REAL ESTATE JOURNAL
Promoting Real estate in alberta
University of Alberta Real Estate Club would like to thank the following:
Authors: Nova Rocha, Randy Wyton, Jennifer Kennedy
Reviewers: Maya Kazamel, Roseanne M Evans, REIC
Photographer: Jessika Banks
Operations Director: Coleman Thompson
Marketing Director: Asia Parmar
Executive Editor: Manuel Dufresne
To be part of the next publication, conctact Manuel3@ualberta.ca
Condominium Corporations, herewith referenced as “The Corporation” are a diverse subsector of the real estate industry, with a varied range of types, styles and functions. This vast range, from industrial, commercial to residential properties means each individual Corporation requires a specific set of needs in how they are managed, utilized, accessed and protected. Aside from the varying needs of each Corporation there are several factors that ring true through all Corporations such as the required governing structure, provincial legislation, funding requirements and restrictions. This discussion aims to provide information on the funding options and their respective requirements for a current or potential owner.
Corporations are regulated by the Condominium Property Act of the Province of Alberta, (“The Act”), the Condominium Property Regulation and the Corporation’s registered Bylaws. The Act and Regulations regulate the structure and restrictions of a Condominiums Reserve Fund requirements, while the Bylaws govern how a Corporation can assess and implement Condominium Fees and Special Assessment.
As a potential or current condominium owner it’s important to ensure that the longevity of the Condominium, is protected over the life of the investment and adequately secured against future needs while maintaining the day to day operations and vendor obligations of the property.
The Corporation has four distinct options to secure funding, which are through the operating budget, Reserve Funding, Special Assessments and borrowing money.
The operating budget funds the day to day activities of the Condominium. Reserve Funding provides a highly structured and regulated funding source to assist Corporations plan for the expected and long-term repair requirements; whereas Special Assessments provide greater flexibility to address interim and immediate funding requirements during an emergency or short notice repair. In the event these three options are insufficient for the Corporation’s situation, the Board may elect to borrow money from a lender. Borrowing is regulated by The Act and the specific bylaws on the eligible amount and qualifying reasons; Varying from one Corporation to the next and often requiring a Special resolution to execute.
been collected by the units currently in arrears. Legal fees are not a standard item and are not covered in the operating budget, straining the available funding even further.
Upon the Caveat registration, both the legal owner and their mortgage holder, if applicable, are provided notice of the legal action and associated costs. Mortgage companies have a vested interest in the property and will work with the Condominium to pressure the owner for payment or will pay the Condominium directly.
In the event that the charged interest and registered Caveat do not result in securing the arrears from the owner, the Condominium can begin legal action in the courts to file a statement of claim for the outstanding amounts and may result in foreclosure proceedings against the unit. Condominium operating budgets can have a varied number of expense types. The standard categories that over arch to all Condominiums are Administration Costs, Professional Fees, Property Maintenance, Property Repair, Insurance, Utilities and Reserve Fund Contributions.
An operating budget will compare the figures against the previous year budget and the incurred expenses to help demonstrate where costs are expected to hold, increase or decrease for the upcoming year. Corporations that have successfully maintained a net zero budget will still see a one to two percent increase year over year to capture the expected market inflation rates and maintain a net zero position.
An example budget below demonstrate the general budgetary layout, and expense accounts for an office complex, while anticipating a $0.00 surplus or deficit.
Corporations are responsible for the management, maintenance and repair of the common property; Defined as any parcel not comprised inside a unit shown on the Condominium Plan such as the exterior of the building, hallways, stairwells, parkades, elevators, parking lots and exterior windows and doors.
The exception to this definition is a Bare Lands Condominium Corporation that is defined as a parcel other than that of a building situated within the boundaries of the property line. The Corporation, in this case is responsible for the land, such as landscaping and property maintenance and often exterior repairs defined by the Corporations bylaws.
