C A N A D A ’ S O N LY N A T I O N A L P U B L I C A T I O N F O R A P A R T M E N T O W N E R S A N D M A N A G E R S
VOLUME 6 / NUMBER 4 / November 2009
www.canadianapartmentmagazine.ca
+
Powerful Thinking
PM#40063056
Driven by the entrepreneurial spirit of Rai Sahi, Morguard Corporation eyes the North American multi-residential market
Navigating the mortgage loan insurance process Landlords brace for the HST The insurance merry-go-round
Making a Difference Selling Apartment Buildings Across Canada Over 27,300 Units Sold in 11 Years in 31 markets!
ents
m part ad A o R s tier Car artment rio p a t A n 96 on, O Lond
ce la P er nt nts io u e r Co m ta n art On h p , Jo 3 A ton 21 ings K
Sandringham Apart ments 100 Apartments Ottawa, Ontario
Completed Transactions In Belleville, Brampton, Brantford, Brockville, Burlington, Chatham, Cornwall, Edmonton, Gatineau, Hamilton, Kingston, Kitchener, Lindsay, London, Mississauga, Montreal, New Westminster, Niagara Falls, Oakville, Oshawa, Ottawa, Owen Sound, Peterborough, Richmond, Sarnia, St. Catharines, St. Thomas, Simcoe, Toronto, Vancouver, Windsor
Sam Firestone LL.B. Principal/Broker (613) 614-6434 ext. 222
Aik Aliferis B.B.A. Principal/Broker (613) 724-9242 ext. 234 Primecorp Commercial Realty Inc., Brokerage Primecorp Québec Commerciale Inc., Courtier Immobilier Agréé HEAD OFFICE
275 Bank Street, Suite 301 Ottawa, Ontario K2P 2L6
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“Yardi Voyager enables us to process applications at the property level – saving time and labor by eliminating paper transfer across our offices.” David Melo Director of Financial Transactions
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20 Cover Story
Powerful Thinking
Driven by the entrepreneurial spirit of Rai Sahi, Morguard Corporation eyes the North American multi-residential market
John Tenpenny
contents... 6
EDITOR’S NOTE Multi-residential Do-gooders
John Tenpenny
8
FACILITIES MANAGEMENT Laundry Conservation
8
Today’s commercial laundry equipment benefits everyone Steve Hietpas
12 BUILDING MAINTENANCE Winter Weather Draws Rodents Learn how to make your rental property uncomfortable for rats and mice
Bill Melville
14 FINANCE Financing Made Easy
CMHC or conventional financing? A lender’s perspective Peter Cook and Robert Fleet
16 feature Navigating the Mortgage Loan Insurance Process
14
John Tenpenny
32 INSURANCE The Insurance Merry-go-round
Apartment owners should not expect discounts in 2010 Andy Schwartze
34 MARKETING Social Media Demystified
Take advantage of these cost-effective marketing tools Carissa Drohan
38 MULTI FACTS Industry News Lanesborough REIT announces sale … Urbanfund terminates purchase … and more
43
42 ASSOCIATION Landlords in Ontario and BC Brace for the HST
The best relief would be a rebate of the new tax John Dickie
43 PORTFOLIO STRATEGY The Youth Market The right student housing opportunity may be right around the corner Derek Lobo 4 www.canadianapartmentmagazine.ca
46 REGULATIONS Manitoba Residential Tenancies Act amended
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editor’snote
Multi-residential Do-gooders
With the Green movement still in high gear and everyone,
Q
including landlords and tenants doing their best to help the environment let’s not forget about another G word, especially as we approach the holiday season: Good. Doing good for the benefit of others in your community is something we don’t also associate with business and CEOs, but in the Canadian multi-residential market there are many examples of good works and philanthropy. In a recent Globe and Mail article, I learned about Boardwalk REIT Chairman and CEO Sam Kolias and his company’s charitable efforts and business practices. Kolias serves with the Calgary Homeless Foundation and his company partners in a program that provides reduction in rents for people they are housing and who are coming off the street. “Even though they lack credit and finance, we work in partnerships Community Services, the government and ourselves to help people find homes and we house them,” says Kolias. And that’s just the beginning as you will learn in this issue’s cover profile on Morguard Corporation. A company that owns and manages over $9 billion of real estate in North America, Morguard’s philosophy is tenant-centric and even reaches back before people become Morguard tenants. In the case of the development of a new rental building in mid-town Toronto, Morguard helped tenants of the old buildings on the site find new accommodations, some at existing Morguard properties and helped defray relocation costs. The goodwill doesn’t end there though. Those tenants are also being given the opportunity to choose a replacement unit in the new building and rents are in effect guaranteed for those tenants who are interested in returning to the site. Before the old buildings are demolished, Morguard is making one more goodwill gesture to the community by donating all the contents of the 50 furnished suites to a local charity that will distribute the items to needy families. It’s nice to know that giving and community spirit can be found in Canadian apartment owners and managers all year round and not just at this time of year.
John Tenpenny Editor johnt@mediaedge.ca
Quoteworthy “Our people aren’t hiding in the leasing office; they’re out getting to know people in the building by name.”
6 www.canadianapartmentmagazine.ca
– page 30
PUBLISHER Chuck Armitage chucka@mediaedge.ca
EDITOR John Tenpenny
SENIOR DESIGNER Annette Carlucci
PRODUCTION MANAGER Rachel Selbie
CONTRIBUTING WRITERS Peter Cook, John Dickie, Carissa Drohan, Robert Fleet, Steve Hietpas, Derek Lobo, Bill Melville, Andy Schwartze
CIRCULATION MANAGER Cindy Younan
CIRCULATION INQUIRIES 416.512.8186 ext. 259 customerservice@mediaedge.ca For sales information call (416) 512-8186 ext. 223 Canadian Apartment Magazine is published six times a year by:
5255 Yonge St., Suite 1000, Toronto, Ontario M2N 6P4 E-mail: info@mediaedge.ca
Tel: (416) 512-8186 Fax: (416) 512-8344 President Kevin Brown Copyright 2009 Canada Post Canadian Publications Mail Sales Product Agreement No. 40063056 ISSN 1712-140X Circulation ext. 232 Subscription Rates: (GST Included) Canada: 1 year, $46.30 2 years, $82.60 Single Copy Sales: Canada: $8.00 Reprints: Requests for permission to reprint any portion of this magazine should be sent to Chuck Armitage Authors: Canadian Apartment Magazine accepts unsolicited query letters and article suggestions. Manufacturers: Those wishing to have their products reviewed should contact the publisher or send information to the attention of the editor. Sworn Statement of Circulation: Available from the publisher upon written request. Although Canadian Apartment Magazine makes every effort to ensure the accuracy of the information published, we cannot be held liable for any errors or omissions, however caused. Printed in Canada
Your CMHC Experts for today’s market First National is Canada’s lending lender of CMHC insured mortgages. Our complete understanding of CMHC underwriting policies and procedures provides you with quick turnarounds and some of the best rates available.
Our CMHC Program Includes: s Funds available for terms of 1,2,3,5 and 10 years s Attractive rates (fixed or floating) s Higher loan amounts (up to 85% LTV) s Extended amortization s 1st and 2nd mortgages
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facilitiesmanagement
Laundry Conservation Today’s Commercial Laundry Equipment Simultaneously Benefits Building Owners, Tenants, Environment
By Steve Hietpas
As influence of the green movement continues to grow across North America, many multi-family residential owners are learning the various benefits of making buildings more energy- and water-efficient. Not only is conserving energy and water good for the environment, it also significantly reduces utility expenses, making it good for business as well. The current economy also has had an effect on those in the multi-family residential market as they work to provide better amenities that will entice new tenants and satisfy existing ones. One area where all of these needs can be met is the laundry room. Choosing the right laundry equipment for an apartment building can lead to improved water and energy conservation, as well as utility savings and user satisfaction: Front-Loading Washers and Dryers Many of today’s coin-operated laundries are upgrading to front-loading equipment because of their high water and energy efficiency. When comparing smaller front-loading commercial washers with traditional top-loaders, frontloading commercial washers are generally recognized as the more energy-efficient. Front-load washers also use less water than traditional top-load models. A top-loading machine needs enough water to cover all of the fabrics in its drum. A front-loading machine, however, only requires one-third of that amount of water, as its drum is horizontally set—when the drum turns, it uses gravity to drop the fabrics back into the water. Front-loading washer-extractors are able to save 8 www.canadianapartmentmagazine.ca
several gallons of water, when compared to the water use of top-loading machines. Another advantage front-load washers have over toploaders is that front-loading machines have no agitator in the middle of the drum and are therefore able to hold more clothes. When laundry loads are larger, there are fewer loads to wash in the end, reducing energy and water usage. In addition to taking up space, agitators also can cause wear and tear on laundry after repeated washes. Though front-load high-speed washer-extractors usually have a higher up-front cost than traditional top-load washers, the utility savings they produce help these machines to eventually pay for themselves.
