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F O R B U I L D I N G O W N E R S , A S S E T A N D P R O P E R T Y M A N AG E R S

VOL. 28 NO. 2 • JULY 2021

26 C

26 C SUMMER STAKES LOCKING IN POST-LOCKDOWN ELECTRICITY COSTS

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Charged transportation The surge of electrical vehicles (EV) has sparked another major trend within the roadways and parking lots of the world. Specifically, the rise in popularity of EV transportation has increased the demand for EV charging stations. “The obvious problem is that you have a surplus of gas stations but nowhere to charge your electric vehicles,” says Drozdowski. “So because of that, there’s been a massive push for those charging stations.” Kudlak-Baird is currently installing over 40 stations across Toronto, and is experiencing pent-up demand for even more. This demand is driven in part by a desire among the public to move away from fossil fuels. Building owners and managers are also motivated by government incentives which can offer significant financial support for those who choose to install them. “And there’s a good reason why you might want to install an electric charger for your customers or tenants, too,” says Drozdowski. “Not only are more and more drivers looking for a place to charge their EV, but there’s an opportunity to charge for the use of those stations, which opens up new revenue streams.”

Seizing the trends LED lighting and EV stations are among the most significant sustainable trends that Kudlak-Baird’s teams have seen in the field, but they are far from the only ones. With “smart” building systems, net-zero innovations, and other carbon-neutral solutions coming to market, it’s safe to say that sustainable operations have become the “norm” rather than a “nice to have.” Of course, there’s an art to adopting sustainable technologies. And when it comes to designing, installing, or implementing these electrical solutions, it pays to involve the professionals. “It’s not as simple as ‘plug-and-play,’” states Drozdowski. “Before you can implement any new energy-efficient solution, you need to match the electrical infrastructure of the building. That means assessing your requirements, weighing your options, and determining if the unit can handle what the building has available.” “Overall, it really helps to have someone like us by your side making that assessment, recommending the products that will best suit your needs, and then making it all work,” he adds. “Not only will the job get done right, but it will get done faster and with less impact on the bottom line.” Kudlak-Baird Electrical Contractor is a leading electrical contractor with over 70 years of experience serving Toronto and the GTA clients in the commercial, industrial, municipal, and institutional sectors. For more, visit www.kudlak-baird.com.

Proud

TABLE OF CONTENTS

CONTENTS 20

COVER STORY

IN THIS ISSUE

INDETERMINATE DISCOUNT

COOL RETURNS Burgeoning alternative asset class enjoys bargain electricity prices in Ontario

ROOMY PROSPECTS Expanded space ratios deemed an easier economic stretch in Toronto

GEOEXCHANGE GROUNDSWELL Multi-residential developers show serious interest

Summer turns up the heat on conservation and demand management

A portion of costs removed from electricity rate base, but price volatility persists

PEAK SEASON

BALANCING LED AMBIENCE Researchers investigate phosphors to mute blue light

“CLASS B HAS SOMETIMES BEEN REGARDED AS THE FORGOTTEN MIDDLE CHILD OF THE CUSTOMER CLASSES IN ONTARIO WHERE ALL THE SHIFTED COSTS IN THE SYSTEM KIND OF PILE UP.” – MARK OLSHESKI, VICE PRESIDENT, ENERGY AND ENVIRONMENT, SUSSEX STRATEGY GROUP

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REGULAR MANAGEMENT REPORTING Accurate and timely financial statements. DETAILED OPERATIONAL UPDATES Daily maintenance, tender review and contractor management.

INDETERMINATE DISCOUNT A portion of costs removed from electricity rate base, but price volatility persists BY BARBARA CARSS

GTA & BEYOND ■ JULY 2021

ENERGY MANAGEMENT

his year, Ontario’s large commercial electricity customers could approach the annual decision about their billing structure for the 12 months beginning July 1 with the assurance of long-term relief on a portion of their costs. However, that was weighed against uncertainties around energy demand and whether a locked-in cost allocation formula that looked favourable in pre-pandemic times will remain so until June 30, 2022. “The biggest unknown is we just don’t know when the people are coming back,” Jon Douglas, Director of Sustainability with Menkes Property Management Services, reflected during a webinar sponsored by the Building Owners and Managers Association (BOMA) of Greater Toronto earlier this spring. “The occupancy in our office buildings this fall and going into the new year could really impact the outcome of the decision.” After a year of operational upheaval and more modifications to provincial electricity pricing policies, BOMA Toronto’s regularly scheduled workshop to discuss the global adjustment (GA) and Industrial Conservation Initiative (ICI) program had a lot of ground to cover. Since January, all commercial customers have seen a reduction in the GA component of their monthly hydro bills after the Ontario government shifted costs associated with contracted non-hydroelectric renewable supply from electricity rates to the general provincial account — a move that trims

approximately $258 million per month from the total GA charged to industrial and commercial customers. However, they won’t garner the full benefit of that until 2022 since they’re currently repaying about $333 million in GA costs that were deferred in April, May and June of 2020. RENEWABLE COST SHIFT For now, Ontario government officials estimate the renewable cost shift equates to a 12% discount relative to 2020 prices. Once last year’s GA deferral is repaid at the end of 2021, they project the average Class A customer participating in the ICI program should realize a 16% saving on the total hydro bill, while Class B customers paying the GA on a volumetric per kilowatt-hour (kWh) basis will see a slightly more moderate 15% decrease. “This is the biggest change to electricity pricing that’s happened since the introduction of ICI,” Tim Christie, Director of Electricity Policy, Economics and System Planning for Ontario’s Ministry of Energy, Northern Development and Mines, told online workshop attendees. “The government is funding the out-of-market costs of renewables. It does tail off into the 2030s as those contracts [for wind, solar and biomass generation] expire, but over the next eight-ish years, it’s pretty steady at around just over $3 billion per year.” Extrapolating from 2020 costs, he pegged average electricity costs at roughly 9.1 cents/ kWh for Class A commercial customers and 13.2 cents/kWh for Class B. However, energy