In both cases, these obligations are funded through the operating budget, stated annually and based on the anticipated expenditures for the upcoming fiscal year. The registered Bylaws for each property define exactly what expenses are to be included in the operating budget.
Corporations are considered non-for-profit organizations and the design of the operating budget is to achieve a zero-net balance between expenses and income each year. An operating budget that consistently posts a surplus or deficit is considered an imbalanced budget and requires review and restatement for the upcoming fiscal year.
Condominium Fees are the owners proportionate share of the operating budget, remitted monthly to The Corporation. Unpaid Condominium Fees can severely hinder the day to day operations of a Condominium, potentially forcing nonpayment and contract default on payment terms to its vendors. A net zero operating budget’s main assumption is the receipt of its income in a timely and complete fashion with a small or nonexistent margin for unpaid fees which can leave a Condominium underfunded if the owners are not remitting their Condominium Fees.
There are consequences to unpaid Condominium fees, and potentially severe ones at that. The first leverage point available to Condominiums is to charge interest on any arrears. The interest percentage is regulated by The Act and capped at an annual rate of eighteen percent (18%).
The next step is to register a Caveat Lien against the property title of the unit for the arrears and legal costs associated to the Lien. A Corporation must seek legal counsel who will secure the Lien on their behalf. Securing a Lien can be an expensive option for Condominiums, as it can be administratively intensive to provide the documentation required to register, furthermore all incurred fees need to be remitted to legal counsel for their services in a timely fashion and often before any funds have successfully
Operating Budgets & Condominium Fees
Condominium Reserve Funds
As per The Act, a Corporation is to complete a Reserve Fund Study from an qualified person within two (2) years of registration and renewed every five (5) years, with the exception of Corporations that consist of Twelve (12) Legal Units or less.
The Reserve Fund is a set of restrictive funding held by The Corporation to fund the repair or replacement of the depreciating property owned by the Corporation, within the next 25 years. The Corporation may only begin collecting dedicated contributions once a finalized Reserve Fund Study has been completed.
All property, apart from bare lands, have a depreciation cost that increases over time as the limited life cycle of an asset is reached. A single property, like a condominium can have a large variety of depreciating assets. All materials and construction on the property have an anticipated life expectancy before they require significant repair or replacement. A simple depreciation cost is calculated from the total cost of the asset divided by its projected life span, for example a Roof assembly that costs $70,000.00 with a life expectancy of 15 years, has an annual deprecation cost of $5,000.00 to corporation.
A Reserve Fund Study assists The Corporations decision and management of a Reserve Fund by evaluating the current conditions of the property and estimating the life expectancy of each depreciating component and defining the timeline and repair or replacement costs associated to that component.
The methodology of a Reserve Fund Study includes the examination of the condominium documentation, financial statements, budgets, existing reserve funds, building plans and the physical inspection of common elements in preparation of the Reserve Fund Study estimates and value judgements from a qualified person; With the exception of Corporations that consist of Twelve (12) Legal Units or less who may “carry out the functions of a qualified person if authorized to do so by a special resolution.”
The Reserve Fund Study is vital in the understanding and interpretation of the long-term requirements of the common property and mitigating financial risks of maintaining repair and replacement strategy for the property over a twenty-five (25) year period.
It’s important to note, that only common property is evaluated in a Reserve Fund Study and includes base building and structural components of the building. The Reserve Fund Study does not apply to the interior of individual Units within the Corporation, and as such the Reserve Fund cannot be allocated or spent on the interior repair of an individual unit.
A Reserve Fund Study is required to include a review of the current Reserve Fund levels and provide a recommended contribution schedule on a monthly or annual basis to ensure sufficient future funding. Although the Reserve Fund Study layout and design can differ between vendors, the report must include the following main aspects:
o Property Description of the values and data referenced, such as building size, age, number of legal units and the date the report is effective.
o A description and confirmation of the construction components including the materials used in the framing, roofing, wall assembly, electrical and foundation of the property.
o An inflation table or calculation demonstrating the assumed inflation over the next twenty-five (25) years.
o A current cost requirement in conjunction with or comparison to the future cost requirement. The current replacement costs are the Reserve Fund provisions calculated at the current market prices and under the current economic conditions and estimates the replacement or repair cost should all recommendations be completed under the current conditions. The current replacement cost forms the basis of projecting future costs requirements of when items will actually need to be replaced.
o Cash flow projections or calculations often demonstrated by graphs to demonstrate the contribution schedule and balance projects against the expected repair or replacement costs for the property. An example provided in Figure 2.