Ease of Operation Training employees and assisting tenants in the operation of new equipment can be a challenge. So, to minimize training time and errors, it is best to choose a high-speed washerextractor that has a simple design and is easy to operate and repair. Fortunately, many washer-extractors have simple controls and can be repaired easily by technicians. It’s still important, however, to work with a laundry equipment distributor to ensure that they have the all of the proper replacement parts in stock to minimize downtime during maintenance.
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facilitiesmanagement equipment that operates on old sliding coin slots. Dual-drop coin slots are becoming more common in coinoperated laundry rooms, as they allow the use of a larger variety of coins, which appeals to tenants, and are more programmable. With a dualdrop slot, apartment building owners and managers can also attract more laundry customers by programming such incentives as discounts for those who opt to do laundry during off-peak
Choosing the right laundry equipment for an apartment building can lead to improved water and energy conservation. hours. Dual-drop slots simply create more options for the apartment building owner and the tenant customers.
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Another helpful, programmable feature to look for in today’s laundry equipment is a Super Cycle option. With the Super Cycle option on washers, apartment building owners and managers can program a set price for a specific amount of extended washer-use time. For instance, a tenant could upgrade to the Super Cycle option for an extra quarter and receive three additional minutes of tumbling action and an extra rinse. This has become a popular option with coin-operated laundry customers, as it allows them to get a deeper cleaning without the added cost of running the laundry through another entire cycle. And, for the equipment owner, the utility expenses for this cycle extension is often a fraction of the upgrade cost, providing a nice boost in profit. By selecting energy- and water-efficient front-loading laundry equipment with the user-friendly features for the apartment building laundry room, building owners will increase the likelihood that tenants will do their laundry at home instead of taking it elsewhere. And, as an added bonus, they are expressing their concern for the environment and future generations by reducing energy and water use. Who said you can’t make everyone happy all of the time? CAM
Steve Hietpas is the national sales manager for Maytag/Whirlpool Commercial Laundry for the Midwestern United States and Canada, and has more than 10 years of commercial laundry experience.
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buildingmaintenance
The Cold Truth:
Winter Weather Draws Rodents
Learn how to make your rental property uncomfortable for rats and mice By Bill Melville
As residents look forward to waiting out the harsh winter weather in their cozy homes, they might not be alone. Rodents also like to find a warm, comfortable haven to spend the colder months, and your tenants’ homes provide all of their basic needs—food, water and shelter. Unfortunately, rodents don’t make friendly roommates. Carrying diseases such as Hantavirus and Salmonella, they can contaminate food with their hair, urine and fecal matter. Rodents can also cause expensive damage by gnawing through electrical wiring and chewing holes in your buildings’ façade. How to tell if you have a rodent infestation: If you think you have a rodent infestation on your hands, act fast. Rodents reproduce very quickly—female rats can become pregnant at just six weeks old and will have eight to 12 pups in a litter—a problem that can rapidly get out of control. Rodents are primarily active at night, so you may not see them, but there are signs that signal their presence in and around your apartment: • Droppings—A strong indicator of an infestation is visible rodent droppings. Mouse droppings are about the size of a grain of rice, and rat droppings are the size of a raisin. • Gnaw marks—Rodents are always gnawing, even when they are full. Since rodents can squeeze through small openings, look for holes in apartments that appear to be chewed or gnawed. Rodents often mistake electrical wiring for plant roots due to their poor eyesight, resulting in a major fire hazard, so regularly check in and around appliances and electronics. • Rub markings—Look for any greasy markings on walls that indicate a rodent is regularly traveling down the same path. Rodents feel protected when they crawl along a wall.
What you can do: Simply keeping a clean and maintained property goes a long way in preventing rodent infestations. Follow these steps to keep rats and mice from finding what they need to survive in common areas and your residents’ apartments: • Place dumpster areas as far from your apartment buildings as possible. Rodents will often look through trash for their next meal. Wash and rotate dumpsters frequently to remove 12 www.canadianapartmentmagazine.ca
any rodents in residence as well as odors that might attract pests. • Inspect the exterior of your buildings for any cracks or crevices that might provide an open door to rodents. Seal unnecessary openings with weather resistant sealant and incorporate steel wool so rodents can’t gnaw through. • Cut back bushes and branches away from your buildings’ exteriors. Rodents can use these areas as harborage until they find a way inside. • Make sure all windows and doors shut completely. Use weather stripping around doors and windows where any cracks have formed. • Keep your doors closed when not in use. Open entrances give rodents an open invitation to come in from the cold. Consider installing automatic doors or posting signs where necessary to remind residents and staff.
Tips to share with your residents: • Make sure trash cans have tight-fitting lids. Dispose of trash daily and never leave it outside your door. These steps will deter rodents looking to dine on your waste and leftovers. • Don’t leave food sitting out, and immediately clean up any food or liquid spills. • Rodents love to feed off of crumbs, so be sure to vacuum, sweep and mop regularly. Pay close attention to corners with the vacuum and mop. • Store your food in tightly sealed containers. Rodents can gnaw through cardboard and paper packaging so use plastic containers to store food. • Since a rodent infestation in one apartment can quickly spread throughout the entire building, if you do spot a pest, report it immediately to apartment management. Rest easy in your apartment complex this winter knowing you’ve given rodents the cold shoulder. By proactively taking these steps, you can prevent them from infesting your apartments all season long. CA M Bill Melville is Quality Assurance Director for Orkin PCO Services. Mr. Melville has 35 years of experience in the industry and is an acknowledged leader in the field of pest management. For more information, email Mr. Melville at bmelville@pcocanada.com or visit www.orkincanada.com.
finance
Financing Made Easy CMHC or conventional financing? A lender’s perspective By Peter Cook and Robert Fleet
The borrower steps into our office—briefcase in hand and coffee in the other. The smile on his face shows that he’s very excited about the opportunity he and his partner have uncovered—a fully rented, 40-unit building in a great neighborhood for $2.7 million. From our telephone discussion we know that Larry is likely qualified for the loan, having just sold a building he’s owned for almost 15 years. Larry’s primary focus, like most borrowers is to negotiate the best possible interest rate. “After all”, he says, “money is money. It’s all the same no matter who’s lending it to you.” On the surface he’s right. You can’t argue that point. However there can be significant differences in the “packaging” of the transaction and how the terms are structured. “What do you know about CMHC mortgage insurance Larry?” I asked him. He quips, “I know I don’t need it.” (He chuckles) “I’ve been in business for 22 years and never missed a payment to anybody. I’m not asking for a high ratio mortgage here. I’m only looking for about 75% loan to value. I don’t have to buy insurance do I?” Like so many borrowers unfamiliar with CMHC insurance, Larry has a preconceived notion of what it is and why it is used. Let us answer Larry’s question and then we’ll come back to show you a case study of Larry’s financing costs with and without CMHC insurance. 14 www.canadianapartmentmagazine.ca
“No Larry, you are not obligated, but if you’re openminded about seeing the advantages that it brings, you’ll probably want to apply for it.” we explained. Larry purchased his building for $2.7 million and is financing $2.025 million. If the mortgage is CMHC insured the lender’s risk is diminished so it attracts a favourable interest rate. (In this case 3.90% instead of 5.65%.) There are additional fees associated with CMHC insurance. The application fee is $150 per suite and the insurance premium is 2.25%. Both of these are paid only once and insure the mortgage for the full life of the loan. These two costs combined amount to $51,563 which can be added to the loan amount. (See Figure 1.) On the savings side of the equation CMHC does not require any appraisal or structural reports. Most importantly, Larry’s monthly payment is significantly lower. In the first five years he stands to save $170,550 and if interest rates remain the same he’ll save over $577,000 over the life of the mortgage. This is the part where Larry, like most borrowers, went from reluctant to enthusiastic because savings like these are real and go directly to the bottom line. Most borrowers we’ve met are astute business people and understand the benefits of analyzing the “total cost of borrowing”, not just focusing on the current rate of interest. Making these additional calculations to expose the total cost is well worth the effort. It adds a high
degree of clarity to the evaluation. In many cases entering into a mortgage involves much more than just the numbers. The chart below gives you a detailed comparison of some of the most important differences you should consider. In the years that we’ve been involved with apartment building financing we’ve found that the vast majority of borrowers choose to insure their mortgage. If you plan on holding a building for five years or longer, the savings with CMHC can be substantial. After studying Figure 1, Larry discovered, from an interest cost perspective, a CMHC insured loan was the better option for him. Then Larry admitted, “I never realized there are so many advantages to CMHC insurance.” “That’s right Larry, and that’s why so many multi-residential mortgages today are CMHC insured. Borrowers that take the time to educate themselves about CMHC often choose to insure their mortgage for the substantial savings and the many other benefits it brings.” All information provided in this article is accurate to the best of our knowledge. Interest rates, terms and conditions are for sample purposes only. This information should be considered a general comparison and not the basis for which to make financial decisions. C AM
Peter Cook and Robert Fleet are “Apartment Financing Specialists” with First National Financial LP. Together they have originated over $3 billion of mortgages. Their combined 32 years experience with mortgage financing has lead to frequent speaking engagements across the country. If you have questions, Peter and Robert may be reached by phone or email. Peter Cook— (416) 593-2913 pcook@firstnational.ca Robert Fleet— (905) 301-3449 robert.fleet@ firstnational.ca
finance
Figure 1
CMHC Insured Mortgage • Lower rates—approximately 1.5% to 2% lower
Conventional Mortgage • Higher rate of interest. Will vary based on population density, Loan to Value and Loan Size
• Leverage up-to 85% of value
• Leverage limited 65% – 75% of value based on quality, condition and location of the property
• Limited personal guarantee—0% to 50% of loan amount. Depending on loan to value.