management specialists suggest actual 2021 numbers haven’t proved that out. “In commercial buildings, we’re averaging 10 to 12 cents for Class A in 2021, and we’re seeing more than that for about 14, 15 cents for Class B,” reported Scott Rouse, Managing Partner with the consulting firm, Energy@ Work. GA costs for Class B customers dropped nearly 30% in the first four months of 2021 compared to the last four months of 2020 when they averaged 11.8 cents/kWh. However, there were significant month-to-month fluctuations, with a low of 5.04 cents/kWh in February and a high of 10.9 cents/kWh in April contributing to the four-month average of 8.3 cents/kWh. “In 2020, system-wide GA very often averaged more than $1 billion per month,” Rouse said. “This February it dropped to $500 million, which was really quite surprising. So it is a very volatile cost.” Although welcome, the renewable cost shift does alter the payback on energy-saving investments, particularly for demand response mechanisms like energy storage. When combined with pandemic-related uncertainty and a series of policy and program reversals in recent years, the industry’s appetite for some more capital-intensive technologies appears to be flagging. “Volatility puts a pause on some of the innovation,” said Terry Flynn, General Manager with BentallGreenOak and Chair of BOMA Toronto’s energy committee. “It could be a leading edge, but it might be a bleeding

ONTARIO TO TWEAK ELECTRICITY REBATE CRITERIA A proposed regulatory clarification would ensure that all residential customers benefit equally from the Ontario Electricity Rebate (OER). A posting on Ontario’s regulatory registry suggests the government will explicitly state that separately metered hydro accounts for common areas of multi-residential buildings will qualify for the rebate, which currently provides an 18.9% discount on the pre-tax costs of electricity consumption, transmission and distribution. Common area accounts registering more than 250,000 kilowatt-hours (kWh) of consumption annually have been somewhat in limbo since the provincial government introduced the OER in November 2019. They currently receive the rebate under a grandfathering provision that’s slated to end on October 31, 2021, after which, the Ontario Energy Board (OEB) has determined they do not meet the criteria set out in the enabling regulation. Meanwhile, the rebate does apply on all the same electricity-using elements for any amount of consumption in a bulk-metered building where a single hydro accounts covers the common areas and all residential suites. Proposed regulatory amendments would redefine eligibility for the rebate to address the uncertainty around large common area accounts, mobile home parks with year-round residents and multi-residential formats with shared kitchen and bathroom facilities. The Ministry of Energy, Northern Development and Mines was accepting comments on the proposals until July 26, 2021. – REMI Network

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ENERGY MANAGEMENT

edge that won’t bear any fruit because the way the commodity costs are structured will change.” “There’s kind of a wait-and-see approach on some of these bigger investments,” Douglas concurred. COMMERCIAL CLASS DIVIDE Turning to the ICI, Class A customers — defined as those with average monthly energy demand of at least 1 megawatt (MW) — encountered some unexpected changes to the program rules during 2020. Meanwhile, Class B customers — encompassing the vast share of commercial properties smaller than about 350,000 square feet — confront the persistent reality of electricity cost allocation that offloads the burden from larger players onto them. Through the ICI, participating Class A customers pay a share of the global adjustment that’s prorated to their energy use during the five hours of the period from May 1 to April 30 when the highest overall system demand is recorded. This gives Class A customers the opportunity to lock in a favourable factor for calculating their share of monthly system-wide

global adjustment costs if they can successfully project and curtail energy loads during those five hours of peak demand. On the flipside, Class B customers pay the remainder of those system-wide costs, on a straightforward per-kWh basis, once Class A payments have been reconciled. “Class B has sometimes been regarded as the forgotten middle child of the customer classes in Ontario where all the shifted costs in the system kind of pile up,” acknowledged Mark Olsheski, Vice President, Energy and Environment, with Sussex Strategy Group. “Likewise, there can be big unpredictable and uncontrollable swings in the global adjustment rate from month to month and, outside of pure energy efficiency, there really is precious little opportunity or empowerment for a Class B customer to take actions to lower their bills.” Nevertheless, COVID-19 delivered a few extra hiccups for Class A customers this year. Conventionally, late May is when they receive notification of the cost allocation factor that would be used to determine their GA for the upcoming July 1 to June 30 period. This year, though, all current ICI participants retained the factor they secured by responding to the five

hours of peak demand during the 12 months from May 1, 2019 to April 30, 2020 after the Ontario government placed a temporary halt on the peak demand response aspect of the program last summer. PEAK CHASING RESUMES Since peak demand hours conventionally occur from June to September, Class A customers will once again be preparing to respond to heat waves. That should help alleviate some of the system stresses that arose last summer — prompting policymakers to reject lobbying for a continued pause on peak demand response. “The policy rationale was to allow consumers to focus on their operations when recovering from COVID as opposed to reducing peaks. The other issue was that we did not expect the peaks to be high last summer given COVID shutdowns,” Christie recounted. “But due to some hot weather, more people at home and also the lack of ICI response, we saw peaks we haven’t seen in many, many years come up last summer. So the peak hiatus has ended and this summer we’ll be back to responding to ICI as per normal.”

