation and spending on consumer durables and nondurables.

Though the average wage of new jobs in the Northeast may be high, very high-paying jobs in finance and business skew the distribution.

A large share of all new jobs in the Northeast pay low wages.

Housing Housing does not yet play an important role in differentiating economic activity across regions.

Markets are largely balanced in most of the larger metro areas around the country. While price appreciation may have been strong in many areas over the past two years, with few exceptions prices are near their long-term equilibrium value given current demographic patterns.

Only Austin TX, Orange County CA, Nashville, and Raleigh NC appear to be overpriced at the moment. On the other extreme, many Midwest metro areas are highly underpriced, including Indianapolis, Kansas City and St. Louis. Currently, housing impacts the economy primarily through shoring up wealth for homeowners. Although home equity may not be back to its 2005 level, most metro areas in the Northeast and on the West Coast are getting close. The S&P/Case-Shiller price index in Denver already is 11% above its previous peak and in Boston is

40

The West’s outlook is brightest among U.S. regions. Strong job growth accompanied by relatively high wages and a diminishing supply of available housing units in some areas generates good potential for new-home construction. The South’s job gains will about match the West’s, but the stronger income growth expected in the West will add to its vibrancy.

just 3% shy of its former peak. San Francisco is still 11% below peak, and New York is 18% below. Las Vegas and Miami are still well below peak, but prices are up in each by about 10% over the year.

New construction is creating jobs and driving the economy only in the few areas where foreign and investor demand is driving new multifamily construction. New York, Chicago and Los Angeles are such examples, although new multifamily permits have risen quickly over the past year in all of the big Texas metro areas, as well as Cleveland, Milwaukee and Phoenix.

Risks The pace of the global economy is the greatest risk to all of the regions at this point.

Patterns of export trade illustrate how this risk is playing out, with little growth of exports from the Northeast. The Northeast is highly exposed to trade with the weak European economy. Elsewhere, the nominal value of goods and commodity exports is still rising, but at a slower pace, particularly from the West.

Falling energy prices also pose a threat to energy-producing regions, which now include West Texas, North Dakota, Pennsylvania, and even central California to a certain extent. Current prices are still high enough to make exploration and drilling profitable, but the picture could change if prices fell below $65 per barrel. Downstream industries that use oil and natural gas as feedstocks—petrochemicals, plastics and pharmaceuticals, for example—would benefit from lower prices, however. Low energy prices in the U.S. already are attracting direct foreign investment in these industries. Thus, regions such as Texas and the Gulf Coast do not have much to worry about given their concentrations of such downstream industries. Even the Northeast and Midwest have energy-intensive activities that can benefit from lower energy prices.

Outlook The West’s outlook is brightest among U.S. regions. Strong job growth accompanied by relatively high wages and a diminishing supply of available housing units in some areas generates good potential for new-home construction. The South’s job gains will about match the West’s, but the stronger income growth expected in the West will add to its vibrancy.

The Northeast and Midwest will continue to lag. The Midwest has the potential to accelerate, however, and to expand its lead over the Northeast. The pace of job growth has already begun to pick up. Residential construction permits also have risen in recent months, and all of the Midwest’s manufacturing indexes point to expansion into 2015. The rapidly falling jobless rates of the Great Lakes States may set the stage for rising wages and accelerating income growth in this region.

The Northeast still lacks a consistent set of drivers to generate broader and faster growth. The region’s links to the increasingly regulated financial services industry and to weak trade with the struggling European economy are key factors for the Northeast’s sluggish advance. Much will depend upon whether the pattern of job gains improves further with higher-paid professional, business, technology, media healthcare and education services. Job openings are not lacking in this region, but many go unfilled.

As business confidence improves and labour markets tighten, firms will begin to accelerate hiring before wages start to rise at a faster pace. The region’s diversification will create better long term prospects. In fact, when financial services finally does begin to hire again and raise pay and bonuses, it will combine with the region’s other services industries to create a vibrant regional economy once again.

■ Steven G. Cochrane is Managing Director of Moody’s Analytics Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 41

Leverage your commercial investment with the right financing.

CMLS Financial is your leading source for Conventional and CMHC Insured commercial financing for all types of asset classes. By accessing capital from multiple funding platforms, we can offer a wider range of solutions. For customized funding options, talk to us today.

t $.)$ *OTVSFE t $POWFOUJPOBM $POWFOUJPOBM 1MVT t #SJEHF $POTUSVDUJPO .F[[BOJOF t 'JSTU BOE 4FDPOE .PSUHBHFT t $.#4

MULTI-FAMILY

55 Million

MULTI-FAMILY

38.4 Million

$

$

CONVENTIONAL FIRST

CMHC - MBS FIRST

6 BUILDING APARTMENT PORTFOLIO ST. CATHARINES & NIAGARA, ON

MULTI-FAMILY HIGH-RISE VANCOUVER, BC

RETAIL

26 Million

RETAIL

25.5 Million

$

$

CONVENTIONAL FIRST

CONVENTIONAL FIRST

98,000 SQ. FT RETAIL PLAZA CALGARY, AB

16 STOREY OFFICE /RETAIL BUILDING TORONTO, ON

INDUSTRIAL

31 Million

OFFICE

77.2 Million

$

$

CONVENTIONAL FIRST

CONVENTIONAL FIRST

350,000 SQ. FT. 7 BUILDING BUSINESS PARK BARRIE, ON

PORTFOLIO OF 2 HIGH-RISE OFFICE BUILDINGS MONTREAL, QUEBEC

CANADA’S MORTGAGE COMPANY.™ 40 years, 10,000 customers and 10 billion in assets.

A dedication to Customer Forward.

VANCOUVER CALGARY TORONTO OT TAWA 604.687.2118 403.398.2160 416.646.1005 613.237.8111 FSCO LICENCE NO. 1174 9

MONTREAL 514.205.6650

HALIFAX 902.423.1288

CMLS.CA

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 42

Platinum

Chairs’ Reception

Dynamic Multi-Display

Networking Reception

Digital Information Package

Silver

Bottled Water

Charging Station

Mobile Screen Cleaner

Bronze

Concurrent Sessions

®

LIVESOLAR CAPITAL

R

Principal Mobile App

E

A

L

E

S

T

A

T

E

A

D

V

I

S

O

R

Y

Supporting Mobile App

Multimedia

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 43

TTHANK HANK YOU YOU TO TO OUR OUR SPONSORS SPONSORS

Principal

National Green

WiFi

Gold

Social Media Wall

Lanyards

Pens

Mints

TM

Biographies

Hand Cleanser

Keynote Sessions

Book Giveaway

Morning Keynote

Plenary Sessions

Closing Session

Opening Session

AltusGroup Group

Journals

Wireless Survey

Leaders Leaders in Capital

CO CORP O 速

Corporate

AltusGroup Group

TToo t e B a g s

COMMERCIAL R REALTY REAL EALT TY T INC. IN C. BROKERAGE BR AG

Post Notes

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 44

Bringing Intelligent Capital to Great Ideas Actively pursuing acquisitions and joint venture opportunities $550M of investments closed in 2013/2014 $400M targeted for transactions in 2015

Building Trust

D EEP Real Estate Fund Products

EXP ER IE N C E

& S OL I D T R AC K

Segregated Account Management

R E C OR D Joint Ventures, Partnerships, Syndications

ÇŠ ÇŠ

www.ďŹ eraproperties.com

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 45

We have what you are looking for Give e us a call. all Toronto 416 224 3482 MontrĂŠal 514 499 7999 ext: 7322 2 Ottawa 613 234 2865 Calgar y 403 0 531 4181 Edmonton n 780 94 4 1152 Vancouver 604 664 8054

w www.s standardlife.ca a For the e financial realitie lities off lif life.

The Standard Life Assurance Company off Cana ada

October 2014

Š 2014 Standard Life (image reproduc o ed under license)

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 46

46

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 47

INNOVATIVE,

ROLL-UP-YOUR-SLEEVE APPROACHES NEEDED FOR YEAR AHEAD

Scott Hutcheson Chief Executive Officer, Aspen Properties

Intelligent, thoughtful and service-oriented approaches will be needed to propel properties above the crowd and attract tenants and users in the years ahead, says Scott Hutcheson, Real Estate Forum co-chair and Aspen Properties CEO. “You have got to be able to see through the asset and find how to increase the value of that asset by rolling up your sleeves,” he says. “I haven’t seen it to be more evident than today.”

With a more efficient market where there is more capital, pension funds and institutions snapping up real estate, many entrepreneurs have been eked out of the business, adds Hutcheson.

“If we’re highly focused on being a service industry, as opposed to bricks and mortar, we are doing value add and we are servicing the needs of our tenants beyond the way they did 15 years ago,” he says.

On the investment front, our focus is on asset selection with growth potential, adds Real Estate Forum co-chair Anna Kennedy, Partner and CFO of KingSett Capital.

“To assess growth we evaluate urban form, potential for intensification, the impact of technology, sustainability and a careful assessment of market conditions to ensure

www.realestateforums.com

Anna Kennedy Partner and Chief Financial Officer, KingSett Capital

that we have properties that can be increasingly attractive to the right type of customer,” she says.

Urban intensification strategies target transportation and transit nodes. Sustainability targets the shift in customer demands for sustainable work environments and technology needs evolve and shape the design and positioning of our assets, adds Kennedy.

While doomsayers can paint a not-so-pretty picture of the real estate market, Hutcheson says, “you have to listen to the noise, weigh it and build strategies around it. You are going to have to make some calls in your career and sell when all the news and the noise tells you should, at as close to the top of the market as you can.”

This is a dynamic industry with great learning opportunities at this year’s conference, adds Kennedy, where she hopes attendees will “gain genuine insight into what some of the leaders in the industry are planning for 2015.”

The Forum can provide real estate stakeholders insight regarding changing trends on the horizon, whether they pertain to global investments, pension plan allocations, developmental strategies and operational performance plans.

“From an investment perspective, we continue to see significant scale of sophisticated capital pursuing investment strategies in most every asset class,” says Kennedy. Investors need to have the right strategy and the right tactics to achieve success in this environment.

■ Karen Petkau 47

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 48

THE ALTUS REPORT

WHAT HAPPENS NEXT? PREPARING FOR UNFAMILIAR OUTCOMES

By Sandy McNair

Mixed signals abound. A close look at most all of the traditional economic indicators – immigration, jobs, GDP, interest rates, confidence, $CA, government deficits, infrastructure funding, youth unemployment, stock market and real property values to name a few – results in an unfamiliar brew of ups, downs and sideways and for most of us, a forecast that is even less clear than usual.

and impact risks, opportunities and outcomes, more so now than since the early 1980’s or early 1990’s.

Speaking generally and somewhat dangerously, the industrial and apartment rental sectors are more stable than the office and retail asset classes which currently offer greater risks, rewards and multiple and unfamiliar outcomes. Industrial and MultiRes enjoy greater clarity and visibility in terms of demand, new supply, investment in upgrades / retrofits, operating cost increases when compared to the retail and office asset classes. Retail and Office assets are being impacted by unfamiliar and yet huge shifts in demand.

Retail’s Dual Pressures – Escalating Digital Impacts and the Spike in Supply of New Physical Space Many retailers are aware that their digital profiles, positioning and fulfilment are as important as their physical presence.

Consumers are more often choosing multiple, varying and evolving combinations of digital and physical interactions as they move through the awareness, interest, aspire, research, price and acquire behaviours. For investors and managers of retail assets of all formats there is no single, clear or certain path to success. For most investors in and managers of regional shopping centres, community shopping centres, power centres, outlet malls, high street and other retail formats and locations, success in the physical will also require increasingly higher levels of success in the digital. This pressure on retailers telegraphs

directly through to investors and managers of retail properties.

In parallel, in most geographic markets and within most retail formats there has been a spike in construction of new retail space.

For example, many of Canada’s super regional shopping centres have recently experienced or are currently in the midst of expansions and upgrades involving huge investments – in many cases hundreds of millions of dollars at each major shopping centre. Each investor does so, confident their shopping center will succeed and they will be rewarded. And perhaps they will.