As the Reserve Fund is considered restrictive funding, repairs and projects not identified in the Reserve Fund Study cannot be funded with the Reserve Fund, even if they are structural, base building or are exclusively within the common property.
A draft version of the Reserve Fund Study is submitted to the Board of Directors by a certified vendor for the approval and subsequent distribution to unit owners. Upon the review and approval of the Reserve Fund Study, the Board of Directors for The Corporation produce a Reserve Fund Plan outlining and confirming their contribution schedule and summarizing the Reserve Fund Study. The Reserve Fund Plan, in often cases is reviewed and revised annually and is incorporated in the fiscal year budget levied by The Corporation.
The Reserve Fund contributions are collected and levied to the owners through the annual budget, along with the operating expenses of The Corporation through the Condominium Fees. Investing funds not immediately required by The Corporation is permitted, however The Act places restrictions on investments that can be further limited by the Corporation Bylaws.
The Act further requires an annual reconciliation of the contributions and expenses of the Reserve Fund; however, industry standards in Alberta often require a monthly reconciliation reviewed by the Board of Directors. The level of detail and frequency are at the discretion of the Board Members.
Reserve Fund Study excerpt of a 40-year cash projection graph from Ergil Bains & Associates, demonstrating the Reserve Fund Balance against the expected costs.
The Board of Directors, on behalf of The Corporation can levy a Special Assessment for additional funding through the legal owners. This funding strategy is regulated by the Corporations registered bylaws; As a result, the specific regulations can vary between each Corporation.
Special Assessments provide an immediate or short-term remediation option to mitigate insufficient funding requirements for unexpected or emergency repairs or necessary system upgrades that may or may not covered in the Reserve Fund Study.
A Special Assessment, unlike Reserve Fund Contributions are assessed as a onetime fee and do not affect the annual budget and therefore do not increase the Condominium Fees paid by owners.
As a major repair, replacement or emergency cost affects a property the Board of Directors can decide on the most appropriate funding method, as a large expense may significantly deplete the Reserve Fund and increase budget inflation in future fiscal years to recapture the suggested Reserve Fund Balance, a Special Assessment may be the most appropriate method.
The decision can further be influenced on the timeline required to access the funds, as in some emergency situations the funding that is required surpasses the entire balance of the available Reserve Fund and a mixed strategy is levied, where a portion is paid through the Reserve Fund and the remaining balance is levied through a Special Assessment directly to the owners.
The Corporations bylaws will determine how the Special Assessment can be levied and defines the calculation parameters permitted and is often assessed in proportionate to their assigned unit factors or unit size. Occasionally, Bylaws will permit Special Assessments to be levied at a set rate regardless of the owners proportionate share within the property.
The Board of Directors are further able to define the remittance structure for the Special Assessment. To ease the financial burden of a levy against individual owners, Special Assessments can be structured with multiple payment terms and timelines and do not expire over time.
Cash Flow Projection table for the Jubilee Centre Reserve Fund, demonstrating a possible scenario of expenditures.
Adequate budgeting and reserve funding is one of the primary objectives of management as a sound reserve fund ensures the long‐term integrity and viability of a Corporation, while being able simultaneously maintain the day to day requirements of the Property. A well‐designed operating budget and reserve fund plan will enhance the value to the owners and maintain property values in the marketplace. ,
The quality of management has a direct effect on reserve planning and building maintenance. Proactive property management can prolong the life span of reserve components and ensure efficient building maintenance and operations.