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ENERGY MANAGEMENT

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Among Class A customers, owners/managers of office and retail facilities generally have the most to lose from a billing formula tied to the energy demand of more densely occupied buildings in the summer of 2019. However, they could be much more competitively positioned for 2022-23 if their buildings remain below full occupancy and energy demand stays lower than usual this summer. “Where we can improve is the IESO (Independent Electricity System Operator) and the LDCs (local distribution companies) need to help customers get their real-time data, interpret their bills and their Class A versus B scenarios much more easily and comprehensively,” urged Lee Hodgkinson, Vice President, Technical Services, Sustainability and ESG, with Dream Unlimited. “I look for APIs (application programming interface) and direct data flow from the LDCs to the building owners so that we can access that data really easily.” Given Class A’s historic advantages, few eligible ICI participants were expected to voluntarily migrate out to Class B. From a sustainability perspective, there’s perhaps more cause to question how the ICI’s 1-MW threshold encourages strategies to move in the other direction. “You could jack up demand in some buildings and get them into Class A basically by firing up the chillers on the weekend and then pouring cooling outside to get rid of it,” Douglas noted. “That has nothing to do with climate change strategy or sustainability, but it’s a cost- saving strategy and sometimes when you look at the math, it’s hundreds of thousands of dollars you can save.” Brian Hewson, Vice President, Consumer Protection and Industry Performance with the Ontario Energy Board (OEB), confirmed the OEB is currently scrutinizing the discrepancy that leaves Class B as the only consumer group with no flexibility to curtail energy load during higher-priced periods, and will be providing advice to the Ministry of Energy. In the interim, that status does, at least, simplify tactics. “Just reduce your kWh and it doesn’t matter what time of day because you’re paying that fixed rate for 24 hours a day. So if you can curb your demand at night, you get a big bang for your dollar,” Rouse advised. “We do talk about rates a lot, but if you’re not using it, you’re not paying for it,” Flynn agreed. “A lot of our focus is still on really to try to reduce the number of kilowatts that we use. That seems to be the best thing to do.” ■

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PEAK SEASON

Summer turns up the heat on conservation and demand management

BY BARBARA CARSS

lectricity demand projections through the vaccination rollout period should take two contradictory factors into account. Office occupancy is likely to lag pre-pandemic densities well into 2022, but more rigorous ventilation specifications could offset savings from reduced plug and systems loads. “This is where you do the ‘what ifs?’. What’s the new normal going to look like? Are we expecting people are going to start coming back in September or October?” Scott Rouse, Managing Partner with Energy@ Work, advised during an online seminar

GTA & BEYOND ■ JULY 2021

sponsored by the Building Owners and Managers Association (BOMA) of Greater Toronto earlier this spring. “You’ll also want to consider what your facility requirements are going to be. NRCan (Natural Resources Canada) has put out a very good tool for this, and ASHRAE has been fantastic in providing direction on what we need to look at with respect to filtration, relative humidity, filter size, etc.” NRCan’s free online guide, Efficient HVAC Operation during a Pandemic, includes a self-administered assessment scorecard and related discussion to help

building managers and operators gauge the effectiveness of filtration, outdoor air intake and humidification, along with general maintenance, commissioning, training and communications standards. Meanwhile, ASHRAE opened a COVID-19 technical guidance portal in March 2020 and soon after established an epidemic taskforce to assemble and coordinate resources to support healthy building operations and mitigate risk, including extensive guidance on requirements for reopening buildings and re-establishing their pre-pandemic functions.

ENERGY MANAGEMENT

“The idea is to bring operations and management together to determine the best HVAC strategy, and then you can project what the impact is on your energy use,” Rouse recommended. “Filtration has an impact. Relative humidity and how much outside air you need are also big ones.” Ontario-based property and facilities managers may be able to tap into incentives for energy-efficient HVAC upgrades through the recently launched 2021-24 Conservation and Demand Management (CDM) Framework. Rebates on the installation of a range of prescribed products will be a main thrust of the initial years of this four-year program cycle, reflecting new directions from the provincial government. “We’re really focusing on the prescriptive track. That is lighting, HVAC and manufacturing and other equipment. So it’s an enhanced list of measures, and looking at reducing administrative burden for applicants, which will turn into a quicker pre-approval and a quicker incentive payment,” Rob Edwards, Business Manager, Private Sector, with the Independent Electricity System Operator (IESO) told online attendees. “We’ve got about half the

“THIS IS WHERE YOU DO THE ‘WHAT IFS?’. WHAT’S THE NEW NORMAL GOING TO LOOK LIKE? ARE WE EXPECTING PEOPLE ARE GOING TO START COMING BACK IN SEPTEMBER OR OCTOBER?” budget that we had previously, but we’ve really had some efficiencies in the market and we’re looking at some good programs that are really going to be a good fit for the commercial real estate sector, the [CDM] program delivered under the IESO and the Save On Energy brand.” ICI RESUMES Further supporting the case for energyefficient HVAC, associated monitoring and controls, large commercial customers enrolled in Ontario’s Industrial Conservation Initiative (ICI) program have renewed

incentive to curb energy loads during peak demand periods this summer. The 202021 pause on measuring enrollees’ peak demand during the five hours of highest total system demand has been lifted. With heat wave season in full swing, industry insiders foresee opportunities to achieve favourable billing factors — which will be used to calculate their share of global adjustment costs in 2022-23 — given that building occupancy is expected to remain low during the period when the five peak hours conventionally occur.