But given the modest prospects for growth across the economy generally and in disposable incomes specifically, it would appear at best we should anticipate a zero sum gain, where every gain is offset by a loss at some other retail format or location.

Even more than usual we can anticipate seeing big winners and big losers occurring concurrently. Isolating and identifying the attributes of the big winners will be the first of several steps to determining if that attribute is a transferrable new best practice or if it is a one-off anomaly due to unique location, demographic, retailer, personnel and other specifics. The outlook for investors in retail assets will be heightened risks and rewards. The winners will be those that correctly anticipate and shape the changes in consumer behaviour and contribute to the successful evolution of their retailers’ physical and digital presence, profile and positioning.

It Depends …

With our familiar and comforting generalizations and stereotypes appearing to be in disarray, digging deeper is required to identify opportunities and mitigate risks. The differences by asset class, market, district, node, building vintage, positioning and the managers’ brand vary widely 48

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:42 PM Page 49

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 50

Yorkdale Toronto, $331 million Expansion

Office Space Shifts from Commodity to Differentiated Office occupiers are no longer a homogeneous lot. For many, the Battle for Talent has led them to embrace unique strategies for their premises. Some are more intensely using less, but better space. Others are taking a more traditional approach and still others are at the funky fringe or a hybrid of all the approaches. At the extreme, densities have increased sharply to 100 square feet per workspace and 1.3 people per workspace resulting in footprint reductions as high as 35%. More often, reductions of 10% to 20% are experienced as firms move from one office building to another.

The strategies that occupiers are adopting in their Battle for Talent involve much more than just layout and density. They are more often seeking a stronger and more specific Quality of Fit between themselves and the building managers and owners. This Quality of Fit includes responsiveness, communication channels, issue resolution rates, environmental leadership, image, engagement and more. For a growing segment of the occupier community price, alone, will not result in success.

50

Chinook Centre Calgary, $275 million Expansion

Rideau Centre Ottawa, $300 million Expansion

Downtown Office Inventory by Year Built in millions of sq. ft. • Source: Altus InSite Sept 26, 2014

80 70 60

7.1%

Built pre-2000 Built since 2000

11.0%

Currently Under Construction/ % of Existing Inventory

50

20

7.5% 35.2%

40 30

1.3%

9.9%

9.1% 11.8%

3.8%

7.6%

19.4%

7.1%

10 0 Vancouver

Edmonton

Calgary

Toronto

The dynamics of tenant retention and leasing have been further impacted by the material spike in supply of new office space in all of Canada’s major markets. As an example, in downtown Toronto the inventory of Class A office space has since 2000

Ottawa

Montreal

grown by 16.8% with an additional 10.8% currently under construction. The chart above looks at the impacts on the total of Class A, B and C space in each of the downtown markets.

Pockets of Pain / Opportunity The Extent of Concentration of Total Available Space The 8 Buildings with the Most Available Space Compared to the Rest of the Class A Downtown District

Total Available Rates

Vancouver Edmonton Calgary

Toronto

Ottawa

Montreal

8 Buildings with the Most Space Available

24.9%

27.0%

22.5%

28.7%

15.2%

33.3%

Rest of Class A Downtown District

6.5%

2.6%

3.2%

8.2%

3.3%

8.0%

All of Class A Downtown District

10.0%

9.5%

6.5%

12.0%

7.8%

13.2%

% of Total Available in the 8 Buildings with the Most

48%

72%

57%

44%

74%

52%

Canadian Real Estate Forum / WINTER 2014

this is the one

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 51

people

Ope Opening p S Summer Sum mmer 2016

location

access New P PATH AT TH Connection Con to Union & TTC

To learn more about One York Street, please visit oneyorkstreet.com or contact: Lee Billinkoff* Senior Vice President 416 359 2633 lee.billinkoff@ca.cushwake.com

Eric Shaw* Vice President 416 359 2425 eric.shaw@ca.cushwake.com

&XVKPDQ :DNHÀHOG /WG %URNHUDJH &XVKPDQ :DNHÀHOG /WG %URNHUDJH 7KH LQIRUPDWLRQ FRQWDLQHG KHUHLQ KDV EHHQ SURYLGHG WR &XVKPDQ :DNHÀHOG /WG E\ RWKHUV :H GR QRW ZDUUDQW LWV DFFXUDF\ ( 2 ( 6DOHV 5HSUHVHQWDWLYH 7 KH LQIRUPDWLRQ FRQWDLQHG KHUHLQ KDV EHHQ SURYLGHG WR &XVKPDQ :DNHÀHOG /WG E\ RWKHUV :H GR QRW ZDUUDQW LWV DFFXUDF\ ( 2 ( 6DOHV 5HSUHVHQWDWLYH

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 52

The combination of increased occupier density and increased new supply has resulted in material pockets of available space often in the buildings previously viewed as ‘top of market’. In each of Canada’s major office markets a disproportionately large portion of the total available Class A space is located in a small number of buildings. The chart on the previous page takes a closer look at the 8 office buildings with the most available space compared to the rest of the Class A buildings in the Downtown District.

If we look more closely at the 8 office buildings in downtown Toronto that currently have the most available space (see 3D image above), we see that each of them contain more than 230,000 square feet of available office space and that in aggregate these 8 buildings contain 44% of the total available space in all 115 class A office buildings in downtown Toronto. These and other Pockets of Pain / Opportunity are feeling different pressures than most all of their neighbours. To varying degrees this disparity is happening across the country and impairs the value of our previously comforting ‘averages’.

Over the past 15 years great progress has been made on managers’ brand attributes by many of the industry leaders, but not by

52

all firms. The delta between the few at the top and the industry norms or benchmarks continues to be material. As an example, perceived issue resolution rates at the best firms are in the area of 80+%, whereas the industry benchmarks or norms are, depending upon which major market, currently in the 23% to 38% range. On average the industry has improved over the past 15 years, but there is a huge variation from first to fourth quartile.

Understanding and contributing to your tenants’ strategy, choosing to focus your building attributes on specific occupier segments, building and enhancing the value of the brand of your management team are the keys to delivering operational excellence. Measure, proactively listen and continuously improve.

We may not be able to clearly see the future, but we can prepare and position ourselves, our teams, our brands and our portfolios for success.

■ Sandy McNair is the President of Altus InSite, a division of Altus Group. Since 1997 Altus InSite has conducted more than 1.7 million tenant satisfaction surveys for many of Canada’s leading office building owners and managers. sandy.mcnair@altusinsite.com www.altusinsite.com Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 53

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 54

‘MIXING’ THINGS UP

Dori Segal Executive Vice Chairman, First Capital Realty.

Vice Chairman, Gazit-Globe

Realty and recently appointed Executive Vice Chairman of the company’s Board of Directors, Chairman of the Executive Committee of the Board and Vice Chairman of First Capital’s principal stakeholder, Gazit-Globe, and its global business.

“I think you will continue to see migration into urban markets and along public transportation, such as along the GO Train, subways, light-train systems, bus routes, highways,” he says, as well as a focus on mixed-use properties.

The key to driving traffic to each floor of a mixed-use building is to have convenient access and excellent visibility, with nice, large windows to let in natural light, he says.

Businesses should also utilize patios and rooftops to create outdoor spaces and drive traffic upward.

In order to progress with the times, the Canadian real estate sector will need to focus on quality and not follow fads if it wants to retain a strong presence in the nation’s economy, says Dori Segal, past President and CEO of First Capital

“We have one project (First Capital is) building, now, where the residential is facing north and the retail faces south,” says Segal.

“So, when you look at the project, it is actually two different projects because of the difference in the grade.”

IF YOU BUILD IT, THEY WILL STAY: ONE-STOP URBAN LIVING

For reasons both financial and environmental reasons, David Gerofsky sees significant value in a project that is next to a major transit hub. “We think the space will stay leased because if people have the choice they’d rather be near a major transit hub,” says the Chief Executive Officer of First Gulf Corporation. “They also want all those services and amenities—such as food, fitness, health and wellness, doctor, massage, physiotherapy, and banking.”

David Gerofsky Chief Executive Officer, First Gulf Corporation

Each segment has a completely separate entrance with a driveway, with a common garage. “Other than that, they are two separate properties cloned into one.”

First Capital is known for intensification of its property sites, mixing retail with schools, day cares, offices, restaurants and fitness facilities, which Segal says the company will continue to do, even after its newly appointed President and CEO Adam Paul takes the helm.

“I think First Capital is going to do better in the next five years than it did in the last five years, and I will be the first one cheering on the sidelines”, concluded Segal.

■ Karen Petkau

The aim is for people to get through their day without driving a car. Millennials are much more likely than their parents to use public transit, cycle or walk. Young workers are also less willing to put up with long commutes. “The mindset has changed,” Gerofsky says. “People don’t necessarily even get their driver’s licences anymore.”

When First Gulf Corporation acquires a site for development, it isn’t necessarily for one specific purpose. A major strength of this North American real estate development

54

“I think you will continue to see migration into urban markets and along public transportation, such as along the GO Train, subways, light-train systems, bus routes, highways.”

company is that it operates in several types of development, including highrise, office and condominium. So a newly-bought site might end up as mixed use, or as something very different than originally anticipated.

In terms of creating value, intensification is a major focus for the company in residential and commercial office projects, in both downtown and suburban markets in Canada and the United States. So is transportation, which remains “a big theme for us,” Gerofsky says.

For now, there is only so much available land within walking distance to bus, subway or train stations. He is confident, however, that transit systems will continue to develop, bringing further opportunities for development in convenient locations. “I don’t expect to see anymore highways in Ontario in my lifetime,” he says. “So transit is where it’s at. And believe we’ll always be considering it as a major factor in our development plans.”

■ Michelle Morra-Carlisle Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 55

WE’RE JUST GETTING STARTED We’ve had a growth spurt – for the past 25 years. As our reach has grown, from BC to Alberta and Ontario, so too has our grasp. As limitless as our growth opportunities may be, we continue to hold true to our corporate vision of excellence.

www.ConcertProperties.com

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 56

CITY CORES INTENSIFY AS REITS FOLLOW THE MONEY

Intensification of inner cities is the most important shift in Canada’s real estate activity, according to Michael Emory.

“It’s a deeply seated trend, one that is pervasive, rather than a passing phase,” observed Allied Properties’ Chief Executive Officer. “The best way to optimize land is through mixed-use development, adding significant new components to existing properties.”

He framed his own company’s appetite for mixed-use as an organic evolution, rather than a change of strategy.

Michael Emory Chief Executive Officer, Allied Properties

“The best way to optimize land is through mixed-use development, adding significant new components to existing properties.”

COMPETING IN THE OFFICE SECTOR

Michael Turner Senior Vice President, Real Estate Management, Oxford Properties Group Inc.

“The goal is to be contemporary even if you own a 40-year-old asset.”

“Historically we were a Class I operator,” Emory said. “Originally, we adapted industrial buildings for our tenants. We would never go out and buy Class A buildings or rental property, but as part of mixed-use development we have ended up owning purpose-built residential rental property.”

Allied has thus added Class A properties to its portfolio, like its joint venture in Toronto with RioCan and Diamond at the former Globe and Mail property between Front and

In the ongoing war for talent, companies no longer leave it solely to the facilities department to make decisions about office space. Many now include human resources professionals in the process. Rather than just a cost issue, space is now about attracting and retaining the best and brightest employees and achieving great productivity.

With more people at the table than before, tenants are asking for comprehensive information. For example, if the landlord talks about being energy efficient, the tenant wants to know how that efficiency is quantified, what exactly it means, and how objective the data is. “The factors in the decision-making process are probably broader, more comprehensive in terms of what’s the impact of this ongoing decision beyond rent for the next decade,” says Michael Turner, Senior Vice President, Real Estate Management at Oxford Properties Group Inc. As office buildings evolve, so do occupants.

With a changing composition in the world economy, the technology sector has become a major occupier of office buildings,

56

Wellington streets, west of Spadina. The development will include a significant residential component, some of which might end up as rental stock.