• Typically personal guarantees for full loan amount are required
• All CMHC Insured mortgages are assumable provided that the purchaser meets qualification requirements
• Also assumable if purchaser qualification requirements
• No geographical restrictions
• May be limited to densely populated areas
• Lender must offer renewal at term maturity
• Lender has the option to offer renewal at maturity or demand the loan
• Insurance Premiums and Application Fees are tax Deductible at 20% per year over the first 5 years
• Not Applicable
• Debt Coverage Ratio (DCR) = (Net Operating Income/ Annual Mortgage Payment)
• Minimum DCR requirement is 1.25 for most mortgage applications
meets
• 5 year term minimum is 1.30 • 10 year term minimum is 1.20 • Three to five weeks for approval
• One to three weeks for lender’s approval— the process can be delayed by the lender’s Credit and Risk Committees’ review
• Limited Terms—CMHC typically request an initial term of at least five years
• Variety of terms—1 to 5 year
• Longer amortization periods up to 35 years
• Amortization periods typically 25 years. 30 years on an exception basis
• Only environmental report required. Typically appraisal and structural reports not required
• Three reports normally required— Appraisal, Environmental and Building Condition reports
• Easy to transfer from one lender to another at term maturity providing stronger position to negotiate a lower rate with lenders
• Timely and costly to transfer mortgage to another lender
• Property value limited to CMHC’s market valuation
• Lenders rely on third-party appraisal reports
• On most transactions CMHC requires full portfolio review of other real estate assets held by the borrower
• Portfolio review of related real estate assets owned by the borrower is not usually required.
• CMHC 2nd mortgage program provides access to low interest rate funds up to 85% LTV. Can also be advanced behind an existing conventional mortgage.
• Limited 2nd mortgage funds available typically from private sources at much higher rates
• CMHC offers an insurance premium rebate that provides incentive for borrowers to refinance or increase their mortgage within the first seven years
• Not Applicable
• Increase loan amount to 65% loan to value through CMHC’s “Top Up Program” and pay the insurance premium only on the new funds.
• Not Applicable
• Insurance premium and CMHC application fee can be added to the mortgage—paid only once for the full amortization period
• Not Applicable
• Lender’s processing fees are typically 0.10% of loan amount
• Lender’s processing fees are typically 0.15-.50% of the loan amount
• CMHC funds were available during the credit crisis over the past 24 months at low interest rates
• Availability of funds were dramatically reduced and spreads over costs of funds increased substantially during the credit crisis November 2009 15
energymanagement feature
Navigating the Mortgage Loan Insurance Process By John Tenpenny
Financing a multi-unit residential building comes with a choice to make: should the loan be CMHCinsured or not? Considering the current financial environment, many in the industry seem to be favoring the CMHC-insured route. Some borrowers with healthy down payments might question paying the CMHC premium if they can simply get a conventional mortgage. Do the math and the answer becomes clear: paying now saves later. Using as an example a $2 million loan at 75 per cent loan-to-value (LTV), CMHC’s premium is 2.25 per cent for a 25-year amortization or $45,000. Not exactly cheap, but considering that lenders view multi-unit financing to be safer when insured, it means that borrowers 16 www.canadianapartmentmagazine.ca
get better rates on CMHC-insured loans. For example, at 100 basis points differential, that same $2 million mortgage would save almost $45,250 after five years even after the CMHC premium and application fee. “With CMHC-Insured loans, borrowers can obtain financing of up to 85 per cent of the property’s value from their lender” said Pierre Serré, Vice President, Insurance Product and Business Development with CMHC. “Borrowers can also get interest rate savings for the entire life of the loan and take advantage of lower renewal risk.” CMHC-insured financing can be used to purchase, construct or refinance multi-unit properties. Borrowers who have accessed CMHC-insured
loans within the past seven years may be eligible for premium credits on refinance applications. Flexible repayment terms, including extended amortization periods and fixed and floating interest rates may also be available. Borrowers have the option to add the insurance premium and application fee to the mortgage loan. “The main reason we use CMHC is for their product offering,” says James Ha, Director, Mortgage and Finance with Boardwalk REIT which owns and/or operates more than 260 properties with more than 36,000 units. “The mortgage insurance has many benefits, most notably it mitigates our renewal risk and it also aids in attracting lower interest rates from lenders.” The process is also something
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Ha praises, which might surprise some borrowers who may have the conception that CMHC’s process is slow and complicated. “Transactions with CMHC are easy and transparent from start to finish,” says Ha. “From application to funding, CMHC’s team is always happy to help.” The key, it seems, is having the minimum documentation and realistic turnaround time expectations. When looking at it, the documentation required is not a whole lot different than what a lender would require to put a mortgage together. The more information you provide early in the process, the better. This gives the CMHC underwriters quick access to all of the information they need to make a decision and reduces any delays associated with insufficient documentation. Because each transaction is unique, turnaround times will vary from file to file. Typically, CMHC provides the lender with a preliminary review of the file within a few days and a final decision within a few weeks. “As a borrower, if you are organized and you go through the process as it is designed it’s seamless,” says Mark Kenney, Chief Operating Officer of CAP REIT. “CMHC insurance is an excellent investment because your total cost to capital over time is much lower as a result. I would urge anyone who is in the process of financing for an apartment investment to carefully examine both options and we’ve always found that the CMHC option is the one that worked best for us.” C A M
Documentation Checklist Your lender will be required to present supporting documentation to CMHC when submitting your file. Use the following list to prepare the information you’ll need to provide to your Mortgage Professional. For All Projects • A description of the property including age, construction type, number and type of units, condition. • Income/expense analysis • Up-to-date personal net worth statements for all individual Borrowers/ Guarantors, including details for any real property held: address, description, income and expenses, mortgage balance, mortgage payment and value. • For Corporate Borrowers indicate the type of structure (i.e., sole proprietorship, limited company, partnership, etc.), the ownership of the entity (including percentage ownership), key individuals, their responsibilities and reporting relationships. More complex Borrowers may need to provide an organization chart describing the relationship with associated entities. • Financial Statements for the most recent year-end for Corporate Borrowers/ Guarantors. • For properties of 5 to 6 units, a complete property appraisal report, including Schedule A which outlines revenue and expenses of the property. • Application fee. Existing Projects • Current detailed operating statement for the subject property and/ or copies of property taxes, insurance and utilities invoices for the most recent 12 month period. • Current rent roll for the subject property with rent effective dates. • Copy of executed purchase & sale agreement, if applicable. Refinancing Requests • Confirmation of the loan balance. • Confirmation of the pari passu or second mortgage amount requested and lending value expectation. • Details regarding all existing registered encumbrances including outstanding balances, term and amortization remaining, interest rate and monthly payments. New Projects • Borrower’s project revenue and expense projections.
More documentation may be required for Retirement and Long Term Care Facilities, Affordable Housing Projects and Green Properties. For more information visit www.cmhc.ca and search the key words “reference guide” or call 1-877-MULTIGO. 18 www.canadianapartmentmagazine.ca
• One set of suite layouts and details/specifications regarding finishes and amenities. • Copy of construction budget.