SUSTAINABILITY TRAILBLAZERS GO ONTARIO-WIDE The race2reduce has an expanded field of potential competitors, now incorporating commercial buildings in Toronto’s neighbouring York Region in the challenge to reduce electricity, gas and water consumption and waste generation. A new collaboration between the Building Owners and Managers Association (BOMA) of Greater Toronto and Windfall Ecology Centre is part of a strategy to build the participatory base and heighten the profile of the Commercial Real Estate Sustainability Trailblazers (CREST) awards. “As we transition to a low-carbon, high-productivity economy, it is essential to recognize the successful sustainability efforts of the commercial real estate industry and to share their learnings. This kind of collaboration is how we will drive change among landlords and tenants,” maintains Susan Allen, BOMA Toronto’s President and Chief Executive Officer. “Our partnership with ClimateWise is a significant step toward rolling out the race2reduce province-wide.” “We are proud to be the race2reduce’s first regional partner,” concurs Brent Kopperson, founder and Executive Director of the Aurorabased Windfall Ecology Centre. Through that partnership, participants in York Region’s ClimateWise Building Challenge can also opt into the race2reduce and related eligibility for the CREST awards. That’s a straightforward exercise since prospective competitors are seamlessly entered in the race2reduce when they enroll their buildings in ENERGY STAR portfolio manager — the same application that owners/managers of larger commercial buildings are already required to use to comply with Ontario’s energy and water reporting and benchmarking (EWRB) regulation. Along with the competitive incentive, race2reduce has a track record of supporting participants with education and resources to help improve operational performance and cultivate the tenant engagement that underlies a whole-building approach to energy savings, greenhouse gas (GHG) reductions and enhanced sustainability. “Race2reduce is BOMA Toronto’s response to the call for climate action,” reiterates Bala Gnanam, Vice President of Energy, Environment and Advocacy. “Seventy per cent of the participating buildings are less than 100,000 square feet. By supporting these smallto medium-sized buildings in their effort to improve the overall performance, we can make the greatest strides to reduce their carbon footprint.” – REMI Network

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ENERGY MANAGEMENT

OFF-RESERVE DWELLINGS TO GET ENERGY ATTENTION Ontario Aboriginal Housing Services (OAHS) is launching an energy consulting team to work with First Nations, Inuit and Métis property managers and tenants in off-reserve dwellings. Financial support for the initiative comes from a new round of funding from Ontario’s Independent Electricity System Operator (IESO) for Indigenous communities and organizations engaged in education and capacity building, developing community energy plans and/or implementing energy projects. OAHS, a non-profit housing provider overseeing a widely dispersed portfolio in rural and urban settings throughout Ontario, aims to implement a broad-based strategy to improve energy performance in existing rental stock, build awareness, offer energy-related job training and ensure green energy and energy efficiency will be a consideration in future acquisitions and development. Funding has been attained from two IESO programs to enable hiring of three community energy champions for three-year terms along with a five-member energy team supported through the education and capacity building program. “Through education and improvements, we believe our energy plan will take major strides towards reducing energy costs both short and long term for the thousands of people we serve. Not only will these programs have an immediate impact to our tenants, but they will also create employment, educate staff, reduce emissions and extend the life cycle of our units,” says Dan Gartshore, Technical Services Manager for OAHS. “OAHS is extremely excited to be a part of two amazing programs offered through the IESO.” The OAHS portfolio comprises single-family housing and apartments in cities and towns such as Hamilton, Peterborough, Sudbury, Sault Ste. Marie, Sioux Lookout, Blind River, Cochrane, Red Lake and Dryden. In total, the IESO has awarded more than $7 million for 61 Indigenous-led initiatives, including funding to hire and train 15 community energy champions, develop or update four community energy plans, and support feasibility studies or installation of renewable applications in remote areas where electricity costs are high and/or communities rely on diesel generation sources. “We continue to listen carefully to our Indigenous partners with a view to ensuring our funding delivers tangible results and enables positive economic, environmental and social outcomes,” says Terry Young, the IESO’s interim President and Chief Executive Officer. – REMI Network

GTA & BEYOND ■ JULY 2021

“For the second summer in a row, many of your properties will likely have a lot fewer people in them every day than you would see under normal circumstances,” reiterated Mark Olsheski, Vice President, Energy and Environment, with Sussex Strategy Group. Data from approximately 30 Toronto office buildings shows a general, but varying drop in electricity consumption in 2020 compared to 2019. Rouse cited year-over-year outcomes ranging from a 1% increase to a 34% decrease in buildings his company monitors. Discarding the best and worst performers, he pegged the average reduction at 25% during the 2020 heating season and 30% during the cooling season. “That was consistent across building types from mid-tier to A to AAA,” he said. “But anybody on deep lake cooling wasn’t affected as much during the cooling season.” Despite CDM incentives and a promised long-term reduction in the global adjustment component of hydro bills via the so-called renewable cost shift (see story, pg. 6), many building owners/managers view the prospect of further unexpected announcements and measures with some wariness. Olsheski characterized last year as something of a bumpy ride. “If there are changes on such a frequent basis, that does factor into decision-making. Sometimes the best intentioned interventions of government can have consequences of layering in additional considerations when it comes to investment and things like that,” he submitted. “Energy savings are kind of baked into our capital budget year. If these projects are going to be executed and we’re going to get these savings, we factor that into making our Class A or Class B decision [for the purpose of the ICI program],” noted Terry Flynn, a General Manager with BentallGreenOak and the Chair of BOMA Toronto’s energy committee. “COVID was a disruptor that certainly nobody predicted years ago in their strategies.” ■ ___________________________________________ THE ONLINE GUIDE, EFFICIENT HVAC OPERATION DURING A PANDEMIC, AND OTHER INFORMATION ABOUT ENERGY EFFICIENCY IN EXISTING BUILDINGS IS AVAIL ABLE AT W W W.NRCAN.GC.CA / E NE R G Y- E F F I CIE N C Y/ BUIL DIN G S / ENERGY-EF F ICIENCY-E X IS T ING BUILDINGS/20682. ASHRAE’S TECHNICAL GUIDANCE PORTAL CAN BE FOUND AT W W W.ASHRAE.ORG/TECHNICALRESOURCES/RESOURCES.