Emory explained that the real estate investment market has, during the past two years, favoured firms like his that can grow cash flow without resorting to spread investing, by adding to their existing portfolios.

“Whether they acquire or not, they have the ability to propel value,” he enthused citing CREIT as an example of a REIT that, like Allied, has proven its ability to build a stable cash stream, quarter after quarter, through internal growth.

“Though we have acquired quite a bit this year, our ability to drive cash flow isn’t predicated on acquisition,” Emory said.

Despite the rise of the inner city, Emory also sees strategic opportunities in the suburbs for canny investors. He suggested that location might become more important than it has been in the past.

■ Robert Frank

especially in our downtowns. And according to Turner, those occupiers will have different demands than in the past. Landlords can expect new demands regarding the hip-ness or newness of a building, and about the quality of their backup systems and networks, to name a few.

Savvy tenants have high expectations. Can a retrofitted office building compete with a brand new one? Speaking from a company that is a market leader both in the scope of its new builds and in its existing portfolio, Turner says the goal is to be contemporary “even if you own a 40-year-old asset.” To him, ‘contemporary’ means having mechanical systems (including elevators) that are relevant, modern, efficient and optimal. “Is your building LEED? Is your building offering a pleasant workplace environment? If not, you might be in trouble,” he says. “But if you’ve been modernizing and contemporizing yourself for a long time I think you’re going to be just fine.”

■ Michelle Morra-Carlisle

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 57

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 58

WISDOM AND PREDICTIONS FROM A WISE MAN

Ed Sonshine Chief Executive Officer, RioCan REIT

CANADIAN CITIES GROW ‘UP’

Eric Carlson Chief Executive Officer, Anthem Properties Group Ltd.

“In an urban environment your living room isn’t just in your apartment. It’s also in the public space.”

58

From a macroeconomic perspective, Ed Sonshine doesn’t think 2015 will be much different than 2014. The Chief Executive Officer of RioCan REIT foresees no big change in interest rates. From an operational point of view, he says, “The question is: Are the tenants going to be there, and can they pay rent? That’s more important in some ways than what can you sell a property for.”

“Are the tenants going to be there, and can they pay rent?

That’s more important in some ways than what can you sell a property for.”

He expects retail, which has seen a tough economy since 2008, to remain fairly flat except in very urban areas. He relates this to certain sectors, namely books and music, but also stores such as Staples and Best Buy, which are downsizing because so many people shop online today.

On the residential side he sees great rental opportunity in several cities. And he is confident that rental can compete with condominiums, for two reasons. First, condominiums don’t offer security of tenure.

Second is management. “A lot of buyers of condos who rent them out are certainly not professional real estate people,” Sonshine says. “They might not even live in Canada. So if you’ve got a problem in your unit, who do you call?”

Sonshine believes that power centres, while generally falling out of favour, still work if well located. And outlet malls, while having limited possibilities in a small market such as Canada, can do very well. RioCan recently opened a purpose-built Tanger outlet in Kanata with great consumer response. “Ottawa is so far away from the U.S. that, except on vacation, they haven’t experienced the American style of outlet centre where you have great brands that are really selling stuff cheap,” he says. “It has been fabulous.”

Urbanization has certainly caught on in Canada. Eric Carlson, Chief Executive Officer of Anthem Properties Group Ltd., says there are three major factors driving the trend, one being immigration. Many immigrants to Canada, particularly those from China, come from big cities. “These people are very comfortable living in condominiums rather than suburban houses and are driving demand for such urban dwellings,” Carlson says.

The second driver is public policy, which very much supports urbanization today.

“Urbanization is considered better for the environment with people living closer together, relying less on cars, and sharing common walls rather than having a house on a big lot in the suburbs,” he says, “and infrastructure is much more efficient to develop.”

He adds; with growing demand for urban homes, land costs increase, as does the cost of living. Density takes care of that by making urban living more affordable as people share space, or live or work in smaller spaces.

While Sonshine foresees no major shakeup in the 2015 real estate market, he concedes that surprises do happen. “Everything changes,” he says. “When I first started RioCan, Canada had just lost Eatons, its biggest retailer. They dominated retail for 100 years. Now things happen more quickly.”

■ Michelle Morra-Carlisle

Lifestyle, too, drives urbanization. “In an urban environment your living room isn’t just in your apartment,” Carlson says. “It’s also in the public space. Whereas in the suburbs you can either hang out at home or drive to a mall five miles away, downtown you can walk down the street and pass six cool places within 200 metres of your home.”

Even young families are attracted to urban living. Couples and singles have always dominated the urban setting, but now some are remaining downtown to start families. “Today a young couple might be inclined to say, ‘Frankly we can’t afford to live in the suburbs. A house costs too much, and we don’t like the idea of commuting,” Carlson says.

This might involve one or two children sleeping in a bunk-bed in the corner, or upgrading to a two or three bedroom unit.

While the suburbs still have huge appeal for families—taking an elevator to walk the dog is no fun—urbanization offers increasingly more lifestyle choices.

■ Michelle Morra-Carlisle Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 59

Building to the industry’s highest standards ours.

From land acquisition to building design, from construction to property management, our standards are matched only by our reputation. Our portfolio comprises over 300 projects, including 3.5 million ft2 of LEED certified buildings, 30 corporate centres, and 15 million ft 2 in current development.

By combining cutting-edge technology and benchmark environmental practices, we build and deliver tomorrow’s projects today. We build legacies.

877- 666 - 8664

groupemontoni.com

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 60

GETTING BACK TO THE FUNDAMENTALS KEY TO STRONG PORTFOLIOS

Gary Whitelaw Chief Executive Officer, President and Director, Bentall Kennedy LPP

the country is poised for another steady year and that bargain-basement investments are a thing of the past.

“What it says to me is that real estate has held up very well as an institutional asset class, that generally the fundamentals are strong and portfolio performance is good but because of the attractiveness of real estate as an investment class, things have become fairly expensive almost everywhere you look,” says Gary Whitelaw, Chief Executive Officer, President and Director of Bentall Kennedy LPP. “While there are some opportunities to find a bargain, these are few and far between, and in most cases, you need to pay full value for good-quality, well-located assets and be prepared to add value as an owner and operator of that real estate in the traditional way.”

When the Emerging Trend in Real Estate Report 2015 was unveiled earlier this year, it came to no surprise to industry insiders that

That involves the fundamentals; renewing and satisfying tenants, carefully managing capital requirements, marketing and positioning, he says.

URBAN MIGRATION MOVES FROM BRICKS TO CLICKS

attracting all classes of real estate, said the KingSett Capital Managing Partner.

Jon Love Managing Partner, KingSett Capital

“Obviously we’re seeing it in Toronto,” he observed. “Calgary’s residential growth is a case study of a city transitioning from a 9-5 downtown to something much more vibrant.

The same goes for Edmonton with its new arena, new residential and other development. Montreal and Vancouver are boosting residential in strong downtown cores. It’s truly remarkable that they all are growing in strength at once.”

Love forecast capital to remain abundant and continue to chase high-quality assets in 2015. That will continue to put pressure on capitalization rates. He expects new construction to taper until new capacity coming on-stream is absorbed.

“Most investors should focus on building income in their properties,” he urged.

Canada’s top-six urban centres are all seeing dense development downtown, reported Jon Love.

Toronto, Montreal, Ottawa, Vancouver, Calgary and Edmonton are witnessing mixed-use transformation that is

The biggest transformation on the horizon is the impact of the internet on retail, he predicted, as vendors adapt their stores to customers’ changing expectations.

“The migration in retail is from bricks to clicks,” he explained. “Other impacts will be felt in industrial and multi-residential.”

The report noted urbanization has become one of the key forces shaping Canada’s real estate markets, and retailers are following suit, driving new office and commercial developments downtown.

Tenants are also migrating from one building to another in search of modern living spaces, says Whitelaw.

“People are opting not to live through several months, or even a year, of sequential renovations and relocations and instead move to fresh, new space.”

Across all the asset classes, Whitelaw is also seeing a push for productivity — large occupants wanting to be more efficient in their space use, which is one of the factors driving the relocations.

Retail footprints are also shrinking to make way for well-located distribution facilities that cater to online purchases, he says.

■ Karen Petkau

“We stagger our leases, we stagger our maturities, we vary our assets and we vary our geographic exposure,” he explained. “In the Canadian context, we manage risk by attending to the geographic distribution of assets.”

Although Kingsett remains bullish on Canada, Love stressed that his long-term optimism is tempered by sober analysis.

“We stagger our leases, we stagger our maturities, we vary our assets and we vary our geographic exposure,” he explained. “In the Canadian context, we manage risk by attending to the geographic distribution of assets.”

He noted that pension funds and high-net-worth families are increasing their real estate holdings.

“The proportion of real estate in large-scale, sophisticated portfolios will continue to grow,” Love noted. “Some Canadian pension funds now hold up to 25% of their assets in real estate.”

■ Robert Frank

60

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 61

2014 KingSett Growth Fund KingSett Mortgage Fund KingSett Income Fund

In 2014, $2.5 billion of transactions. $1 billion targeted for investment in 2015.

Relationships, Flexibility, Execution.

Let’s talk.

KingSett Capital has over $5 billion of assets under management and is Canada’s leading private equity real estate investment business co-investing with institutional and high net worth clients using active management to create premium risk weighted returns.

416.687.6700 • www.kingsettcapital.com

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 62

WHAT IS DRIVING URBANIZATION?

Paul Finkbeiner President, GWL Realty Advisors Today’s cities are getting denser by the minute and if Canada’s urban centres hope to survive, they need to build the infrastructure to tackle this growing urbanization, said Paul Finkbeiner, President, GWL Realty Advisors.

Gone are the municipal coffers to pay for the much-needed transit systems, roads and utility networks, so cities will have to engage innovative concepts that involve private partners, including those in real estate, he stated.

“Developers have no problem

IN PRAISE OF BRICK AND BEAM

Tom Burns Executive Vice President and COO, Allied Properties REIT Allied Properties REIT operates on the fringe of the core, just outside of some of Canada’s busiest downtowns. It specializes in older warehouse buildings that have been converted to office and retail space. These properties are highly 62

building buildings and shopping centres, yet they are not into building roads and subways and transit systems,” Finkbeiner said. “However, I think the developer will have to work with the city in tandem and then the funding mechanism maybe some sort of P3 (public-private partnerships) type of involvement.”

But the creativity doesn’t stop there, Finkbeiner added, pointing to some cities around the globe that fund major transit systems by offering up a portion for private businesses to fund, such as developers around specific subway stops.

“There needs to be more open thinking on how it can work because to me, it is about trying to create something that works for everybody,” says Finkbeiner.

The challenge in building a denser urban centre is ensuring the structures built can withstand the test of time, both in substance and design, he said.

Smart, thoughtful designs do not cater to fads in the marketplace or the desires of a set demographic, added Finkbeiner, because those wants can change as the population ages.

For example, he shared, in 1967, Cadillac Fairview designed apartment buildings with large, open, well-lit laundry rooms, he said.

leased, which Executive Vice President and COO Tom Burns attributes to increasing corporate involvement downtown.

“Young people just out of university tend to want to live downtown and don’t want to commute to the suburbs for their jobs,” he says. “So organizations are realizing they can attract talent to their companies by having offices close by.”

Even the more conservative corporations are becoming interested in funky downtown space. About a year and a half ago, Allied worked with the head office of McCain Foods in its move from a conventional office tower to a restored heritage building in King West.

“They took around 45 or 50,000 sq. ft. of space because they wanted to change their corporate environment and the company’s image,” Burns says. “They did a beautiful job.”

More and more corporate entities and conventional organizations are looking at brick and beam buildings. They also tend to

The design created a nice place for tenants to do laundry that had multiple views of outside.

“That, to me, is like office buildings that have fairly simple, rectangular floor plates that can be subdivided easily — that’s good design,” explained Finkbeiner.

Whether it is a well-lit laundry room or parking stalls, developers need to focus on today’s tenants, the needs of future dwellers and the sell-ability of the property.