The Board of Directors with the expertise of the Property Management, should ensure that they review the Reserve Fund Study for completeness and accuracy and that each individual Board of Directors member has understood the high-level requirements that the Reserve Fund Study suggests in comparison to The Corporations current and desired Reserve Fund balances.
Although, renewal of a Reserve Fund Study is required every Five (5) years, the property management firm along with the Board Members should request a review and restatement of the Reserve Fund Study when a major repair or replacement occurs to the common property when applicable.
Notable Impact of Reserve Funds and Special Assessments
Responsibility of the Property Managers & Board Members
A depleted or underfunded Reserve Fund for a Corporation can significantly impact the marketability of an individual unit during sale or refinance. A Corporation that cannot maintain an acceptable Reserve Fund variance within Ten Percent (10%) of the Reserve Fund Plan for the current year may further affect the desirability of the unit during a sale and the local market.
Owners that have been levied a Special Assessment who are in disagreement with an imposed levy and do not intend to pay within the provided structure should always consult legal counsel. Nonpayment of a Special Assessments carries the same repercussions as nonpayment of Condominium Fees and can result in significant penalties, liens and interrupt current or future sales.
Can Private Investment Solve the Affordable Housing Shortage Through Re-Invention?
Can a private investor produce and operate affordable housing without government or not-for-profit intervention? Can old motels and boarded up warehouses find a profitable new life? Can people with social struggles find housing to appropriately fit their needs and lifestyles? Can Humpty Dumpty really be put back together again? The last one might be tough, but the others are all doable with some collective will and common sense on the part of investors, government, and society in general. At the heart of this discussion lies a conflict pitting homelessness against jurisdictional regulation that serves to drive up the cost of housing. The unintended consequence is leaving many low-income earners in unsafe housing, on in no housing at all.
We are all familiar with the shortage of affordable housing. We are also very familiar with public money being used by all nearly all levels of government in many jurisdictions in an ongoing attack on the problem. Wouldn’t it be nice if private enterprise could find a way to participate in the solution? If only there was a way that a property developer could invest his or her money in a property, provide low cost housing an underserved sector of the market, and make a suitable return on the investment. In most free enterprise markets, if there is a profitable way to meet a need, the market will address the need. The “Affordable Housing” market needs to find a place of profitability in our free enterprise world that doesn’t require government subsidies and programs.
At the basic and elemental level, affordable housing is truly a misnomer. As it stands, the only participants that realize any degree of “affordability” in the affordable housing equation are the rental occupants living in discounted or subsidized housing. As for the not-for-profit organizations and the government programs providing affordable housing, costs are anything but affordable.
Its little wonder free enterprise stays away from the affordable housing sector of the market. The problem lies in the cost of acquiring the units versus the investment return earned for renting out this type of housing. Housing of almost any conventional description is simply too costly to purchase or build to be affordable for the lower income housing participants. If investors could acquire investment housing at lower prices, then there would be a supply of affordable housing units. So, how do we get there from here?
To most of you that read this premise, this solution sounds rather obvious and unrealistic in application and in fact, that is true. Acquisition costs will not magically go down. Based on long term supply and demand, the equilibrium of market forces has prices where they belong. In order to achieve the goal of lower acquisition costs for investment housing units, we need to readdress how and where people live. We need to re-invent housing. We need to innovate. We need to re-examine what constitutes a home. We need to empower investors with ways and means to make investment housing acquisition costs affordable so that they can pass on that affordability to the lower income occupants who can’t compete for more expensive housing stock. We need affordable housing models to provide “appropriate housing”. Housing that is affordable on every level; to own, operate, and live in.
mARKET SOLUTIONS TO
The bedrock that forms the foundation for this entire discussion is that old buildings can solve affordable housing issues without the need for subsidies. We will look at the barriers that stand in the way and why, and what we can do to reduce those barriers.