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coverstory
Powerful Thinking Driven by the entrepreneurial spirit of Rai Sahi, Morguard Corporation eyes the North American multi-residential market By John Tenpenny
20 www.canadianapartmentmagazine.ca 20 www.canadianapartmentmagazine.ca
coverstory
(Standing L to R) Brian Athey, John Talano (Sitting L to R) : Paul Miatello, Rai Sahi
November 2009 21
coverstory
Rai Sahi, Chairman and CEO of Morguard Corporation, has always preferred to keep a low profile, lest the target of his takeover become wise to his intentions. But since becoming involved in real estate over the past decade, acquisition has been replaced by gradual growth. His last “takeover” involved buying controlling interest of ClubLink Corporation, the largest private owner and operator of golf courses in Canada, in 2007. That was just the latest piece of corporate intrigue led by Sahi since he gave up his job at Bank of Montreal in 1982 to venture into the world of mergers and acquisitions. Sahi came to Canada in 1971 from the Punjab in India and settled in Montreal where a brother lived. Along the way, Sahi bought and sold numerous companies, including Paul Martin’s Kingsway Transport Group in 1983, which resulted in a continuing friendship with the 22 www.canadianapartmentmagazine.ca
former Prime Minister. He sold it in 1989 for $70 million In 1990 he launched his greatest success to that point when he purchased a stake in Acklands Limited, an autoparts distributor that was hemorrhaging money. Over the next five years Sahi built sales to $1 billion and acquired and integrated 35 more companies before selling Acklands to W.W. Grainger Inc. for $400 million in 1996. Then he turned his attention to real estate and acquired interests in several Canadian public and private real estate companies, which evolved
into Morguard Corporation of which he now owns 46 per cent. Morguard Corporation owns and manages a diversified portfolio of properties worth more than $9 billion through five principal operating subsidiaries (Morguard Investments, Morguard REIT, Morguard Residential, Morguard Financial and Revenue Properties (US) Inc.), which own or manage a portfolio consisting of office, industrial, retail and multi-residential properties across Canada and the southeastern United States. The portfolio includes approximately 45 million square feet of space, as well as 14,000 apartment units. Morguard Residential owns 7,000 multi-residential units and manages 3,000 units for third party owners and also builds rental projects, mostly in the Greater Toronto Area. Morguard’s US portfolio was acquired in 2006 via the takeover of Sizeler Property Investors Inc., a public real estate investment trust, which owned $450 million of assets comprised of 2.3 million square feet of retail space and 3,900 apartment units. Sahi is also the largest shareholder of ClubLink Enterprises Limited, which owns various tourist assets, including the White Pass & Yukon Route railroad, ClubLink Corporation, and he also owns nine car dealerships. But don’t think for one minute that Sahi is finished. The 2006 purchase of Sizeler is just the beginning of Morguard’s US strategy. “The interest [in Sizeler] was that it had two classes of assets that we were interested in, the multi-residential and the grocery-anchored retail,” he says. “It was essentially in Florida, Alabama and Louisiana. Also, at the time the Canadian dollar had gone up to around
“We have a very strong balance sheet right now and we will look to deploy that capital and create as much value as we can.”
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94 cents, so we thought it was time to Trim: make an investment in the US. And it’s Live: still performing well. “Our view is that there are larger and more opportunities in the US Colors: market,� he says. “We recently DPI: made a multi-residential purchase of over 300 units in West Palm Beach, Florida where the developer had gotten into some financial difficulty. We’re focused on the multi-residential side in the US now to next.
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the same large companies and because of the debt availability.� n/a Paul Miatello, Morguard Proofreader: R. COLSTON pension funds. Also, prices for real Corporation’s 7.125" Studio agrees. Artist: J. WARD Chiefx 4.75" Financial Officer “There is estate assets have not decreased in as much as in the US. So our going to be more distress in the US Inspected and Canada By: we have a very strong balance sheet efforts will be focused on those value 4/c Production Manager: C. CAPOSINO right now. Rai’s entrepreneurial spirit opportunities south of the border.� 300 Manager: M. IZEN Also on the table is a possible new permeates theProject organization, which dictates that we will look to deploy that venture for Morguard and the Canadian capital and create as much value as we multi-residential market. “We are exploring the possibility of creating a can for the company. “Canada is a relatively small multi-residential REIT,� explains Sahi. “There seems to be a demand for it in market, so we end up bidding against
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coverstory order to access capital and grow. If we were to create one it would include both Canadian and US assets, which would be the first of its kind.” The future may bring more acquisitions, but right now, that’s not the path Sahi sees Morguard taking. “We will continue to grow as our clients grow,” he says. “In the past we grew through acquisitions, but in the future it will be a gradual growth.”
Morguard’s US Venture Of the 34 properties in the US, 15 are multi-residential says Morguard’s US Vice-President John Talano, who is responsible for all of the US operations, redevelopment, property management and asset management. The difference between the Canadian and US portfolios says Talano, who is based in New Orleans, is mainly in the building type. In Canada almost all the properties are high-rises. The opposite is true of Morguard’s US assets. “The vast majority of the properties are gardenstyle walk-ups,” says Talano. “Where [Canada] may have 700 units on two
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coverstory acres, we have 700 units on 44 acres. We have large areas of land that we own, and they are communities within themselves. From an operations strategy perspective, we really, really focus on service and that’s how we differentiate ourselves from our competition. “We put emphasis on first impressions and then follow through. We strive to operate our properties like you’re walking into a three-star resort hotel or better. We really try to develop a sense of neighbourhood and community for our residence.� One tactic that was adhered to when making the move south of the border was Morguard’s attempt to cluster properties. Miatello says an example of this is not just the clustering of multi-residential properties but also clustering properties across the whole property portfolio. “We own several multi-residential properties on Thorncliffe Drive Park in East York, which are close to East York Town Centre that Morguard owns as well,� he says. “And we leverage the relationship for cross-marketing purposes for example. Clustering is
“We try to operate our properties like you’re walking into a threestar hotel or better. We really try to develop that sense of community.� just one more way that we can leverage what we have and more specifically there is a huge benefit in terms of having a smaller number of people service a larger number of buildings.� According to Talano, turnover rates in the US are generally higher than Canada. But since the acquisition, the US portfolio’s turnover rate has gone from around 70 per cent down to 40 per cent across the portfolio. “By focusing on service and empathy for our residents and developing that sense of community we’ve really been able to reduce the turnover rate,� he says. “That was the goal straight away from Canada. It is extremely expensive to turn the apartments so for us the
best type of resident is one who lives in our community long term and then invites their friends and family to live there as well.� He also describes the parent company in those terms. “Morguard is very family oriented with more of a responsible work ethic and their systems are far superior to what we had in the past,� says Talano. The US multi-residential division recently finished installation of a new Yardi information management system, which is web-based and hosted at the Mississauga head office. “We’re now all connected and have access to all the properties and financial information on an as needed basis which is wonderful.�
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New Development While construction of new multiresidential buildings is never booming in Toronto, Morguard believes it still makes sense, especially in downtown Toronto, where Morguard Residential has been recently completed one new rental building and has plans for more in the near future. “We believe in the long-term growth of building rentals in downtown Toronto, not just condos,” says Sahi. “All real estate is income-producing, but apartment buildings are the least cyclical of all. You never see a 100 per cent empty apartment building, but I can show you a 100 per cent empty office building.” The Bay Club, located at the corner of Bay and Wellesley was the last high-rise rental project completed by Morguard. It’s part of a complex of four buildings, the first three of which were condos. According to Brian Athey, Director, Developments for Morguard Investments, the project has been very successful with an occupancy rate of 95 per cent. “It’s well suited
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coverstory
in that geographic market to a lot of the hospitals,” says Athey. “We have tenants who are doctors, nurses, some lawyers and professionals who are based downtown. It’s an interesting little niche market. It’s also adjacent to provincial government offices and close to Queen’s Park.” Currently in development is Tweedsmuir, a pair of towers at Spadina and St. Clair, near St. Michael’s College School. On the site are two 1960s-era low-rise buildings that have been mothballed. The plan is to build two 30-storey high-rises, the first one being rental with 350 units and the second being condo (subject to market conditions) with 250 units. Part of the approval with the City of Toronto included giving tenants of the old buildings first rights to apartments in the new development. “We have a very carefully defined agreement that spells out how many bachelors, one-bedroom and twobedroom units, how big they will be and we have an eligibility list of the tenants that were in the original building(s),”
“We guarantee those tenants the first right to come back in and choose a replacement rental unit once the project is complete.” says Athey. “We guarantee those tenants the first right to come back in and choose a replacement rental unit once the project is complete. There’s also a very specific formula for what their rents are to be and those rents are in effect guaranteed for those tenants who are interested in returning to that building. It’s been a very long but positive process working with the city and making sure we comply with their requirements.” Morguard also helped the tenants of the old buildings find new accommodations, even if they don’t return to the new building. “When I inherited the project we had 20 tenants left in the two buildings,” says Athey.