“Sometimes, what looks good on paper doesn’t exactly prove out. Today, there is a lot of talk about mixed-use projects because it gives you a lot of the things that you want,” he said.

But the challenge is making them functional, simple and sellable – simplicity is the key, he noted.

Simple, easily separable designs instead of tiers of segmented floors for non-related consumption always works better. In addition, developers shouldn’t build based on what works in other global markets just because they have international investors, he added. Instead, they have to gauge what works in their cities’ demographics, regardless of where their investments originate.

After all, he said, Canadians are unlike any other global consumers, so their real estate needs should be as steadfast as they are.

■ Karen Petkau

High ceilings, natural lighting and exposed brick and beams create an environment that cannot be duplicated. renew their leases because the high ceilings, natural lighting and exposed brick and beams create an environment that cannot be duplicated. And in the case of King West Village, one of Toronto’s fastest-growing neighbourhoods, the amenities now rival those in the core.

From a green perspective, while a converted warehouse may not be at the level of a new, LEED-certified building, tenants appreciate giving new life to an old property. “It’s certainly more environmentally friendly to recycle a building than to demolish it and start over,” Burns says. “I think tenants who chose to come to brick and beam construction are already giving us points for that.”

■ Michelle Morra-Carlisle Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 63

Active investor, owner, manager of global real estate assets, with

$4.2 Billion under management. $3.0 Billion in mortgage

$3.3 Billion in private equity

$700 Million in public equity

originations since 2007.

transactions since 1999.

and debt securities under management.

Real Estate Investment Solutions Public and Private, Debt and Equity

416.800.1552, Investor Relations 416.928.3738, Real Estate Financing www.timbercreek.com

Actively Creating Value

This document document is is provided provided for for informational informational purposes purposesonly, only, and and does does not not constitute constitute an an offer offer to to sell, sell, or or a This a solicitation solicitation to to buy, buy, securities. securities. The The past past performance performance of of Timbercreek Timbercreek and and its managed managed accounts accounts and and funds funds are are not not indicative indicative of of future future performance. preformance. ŠTimbercreek ŠTimbercreek Asset Asset Management Management Inc. Inc. All All rights rights reserved. reserved. its

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 64

INNER-CITY RENAISSANCE SPURS RETAIL REVOLUTION Mike Pelyk Retail Advisor

“There will be a lot of change during the coming decade,” he says. “When I started in this industry around 1981, everything was suburbia. There was absolutely no urban program for anything.”

However, in the past 15 years, big metropolitan areas have witnessed a massive re-urbanization, notes Pelyk.

As a result, retailers who want to thrive will need to tailor their facilities to individual neighbourhood markets, he says.

“You can’t cookie-cutter stores anymore,” adds Pelyk. “You have to take your product and adapt whatever facility you have into that marketplace.”

The postwar big bang has gone into reverse.

As residents flood back to the urban core and the retail sector is poised to experience the biggest shake-up in more than a half-century, evolution in the sector is at hand, says Mike Pelyk, a retail advisor who earned his epaulettes at Triovest, Oberfeld Snowcap, Oxford Properties Group and Loblaws.

PLAN, ADAPT, AND THEN PLAN SOME MORE

Daniel Fournier Chairman & CEO, Ivanhoé Cambridge

Pelyk cited successful European retailers who have thrived in cities such as London by adapting to micro-markets.

“Chelsea, for example, has no big shopping centre,” he says. “It’s its own separate market, with its own separate food sources. You see a lot of name brand retailers on the street.

“A lot of the fashion market is going to get culled,” says Pelyk. “Canadian retailers have been slow to respond to our changing world.

Today, stores go stale after four or five years.”

This pace of change forces retailers to stay current and relevant, he adds.

“Those who will continue to thrive must master product placement, distribution, logistics and sourcing,” says Pelyk. “If you’re missing even one of those elements, you will be asking for trouble.”

Retailers also have to remember that the bulk of the market does not have a lot of disposable income, so there is a need for consistency in price and quality.

As well, the growth in the commercial real estate market for distribution centres that cater to online consumerism will also affect the marketplace, adds Pelyk.

“You know that there’s a marketplace there; you just have to design the right mousetrap for the people who will use those stores.”

“You will see a lot more intensification with physical plants being tools that, in many cases, supplement a business’s online presence,” he says.

In Canada, the biggest challenge will be to

■ Robert Frank

During 2015, real estate professionals will need to bring to the table both sound planning and an ability to recognize and seize opportunities, according to Daniel Fournier.

abroad, he prefers to place a premium on local acumen with whom he can form sound working relationships on the ground.

“The key is to stick to your plan. And when you have an attractive opportunity that may be off-plan, adapt your plan!” urged the Ivanhoé Cambridge Chairman & CEO. “Just make sure that you do your homework!”

As the industry has become truly globalized, institutional investors are expected, more than ever, to be much more opportunistic and intelligent in their investment approach to generate the levels of returns that are expected from them.

During the past few years, the real estate sector and witnessed real estate capital investment grow rapidly globally. That has attracted a much broader range of investors hailing from every part of the world.

Fournier said that he eschews national macroeconomic indicators. When he invests

64

attract consumers to the mid-market — the largest category of shoppers.

“We choose cities over countries,” he explained. “We also invest in real estate businesses with expert partners.”

Fournier observed that retail has confronted a transformational shift—and must continue to adapt—as outlets adjust to the disruptive influence of the internet on consumer sales and the changes that it has wrought on their shopping preferences.

That’s an opportunity, he suggested. Stores that succeed in adapting to clients’ new expectations have considerable upside sales potential.

“In the digital world, mall operators and owners now realize that the prospect for internet-driven sales outweigh—by far—the threat that the world wide web poses to the legacy mall business model,” Fournier concluded.

■ Robert Frank Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 65

$4.1 First Mortgages Up to $75M

Billion Funded

Creative Secondary Financing

Joint Ventures & Construction

Every transaction that we underwrite is customized to meet the needs of our client.

With over 930 transactions in almost 18 years, we recognize that each property and borrower is unique.

Real Estate Financing Solutions ReďŹ ned

www.trezcapital.com

Vancouver

Toronto

Dallas

Toll Free

604.689.0821

416.350.1224

214.545.0951

1.877.689.0821

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 66

CANADA’S EMERGING ENERGY SECTOR

“That energy demand is going to be satisfied by growth in all forms of energy,” he says. “In absolute terms, the contribution of fossil fuels — oil and gas and coal — will drop somewhat over the next 20 years or so but fossil fuels will still comprise the vast majority of energy supply — probably 75 per cent, thereabouts — even out 20 years from now.”

This emerging trend opens the doors for Canada to step up to the plate as a major energy producer and export that production to the parts of the world that are demanding it, says Collyer.

David Collyer President, Canadian Association of Petroleum Producers (CAPP)

“In North America, we are moving from an outlook of scarcity to an outlook of abundance, that is good for consumers — it creates opportunities for us as producers and for Canada to be an increased exporter.”

As Asia tries to improve its standards of living, energy sectors around the globe are feeling the pressure to cough up the power to fuel the continent’s modernization desires, with Canada vying for a stake in the supply-chain action.

Unlike North America and Europe, where the energy demand is relatively flat, emerging and developing economies will drive an increase in production, with China, India and Southeast Asia leading the pack, says David Collyer, President of the Canadian Association of Petroleum Producers (CAPP).

66

“Canada has significant reserves in crude oil and natural gas and, obviously, a very solid foundation in terms of contributing to that energy supply in a coal basis,” he says.

“We’ve got large reserves of crude oil. We’ve got large reserves of natural gas. Both have their challenges in terms of where we sit on the cost curve and the extent to which we are in those businesses today.”

In order to secure stable pricing, industry is turning to technology to help drive down costs, to make it more efficient and environmentally sustainable, which will, in turn, make the Canadian energy sector more competitive on a global scale, he says.

The global oil market has for the last many decades been largely influenced by decisions taken by OPEC (Organization of the Petroleum Exporting Countries), particularly by members who want to regulate the supply in the market, says Collyer.

However, in North America “we are moving from an outlook of scarcity to an outlook of abundance,” he says.

“That is good for consumers — it creates opportunities for us as producers and for Canada to be an increased exporter.”

While Canada’s energy sector is a latecomer to the liquidified natural gas (LNG) market, there is still growth potential, Collyer says.

“There is a market window, particularly on the natural gas side, and it’s important that we both are able to come to commercial terms with customers in Asia, in particular, but also that we do what we need to do in Canada in regulatory and infrastructure and aboriginal relationship perspective to enable these projects to happen in a timely way,” he says.

Pipeline projects transporting LNG, as well as Canada’s crude oil, are on the forefront of the country’s energy growth.

These projects include TransCanada Corp.’s Keystone XL pipeline that would transport Alberta’s heavy crude to refineries in the U.S.; TransCanada’s Energy East Pipeline that will carry crude from Alberta and Saskatchewan to refineries in Eastern Canada; Enbridge’s Ontario-Montreal Line 9 pipeline reversal that would capitalize on the lower Western Canadian crude prices and its Northern Gateway Pipelines project that would transport diluted bitumen from Alberta’s oilsands to B.C.; and the Kinder-Morgan’s Trans Mountain Expansion Project from Alberta to B.C. “Over the next five years or so, there is no question we have to get one or two of those pipelines up and operating,” says Collyer.

Besides being able to offer competitive pricing, Canada’s energy industry will also have to change public opinion if it wants to make it in the big leagues, he says, including doing its own marketing campaign on how the industry contributes to the nation’s economy.

“We employ, across the country, in excess of 500,000 people; it is about 20 per cent of the value of the Toronto Stock Exchange, so if you have a pension in Canada, you probably get an investment from the oil and gas sector,” he says. “We are also the largest private sector investor in the country, investing $70 billion a year, with a little less than half of that in oilsands and the rest of that in the remainder oil and gas sector; and big infrastructure investment that is going to be required to realize that production and market-growth opportunity.”

That support needs to come from the public, local communities, stakeholders, aboriginal peoples and all levels of government, Collyer adds.

“There is a tremendous opportunity in Canada to be a key player in global energy, and not just North American energy,” he says. “To realize that opportunity, we need to focus on competitiveness and focus on making sure we’ve got the support of the public and, in a way, getting out of our own way to enable these opportunities to go forward.”

■ Karen Petkau

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 67

Bringing real estate investment advice to life.

Whether your group is entering into real estate for the first time or developing your existing portfolio, Canadian Urban delivers the experience and track record to bring your real estate investment objectives to life.

From nationally diverse, core pooled funds to opportunistic turn arounds, our team provides a passionate perspective to all that we do.

Consistently ranked in the first quartile our greatest satisfaction comes from helping our clients achieve their objectives.

Whether your group is considering adding to your real estate portfolio or entering the market for the first time call us at: Toronto: (416) 367.1300 Edmonton: (780) 424.7722 Toll Free: 1.877.612.7722

canadianurban.com

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 68

GLOBAL REAL ESTATE COMPETITION SLOWS INCOME

“Those of us that have been in the industry longer are struggling to see where the income growth is because low cap rates have stretched prices,” said CPP Investment Board Senior Managing Director Graeme Eadie. “There are no huge bargains sitting out there.”

“Overall, the U.S. has the best growth prospects, but it’s also by far the most competitive market.”

New sources of foreign capital, primarily from Asia, are also hurting opportunities for traditional investors in Paris, London and New York. The new players are willing to pay higher prices to diversify their portfolios from bonds to real estate.

“People seem to be buying into the economic policies on the assumption of growth although it’s hard to see exactly how that’s going to unfold. Interest rates are still extremely low. So we’ve seen a huge rebound in prices. Quite frankly Japan goes through these points of euphoria then falls back and gets very worried about things.”

Despite that picture, there are positive signs in the United States, Australia, Asia and Europe.

Graeme Eadie Investment Board Senior Managing Director, CPP

The global real estate market is extremely competitive right now says one of the key people investing Canada Pension Plan funds worldwide.