Governments and not-for-profits direct massive amounts of funding to the affordable housing sector producing new housing units at costs ranging from $150,000 to $300,000 per unit depending on the area and unit types. As reported on the Canadian Mortgage and Housing Corporation’s (CMHC) website, the federal government has recently announced an initiative through the National Housing Strategy to build up to 60,000 new housing units and repair up to 240,000 additional units with a budget of $13.2 billion over the next 10 years. There is nothing “affordable” to taxpayers about this.
The “math” behind the issue of lack of affordability is quite simple. Real estate investors purchase property with the desire to produce a viable return on investment. The prices paid to acquire rental housing assets are the primary driver to the high rental costs. As the free market plays out, there comes a point where the acquisition costs and the rental costs find equilibrium. It is this equilibrium point dictated by the bulk of the rental demand market that leaves out the lower income participants. Low income earners cannot afford to pay enough rent to satisfy a return on the investments made by property owners. Low income earners represent a very large pool of potential renters but with a lack of purchasing power, they are left without a suitable supply of housing. It would seem logical that if investors could get a profitable return in renting in the lower income sector of the market, they would experience a strong demand. So, let’s get affordable investments in the hands of owners so they can tap into the lower income earners rental pool and still earn a profit. This is not a myth or fairy tale. This can be done.
Housing Stock and Building Codes
The first place to look for more affordable entry points is in the re-application of buildings such as older motels, hotels, warehouses, and office buildings. While this has been done extensively in the past and hardly represents an innovative solution, the environment has changed over the years. Building re-use has been substantially impacted by well meaning legislation. Meeting building, fire, and environmental codes is an extremely expensive proposition in retrofits. Building retrofits are still being done, but in meeting current building codes, the costs of renovation can only be re-couped by renting or selling the units at market rates. In this class of housing, the users are generally upper income earners.
Herein lies an important yet unintended consequence of our building code system. In fact, as it stands, the current building code is partially serving to reinforce even more unsafe homes. Because the cost of retrofitting buildings to the current code is so high, many existing marginal buildings such as old rooming houses, motels with monthly rentals, and inner-city hotels do not get fixed or renovated. Instead, these older, disused properties are left to deteriorate. In states of disrepair, these buildings only serve to meet the needs of those that can’t afford better housing. The occupants of these “default affordable housing projects” are actually subjected to increasingly dangerous and unsafe housing conditions as a result of the current building codes. In short, the building code bar is too high to reach. With these older, marginal properties, the costs of meeting building code will not provide an economic payback. So many property owners never even bother to try.
My contention is that with enough government will, and with very little money, these barriers could be removed. Market-based solutions to the high cost of affordable housing could emerge quickly by simply re-examining the way we re-use older buildings. We need to find a way to turn back the clock on the building re-use industry, make it affordable, and make it address the needs of affordable housing.
Real Estate Investment Theory in a Nutshell
As this article deals with the issue of private investors supplying affordable housing, let’s take a “Cole’s Notes” look at the economics of such an investment. Essentially an investor will put money into a property to get an income stream from his investment much the same way we get interest on a savings account. As an example, let’s say a real estate investor wants to get 6% return. So if the investor buys an affordable housing project, the rent from the unit may be about $600 per month, or $7,200 per year. If it costs $300 per month or $3,600 per year to operate that unit, the investor makes a profit of $3,600 per year. If the investor wants to earn 6%, then the math tells us the investor can pay $60,000 per suite to earn that income.
So, if the investor can buy a building for $50,000 per suite and spend $10,000 per suite in renovations, then the investment is economically viable if the rent is $600 per month.
This is grossly generalized, but it illustrates the point of economic viability. Essentially, if we can find ways to create housing units for $50,000 or $60,000 per suite, private real estate investors will be able to make a profit while solving affordability and homelessness.
A Case Study in Success
For background, in 2008, I acquired the Travelaire Motel in Kimberley BC. This was an older motel with 14 units that no longer addressed the needs of travellers. Everyone driving highways in North America is familiar with the old “Mom and Pop” motels that proliferated in the mid-20th century. Small scale, wood frame buildings with few amenities. The Travelaire Motel was one of these obsolete buildings losing the battle to modern hotels.