“One of the first things I was asked to do was to facilitate in finding a new home for our remaining tenants. We were able to successfully relocate most of those tenants to our existing buildings in mid-town Toronto. We assisted tenants by covering their relocation costs and we were able to hold their rent at their current rate for those moving in to one of our existing buildings.” Even the decommissioning and destruction of the old buildings on the Tweedsmuir site will be done with the environment and community in mind. The contractor demolishing the buildings will be required to segregate, sort, separate and recycle 90 per cent of the building materials, says Athey.
November 2009 29
coverstory Before that begins the contents of the 50 furnished suites remaining in the buildings will be donated to Furniture Bank, a charity that will distribute the items to needy families. Athey says Morguard has plans for another rental project in mid-town Toronto, but is awaiting final approval. The company also has plans to build a low-density townhouse condo project in Mississauga.
It’s the People For Morguard, creating communities isn’t just about bricks and mortar. It’s about listening to tenants and making sure they know the company is a partner with them in these, as Miatello refers to them, “vertical communities.” “We do everything we can to preserve and enhance that culture in our properties,” he says. “The uniqueness of our brand comes back to what we do for tenants. Our people aren’t hiding in the leasing office; they’re out getting to know people in the
building by name. We bring that hotel mentality into rental accommodation, which is making people feel welcome when they come through the lobby or elevator or parking garage, which is their front door. “When you’re talking about Morguard you’re really talking about an organization with $9 billion of real estate behind it and with that comes a lot of things, including leveraging all the capabilities of an organization that employs 1,200 people.” Miatello calls it “powerful thinking” and it filters down through the company and it harnesses the brainpower that can be found in the company’s IT, HR, acquisitions research departments. It leads to technology being shared across asset classes. Currently, on the commercial side all of Morguard’s maintenance requests get done through the BlackBerry-based tenant service program Service Link. “We respond to tenant needs in a timely manner and provide an extremely high standard of tenant service,” says
Miatello “And we’re looking at rolling that out for the apartment properties. It’s a great tool because all of your work orders become automated.” When Sahi gathered with some fellow entrepreneurial CEOs, such as Ottawa Senators owner Eugene Melnyk at Ryerson University’s Ted Rogers School of Management to share the secrets of their success with business students, he listed four keys to success: education, a work ethic, the ability to take risk and luck. Asked an example of how luck helped in his own career, Sahi drew enthusiastic applause when he quipped “coming to Canada.” He started out in India, arising at 4 a.m. to milk cows at his family’s dairy farm. Today, “I still get up at 4 a.m.” Rai Sahi, who has made fortunes in banking, auto parts, trucking and real estate talked to the students about the need for entrepreneurs to continue learning. “I hate to fail, but when it happens you have to step back—ask what caused it and how you can learn from it.” CA M
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insurance
The Insurance Merry-go -round Apartment owners should not expect discounts in 2010 By Andy Schwartze
One of the insurance topics that I have always avoided in this magazine is an opinionated discussion on insurance pricing and premiums. For apartment building owners, the cost of insurance has remained remarkably stable for the past 30 years. Look at insurance premium as a percentage of operating cost and most owners will find that the percentage has barely changed. Those who have seen insurance costs grow will find there’s a good reason behind it; those who have seen volatility in their insurance costing will know the reasons why. Deliberately underinsuring, pushing for unreasonable rate reductions or a few too many claims will cover almost all of the possibilities for big moves in premiums being charged. Remember that an insurance contract is only good for one year. Multi-year policies are extremely scarce. Every 365 days all bets are off and both the buyer and the insurer start again. If you buy your building’s insurance through a reputable insurance broker, one who understands the real estate insurance niche, you will already know that underinsurance has a serious impact on the pool of money that you are contributing to. A 100-suite high-rise building, insured for $7,500,000, pays half the premium that it neighbouring twin would pay for the more sensible $15,000,000. The “insurance pool” loses, yet the cost of replacing the burned out kitchen, or the water damaged floor, remains the same 32 www.canadianapartmentmagazine.ca
in either building. Some brokers push the system for the lowest premium. Less commission is better than none if you have nothing more to offer the client. When the insurance market pushes back there are howls of indignation from those who benefited the most from cost reductions. For the professional property manager it’s always embarrassing to face the owner with a huge premium increase. The insurance cycle has been explained here in the past. Each “tightening” of the market is driven by certain factors; every cycle has different drivers. This time, it is the turn of the apartment building owner to bear the brunt of the insurer backlash. Pitifully low interest rates have all but choked off the property/casualty insurer’s ability to supplement premium income with investment income. Fear of being the first, to raise rates, stalls the cyclical turnaround as every insurer hopes one of the others will take the first step. The continuing rise in the claims curve (refer to Figure 1.) brings on the inevitable panic as shareholders begin to threaten their insurer managers with extinction if things don’t improve. The smart managers give notice that rates are going up and that poorly performing accounts will be asked to move along. Their weaker counterparts will head for the exits by cancelling brokers whose only crime was to negotiate the best deal they could, for their clients, in a previously briskly
insurance Figure 1
competitive environment. Others will target complete segments of their book of business and toss all policyholders, in the “offending” niche, out on the street. The smart guys will survive to recover their company’s returns on equity; the less savvy ones will find themselves running a smaller insurance company that, as so often happens, has dumped too much business, offended its broker force, yet continues to have high costs. Few managers are truly capable of downsizing profitably; inevitably these carriers are sold and the market shrinks yet again. For the insurance buyer it’s yet another diminution of this competitive supply chain. It is no secret that apartment building owners have three types of losses most often. “Water and flooding” rank equally with “slip and fall” cases. Next in line is the well known kitchen fire. Fires still happen for a variety of reasons and because of carelessness on the part of tenants and these days, the mould remediation required (due to the fireman’s hose) is no cheap part of the cost. With floods the mould costs are even worse. So, we now have a rapidly tightening insurance market for underpriced insurance policies. Already, one insurer has decided to increase the price of condominium insurance by 24 per cent. Condo insurance has always been insanely underpriced. Another insurer has announced a complete exit from the realty insurance niche. We expect this carrier to be sold within 24 months. Yet a third has targeted insurance brokers who have had some major losses, even though (just to show you how silly some can be) management admitted it would insure the source of those big losses again (figure
that one out). So the outlook for 2010 is one that should be a warning to apartment building owners. Any insurance broker who tells you otherwise should be fired on the spot. The multi-residential insurance niche is under the microscope and there’s not an insurer who doesn’t know this. Some business will have to be relocated and those insurers who pick that business up will not be discounting the rates. They know the market is tightening and all we can do is hope the industry recovers and returns to normal competition, which of course, will only lead to the next cycle. It’s the property/casualty insurer merry-go-round and it continues to turn. In the past, the buyer has been king, now it’s the supplier’s turn to call the shots. CA M Andy Schwartze, BSc., MBA, CIP, is an insurance broker specializing in property management and real estate. He is a former President of the Insurance Institute, has taught in the community college system and provides continuing education to other brokers. He can be reached at andy@takecover.ca.
Andy’s Tips • Get to work on your renewal(s) early. Avoid last minute surprises. • Clean up your property. Insurance inspectors are coming. • Insist on knowing your building’s loss history at all times. • Do anything you can to help reduce the three major loss types. • Pick a good broker and listen to what he/she says.
November 2009 33
marketing marketing
linked-in facebook
Social media demystified Take advantage of these cost-effective marketing tools By Carissa Drohan
The buzz is on. Every time you listen to the news or watch television someone is talking about social media. The marketing industry is going mad trying to wrap its head around how to use it to their advantage. Have you ever wondered what all the hype is about and how it could benefit you? Our main goal in marketing is always to get the best bang for our buck. Well guess what, social media is free! There are millions of people who have joined websites like Twitter, Facebook and LinkedIn to stay connected with others. Now it’s time for you to connect with them. How can they work for you? The concept is simple. You need to develop relationships. The more direct one-on-one interactions you have with customers the stronger your relationship with them will become. If they feel more comfortable with you and your brand they will be more likely to rent from you or refer you to a friend or family member.