VALUE AND GROWTH IN 2015

Michael Cooper President and CEO, Dream Unlimited Corp.

The head of Canada’s fastest growing REIT uses opposite strategies for increasing the return on investment in Canada and Germany in the coming year.

Michael Cooper, the President and CEO of Dream Unlimited Corp. says that his challenge in 68

“Overall, the U.S. has the best growth prospects, but it’s also by far the most competitive market,” said Eadie. “Australia, despite a bit of a soft patch recently, still has some fairly good economic growth relative to other developed countries. It’s fairly closely linked to China in resource sector and China’s still growing.”

Capital is also pouring into Japan right now, so prices have rebounded.

Canada will be increasing income from existing properties, whereas in Germany, he expects to continue acquisitions.

“I think that Canada is in pretty good financial shape,” said Cooper. “I think it’s going to grow more in future than now, but it’s fully-valued. So it’s got growth, but it’s slow. A lot of emphasis is going to be how to find extra value in what we’re doing.”

Dream has properties throughout Alberta, in Ontario, in Saskatchewan and in Halifax. He says that he’s looking at densifying existing sites and increasing the amount of retail space in properties across the country. He’s also looking at providing better technology; more lease opportunities and better flexibility so that his tenants can lower the cost per employee of their operations.

Demographics shifts also provide opportunities, “We’ve do a lot of residential and that residential market continues to be the area where you can generate significant returns. That’s especially where there’s growth.”

In Europe, Germany attracts lots of capital, primarily because it also generates a lot of its own savings. Spain, despite an unemployment rate of 23% is also attracting new investment, as are the Nordic countries.

"Spain has changed very quickly,” he said.

“Obviously, investors are making a bet that there will be some stability there and possibly even some growth.”

■ Tracey Arial

“With the changes in the capital markets [in Germany], there are a lot more opportunities to buy and sell and make money.”

In Germany, the company is on a buying spree, in part because they sold off some of their equity to other companies so that they can invest in the market at a lower cost.

“With the changes in the capital markets, there are a lot more opportunities to buy and sell and make money,” he said.

He says that although his company continues to investigate new markets, their team in Germany continue to find good opportunities to get higher returns on their equity, which is great for his shareholders.

“We will continue to grow,” he said. “There are plenty of opportunities.”

■ Tracey Arial Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 69

OPPORTUNITIES ABOUND FOR THE FLEET OF FOOT

Blake Hutcheson President and CEO, Oxford Properties Real estate prospects in Canada and abroad remain promising, though investors can no longer risk a seriously misstep, said Blake Hutcheson.

“I’m optimistic that our industry will continue to deliver more wins for those who are on their toes and are willing to move at breakneck pace,” the Oxford Properties President and CEO suggested.

Oxford’s industrial space is thriving, with manufactured product delivering better results than acquisitions. Its hotel portfolio has provided tangible year-over-year improvements for the past four years and bookings so far for 2015 predict for another strong year.

“We’re enjoying great retail growth while we invest hundreds of millions in repositioning our retail developments, because we believe in the future,” Hutcheson enthused, “despite some changing fundamentals.”

Investors remain alert to weakening office markets in Ottawa and Montreal and some softening in Edmonton and possibly Vancouver.

“Some markets are oversupplied and contain dated assets that are not well-positioned for the future,” he said. “While we still see some acquisition opportunities, we currently prefer to develop.”

Oxford has also dramatically diversified abroad. Five years ago, it held 95 per cent of its assets in Canada. Today, that figure is 65 per cent. In the process, it has more than doubled its assets under management.

“Levering the strength of new markets, we’ve gone from $15 billion in 2010, to $31.5 billion today,” Hutcheson reported.

“The returns are strong, yielding 10 per cent returns for 5, 10, 15 and 20 years.”

In the U.S., Oxford has thrived by targeting three growth engines, particularly for office: Boston for biotech, New York for business and the Washington political Mecca.

“We have done extraordinarily well in London, though we’re slowing down a bit,” he added. “We like Paris, which feels like London did a few years ago.”

■ Robert Frank

As independent advisors, INTECH levels the playing field in the insurance marketplace by arming clients with the tools required to minimize their total cost of risk.

INTECH’s services* : Q

Insurance Program Design, Management & Administration.

Q

Claims Analysis & Advocacy

Q

Insurance Policy Review

Q

Contract Review

*For a full list of INTECH’s services, please visit our website.

Think of INTECH as your auxiliary Risk Management Department; ready when you are, wherever your business takes you.

IMPARTIAL. THOROUGH. EXPERIENCED.

1.800.947.9666 www.intechrisk.com

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 70

Forecasting next season’s biggest trends What are the best bets for investment and development in 2015?

7KH UHDO HVWDWH LQGXVWU\Ĺ‚V LQÄ XHQWLDO OHDGHUV SUHGLFW WKH ELJJHVW WUHQGV LQ 3Z&Ĺ‚V DQQXDO IRUHFDVW UHSRUW Emerging Trends in Real Estate 2015.

To get your copy, visit: www.pwc.com/ca/emergingtrends For more information: Frank Magliocco National Real Estate Leader 416 228 4228 frank.magliocco@ca.pwc.com Š 2014 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved. 3054-08-1114

VIEW FROM THE TOP OF A PENSION PLAN

Stephen Taylor Vice President of Real Estate, Healthcare of Ontario Pension Plan

Asked to give an economic forecast, Stephen Taylor says that the real estate market may be nearing its peak. The Vice President of Real Estate with Healthcare of Ontario Pension 70

“A lot of the prime real estate assets in Canada are held in strong hands by a small number of large players.�

Plan feels that despite strong demand, “it’s getting harder to make sense of the economics and ďŹ nancial parameters of the prices being paid.â€?

In most major Canadian markets he is seeing signiďŹ cant ofďŹ ce development, the success of which will depend on whether there are enough tenants to occupy the buildings. One concern is that as tenants move out of old buildings and into new ones, vacancy rates will rise in the older stock.

Yet those same old buildings might make interesting investments in the foreseeable future. Taylor suggests that pension plans take a wait-and-see approach. “Keep some capacity for buying those assets,� he says, adding it might be unwise to pay full price today for those properties which, over the next couple of years, could lose tenants and bring re-leasing challenges. He

recommends delaying the purchase of older buildings until the tenant market settles, “and then coming in with a clearer vision of where you stand and what needs to be done to create value.�

In addition to ofďŹ ce buildings, HOOP is fairly active in the industrial market—as major retailers and other companies build modern distribution centres—and in mixed-use development oriented to major transit stops.

But Canada is a tight a market, Taylor says, which is why large pension funds are also drawn to the U.S., Europe or Asia. “I think Canada represents 2.5% of the world’s GDP, so we’re a signiďŹ cant but small player in the global context,â€? he says. “And a lot of the prime real estate assets in Canada are held in strong hands by a small number of large players.â€? â– Michelle Morra-Carlisle Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 71

VALUE TRUMPS GUESS WORK WHEN IT COMES TO INVESTMENT STRATEGY

Trevor Blakely Chief Executive Officer, Forgestone Capital

Whatever investment portfolio rocks your boat, those that prosper will contain one essential asset: Value.

“Life companies, pensions funds or private equity firms — it’s not a function of whose got more capital; it is a function of what they see in the real estate, in terms of its potential and upside,” says Forgestone Capital’s Chief Executive Officer, Trevor Blakely.

“It’s more of what you see in the opportunity than it is competitive cost-to-capital, with the exception being REITs and their ability to be competitive is, to some degree, gauged by their ability to raise capital by various rates of return, depending on where their stock prices stray.”

Investors should be looking for situations where there is not over building and where vacancies are declining in order to achieve income growth, he says.

“The biggest issue for all of us is we are not seeing a depth of quality product on the market so there is more supply of capital than there is quality of opportunity,” Blakely says. “What we are seeing is being very competitively bid, which is squeezing out the returns on a risk-adjusted basis. So, it is tough to justify a lot of deals when you are underwriting fervently.”

Through Forgestone Capital’s joint-venture partnerships, there is a lot of property being built in order to avoid a bottleneck in the real estate market and in order to retain the developing assets, versus competing with them, says Blakley, noting because of land price, inventory and the risk of adjusted returns, it is a lot riskier to develop than there is to buy assets.

“What we will be looking for next year is to align ourselves with the right groups and the right markets, on the development side,” he says. “On the income assets, it is more of what you see.

“If we can execute well, that is typically where we find the value in it but it is easier said than done.”

■ Karen Petkau www.realestateforums.com

71

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 72

DIVERSIFY, INNOVATE OR DECLINE

Today’s two-speed world comprises slow-growing developed economies and emerging countries—particularly in Asia—which are growing at up to four times the pace.

If you want to make money, you have to be doing business with the latter. Canada, Lynch said, by and large isn’t—yet.

Canadian firms remain locked in to solid business relationships in the U.S. and Europe, while other countries diversify apace.

Kevin Lynch BMO Financial Vice Chairman Canada can compete very effectively on the world stage, but it will need a massive overhaul to do so—and there’s not a moment to spare, according to BMO Financial Vice Chairman, Kevin Lynch.

“We have to become a nation of traders,” said the economist, who rose to become Canada’s top civil servant before moving to private industry.

“Canada is the least diversified of any OECD country,” Lynch cautioned. “Some 90% of our trade is with other low-growth, slow-lane countries. Only 10% is with emerging markets—the lowest of any OECD country. That’s not good.”

American exports to China, for example, are three times Canada’s.

“Our exports to China are 4%—largely energy,” he said. “100 per cent of our oil and gas trade is with the U.S.” With American demand declining its energy supply surging, that model no longer works.

“So, just as we have to diversify manufacturing and services, we have to do likewise in energy,” Lynch declared.

Emerging markets currently capitalize on their low high-volume and low-labour-cost capacity to commoditize common goods. That means margin is king: the only way for Canada to continue to thrive is to head upmarket.

“We have to sell innovative, premium-priced products and services with leading-edge technology into new markets,” Lynch urged.

“In that segment, Canadian products can compete quite well.”

He underscored that Canada needs to improve its innovation quotient.

“It’s seen as a core driver of competitiveness, and explains why Canada isn’t as competitive as it could be,” Lynch explained.

“We rank first for our sound banking system and we have the lowest debt-to-GDP ratio of the G7 nations. Canada’s the only country whose budget is going and we have the highest rate of tertiary education of any country. So why is our competitiveness falling?” he asked rhetorically.

“Innovation,” he continued. “We’re ranked 26th in the world in innovation.”

®

A high-innovation, high-productivity economic strategy would enable Canada to redress its decline.

Leading innovators in real estate financing CMHC & CONVENTIONAL LOANS FOR: • Multi-Family rental properties • Construction projects • Commercial properties • Seniors’ housing projects

“We don’t want high-cost, low-wage models,” he said. “A lot of non-traditional factors influence competitiveness. The sector has to take collective stock of how it’s doing on innovation and productivity—and individual firms need to do likewise.”

Lynch’s equation embraces three key factors: immigration, education and the workforce.

MICHAEL LOMBARD

ADY STEEN

Phone: 416-304-2078 michaell@peoplestrust.com

Phone: 416-304-2089 adys@p peoplestrust.com

Call us or visit peoplestrust.com

“Our education system needs equip grads to push innovation the way that the Dutch, Swedes and Finns do,” he suggested. “With Canada’s aging population, we will also need to integrate immigrants effectively and sustain labour-market flexibility.”

“The firms and countries who adapt first and fast will be the ones who will win,” Lynch concluded. “Speed matters. The pace at which we adapt to this changing world will separate the winners from the losers.”

■ Robert Frank

72

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 73

Leaders never rest e .

No matter what the hourr, or how many hours they have in front of them, leaders stay the course. Through good ttimes and bad, we’ve done just that, custom building solutions to help our clien c ts do what they do best‌lead.

Because Alberta means the world to us. atb.com/Leaders

TM

Trademark s of Alber ta Treasur y Branches.