ReVision 2021 NXTEK Forum November 9, 2021

What will the recovery look like? What have we learned? What is next? BOMA Toronto’s 2021 NXTEK Forum is a full-day hybrid event designed to maximize the attendee experience both in-person and virtually! Hear from industry experts and early adopters who have harnessed technology to operate their buildings safely and efficiently. Here are a few highlights: Kick off Keynote

Closing Keynote

Jim Carr, Chief Innovation Officer, BentallGreenOak

Paul Finkbeiner, Executive Vice President & Global Head of Real Estate, London Life/Great-West Lifeco Inc.

Opening Executive Panel: How did we fare? Industry leaders are back to unpack the impact COVID-19 has had on technological innovation. Moderator

Neil Lacheur, Executive Vice President, Avison Young

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Dennis Lopez, CEO, QuadReal Property Group

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Brian Rosen, President & CEO, Canada, Colliers International

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ENERGY MANAGEMENT

GEOEXCHANGE GROUNDSWELL Multi-residential developers show serious interest BY REBECCA MELNYK

eoexchange systems can already be found in a number of Canadian condominiums. Often referred to as geothermal, it’s a type of electric heating and cooling that draws heat stored inside the earth and uses it for warming or cooling buildings above ground. The clean technology can replace fossilfuel-fired boilers and/or refrigerant-dependent cooling systems, making a good fit with carbon-free mandates. With the emergence of third-party utility models to improve economic viability, more multi-residential developers are considering geoexchange in their project plans. “Two major hurdles with this technology in the past were the up-front capital cost and the long-term management of the system,” says Roya Khaleeli, Director of Sustainability and Innovation with Minto Communities. “The new business models offered by geoexchange companies over the past five years address both of these challenges.” North Oak condo, the fourth phase in the master-planned community of Oakvillage in Oakville, marks Minto’s first foray into geoexchange technology. The developer is evaluating the system for other projects wherever appropriate — anticipating the stepped trajectory Canada is taking to higher-performing buildings.

GTA & BEYOND ■ JULY 2021

Governments are ramping up lowcarbon efforts over the next decade. As Toronto phases in its Green Standard (currently in Version 3) and requires all new buildings to produce near-zero greenhouse gas emissions by 2030, the non-profit Ontario Geothermal Association contends it will eventually become impossible to design buildings with gas heat. British Columbia introduced its BC Energy Step Code to make all new buildings netzero energy ready by 2032, and the federal government is working on a Green Standard. More stringent carbon tax measures are also on the horizon. Khaleeli sees potential economic, operational and occupant comfort benefits that could bolster market demand, but, in many cases, the heating and cooling won’t be noticeably different than the status quo. “The condo owner shouldn’t see condo fees [for geoexchange] that are any higher than the market. Condo owners will not operate their heating and cooling any differently from a typical condo, making it easy to live a lowcarbon lifestyle,” she says. “Geoexchange systems also allow for year-round heating and cooling, meaning there is no more system switchover required, much improving resident comfort on those days with unseasonal temperatures.”

Condo boards, property managers and building operators will have to pay closer attention, however. “Expertise is needed to ensure that the heat extracted and inputted over the course of the year is balanced; otherwise there is a risk that the system no longer works,” advises Khaleeli. “With the business model around geoexchange, the system is professionally managed and maintained, ultimately reducing equipment maintenance and replacement costs.” BOLSTERING ADOPTION A recent webinar sponsored by Wilkinson Construction reinforced that message, as mechanical engineers and HVAC specialists discussed some of the factors that could drive wider geoexchange uptake in the multiresidential sector. “The truth is that the implementation of certain technologies really doesn’t pick up steam until it’s no longer leadingedge and mandated by some kind of legislation or code or standards. And that day has come,” reflected said Bram Atlin, a Principal with the consulting engineering firm, Smith + Anderson. “There’ve been successful projects and you look to your peers and see that it’s happening.”

ENERGY MANAGEMENT

He speculated that many early implementers were attempting to get ahead of the “learning curve” before future mandates for emissions reductions take many of today’s conventional heating and cooling options out of the market. Congruently, Tim Weber, co-founder and Chief Executive Officer of the geoexchange utility company, Diverso Energy, reports an upsurge of serious interest from developers who have recognized the potential profits in environmental sustainability. Along with it, conversations are evolving from “why geothermal?” to questions about applications and partners. “What that tells us is they are actively pursuing this technology. They are looking at it, doing it, treating it like any other technology,” Weber maintains. Leona Savoie, Senior Vice President of Development at Hullmark, and the discussion moderator, concurs. She predicted interest and uptake will grow over the next five years, particularly as more institutional players with ESG (environmental, social, governance) mandates will be looking to elevate sustainability and expressing those expectations to developers.