So how do you get started? Start by setting up the accounts. It’s not enough just to fill out 34 www.canadianapartmentmagazine.ca
the minimal information about you and your company. Make sure to have enough information that first time viewers will see value in interacting with you. Secondly, begin promoting to your residents that you now have a presence on these sites. Encourage them to follow you, add you or become a fan. What sites should you join?
Twitter Twitter (www.twitter.com) is an online communication platform that allows users to write and read messages of up to 140 characters in length. Messages on Twitter are called “Tweets” and they are open for public viewing. This medium provides a unique platform for landlords. Most cell phones, BlackBerries and iPhones have applications that allow you to send tweets instantly wherever you are. Imagine the benefit and improved customer service you could have by using twitter to stay connected to your audience 24/7. By encouraging your residents to sign up and “follow” you, a real time communication scenario could be feasible. For example, imagine if there was an emergency at one of your buildings. The water needs to be shut off. Now typically
this means a lot of frustrated tenants. Why is this? Mostly it’s because they don’t know what’s going on. Unless they leave their apartment to go and read a posted notice, which could take a while to produce, they are left out of the loop. Most would call their superintendent to find out what’s going on. How great would it be to simply whip out your cell phone and be able to give your residents a heads up that the water is being shut off? The notice goes from your phone to their phone in just a few short seconds. Since most Twitter followers get updates on their cell phones, BlackBerries or iPhones, the residents wouldn’t even have to leave their apartment to get the notice. Real-time communication, now that’s added customer service! There are so many more options too. What about sending promotional updates to your residents? Or “tweeting” about upcoming vacancies and encouraging residents to “re-tweet” to their followers. All of a sudden you’ve got word-of-mouth marketing at no cost. Just be creative. There are hundreds of uses for Twitter.
Facebook Facebook (www.facebook.com) is a global social networking website that allows users to post photos, communicate
with friends, join groups, play games and so much more. Although Facebook is an obvious way for friends to stay in touch, it’s also a great platform for you and your company to interact with your customers and to provide them with useful information. A public profile page provides you with the opportunity to further interact with your residents, employees or even investors. How does it work you ask? Simple. People can choose to become fans of your profile page. When they do they’re able to read all of the content on your page, including other people’s comments, discussion topics and your status updates. Your page can become an information portal for them and a connection to you. You can provide links to various services they may need. Or upload photos of your properties, floorplans or video tours of your buildings for any prospective renters. There is even an event tab that can be used as a calendar to social events you’ll be having at your buildings. Remember, you’re trying to develop a bond with your fans. The more valuable
and relevant the information is, the more likely they’ll return to visit you again and develop that relationship. To set up a public profiles page simply go under the advertising section on the main Facebook page. Don’t worry, it’s not a premium feature so you won’t have to pay. Just click on page and enter your information. Voila! You’re ready to add your content. Once your content is up and loaded I’d consider running some Facebook ads on the site to drive attention to your Page. Facebook advertising is fairly inexpensive and highly targeted. You can target specific demographics and locations to advertise to. I’d pick those areas close to your buildings and the age ranges of most of your current tenants. Beware that these ads may not result in loads of clicks overnight, but the repetition of seeing the ad will help gain familiarity between your company and the community. Another interesting feature of having a profile page is that you can run ads and send messages that target only your fans. This is all the more reason to devote time and energy into building your fan base. November 2009 35
marketing Now you’ll know the money you spend furnishing apartments. That would be advertising and the time you spend a great way to engage users with your writing a message is targeting exactly brand and to get the buzz going about your company. who you want it to target. On a side note, what I’d love to see someday is for a property management LinkedIn company to sponsor a viral game for LinkedIn (www.linkedin.com) is Facebook users. It is a fact that Facebook a website that enables members users love games. They love to play them to create customizable profiles and they love to invite others to play with that detail employment history, CARMA_CondoBusiness_01-19-2009_CS2--F.pdf 2/3/09 accomplishments, 5:41:35 PM them. What if your company sponsored business and a game focused around renting and other professional accolades. This
website can be particularly helpful to landlords and industry professionals by providing networking opportunities and problem solving tips. LinkedIn has many groups centered around the apartment industry. Some that I’ve found growing are “Apartment and Multifamily Marketing and Operations” and “Canadian Real Estate Investors, Landlords and Suppliers”. These groups offer a plethora of news items and discussions pertaining to the apartment industry. If you’re facing a problem and needs some good advice it may be worth posting a discussion question. With the many professionals that belong to the group, someone can surly provide support.
Blogger/Livejournal/Wordpress Blogging is one of the easiest ways to educate your residents, investors and the public about your business. By continuously writing within a blog you can discuss your company’s beliefs, your brand and your culture with the public. The blog can begin to bring character to a faceless company. This communication can help develop a sense of what your brand and company stand for and will let your customers know what they can expect when dealing with you. Above is a list of just some of the blog websites out there. You can find more options by Googling “blogs”. Also, if you can incorporate your blog into your existing website it can be highly beneficial in adding to your search engine optimization. Once thing is for certain, social media is here to stay. With all the opportunity it presents us with it’s just a matter of putting on a creative hat and brainstorming how we can use it to our advantage. If you have any questions or would like a link to other articles about social media, I’m always just an email away. CA M
Carissa Drohan is the Marketing Coordinator at Skyline Apartment REIT. You can contact her at cdrohan@ skylineonline.ca or call 519-826-0439. 36 www.canadianapartmentmagazine.ca
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November 2009 37
multifacts Lanesborough REIT announces sale of nine properties in Western Canada
costs) of first mortgage debt. The properties were acquired by LREIT in 2005 at an aggregate cost of $15.54 million.
Lanesborough Real Estate Investment Trust (LREIT) announced that it has entered into agreements to sell nine apartment properties in B.C., Alberta and Saskatchewan, totaling 793 suites for more than $45 million.
LREIT also announced that it has entered into an unconditional agreement to sell a 93-suite apartment property in Sherwood Park, Alta., known as Broadview Meadows for $9.1 million. The sale is scheduled to close on December 1, 2009 and is expected to result in net cash to LREIT of approximately $3.6 million, net of expenses and closing adjustments, and the assumption by the purchaser of approximately $5.25 million of first mortgage debt. The property was acquired by LREIT in January 2006 at a cost of $6.79 million.
In BC, LREIT sold a 183-suite apartment property in known as Greenwood Gardens for $13,817,000. Net of the second mortgage, the sale is expected to result in net cash to LREIT of approximately $2 million, after expenses, closing adjustments and the assumption by the purchaser of approximately $5.2 million of first mortgage debt. The property was acquired by LREIT in April 2004 for $10.95 million. LREIT also entered into an unconditional agreement to sell a 113-suite apartment property in Saskatoon, Sask., known as Sir Robert Borden Place for $6.6 million. The sale is expected to result in net cash to LREIT of approximately $2.17 million, after expenses, closing adjustments and the repayment of approximately $4.0 million of first mortgage debt. The property was acquired by LREIT in May 2007 for $5.6 million. In Prince Albert, Sask. LREIT agreed to sell its portfolio of apartment properties for $18 million. The portfolio consists of the six properties known as Marquis Towers, Borden Estates, Cedar Village, MGM Apartments, Carlton Manor and Riverside Apartments, and is comprised of an aggregate of 404 suites. The sale is scheduled to close on November 30, 2009 and is expected to result in net cash to LREIT of approximately $5 million, net of expenses and closing adjustments, and the repayment of approximately $11.75 million (including defeasance
CMHC & Conventional Mortgages for: Multi-Family Rental Properties Senior’s Housing Projects Commercial Properties Construction Projects Vancouver Brian D. Kennedy or Jonathan Wong Phone: 604-685-1068 Fax: 604-683-2787 Email: vancouver@peoplestrust.com
Mitchell Cohen, President and Chief Executive Officer of Urbanfund Corp., confirmed that the company has terminated the conditional purchase agreement and will no longer pursue the acquisition of 585 suites located in Kitchener and Toronto, Ont. The decision to terminate the purchase agreement was based on the company’s review of additional information that was made available during the conditional period. “In light of the new information that we received, it was not in the best interest of the company to continue to pursue the transaction any longer,” stated Cohen. “Although we are disappointed that we needed to terminate the purchase agreement, we will continue to move forward to purchase quality multi-family residential and retail properties.” COGIR lands two major management contracts Cogir Management Corporation G.P. announced that it has obtained two management contracts: the residential portfolio of Transglobe in Quebec and the Olympic Village in Montreal. COGIR will be managing Transglobe’s residential buildings in the province of Quebec. The portfolio includes 15 properties totalling close to 2,700 apartments, located on the island of Montreal and on the South-Shore. Transglobe owns over 30, 000 apartments and five million square feet of commercial space across Canada. As of January 1st, 2010, COGIR will also be managing the Olympic Village located on Sherbrooke Street East in Montreal. This building contains nearly 1,000 apartments as well as over 200,000 square feet of commercial space. Skyline acquires multi-residential portfolio in Kingston Skyline Apartment REIT of Guelph, Ont. Announced the new acquisition of a $26.9 million multi-residential portfolio in Kingston, Ont. This will compliment Skyline’s existing multi-residential and commercial real estate portfolio that is now made up of 89 properties in 33 communities, spread out across four Canadian provinces. This acquisition brings the market value of Skyline Apartment REIT’s current portfolio to over $500 million.