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 74

PEOPLE WATCHING HELPS DETERMINE CURRENT AND FUTURE DEMANDS

David Baxter Senior Advisor, Urban Futures

“If you don’t have any people, the buildings are irrelevant. If we understand who they are, we should understand what we should build.”

Whether it is economic, demographic or behavioural, these sources of medium-term change are the basis behind industry advisor’s David Baxter’s framework for Canada’s real estate evolution planning, and they all have one thing in common: people.

After all, Baxter adds, it is the people — not buildings — that determine the futures of the development or investment industries.

“If you don’t have any people, the buildings are irrelevant. If we understand who they are, we should understand what we should build,” he says.

Much like city planners, when someone acquires land for development, they need to be thinking about the demographics in today’s market by planning for the changes and consequences that will be at play today and years from now, says the senior advisor at Urban Futures, highly respected authority on the impact of demographics on the North American and global landscapes.

“Each one of those changes is going to be able to impact the real estate market and that impact won’t be in isolation — so they will have impacts on each other,” he says.

On the economic side, there is a movement toward a continuing growth of the service sector, which drives demand for commercial real estate and affects residential real estate, adds Baxter.

“Any discussion on real estate, whether it is residential or commercial, is directly linked to people through accommodation demand

or commercial real estate or selling stuff to people,” he says.

Baxter says the two generations to watch are the baby boomers and the generation that followed, both of which are impacting the real estate marketplace.

“Demographically, the people of Canada are changing in terms of aging and migration,” explains Baxter.

Because of those shifts, their behaviours are also evolving, he adds, particularly with respect to housing.

That change is most evident in cities such as Calgary, Toronto and Vancouver, where people are changing their propensity for condominiums, says Baxter.

Whether it is interprovincial migration or immigration, how and why people move to a city will determine the future direction in the industry, he says.

“Internal migration is very volatile. People will got to Alberta for two or three years and then they’ll go someplace else and so we see a lot of volatility in terms of migration within the country,” he says.

Immigration, on the other hand, gives the industry a targeted analysis on why they are moving into the country to begin with, which is leading to growth in populations and demands on the sector for services, accommodations and employment. “And I’ll tell you right now, that it is no significant increase.”

■ Karen Petkau

Net Growth in Occupied Units

by Structure Type 2014-2024; Canada’s 5 Largest Metro Areas; 1000s of units.

Source: Urban Futures Baseline Projection

74

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:43 PM Page 75

CANADA PREPARED FOR LONG-EXPECTED MARKET SHIFTS

Benjamin Tal Deputy Chief Economist, CIBC

With business cycle, interest and foreign exchange rate volatility on the horizon.

Canada’s real estate market is about to face some testing in 2015. No matter: Benjamin Tal believes that the real estate market here is primed to pass those trials with flying colours. Here’s why.

“The economy is not doing as well as it should,” conceded CIBC’s deputy chief economist. “Consumers are a bit tired and many companies are sitting on mounds of cash that they’re not investing.”

Since the Bank of Canada wants them to invest that capital, Ottawa will likely hold the line on interest rates, continuing to trail Washington, even if, as pundits expect, the Federal Reserve hikes its percentages mid-2015.

“Clearly the Bank of Canada wants the Canadian dollar to go lower,” Tal observed. “There’s a big bias toward a weaker dollar. At minimum, that will keep rates low.”

Energy is another big factor. With crude prices down 30% in the wake of October’s correction and the Saudis declining to slash production to shore them up, oil sands producers are nervous.

“That will have a significant impact on Canada’s economy, because 25% of our exports are energy,” he said.

Even if interest rates rise, Tal is nonplussed.

“Increases won’t have as significant an impact as they did in previous cycles,” he reassured. “The most significant factor is www.realestateforums.com

“With the changes in the capital markets [in Germany], there are a lot more opportunities to buy and sell and make money.” what we call the reduced mutual rate of interest. The overall economy can’t rise as quickly as it once could, so we won’t need a sudden interest rate increase.”

Demographics also bode well for the as-yet untested housing market.

“People are using low rates to pay down their mortgages,” Tal said.

“Rising rates will entail some pain,” he acknowledged, “but nothing like the U.S. in 2006, by any stretch of the imagination.”

■ Robert Frank 75

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 76

WINTER 2014 / ISSUE 67

Include the Canadian Real Estate Forum Magazine in Your Marketing Strategy Now and Reinforce Your Organization’s Message to this Key Audience!

Your Unique Opportunity to Reach Over 5,000 Influential Real Estate Professionals in Canada’s Commercial Real Estate Sector Readers include Decision Makers from: • Public and private real estate organizations • REITs • Federal and provincial governments

WWW.REALESTATEFORUMS.COM

• Pension Funds and pension fund advisors

Three Annual Editions Focusing on the Following Key Markets: Spring: Montreal • Vancouver • Edmonton Fall: Ottawa • Calgary

• Brokers, law firms and other intermediaries • Banks, trust companies, life insurance and other financial institutions • Corporate real estate executives aligned to many major Canadian organizations

Winter: Canada-wide • Global

Interested? Connect with Frank Scalisi T: 416-512-3815 E: frank.scalisi@informacanada.com

BONUS! Receive Ongoing Exposure through the Online Digital E-magazine on the Real Estate Forum Website www.realestateforums.com

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 77

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 78

INFORMATION TO BUILD ON! Canada’s Leading Annual Real Estate Conferences Hear informative speakers. Stay up-to-date on the latest trends. Make personal contacts.

BE SURE TO TAKE ADVANTAGE OF OUR UPCOMING EVENTS MONTRÉAL REAL ESTATE FORUM >Ă€VÂ…ĂŠĂŽÂŁ]ÊÓä£xĂŠUĂŠ >ÂˆĂ€Â“ÂœÂ˜ĂŒĂŠ/Â…iĂŠ+Ă•iiÂ˜ĂŠ Â?ÂˆĂ˘>LiĂŒÂ…

February 10, 2015 *>Â?>ÂˆĂƒĂŠ`iĂƒĂŠVœ˜}Ă€mĂƒĂŠ`iĂŠ ÂœÂ˜ĂŒĂ€j>Â?

VANCOUVER REAL ESTATE FORUM ÂŤĂ€ÂˆÂ?ʙ]ÊÓä£xĂŠUĂŠ6>˜VÂœĂ•Ă›iÀÊ ÂœÂ˜Ă›iÂ˜ĂŒÂˆÂœÂ˜ĂŠ iÂ˜ĂŒĂ€iĂŠ7iĂƒĂŒ

SASK ATCHEWAN REAL ESTATE FORUM

February 24, 2015 Metro Toronto Convention Centre, North Building

ÂŤĂ€ÂˆÂ?ĂŠĂ“n]ÊÓä£xĂŠUĂŠ/ 1ĂŠ*Â?>Vi]ĂŠ->ĂƒÂŽ>ĂŒÂœÂœÂ˜

EDMONTON REAL ESTATE FORUM >ÞÊ£{]ÊÓä£xĂŠUĂŠ-Â…>ĂœĂŠ œ˜viĂ€i˜ViĂŠ iÂ˜ĂŒĂ€i

ATLANTIC REAL ESTATE FORUM

April 23, 2015 Metro Toronto Convention Centre, North Building

Ă•Â˜iʙ]ÊÓä£xĂŠUĂŠ7ÂœĂ€Â?`ĂŠ/Ă€>`iĂŠEĂŠ ÂœÂ˜Ă›iÂ˜ĂŒÂˆÂœÂ˜ĂŠ iÂ˜ĂŒĂ€i]ĂŠ >Â?ˆv>Ă?

CALGARY REAL ESTATE LEASING CONFERENCE

May 27 - 28, 2015 Javits Center, New York City, USA

Ă•Â˜iĂŠĂ“]ÊÓä£xĂŠUĂŠ >Â?}>ÀÞÊ/ 1-ĂŠ ÂœÂ˜Ă›iÂ˜ĂŒÂˆÂœÂ˜ĂŠ iÂ˜ĂŒĂ€i

MONTRÉAL REAL ESTATE LEASING CONFERENCE "VĂŒÂœLiÀÊ£x]ÊÓä£xĂŠUĂŠ*>Â?>ÂˆĂƒĂŠ`iĂƒĂŠVœ˜}Ă€mĂƒĂŠ`iĂŠ ÂœÂ˜ĂŒĂ€j>Â?

June 16, 2015 Metro Toronto Convention Centre, North Building

CALGARY REAL ESTATE FORUM "VĂŒÂœLiÀÊÓÇ]ÊÓä£xĂŠUĂŠ >Â?}>ÀÞÊ/ 1-ĂŠ ÂœÂ˜Ă›iÂ˜ĂŒÂˆÂœÂ˜ĂŠ iÂ˜ĂŒĂ€i

OTTAWA REAL ESTATE FORUM

September 9, 2015 Metro Toronto Convention Centre, North Building

"VĂŒÂœLiÀÊn]ÊÓä£xĂŠUĂŠ"ĂŒĂŒ>Ăœ>ĂŠ œ˜viĂ€i˜ViĂŠEĂŠ Ă›iÂ˜ĂŒĂŠ iÂ˜ĂŒĂ€i

VANCOUVER REAL ESTATE LEASING CONFERENCE "VĂŒÂœLiÀÊÓä]ÊÓä£xĂŠUĂŠ6>˜VÂœĂ•Ă›iÀÊ œ˜viĂ€i˜ViĂŠ iÂ˜ĂŒĂ€iĂŠ7iĂƒĂŒ

September 10, 2015 Metro Toronto Convention Centre, North Building

TORONTO REAL ESTATE FORUM December 2 - 3, 2015 Metro Toronto Convention Centre, South Building

September 30, 2015 Metro Toronto Convention Centre, North Building

QUÉBEC CITY REAL ESTATE FORUM ÂŤĂ€ÂˆÂ?ÊÓÇ]ĂŠĂ“Ă¤ÂŁĂˆĂŠUĂŠ >ÂˆĂ€Â“ÂœÂ˜ĂŒĂŠ iĂŠ Â…@ĂŒi>Ă•ĂŠ Ă€ÂœÂ˜ĂŒi˜>V

WINNIPEG REAL ESTATE FORUM >ÞÊ£Ç]ĂŠĂ“Ă¤ÂŁĂˆĂŠUĂŠ, ĂŠ ÂœÂ˜Ă›iÂ˜ĂŒÂˆÂœÂ˜ĂŠ iÂ˜ĂŒĂ€i

December 1, 2015 Metro Toronto Convention Centre, South Building

For details on these conferences and to register online visit www.realestateforums.com Sponsorship and advertising opportunities available.

Contact Frank Scalisi at frank.scalisi@informacanada.com or 416-512-3815

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 79

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 80

Building a Better Canadian Property Market Together Be Professionally Informed Do you really know what the convergence of the commercial investment and residential development property markets means for your business? &KDQJHV FDXVHG E\ LQWHQVLĆFDWLRQ SROLFLHV IRU UHVLGHQWLDO GHYHORSPHQW DUH FUHDWLQJ risks and opportunities IRU DOO FRPPHUFLDO SURSHUW\ PDUNHW SDUWLFLSDQWV 'R \RX XQGHUVWDQG WKHVH PDUNHW G\QDPLFV" $UH \RX ĆQGLQJ DQG PD[LPL]LQJ WKH RSSRUWXQLWLHV LQ \RXU RZQ SURSHUWLHV DQG SRUWIROLR" $UH \RX UHDOO\ FRQĆGHQW DERXW \RXU

ï +LJKHVW DQG %HVW 8VH $VVXPSWLRQ" ï 9DOXDWLRQ" ï $VVHW 6WUDWHJ\" ï 0DUNHW 6WUDWHJ\"

Or could your information source be incomplete? And could that be costing you time and real dollars?