“They [developers] see changes coming,” Weber concurred. “Larger developers don’t want to be caught flat-footed.” Nevertheless, they could be coming up against other cost pressures — such as rising land costs and development charges — along with the typically higher upfront capital costs for geoexchange. Third-party utility models were created to remove that construction cost burden, converting it to a long-term operating expense that is off-flowed to occupants. SPINOFF SAVINGS Displacement of boilers and cooling towers generates annual capital reserve savings, including less water, maintenance and repairs, and potentially opens up creative alternatives. “If we can free up roof space, that’s an additional amenity space that could help with sales and marketing,” Weber suggested. “Or, [developers] can differentiate themselves from the other projects in the area.” “The impact of eliminating the mechanical penthouse is probably greater than anyone would intuitively estimate,” affirmed Jeff

Wilkinson, President of Wilkinson Construction. “Also [it ameliorates] the noise from the inside. Cooling towers are at the penthouse levels, so [typically] your most expensive suites are beside the noisiest equipment.” Weber also tallied improvements in drillers’ skills and project timing, allowing installations that once took several months to be completed in a few weeks. “They’ve become more sophisticated; they understand the importance of integration and sequencing and, if the site permits, in many cases, they are able to drill at the same time as shoring and excavating,” he reported. That said, pre-planning is critical. Khaleeli estimated that scheduling at 18 to 20 months in advance of North Oak. “As you can imagine, there are a number of teams that need to be involved, from the architect to the construction team to the financing team,” she says. “My suggestion is to start early and be prepared to spend on the analysis — think of it like R&D. Also, really get to know the companies on the market offering the system and how they will manage it.” ■

_________________________________________________________________________________________ REBECCA MELNYK IS EDITOR OF CONDOBUSINESS.

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INVESTMENT

COOL RETURNS

Burgeoning alternative asset class enjoys bargain electricity prices in Ontario BY BARBARA CARSS

ntario’s esoteric electricity pricing scheme is well matched to a burgeoning, but niche alternative real estate asset class. Cold storage facilities are flagged to deliver robust returns to investors due to the evolution of food retailing, demand for vaccines and other pharmaceuticals, and the thriving outlook for the warehouse/distribution and logistics sector in general. However, those prospects come with complicated and costly development and operating considerations. “Cold storage facilities are very capitalintensive. The number I’ve heard is roughly two to as much as three times the cost of a generic warehouse,” observes Bill Argeropoulos, Principal and Research Practice Leader with Avison Young Canada. “It’s usually design-build to meet a user’s specifications for their products; ceiling heights generally exceed the 40-to-60-foot

GTA & BEYOND ■ JULY 2021

heights in a typical warehouse/distribution facility; and power consumption can be double or triple that of a generic warehouse.” The latter factor could make Ontario more attractive for investors and developers still prepared to get into the market. Cold storage operators are deemed to have a strategic advantage in the provincial electricity pricing program for large consumers, which ties their allocation of global adjustment costs to their energy demand during the five hours of the year when highest system-wide demand is registered. Electricity customers with the foresight and flexibility to cut energy loads during those hours can lock in a favourable billing factor for the subsequent 12-month period from July 1 to June 30. “Cold storage [in Ontario] has the cheapest electricity price in North America,” Scott Rouse, Managing Partner

with the consulting firm, Energy@Work, noted during a recent webinar sponsored by the Building Owners and Managers Association (BOMA) of Greater Toronto. “They’ve got it figured out. They’ve got the monitoring in place to get an indication of when there’s going to be a potential peak. Then they shut off their compressors, don’t open their freezer doors and everything’s great.” GROCERY GROWTH ENGINE Even before the COVID-19 pandemic, analysts identified urban population growth, consumer appetite for convenientto-prepare healthy food and the rise of e-commerce as trends that would flow through to demand for cold storage. Those trends have simply synergized during the past 16 months as public health concerns and controls upended food retailing — significantly undermining grocery stores’

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competition from restaurants and moving an increased share of sales to online platforms. CBRE Canada’s spring 2021 retail report cites a 12.4% year-over-year gain in sales volume for food and beverage retailers. That’s compared to the category’s longterm average of 3.8% annual sales growth, and juxtaposed with the 32.7% drop in clothing and accessories retail sales during the same period. The report projects continued elevated sales growth, at least in the short term, and permanent integration of online services that were introduced or upgraded as pandemic contingencies. “Recent studies from J.C. Williams Group show that the majority of consumers who have converted to online shopping will continue to as such in the future. Convenience is a driving force behind this, and stores will need to strike the right balance of serving walkin traffic and fulfilling digital orders in-store in order to capture customers,” the CBRE report states. “Online grocery shopping, which is still in its infancy stage compared to other retail categories, will be a key driver in the

“COLD STORAGE FACILITIES ARE VERY CAPITAL-INTENSIVE. THE NUMBER I’VE HEARD IS ROUGHLY TWO TO AS MUCH AS THREE TIMES THE COST OF A GENERIC WAREHOUSE.” demand for cold storage space in the future, especially among younger consumers,” Argeropoulos submits. “As e-commerce expands within the grocery arena, I consider cold storage/freezer facilities, along with self-storage and data centres, as an emerging alternative investment class within the broader industrial sector.” Nevertheless, he characterizes cold storage as something of a hidden element — sometimes literally incorporated into even larger warehouse/distribution complexes — in a flashier backdrop.

“It’s difficult to quantify and categorize the cold storage market because of its unique premises and uses within a warehouse, but it represents a small portion of the GTA’s 890-millionsquare-foot industrial inventory and Canada’s overall industrial stock of almost 2 billion square feet. Because of its unique classification, it’s also challenging to single out cold storage facilities to gauge investment capital flowing into the sector,” Argeropoulos says.