Calgary Dennis Aitken or Doug Eveneshen Phone: 403-237-8975 Fax: 403-266-5002 Email: calgary@peoplestrust.com Toronto Michael Lombard Phone: 416-368-3266 Fax: 416-368-3328 Email: toronto@peoplestrust.com ™
www.peoplestrust.com 38 www.canadianapartmentmagazine.ca
Urbanfund terminates purchase of 585 suite portfolio in Kitchener and Toronto
The Kingston acquisition is the second in the city for Skyline and is comprised of 367 residential suites and one commercial building, which significantly enhances its existing three-building portfolio that was acquired in Kingston in 2007. This most recent addition to the portfolio consists of three separate properties, and is made up of seven unique buildings. The new Skyline properties are located at 810 & 820 Castell Road; 7 & 25 Briceland Street; and 722, 730 & 766 John Counter Boulevard. The acquisition expands Skyline Apartment REIT’s Eastern Ontario
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multifacts portfolio, is accretive for investors, and will provide management with additional opportunities to leverage upon existing economies of scale and current community partnerships in the city. This portfolio also accounts for the 61st, 62nd and 63rd properties purchased by Skyline since amalgamating its holdings into a private Real Estate Investment Trust (“REIT�) on June 1, 2006. Jason Castellan, Chief Executive Officer and Co-Founder of Skyline commented
that, “We are happy and proud to add these new assets to the stable portfolio of properties that currently make up our REIT. Kingston has a long history of strong employment and economic stability, so by acquiring these accretive buildings, we will significantly increase unitholder value.� League Assets supports the Navy’s 100th Celebration Homecoming Monument League Assets Corp. announced it is joining with Navy personnel past
Are you contemplating the sale of your apartment property? Consider the following:
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40 www.canadianapartmentmagazine.ca AD Redesign Half Page Island.indd 2
The monument, entitled, “The Homecoming�, to be erected on Victoria’s Inner Harbour, will feature two life-sized figures—a sailor, returning home from overseas, kneeling with arms outstretched toward his daughter, who is running to meet her father’s embrace. Etched into one of the adjacent stones will be League’s official Coat of Arms, granted in 2007 by the Heraldic Authority of Canada under the auspices of the Governor General. “Generations of Canadian sailors are owed a debt of gratitude for keeping our country safe for more than a century,� said League’s Founding Partner Adam Gant. “We at League are especially pleased to honour these men and women and are proud to help sponsor this tangible symbol of their courage and sacrifice especially on the milestone of this centennial celebration.� Hundreds of bricks inscribed with the names of donors or their loved-ones will surround the monument. League is not only sponsoring its construction, it is encouraging its 1,700 MemberPartners to purchase bricks in the name of their family members at this link. “League’s mission is to help create and secure Intergenerational Wealth for the families of our Member-Partners, which clearly includes a wealth of capital,� explained co-founder Emanuel Arruda. “But equally important is the perpetuation of a family’s wealth of core values and traditions. Supporting this philanthropic effort is an excellent opportunity to promote, reinforce and celebrate these values, while leaving a lasting legacy as well.�
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and present in the construction of a monument to mark the 100th anniversary of the founding of the Royal Canadian Navy. League is proud to be among the Victoria business leaders in creating this lasting legacy for further generations—a visible and permanent link between the Royal Canadian Navy and its home community.
4/22/2009 4:37:58 PM
All bricks purchased by MemberPartners and display the words “League Member� under the family name, will be subsidized by League Assets Corp. in conjunction with the League Foundation. The League Foundation is the philanthropic arm of League Assets Corp.
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association
Landlords in Ontario and BC Brace for the HST The best relief would be a rebate of the new tax By John Dickie
In March, 2009, the Province of Ontario announced its decisions to harmonize its sales tax with the GST, and British Columbia followed suit in July, 2009. According to the current government plans, after July 1, 2010, the total sales tax (or HST) will be 12 per cent in BC and 13 per cent in Ontario. Those decisions will have negative impacts on residential landlords and tenants in both those provinces. In Ontario, the Federation of Rental-housing Providers of Ontario (FRPO) estimates that harmonization will increase costs by 2.5 to 3.0 per cent of the rent, or $270 to $320 per year for the average tenant. The BC apartment associations originally estimated a similar impact there. After-tax prices will rise because the provincial sales tax (PST) component of the HST will be charged on items that are currently exempt from the PST. In the rental housing sector this includes such costs as gas heat, electricity, maintenance contracts, property management services and renovation contracts, which make up a large part of the operating costs of most rental housing providers. The costs of the average landlord will rise by significantly more than consumer prices generally. The costs borne by rental housing providers will also increase by more than the costs of other businesses. Rental housing is “exempt� from GST, which just means that landlords do not charge GST on residential rents. But rental housing providers must pay GST on their input costs. Unlike most business operators, landlords do not get an input tax credit for the amounts they pay in GST. The same rules are to apply to the HST. However, the PST was to some extent embedded in various costs because of being paid by the suppliers. Therefore, some before-tax prices may fall due to harmonization. However, even if before-tax prices fall by 3 per cent or 4 per cent, the after-tax prices will still rise significantly due to the application of the extra tax, which will 7 per cent in BC and 8 per cent in Ontario. Rental housing providers are very concerned that they will be stranded with the cost increases, since the rent control guideline is based on the Consumer Price Index, with a considerable lag, and the CPI will reflect only a part of the increase in landlord costs. In both Ontario and BC, the apartment associations have concluded that the harmonization decision will not be reversed. What the associations are seeking is mitigation of the impact on rental housing providers. 42 www.canadianapartmentmagazine.ca
The best relief would be a rebate of the new tax. In BC it appears that the tax will be rebated on energy and electricity since the Province recently imposed a carbon tax. That rebate will apply to homeowners as well as to rental housing providers. Ontario has no carbon tax, and so there is no public policy rationale for exempting fuel and electricity. Absent relief from the new tax, the industry associations expect that there will be great pressure to contain other costs. That will negatively affect the budgets for maintenance and repairs, capital restoration programs and potentially salary costs. Tenants and people who work in and for rental housing would be much better off if BC and Ontario would provide relief for rental housing providers from the unintended impact of sales tax harmonization on our industry. FRPO, the British Columbia Apartment Owners & Managers Association and the Rental Owners and Managers Society of BC are working hard to seek remedies for rental housing providers. The Canadian Federation of Apartment Associations is acting in a supporting role since the key decisions are up to the provincial government of Ontario and BC. CA M John Dickie is President of the Canadian Federation of Apartment Associations. You can contact him at president@cfaa-fcapi.org. The CFAA (www.cfaa-fcapi. org) represents the owners and managers of close to one million residential rental suites in Canada, through 17 associations across Canada. In existence since 1995, CFAA-FCAPI is the sole national organization representing the interests of Canada’s $40 billion private rental housing industry, which provides quality rental homes for more than seven million Canadians.
porfoliostrategy
The Youth Market The right student housing opportunity may be right around the corner By Derek Lobo
Student Housing represents a major opportunity for a residential apartment owner/developer.
Demographics Let’s look at the basics of Student Housing. Today, there are approximately 800,000 students enrolled in Canadian universities, and these numbers are expected to grow over the next 10 years, to well over a million students. This demand is being driven by the eco-baby boom, students staying in school longer, and getting more than one degree. Growing international enrolment at Canadian universities and colleges is also an important factor. Participation rates at Canadian universities increased November 2009 43
porfoliostrategy from 14 per cent in 1996 to 20 per cent in 2001. The forecast is for over 50 per cent of students to attend post-secondary institutions by 2026.