The business plan included conversion of the suites into long term occupancy suites with the addition of kitchenettes, an exterior facelift, landscaping, new windows, flooring, and paint.
Fast forward to present day, we now have a thriving and vibrant community of low-income residents calling this place home. These residents have access to a bed, internet, cable TV, heat, water, laundry, and a warm, secure place to live: a safe and reliable home. Now the building has new life with landscaping and flowers. The building has new windows, fresh paint, regular upkeep, and the sounds of active life. This new and better property is now identified as Kimberley Studios. This property has also given a new look to the south entrance of Kimberley.
From the start, the City of Kimberley was very cooperative in reducing the barriers to this re-development as they recognized the housing needs the building would address. At that time, the building code issues were not nearly as stringent. If attempted now, there is a vast array of building code issues that would prevent such a conversion taking place.
As a private investor, this has proven to be a viable real estate investment that pays a good return. In 2019, the monthly rent is only $600 per month and the residents are provided with utilities, cable TV, internet and free laundry facilities. Not only does it provide a good return, it supplies residents with affordable housing. It’s a dream come true! Given the housing supply crunch in Kimberley, tenants renting in traditional apartment buildings are paying over $750 per month for similar studio suites.
In summary, using an obsolete building renovated to a safe and comfortable level has resulted in a capital cost that is low enough to provide strong investment returns while renting at a low-cost level. And demand on the part of tenants is strong.
The Sylvan Lake experience was much closer to being viable. This 20-unit motel had a very flexible land use designation that provided for residential occupancy. The barriers arrived at in this case were the building codes. On the face of it, the suites were quite acceptable with most having kitchens and suitable floor space. The problem arose with fire codes requiring fire deterrent drywall of suitable specifications and upgrades to the boiler room that simply were not physically feasible. Coupled with those issues was the requirement for provision of suite air circulation in every unit. Future problems were also identified with meeting the national energy code when the need arose to replace exterior doors and windows. Later on in our investigation, another Town official interjected with suggestion that our change of use would trigger a requirement to pave the alleyway at our cost. The Town parking bylaw also stood in the way with a requirement of one stall per suite. So, despite the fact the Town was agreeable to the re-use and needs the affordable housing, the idea died at the requirement of prescribed building upgrades and municipal obligations.
In the course of working on these two transactions, there arose a significant lack of interest from the lending community to provide mortgage funding for these purchase and renovations. Conventional lenders had no interest. Secondary lenders would consider the possibility but at very high rates and with poor terms.
In summary, the re-use proposition faces three major barriers; zoning inflexibility, building and fire code demands, and lack of conventional funding. In each category, all participants involved want to view an affordable housing project as “conventional residential real estate”. Here is where I would propose a paradigm shift. Affordable housing needs to become an entity all to itself. Much the same way office buildings are different than retail buildings, and manufacturing buildings are not warehouses, we need to see affordable housing as something separate from conventional housing. By governing its development into regulations that apply to “conventional” housing, we place barriers on affordable housing making its development unrealistic and implausible leaving those in need with very few options.
Case Studies in Barriers
To capitalize on the financial rewards and operational experience of my Kimberley property and to take advantage of slow economic conditions in 2017, I embarked on finding other suitable investments of this type. At the time, I investigated two other potential property purchases along the same lines; a motel in Cranbrook, BC; and a motel in Sylvan Lake, AB. Both fell short of being viable for very different reasons, due to barriers that didn’t exist a decade ago. These two potential purchases shed light on the magnitude of the changes in the regulatory environment and has prompted this discussion.
In Cranbrook, the initial problem was zoning. The land use designation would not allow for residential occupancy and the City Council would have been resistant to a change of zoning on the highway frontage this motel was occupying. That is fair enough. It’s their community to plan as they please. If re-zoning were to be allowed, the next problem to arise would be parking allowances. The apartment zoning regulations require two stalls per unit. This 35 unit motel would need 70 parking stalls. Far too many to be accommodated on the site, and frankly way more than would ever be needed by residents in an affordable housing project.