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INVESTMENT

CUBIC FOOT ECONOMICS Cold storage facilities are defined and marketed in terms of storage space per cubic foot rather than on a square foot basis — generating far greater rent income than similarly sized warehouses. Because they are typically built to suit a specific tenant, lease terms tend to be lengthy, and tenants themselves may be cold storage facility providers, which, in turn, sub-lease the space to various smaller users. Looking to the U.S. market, circa-2018 analysis from JLL lists that country’s 25 largest cold storage operators, which, at that time, ranged from nearly 900 million cubic feet to 16.5 million cubic feet of business capacity. “Most companies in need of refrigerated storage services outsource these functions to industry operators to avoid the substantial costs associated with operating these facilities. While privately operated facilities can provide companies a greater deal of control and flexibility over their product, the substantial start-up costs deter many smaller companies from entering the space,” JLL analysts advise. “As a result, this form of vertical integration has generally been limited

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to large-scale food producers like Nestle and Kraft controlling their storage facilities.” Meanwhile, some investors are moving from a strictly landlord role to holding a stake in facility operations. Notably, last September, Canada’s Oxford Properties Group made a CAD $475 million investment in Lineage Logistics, which owns and operates more than 320 facilities worldwide, comprising 1.9 billion cubic feet of cold storage capacity. “The cold storage industry is a sector that is poised for growth and demonstrates great resilience and defensive attributes in this current climate. Our investment will provide access to the sector’s market leader and supports its management team to execute its growth strategy,” Kevin Egan, Oxford’s Head of Investments in North America, said at the time. Argeropoulos tallies three significant cold storage transactions in Canada over the past eight months: Tricor Pacific Capital acquired a three-building portfolio from Confederation Freezers for a total of $168 million; U.S.-based Americold Realty Trust acquired three buildings from Brookfield

Asset Management/Nova Cold Logistics for $337 million; and the consortium of Investment Management Corporation of Ontario (IMCO), TorQuest Partners and OPTrust acquired VersaCold Logistics from KingSett Capital and Ivanhoé Cambridge. “VersaCold is one of Canada’s largest cold storage warehousing and food logistics firms,” he adds. “The sale price was not disclosed.” Particularly for institutional players with deep pockets and long-term horizons for holding investments, the fundamentals also appear to support new development. JLL pegged those costs in the range of USD $250 to $350 (CAD $324 to $453) per square foot in 2018, but, given construction complications, Argeropoulos is skeptical that other approaches deliver discernible savings. “Although converting an existing generic warehouse to a cold storage use might seem like an attractive option, it can be no more cost-effective to convert a building than to build one from the ground up,” he concludes. ■

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ROOMY PROSPECTS

Expanded space ratios deemed an easier economic stretch in Toronto

ooser office densities could be an easier economic stretch in Toronto than in some major U.S. cities similarly competing to draw and retain investment and employment. Recent analysis from JLL’s global benchmarking services places Toronto among seven global markets with a combination of space and cost factors that could appeal to tenants seeking to enlarge space-perperson ratios. Employers who have conventionally housed substantial workforces in highly priced space are expected to have less appetite for expanding their quarters to allow for more social distancing or for accommodating a now diminished daily occupancy in their pre-pandemic footprint. JLL analysts identify a number of so-called high-order global business hubs — Hong Kong, London, New York, Frankfurt and Tokyo — where average allotted space-per-person shrank in the years leading up to 2020, along with some select markets where they gauge flexibility

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to stretch ratios wider. Toronto is the lone North American candidate in the latter category. “There is another group of cities with comparatively tight densities but where relatively lower space costs mean that the opportunity cost of de-densification may be more compelling — Singapore, Sydney, Melbourne, Toronto, Paris, Milan and Madrid, for example,” the benchmarking report states. The benchmarking exercise assesses nearly 97 million square feet of office space in 32 global markets spanning North America, Europe and Asia-Pacific, which housed nearly 800,000 employees in prepandemic times. Density is calculated on a standard definition of total usable floor area. Prior to the COVID-19 pandemic, Toronto’s average office density, at approximately 138 square feet per person, was tighter than the global 143-squarefoot average. Toronto office workers were also compacted into less space

than their peers in Chicago, Los Angeles, Washington, D.C., Houston or New York. Chicagoans notably enjoyed an average of 245 square feet per person, while New York, with an average ratio of 172 square feet per person, is characterized as a having a tight density “relative to its national average”. Among the seven markets tapped for potential de-densification, Singapore and Sydney are coziest with respective ratios of 107 square feet and 119 square feet per person. Toronto and Madrid, both at 138 square feet per person, are the most spacious, and are tied at 13th on the list of 32 cities. Meanwhile, JLL’s premium office rent tracker places Toronto midway in the pack of 100 global markets as of December 2020, with average space costs (net effective rent and additional costs) pegged at CAD $89.11 (USD $70) per square foot based on the exchange rate as of Dec. 31. That compares to CAD $134.94 (USD $106) in downtown New York; CAD