7RGD\ WKURXJK REALNET® over 45,000 professionals DFURVV 1RUWK $PHULFD KDYH DFFHVV WR WKH EHVW SURSHUW\ PDUNHW LQIRUPDWLRQ SODWIRUP DQG KDYH FRQĆGHQFH LQ WKHLU GHFLVLRQV REALNET® FRYHUV FRPPHUFLDO LQYHVWPHQW PDUNHW VDOHV DQG OLVWLQJV 2XU FOLHQWV KDYH both current market intelligence and rich historical data to mine for off market acquisitions and for new potential listings. :H WUXO\ XQGHUVWDQG WKH LQWHUFRQQHFWHGQHVV RI SURSHUW\ PDUNHWV EHFDXVH ZH DOVR UHVHDUFK QHZ KRPH GHYHORSPHQWV DQG RXU FOLHQWV KDYH DFFHVV WR ERWK ZLWK FXUUHQW GHYHORSPHQWV IRU FXUUHQW PDUNHW LQWHOOLJHQFH DQG FRPSUHKHQVLYH KLVWRU\ VLQFH WR VHH LPSRUWDQW WUHQGV RYHU WLPH ,I \RX ZDQW WR EH FRQĆGHQW EH SURIHVVLRQDOO\ LQIRUPHG å EDVH \RXU GHFLVLRQV RQ WKH SRZHU RI REALNET ®

7R JHW \RX VWDUWHG ZH KDYH D VSHFLDO RIIHU IRU \RXU ĆUVW \HDU 6LJQ XS EHIRUH 'HFHPEHU st 2014 and get 7 commercial modules for the price of 4. Use offer code COM2014* For tailored solutions to your business needs, contact Jason Lo, VP Sales and Client Services 416 596 7676 x 250 I jlo@realnet.ca

2IIHU YDOLG IRU QHZ VXEVFULEHUV RQO\ DQG IRU WKH ĆUVW \HDU RI VXEVFULSWLRQ RQO\ 8VH VXEMHFW WR OLFHQVH DJUHHPHQW 7KLV SXEOLFDWLRQ RU DQ\ SDUW WKHUHRI PD\ QRW EH UHSURGXFHG RU WUDQVPLWWHG LQ DQ\ IRUP E\ DQ\ PHDQV ZLWKRXW WKH H[SUHVV ZULWWHQ SHUPLVVLRQ RI $OWXV *URXS LQ HDFK VSHFLĆF LQVWDQFH 7KH PDWHULDO LQ WKLV GRFXPHQW KDV EHHQ SUHSDUHG E\ $OWXV *URXS EDVHG RQ LWV GDWD DQG H[SHULHQFH 7KH LQIRUPDWLRQ LV EHOLHYHG WR EH DFFXUDWH DW WKH WLPH RI LWV SUHSDUDWLRQ KRZHYHU QR UHVSRQVLELOLW\ FDQ EH WDNHQ IRU HUURUV RU RPLVVLRQV $Q\ DGYLFH FRQWDLQHG KHUHLQ LV RI D JHQHUDO QDWXUH DQG VKRXOG QRW EH UHOLHG XSRQ XQOHVV FRQĆUPHG ZLWK $OWXV *URXS $OWXV *URXS PDNHV QR UHSUHVHQWDWLRQ DERXW WKH DFFXUDF\ FRPSOHWHQHVV RU VXLWDELOLW\ RI WKH PDWHULDO UHSUHVHQWHG KHUHLQ IRU WKH SDUWLFXODU SXUSRVH RI DQ\ UHDGHU 3OHDVH FRQWDFW LQIR#DOWXVJURXS FRP ZLWK DQ\ TXHVWLRQV

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 81

PROPERTY TRANSACTIONS BY ASSET CLASS GREATER TORONTO AREA Q1-Q3 2014 vs. Q1-Q3 2013 & Q1-Q3 2012 An Altus Group Company

Type

Volume (#)* 2014

ICI Land

192 1% 11% 62% 31%

-20%

Total

Land

1345 9%

$607 -40%

$1,773

$1,772 0%

$1,894

$974

$100

95% $1,923

$1,406 37%

$1,369

$1,436

-47%

-5% $584

$14

-83% 1466

$9,970

4138% $10,273

$9,083

-3%

47

13%

192

190

57

211

130

2013

99

2012

119 /DQG 6HFWRUV

352

2014

ICI Land

292

5HV /RWV

270

5HV /DQG

324

2014

313

2013 2012

342 105

2014

132

2013

176

2012 +RWHO

5

29

2014

2012

$SDUWPHQW

$726

286

2013 ,QGXVWULDO

176

-8%

270

2012

5HWDLO

$1,549

300

2014 2013

2IĆFH

342

300%

1460

-30% $367

$1,973

-25%

-50%

$2,068

-19%

20

Percent Change

$2,200

-8%

10

Percent Change

119

$1,445

4%

132

Percent Change Hotel

$477

270

4% 105

$807 14%

24%

313

Percent Change

57

8%

324

$919

30%

292 21%

Apartment

$1,958

-17%

352

Percent Change

2012

36%

99

Percent Change

286

-49%

130

2013 7%

29

Percent Change

Industrial

$987

-6%

47

Retail

211

270

Percent Change

2IĆFH

2014

-10.0%

300

Res. Lots

2012

190

Percent Change Res. Land

Value ($M)

2013

2014 10 20

2013 2012

5 $0.0B

$0.5B

$1.0B

$1.5B

$2.0B

$2.5B

$3.0B

$3.5B

*Asset Sales $1M and Greater ®

®

®

®

www.realnet.ca

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 82

PROPERTY TRANSACTIONS BY ASSET CLASS GREATER CALGARY AREA Q1-Q3 2014 vs. Q1-Q3 2013 & Q1-Q3 2012

Type

Volume (#)*

ICI Land

2014

2013

2012

2014

2013

2012

78

75

66

$298

$369

$280

66

$386

Percent Change

4%

Res. Land

67 6%

2IĆFH

18

Percent Change Retail

34

42

Percent Change 44

Percent Change 5

Percent Change Total

348

329

63

$451 -64%

$27

$2,283

$84 -68%

$2,315 -1%

$3,387 -32%

75

66

66

18

2014

29 34 53

2014 32

2013 2012

/DQG 6HFWRUV

42

ICI Land

83

2014

5HV /DQG

68

2013 2012

77 44

2014

39

2013

39

2012 +RWHO

32%

38%

-6%

2012

$SDUWPHQW

$37

$310

$161 17%

309

2013

,QGXVWULDO

5

$408

78

2012

5HWDLO

$188

-40%

67

2013

39 0%

13%

2014

$437

$557 -80%

7%

3 67%

Percent Change

$109

-12% 39

13%

Hotel

77

$1,165 -22%

207%

68 22%

Apartment

$909

$334

-24%

$541 -39%

-34%

32

83

$604

-15%

66%

32% $332

16%

29

53

Industrial

-19%

-5%

-38%

Percent Change

2IĆFH

14% 63

Percent Change

Land

Value ($M)

2014 5 2013 3 2012

5 $0M

$200M

$400M

$600M

$800M

$1,000M

$1,200M

*Asset Sales $1M and Greater ®

®

®

®

www.realnet.ca

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 83

PROPERTY TRANSACTIONS BY ASSET CLASS GREATER VANCOUVER AREA Q1-Q3 2014 vs. Q1-Q3 2013 & Q1-Q3 2012

Type

Volume (#)* 2014

ICI Land

558

Percent Change

491 14%

Res. Land

404 28% 169 - 12 %

Retail

312

Percent Change Industrial

413

323

Percent Change

7 29%

Land

$402

1912 2%

2013

$1,111

$1,284 -13%

$364

$709

$432 -16%

$633

$458

12% $515

38% $695

$584

-26% 86

$366

4

$77

1957

$4,555

19% $304

20%

$497 -39%

$50 54 %

- 2%

$15 238%

$4,179 9%

$4,218 - 1%

558

404

2012

$948 8%

10%

519

2014

2012

$1,022

33%

75%

1951

Percent Change

131

-14%

9

Total

$1,476

386

11%

Hotel

467

- 8% 74

2013 -1%

332

354

82

Percent Change

$1,011

24%

- 9%

Apartment

551

29 %

-24%

Percent Change

2014

-13%

148 Percent Change

2012 -11%

519

Percent Change

Value ($M)

2013

491 551

467

148

2014 2013

169

2012

131 312

2014

413

2013 2012

332

ICI Land

323

2014

354

2013 2012

386 82

2014

74

2013

86

2012 2014 9 2013 7 2012

4 $0M

$500M

$1,000M

$1,500M

$2,000M

$2,500M

*Asset Sales $1M and Greater 速

速

速

速

www.realnet.ca

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 84

THE CHANGING FACE OF TORONTO DEVELOPMENT

Brooks Barnett Manager, Government Relations & Policy, REALpac and Sam Berkun, REALpac Student Intern

The commercial real estate industry’s ability to respond to changes in demand, building the residential, office, retail and industrial facilities that Toronto’s economy needs, is hampered by a growing mismatch between new Official Plan policies and old zoning bylaws. The failure of the City of Toronto to align zoning to Official Plans forces the commercial real estate industry to fight for realignment through municipal Councils, and then potentially at the Ontario Municipal Board. The additional cost associated with such fights are often passed to the end users of real estate, and can significantly affect Toronto’s affordability and economic competitiveness. Because of this collective discomfort, Toronto City Council is in the process of implementing a Development Permit System (DPS) and a Local Appeal Body (LAB) to refresh their approach to land use planning.

A DPS is applied area-by-area and is meant to guarantee that permitted uses and development standards will be tailored to suit the needs and opportunities specific to a particular area. Staff argue that a DPS will

revolutionize the development process within Toronto, by improving predictability, efficiency and transparency in planning practices. A DPS could shorten and simplify the approval and appeal process, and set detailed development standards and formulaic community benefit agreements into the DPS bylaw.

However, the system may suppress development through its “all or nothing approach”. A new DPS bylaw must conform to provincial polices that support intensification and future economic prosperity. The DPS provides an opportunity for municipal councillors to use the system to limit development in the face of rational land-use planning to appease their constituents.

It is also imperative that a DPS bylaw provides a level of flexibility to adapt to future market conditions. Any DPS bylaw should not be so rigid that it prevents development in ways that would otherwise occur through incremental urbanism.

The city is also rolling out a Local Appeal Body format, as part of changes to the planning system. To some extent, LABs represent the city’s efforts to remove the Ontario Municipal Board’s influence over land use planning in Toronto. Under this new structure, special adjudicative panels will be convened to hear appeals of minor variance and consent applications from the Committee of Adjustment. While its implementation is less than a year away, the city has remained silent on two important issues that must be addressed; how to ensure impartiality and fairness when dealing with appeals, and, how to properly fund these panels.

The city must strive to ensure transparency in the selection process of board members and that these LABs will be able to operate free of local political pressure. An LAB should not put any further financial pressure on either applicants or the City’s property taxpayer.

As Toronto designs and executes these key policy changes, time will tell how effective they will be for the many actors involved in the City’s redevelopment.

■ Brooks Barnett bbarnett@realpac.ca 416-642-2700 x224 realpac.ca

84

Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 85

REAL ESTATE AND TRANSIT: A FEW ‘BEST PRACTICE’ TIPS

Brooks Barnett Manager, Government Relations & Policy, REALpac With the 2014 municipal elections behind us, municipalities across Ontario can now refocus on the multitude of major issues effecting residents – and surely, transit planning and finance will be at the top of that list.

Commercial real estate has a vested interest in public transportation infrastructure planning and funding. The debate, which has largely focused on how best to move people from ‘Point A to Point B’ is critical for our industry as well, because as linkages are improved between ‘A and B’, real estate development www.realestateforums.com

opportunities follow and communities growth and thrive. So it is important that the industry maintains a considerable voice in the public transit conversation. With that said, there are certain recommendations that we offer to Ontario’s new crop of transit decision-makers.

Build what works, not what is politically convenient. Transit planning and investment should always reflect what is practical and what will move the most people, the fastest and with the least inconvenience.

De-politicizing transit decisions as much as possible will help to improve accountability.