What was brought to light for me in this exercise are the severe limitations placed on City Planners by zoning regulations that are too confining to allow building re-use to fit an affordable housing model. Zoning bylaws are often left unchanged over many years and tend to fall behind evolving and emerging housing trends such. If municipalities wish to address their need for affordable housing, they need to innovatively adapt their zoning bylaws.
Now to the solutions! Let’s take a closer look at each of these barriers and identify some possible solutions.
Zoning: Land use bylaws typically exist to control use of a property at the time of initial development and attempt to make that use consistent through the life cycle of the property. In other words, the land use designation says what type of building can go on a site and what type of occupants can inhabit and use the building. All this is done at the wishes of the municipality to organize the community.
The problem arises with re-use or second-generation applications of a property. In most cases, buildings expire by physical means and are torn down and the property is given a fresh start. But what happens when a building comes to the end of its economic life, but it is still physically capable of going forward?
The best example of this is the conventional old motel that fits our model for affordable housing. New hotels pop up all across our country serving to displace the old motel by providing modern accommodations. Let’s face it, who wants to stay in an old drafty motel when there is a new Holiday Inn Express down the street for $40 more. We see these old motels renting for $60 per night, struggling to hang on, and even being rented out as is to long term tenants. As they are no longer economically viable, they start to be neglected and deteriorate, becoming an eyesore at the entrance to a community.
For the most part, zoning for these old motels is suitable for commercial uses, usually highway commercial applications such as gas stations, fast food, and tourist accommodations. It is hard to convert an old motel into a gas station or fast food restaurant. We can see that the zoning that put the motel there in the first place limits its further use even though the building is still functional.
In terms of re-developing the old motel into an affordable housing project, most existing motels will have zoning that prevents it. If re-zoning is attempted, then most would have to fit into a conventional apartment style zoning designation. Motels are simply not designed to fit the regulations for apartments. We need municipalities to create an innovation zoning that addresses the fact that some buildings are economically non-competitive in their locales, and need a new lease on life.
I would propose a new land use designation called “Designated Affordable Housing Re-Use”. Municipalities could selectively apply this new land use designation to certain sites where the buildings are no longer economically viable within the present zoning restrictions. This does not need to be restricted to motels and hotels, but could apply to older office buildings, industrial buildings in certain locations, old institutional buildings such schools and hospitals. Within this new designation municipalities could provide terms that are more suited to affordable housing such as lower parking allowances in line with affordable housing, higher densities, smaller unit sizes, and other related considerations for common areas, laundry, accesses, etc. This would give Town Planners and Councils much greater latitude in allowing specific developments to find suitable new life within a community producing buildings that are consistent with the needs of the residents. In doing so, affordable housing needs are better addressed away from the limitations of conventional residential real estate.
Building Codes: This heading presents a myriad of legislation, confusion, and interpretation. There are far too many variations under this heading than can be suitably addressed in this article. The point to emphasize is that these codes present a major barrier. There is likely not a planner or building inspector in this country that has not seen a project fail at this juncture.
In most progressive jurisdictions, if a building is going to be re-used and applied to a new purpose, it must meet all the building code requirements for that building type as though it were new. This is problematic. Safe building codes and the protection they provide are important. Costs associated with the current level of protection are high, and the argument here is that are the high costs of protection keeping people out of housing. Can we find a way to bring down the costs by looking at some common-sense solutions to protection of homes? And in doing so, encourage renovation bringing deteriorating buildings up to a more livable standard.
There is in fact an inexhaustible list of building code issues affecting re-use and retrofit projects. Below are some issues I encountered in recent investigations.