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CONFIDENCE FACTORS Survey results indicate downtown Toronto office workers primarily rely on public health advisories to guide their pandemic-related workplace choices and commuting decisions. Respondents overwhelmingly ranked public health authorities as their preferred source of information on when and how to return to their offices, but employers, the City of Toronto and the Building Owners and Managers Association (BOMA) also emerged as influencers among 12 identified resources. The Toronto Region Board of Trade commissioned the Nanos survey as part of its ongoing research into COVID-19’s impact on various business districts and sectors. The Board’s data and research arm has released a series of reports tracking and analyzing economic performance throughout the past 16 months and particularly focusing on three zones — the financial district, the Pearson employment area and Scarborough centre — to draw lessons about functioning through a crisis. “Understanding how we survived — and in some cases thrived — during the pandemic is key to understanding how we will recover,” says Jan De Silva, President and Chief Executive Officer of the Toronto Board of Trade. “What we are about to experience is not a single recovery. It is going to be a series of recoveries. And each requires a different plan to lift up businesses, its workers, and acknowledge the very different challenges that each has faced.” Based on survey findings, downtown commercial landlords are beginning that process with a tenant base that generally looks favourably on the area and their experiences within it. Just 76 or 15% of the 506 surveyed workers stated that the prospect of returning downtown made them uncomfortable. A greater share, 64%, reported that they were comfortable with the idea, while 19% were neutral on the question. Office workers, accounting for more than three quarters of respondents, scored their comfort level at an average of 6.8 out of 10. Millennials and Gen-Xers aged 35 to 54 were somewhat more comfortable with the downtown milieu — reporting an average comfort level of 7.4 — than their younger or older confreres. Results also differentiated along gender lines, with women delivering an average score of 6.6 and men pegging their comfort level at 7.2.

$113.30 (USD $89) in Los Angeles; and CAD $98.02 (USD $77) in Washington, D.C.. In the list of cities with de-densification potential, premium rents are higher in Singapore, Paris, Sydney and Milan, lower in Melbourne, and equivalent to Toronto’s in Madrid. Beyond space costs and pre-pandemic densities, JLL analysts see the economic and employment base as an indicator of workers’ demands and employers’ general propensity to expand perperson allocations, retain existing office footprints or, alternatively, sublet space deemed unnecessary. In this, Toronto’s STEM (science, technology, engineering, math/medicine) job engine and traditional financial services stronghold could both come into play. “There are clearly sector differences in the ability to work remotely. Technology companies are most able to operate remotely, while the health care sector (especially those roles requiring lab access) are less able,” the report observes. “Cultural factors, too, will have a bearing, with sectors tending to be more traditional in their approach to work and management styles expected to see less change. The legal sector — where densities can be typically around 30 to 35 square metres (323 to 376 square feet) per person — will likely experience fewer pressures to de-densify.” ■ ____________________________________________________________________ THE COMPLETE TEXT OF BENCHMARKING CITIES AND REAL ESTATE CAN BE FOUND AT WWW.US.JLL.COM/EN/TRENDS-AND-INSIGHTS/ RESEARCH/GLOBAL-BENCHMARKING-CITIES-REAL-ESTATE.

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LIGHTING ADVANCEMENTS

BALANCING LED AMBIENCE

Researchers investigate phosphors to mute blue light

esearchers at the University of Houston are working on a LED bulb that would emit most of its energy from the violet segment of the visible light spectrum. This alternative to the blue-tinted light of standard LED bulbs relies on a class of luminescent materials called phosphors, which absorb violet light in a way that blocks out most of the competing hues. “This basically moves away from blue to [use] violet as the base source and then converts the violet LED light into the broadspectrum white light that we see,” explains Jakoah Brgoch, an associate professor of chemistry and the principal investigator at the Texas Center for Superconductivity, who leads the research team. “Our ultimate goal is for this new violet-based bulb to be as energyefficient as possible and also cheap, eventually making new lighting technology marketable to consumers.” Consumer demand is anticipated for a product that could offer energy efficiency and alleviate concerns about overexposure to blue light. Sleep studies reveal that nighttime overexposure to blue frequencies can alter hormones like melatonin, sometimes leading

GTA & BEYOND ■ JULY 2021

to insomnia or disturbed sleep cycles. Excess blue-light exposure is also a suspected factor in the formation of cataracts. “With the advent of LED lighting, companies have started trying to understand how humans interact with light and, more importantly, how light interacts with humans,” Brgoch says. “As you sit in your office, the blue hues in your light are a great thing because they help you stay alert, but that same light at night might keep you awake. This is the balance you have to strike. It’s about following a natural circadian cycle without disruption.” Humans typically perceive that lamp light is white because their eyes and brain work to blend together separate bands of colour within the visible light spectrum. However, various technologies emphasize different parts of the visible light spectrum, thus seeming to cast hues of yellow (incandescent), orange (sodium) or blue (fluorescent and LED). Engineers can also manipulate the balance of light to create a specific ambience. A little

more red yields a warm, mellow white light that is nice in a living room, while cool blue tones give off crisp white light better for office lighting. “Sometimes it looks like a nice warm white light, but if it’s based on a blue LED, there is still a significant component of blue light sneaking through,” Brgoch notes. In addition to interior lighting, urban dwellers are typically exposed through LED-based street lights, traffic lights and commercial signs. Nevertheless, researchers stress that their goal is to mitigate overexposure rather than eliminate blue light entirely. “You need some of the blue spectrum,” affirms research assistant Shruti Hariyani, co-author of the recent paper outlining the team’s project, which was published in the American Chemistry Society journal, ACS Applied Materials and Interfaces. “It’s about keeping it to a reasonable level. That’s what we’re seeking with our work.” ■

_________________________________________________________________________________________ SHRUTI HARIYANI AND JAKOAH BRGOCH ARE THE 2021 WINNERS OF THE AMERICAN CHEMISTRY SOCIET Y’S CHEMISTRY OF MATERIALS LECTURESHIP AND BEST PAPER AWARD. FOR MORE INFORMATION ABOUT THE TEX AS CENTER FOR SUPERCONDUCTIVIT Y, SEE THE WEBSITE AT W W W.TCSUH.COM.

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