Decisions should be based on hard facts and sound business cases, and include factors such as cost-benefit analyses and community growth patterns. As we have seen in Toronto, transit strategies which are overly ideological (‘subways, subways, subways’) and poorly matched to the objectives they are meant to achieve, do little to improve problems for residents. Whether its subway, light-rail, bus routes or bike lanes, members of government should make decisions based on what will likely achieve a city’s strategic goals, rather than what is politically advantageous come election time.

Look at goals, challenges and opportunities in a regional context. Increasingly, borders between cities and towns are becoming irrelevant. The daily of movement of people and goods in, out and through municipal borders, means that public transportation solutions should match that movement.

Creating, as much as possible, regional

networks that feature a variety of transportation modes that properly reflect today’s employment, and development realities would be a better way to alleviate cross-border congestion.

Find solutions that do not unfairly impact one economic sector over another. To ensure that enough funding is secured for projects, without compromising the competitiveness of business, funding tools should be significantly broad in application, and treat all businesses equally and fairly. In 2013, the Real Property Association of Canada (REALpac) and its partners lobbied extensively against the imposition of a proposed GTHA business parking levy, on the grounds that it would be a poor choice for financing public transit investment because it would have had a negative impact on business competitiveness and economic development in the GTHA. We are encouraged to see that this option is no longer being considered versus other tools which have broader applicability across economic sectors.

Solving the transit conundrum depends on all levels of government working together.

Though all have different responsibilities and perspectives on the problem, adopting common values will surely help to refocus strategies that work for residents.

■ Brooks Barnett bbarnett@realpac.ca 416-642-2700 x224 realpac.ca 85

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 86

IT’S ALL ABOUT STANDARDS; BUT FIRST, A LITTLE FICTIONAL STORY… capitalized under the lease. It qualified as a Green Lease based on the new CSA Group definition, so she knew that would spur some investor interest. The lease contained the obligation for the landlord to maintain its new LEED Carbon standard and its new Net Zero Building standard from United Nations Environment Programme Sustainable Buildings and Climate Initiative throughout the lease term; something Blair knew her company would be doing anyway.

Michael Brooks Chief Executive Officer, REALpac

It's late October, 2020, and Blair has just finished negotiating a major office lease with the signature tenant that will put her public company over the top for that fiscal year. Of course, the lease used the latest version of the REALpac Green Office Lease, the Office Measurement Standard by the International Property Measurement Standards Coalition way back in 2014, and referenced the latest International Financial Reporting Standards guidance from the International Accounting Standards Board in determining what expenses were to be

Blair knew that the signature lease would reflect well in the valuation of the building, determined in accordance with the International Valuation Standards Committee rules, adopted in Canada around 2016. She also knew that the building’s green accreditation – the new LEED Carbon Standard, combined with the REALpac Green Office Lease – would make her company look good under the new environmental, social and governance standards required by the TSX and the Canadian Securities Commission based loosely on the old GRESB standards from the 2010’s. Particularly, the building would qualify for Green Bond status under the Climate Bonds Initiative rules from 2013, now saving her 30 bps on her refinancing.

She would be pleased to report this valuation to the REALpac/IPD Canada Property Index in the next quarterly update, and that the data set would be internationally compliant with the International Organization of Securities Commission’s Principles for Financial Benchmarks, thus having even more cred with international investors. She could look forward to perhaps greater international investor interest in her company given the continuing favourable tax treatment for overseas public company investment, originally pioneered by REALpac and the Real Estate Equity Securitization Alliance in submissions to the Organisation for Economic Co-operation and Development in 2011. She would have a drink later that evening with a few lawyers and investment banker friends and talk about how they disliked regulation.

REALpac has been involved with almost all of these initiatives. The ones we aren’t involved with are fictional and haven’t started (yet). Global standards are supplanting regional ones at a rapid pace.

Global standards are often market based guidelines that find their way into regulation.

In many ways, it’s the new lobbying frontier, staffed by experts. The future is now.

■ Michael Brooks mbrooks@realpac.ca 416-642-2700 x225 realpac.ca

THANK YOU TO ALL OUR ADVERTISERS AND SPONSORS Reach a Targeted National Audience. For more information on how you can advertise in Real Estate Forum Magazine, contact: Frank Scalisi at frank.scalisi@informacanada.com or 416-512-3815 realestateforums.com Appraisal Institute Canada

33

Concert Properties

55

Harbour Mortgage Corp.

ATB Corporate Financial

73

Countrywide Recycling

25

INTECH Risk Management Inc 69

BDO Canada LLP

17

DTZ

21

JLL

13

Bentall Kennedy

19

Ernst & Young LLP

37

KingSett Capital

61

Blackwood Partners

49

Fiera Properties Ltd.

44

Informa

Broccolini Construction Inc.

53

Firm Capital Corporation

57

Menkes Development

Canadian Urban Limited

67

First National Financial LP 2 (IFC)

Morguard

GE Capital Real Estate

Peoples Trust Company

72

PwC LLP

70

CANDEREL

4-5

City One Development

35

CMLS Financial

41

Colliers International

86

23, 79

31

Groupe Montoni (1995) Division Construction inc 59

71

39, 76, 78 51 87 (IBC)

Habitat for Humanity Toronto 77

RBC Capital Markets Real Estate Group Inc. 88 (OBC)

Harbour Equity Capital

RealNet

75

Romspen Investment Corporation Sun Life Investment Management Inc

8-9 27

The Standard Life Assurance Company of Canada 45 Timbercreek Asset Management Inc.

63

TREZ Capital

65

Ukrainian Development Partners (UDP) 29 Yardi Systems Inc.

15

80, 81, 82, 83 Canadian Real Estate Forum / WINTER 2014

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 87

GOLD WINNER

WE SEE POTENTIAL. OUR CLIENTS SEE RESULTS.

Maple Leaf Foods Distribution Centre Puslinch, ON | LEED Gold NAIOP 2013 Industrial Development of the Year

Performance Court | Ottawa, ON /((' *ROG &ODVV $ 2I多 FH Morguard and Client Joint Venture Development Project

North America, Office, Industrial, Retail, Residential, Hotel

Investment Management, Asset Management, Property Management, Ownership

77 Bloor St. West | Toronto, ON LEED Gold | ([LVWLQJ 2I多 FH %XLOGLQJ Strategic Repositioning

Performance, Growth, Governance, Risk Management, Sustainability, Community

V I S IT M O RG UA R D.C O M Mississauga 905-281-3800 | Montreal 450-446-4004 | Ottawa 613-237-6373 | Winnipeg 204-632-9500 Calgary 403-266-1695 | Edmonton 780-421-8000 | Vancouver 604-681-9474 | Victoria 250-383-8093 New York 212-332-2727 | New Orleans 504-904-8500 | Pompano Beach 754-220-7171 | Mobile 251-341-4500

TSX: MRC | TSX: MRT.UN | TSX: MRG.UN

! CREF Winter 2014 v9 2014-11-27 4:44 PM Page 88

$143,805,200 7UXVW 8QLWV

$1,527,000,000 Advisory

$1,205,000,000

$505,500,000

$1,950,000,000

$400,000,000

$100,000,000

Sale

Sale

6HQLRU 8QVHFXUHG 'HEHQWXUHV

6HQLRU 8QVHFXUHG 'HEHQWXUHV

6HQLRU 8QVHFXUHG 'HEHQWXUHV

$387,300,000

$185,000,000

$200,000,000

RBC Mortgages

Senior Secured Revolver

6HQLRU 8QVHFXUHG 5HYROYHU

Joint Bookrunner

Joint Bookrunner & Lead Arranger

Sole Bookrunner & Lead Arranger

IvanhoĂŠ Cambridge/ Cominar Portfolio 4XÂŤEHF 2QWDULR

CPPIB Regional Mall Portfolio National

%D\YLHZ 9LOODJH 7RURQWR 21

$305,825,000

$260,000,000

$250,500,000

$350,000,000

$300,000,000

$253,097,750

Sale 6L[ ,QGHSHQGHQW 7UDQVDFWLRQV

Term Financing

Sale

6HQLRU 8QVHFXUHG 'HEHQWXUHV

Preferred Shares

7UXVW 8QLWV

Undisclosed

6DOH

KingSett Industrial Portfolios National

Quartier DIX30 Brossard, QC

Kildonan Place & Lynden Park Mall :LQQLSHJ 0% %UDQWIRUG 21

Sole / Joint Bookrunner

Joint Bookrunner

Joint Bookrunner

$241,500,000

$214,000,000

$133,500,000

$240,070,725

$106,661,400

$32,347,260

Sale

Sale

Sale

7UXVW 8QLWV 6HQLRU 8QVHFXUHG 'HEHQWXUHV

Common Shares, Convertible Debentures

7UXVW 8QLWV

Joint Bookrunner

$66,750,000 Term Financing 5HGERXUQH 2Ĺ?

FH 3RUWIROLR 2QWDULR 4XÂŤEHF

Sun Life Financial Centre 7RURQWR 21

44 Capital Boulevard Edmonton, AB

Joint Bookrunner

Joint Bookrunner

$138,150,000

$46,950,000

Undisclosed

$900,000,000

$300,000,000

$95,700,000

6DOH

Sale

Sale

Mortgage Bond Sole Bookrunner

Mortgage Bond Joint Bookrunner

Construction Financing – Peel Block

Sun Life Building MontrĂŠal, QC

Shoppers Drug Mart / LCBO Portfolio National

West Edmonton Mall Edmonton, AB

Bankers Hall Calgary, AB

$49,489,133 6DOH ò 3HHO

201 Portage :LQQLSHJ 0%

*ULĹ?

QWRZQ MontrĂŠal, QC

Delivering for Our Clients 5%& &DSLWDO 0DUNHWV 5HDO (VWDWH *URXS LV RQH RI 1RUWK $PHULFDĂľV OHDGLQJ UHDO HVWDWH LQYHVWPHQW EDQNV 2XU KLJKO\ H[SHULHQFHG WHDP SURYLGHV UHDO HVWDWH ĹŽ QDQFLQJ DQG DGYLVRU\ VROXWLRQV IURP RXU RĹ?

FHV LQ 7RURQWR 0RQWUHDO &DOJDU\ DQG 1HZ <RUN :LWK UHODWLRQVKLSV DFURVV &DQDGD DQG WKH 8 6 ZH KDYH DUUDQJHG RYHU ELOOLRQ LQ UHDO HVWDWH WUDQVDFWLRQV LQ :H WKDQN RXU FOLHQWV IRU WKHLU FRQĹ&#x17D; GHQFH DQG SDUWQHUVKLS

3URSHUW\ %URNHUDJH _ 0RUWJDJH %URNHUDJH _ 3ULQFLSDO /HQGLQJ _ 3XEOLF DQG 3ULYDWH (TXLW\ _ 8QVHFXUHG 'HEW _ 0 $ $GYLVRU\ 2Ĺ?

FH _ 5HWDLO _ ,QGXVWULDO _ +RWHOV _ 0XOWL 5HVLGHQWLDO _ 6HQLRUV +RXVLQJ _ /DQG rbcrealestate.com RBC Capital Markets Real Estate Group Inc. RBC Capital Markets Real Estate Group Inc., Real Estate Agency. RBC Capital Markets Realty Inc., Brokerage. This advertisement is for informational purposes only. RBC Capital 0DUNHWV LV D UHJLVWHUHG PDUN RI 5R\DO %DQN RI &DQDGD 5%& &DSLWDO 0DUNHWV LV WKH JOREDO EUDQG QDPH IRU WKH FDSLWDO PDUNHWV EXVLQHVV RI 5R\DO %DQN RI &DQDGD DQG LWV DĹ?

OLDWHV LQFOXGLQJ 5%& &DSLWDO 0DUNHWV //& PHPEHU ),15$ 1<6( DQG 6,3& DQG 5%& 'RPLQLRQ 6HFXULWLHV ,QF PHPEHU ,,52& DQG &,3) p 5HJLVWHUHG WUDGHPDUN RI 5R\DO %DQN RI &DQDGD 8VHG XQGHU OLFHQVH k 5R\DO %DQN RI &DQDGD $OO ULJKWV UHVHUYHG