Factors That Drive Student Housing In real estate, the old adage is “Location, Location, Location.” No other real estate (except maybe airport parking) is more sensitive to location than Student Housing. Students (and their parents) will pay significantly more for good location, quality product, and good management. Purpose-built Student Housing, which, in the future, will replace over-crowded houses in student ghettos across the country, will contain updated amenities like fully-equipped fitness centers, movie theatres, games rooms, study rooms, board rooms, etc. The multibedroom units will also be fully furnished, with dishwashers, flat screen TVs, double beds, and all the amenities that you would find in a mid-range condo building.
Development Opportunities The Student Housing development industry is relatively small in Canada, when compared to the United States. There are opportunities to develop off-campus, and to joint venture with universities and develop on university lands. Today, many universities have limited funds for development, and those funds should be channeled to building educational buildings, equipment, and hiring world-class faculty. We believe that it will become more and more likely that universities will look to private developers to build Student Housing, both, on and off campus. We believe that there is a firstmove advantage available in Canada for a public or private entity to roll up existing Student Housing buildings, and develop new buildings. We also believe that there is a significant hole in the market, in the luxury Student Housing sector. The best 44 www.canadianapartmentmagazine.ca
Students (and their parents) will pay significantly more for good location, quality product, and good management. sites for development will be close to the university, and it will be difficult for competitors once the best site is gone.
Student Housing Management When you think of the housing spectrum, apartments are the least management-intensive, and seniors housing is the most managementintensive. After leasing up many thousands of beds, I have concluded that Student Housing is more like Seniors housing (drug problems in both, but of a different type). Anyone entering the Student Housing business needs to fully understand the difference between managing a conventional 100-unit apartment building, with 150 renters, versus managing a 100-unit apartment building with 400 second-year students at the end of exams. Today’s students are focused on school and have significant disposable income, i.e. we call them six-pocket children—two parents and two sets of grandparents. They come from large, well-furnished homes, where they have their own bathroom, and they would like to have the same when they go to university. They drink Heineken.
you can get more dollars per square foot than a conventional apartment. The cost of additional amenities and security required for Student Housing is off-set by the higher dollars-per-square-foot achieved. Generally speaking, a developer will be more successful at destination universities—institutions where the majority of students are from out of town—such as Queen’s University in Kingston, versus a commuter school, like George Brown College in Toronto, where most of the students are local. When looking at various postsecondary institutions, the developer needs to look at existing Student Housing demand, future enrolment projections, the current and future competition, the university’s national and international reputation, and the availability of sites to develop on. Many of the best universities in Canada are located in barrier-to-entry locations, making development difficult. We believe that Student Housing in Canada is an opportunity for investors, developers, and managers with the majority of the opportunity located in the provinces of Ontario and Quebec. CA M
What to Build, and Where If you build one and two-bedroom apartments for students, you are no different than the conventional rental market that surrounds most universities and colleges. Students are looking for two things—community and privacy. This can be achieved with a well-designed four-bedroom, two-bathroom units with individually locking bedroom doors. With a well-designed product,
Derek Lobo is the CEO of Rock Apartment Advisors, a boutique apartment brokerage firm and Derek A. Lobo & Associates Inc., a performance-based consulting firm with its sole focus on the apartment industry. If you would like a copy of our soon to be released White Paper, Canadian Student Housing, please contact us: info@rockaptadvisors.ca.
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regulations
Manitoba Residential Tenancies Act amended In keeping with the Manitoba government’s goal of supporting the rights and responsibilities of both landlords and tenants in the province, The Residential Tenancies Act is being amended. The goal is to respond to ongoing changes in the rental market in a fair way. Earlier this year, the following amendments went into effect: • To speed up processing, the Residential Tenancies Branch has the authority to issue amended orders in certain situations. The goal is to reduce the number of timeconsuming appeals caused by typing errors. • The Residential Tenancies Commission will have one commissioner hear certain appeals, particularly those that include small dollar amounts or simple issues. The goal is to speed up the appeals process and cut costs. • The term appointment for deputy chief commissioners is extended to four years (from two). • Minor amendments to the act will clarify landlords’ general responsibilities to repair and maintain rental units and tenants’ responsibilities to maintain rented mobile home sites. There are also several other amendments that will take effect once the work on the regulations is completed: • Landlords will be prevented from getting around rent regulations when they regain possession of units in complexes with three units or less. • The branch will have authority to require landlords of life-lease complexes to return rent overpayments to tenants.
• The branch will have the authority to impose administrative penalties on individuals who illegally change locks, refuse right of entry, withhold vital services or and tamper with smoke alarms. The goal is to enforce the act, without being heavy handed, and the authority will only be used in the most serious cases. • Landlords who choose to allow pets in their rental units will be allowed to collect damage deposits from tenants. The goal is to encourage landlords to accept tenants with pets so the many tenants who want pets will have the opportunity to keep them in rental units. Landlords often restrict pets because of the additional costs for cleaning, removing odours and other potential damages. Tenants who require animal assistants will not be required to pay a pet damage deposit. • Guarantee agreements by a third party for rental units must state clearly the obligations the guarantor is taking on for the tenant. Proposed changes to the act also cover the increase in demand for specific rental accommodation where landlords provide service packages with their units. The packages can include meals, light housekeeping, transportation and laundry or linen services. The target market for these complexes is individuals who can live independently in an ordinary apartment complex but prefer to live in a building that offers the additional amenities. All these amendments are intended to equally protect the rights of both landlords and tenants. CA M More details about each amendment can be viewed at the Branch’s web site at www.manitoba.ca/rtb.
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Carma Industries . . . . . . . . . 888.298.3336 . . . . . 36
IMS Insurance . . . . . . . . . . . 905.271.2070 . . . . . 37
Rogers . . . . . . . . . . . . . . . . . 866.567.5778 . . . . . 11
CB Richard Ellis . . . . . . . . . . 416.362.2244 . . . . . 40
IRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Roma . . . . . . . . . . . . . . . . . . 9057948174 . . . . . . 29
City of Toronto . . . . . . . . . . . 416.397.9218 . . . . . 45
MetCap . . . . . . . . . . . . . . . . 416.993.4305 . . . . . 10
Security Management . . . . . 4163601902 . . . . . . 28
CMHC . . . . . . . . . . . . . . . . . www.cmhc.ca . . . . . 13
New Water Pluming . . . . . . . 905.731.2066 . . . . . 27
Stratacon . . . . . . . . . . . . . . . 905.856.4001 . . . . . 37
Coinamatic . . . . . . . . . . . . . 800.561.1946 . . . . OBC
Peoples Trust . . . . . . . . . . . . 416.304.2078 . . . . . 38
TD . . . . . . . . . . . . . . . . . . . . 1.877.299.9058 . . . . . 5
Com-plex . . . . . . . . . . . . . . . 905.212.1474 . . . . . 25
Phelps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Pascoal Group . . . . . . . . 905.625.9153 . . . . . 31
First National . . . . . . . . . . . . 416.593.1100 . . . . . . 7
Prime Corp . . . . . . . . . . . . . . 888.720.2050 . . . . . IFC
TGA Renovations . . . . . . . . . 416.383.0131 . . . . . 26
GTA Pluming . . . . . . . . . . . . 905.569.7558 . . . . . 23
Planit . . . . . . . . . . . . . . . . . . 800.933.5136 . . . . . IBC
Waste Management . . . . . . . www.wmcanada.com 24
H&S . . . . . . . . . . . . . . . . . . . 905.738.6003 . . . . . 41
Quality Allied Elevator . . . . . 905.305.0195 . . . . . 9
Yardi . . . . . . . . . . . . . . . . . . 905.671.0315 . . . . . . 3
46 www.canadianapartmentmagazine.ca
And you said… There’s no such thing as FREE money!
The City of Toronto’s Better Buildings Partnership and GreenSaver’s Multifamily Energy Efficiency Rebates program offer an array of rebates to help multi-residential owners and managers reduce energy consumption. Included is the Energy Audit Rebate which provides $35 per apartment unit, up to the full cost of an energy audit. For details on the program and how we can help you qualify, contact PLANiT Measuring®. BIM’s the word!
TM
1.800.933.5136 www.planitmeasuring.com
What Your Competition Doesn’t Want You To Know
We’re a different kind of laundry company… At Coinamatic, we know you can’t run a superior property with ordinary suppliers. We understand the difficulties of managing multi-family properties including: the time required to keep up with day-to-day operations and the lack of time to focus on developing new revenue opportunities. We can help. We’ll work with you to ease the pressure of resident relations and superintendent performance by creating new revenue streams and providing better management of both laundry rooms and parking facilities.
Please call Virgina Tolfo 1 800 361 2646 to arrange a no-obligation survey of your laundry and parking operations.
Anything else is a compromise.
TM