· Ventilation – each new housing unit needs fresh air intake with heating and/or cooling accommodated within that. This is easily solved with a new HRV unit but the requirement of adding the HRV unit adds significantly to a renovation cost. For years, ventilation has been easily accomplished by simply opening a window or door.
· Fire Separation – This point deals with the notion fire barriers need to be created between suites to restrict fire for certain period of time. Adding drywall is a simple solution but results in a costly major suite renovation. The current Canadian building code suggest a two-hour fire separation be provided between suites. This is were common sense solutions addressing the needs of a specific house type would be helpful. Looking at the motel c onversion example, is there a need to have a two-hour fire separation for a small suite that takes only seconds to leave?
· National Energy Guidelines – The Canadian federal government has given us a new guideline in November of 2016 that suggests ways to make buildings more energy efficient. In this dizzying new code, if certain changes are made to a building’s exterior it triggers several requirements for more work. The code is so complicated, assessment usually requires an architect. The end result will be fewer upgrades being done to elements like windows and doors, and more likely buildings will simply be passed over for re-use. This particular Code was the major stumbling block for my Sylvan Lake purchase. While it can be argued that buildings should have a more limited environmental impact, to do so at the expense of keeping people from affordable housing needs more discussion by society in general.
Other factors coming into the code barriers are issues such as suite accesses, sprinkler systems, stove venting, electrical panels in each suite, heat provision, etc. Literally every building will have different issues. The unintended consequence of the building codes is to create more expensive retrofits pushing their use outside of affordable housing use, or worst still, fewer buildings will be upgraded leaving them is states of deterioration while still in use for low income occupancy.
My solution: establish a new building code for retrofit “affordable” housing projects. I know this suggestion can sound like two tiers of safety, one for privileged and one for the financially disadvantaged, but it’s not. In fact, lower codes would make things safer in the long run as presently unsafe buildings could now be economically improved to meet the safety bar. As time progresses, the stock of older buildings will continue to increase as will the cost of restoring the buildings to a functional standard.
New affordable housing fire and building codes for retrofit buildings could be developed to create safe housing in a cost-effective way. Some examples would be:
· Lessen the need for stringent energy efficiencies.
· Provide ventilation solutions by more conventional means.
· Re-valuate the fire codes in terms of when and where sprinkler systems and fire separations make sense. The reality is that these types of suites are small, and no one is ever more than just a few steps from an exit. Smoke and CO2 detectors are more than enough.
The reality is these buildings are older and will wear out in the near future, let’s not deal with them in the same way we would if they were new and expected to last for the next 70 or 80 years.
Let me speculate on what will happen if we do nothing to address new guidelines. In order to achieve some income, owners of old motels and hotels will rent out suites on a long term basis illegally and without regulation. In fact, this is the present reality with many buildings. These buildings do not address any safety or building codes and present a very unsavory environment. By adopting “middle ground” codes, investors will start to participate in re-using these old buildings and the overall standards will improve and force out the “under the radar” operators.
Financing: If the above two issues of zoning and codes were dealt with, then this form of real estate investment would find a foothold and financing would materialize. Lenders just want to know the real estate can pay the loan, and if anything goes wrong, they can sell the property to repay the debt.
In the meantime, government can do one very important thing to help out. Loan guarantees for purchase and renovations of private affordable housing retrofits. Rather than fund affordable housing development projects, all the government would have to do is provide a lender with security of debt repayment and capital protection. This may eventually lead to some losses for the government, but it would be cheaper than the current subsidies and grants.
The Pathway Ahead
The crux of this discussion is that affordable housing is different than conventional housing. Government money is being used excessively to plug the breach in the dam but in the end, it is coming up short. We need free enterprise to step in and meet the need. We need to get investors involved. Government can play a key role in providing a smoother pathway to profitability by address the barriers standing in the way.
By treating affordable housing as conventional housing, we create cost barriers that keep investors out. By requiring onerous upgrades to meet current building codes, the renovation costs to re-use buildings result in higher rents. Looking at our financial model from earlier, we see that a $60,000 investment would be profitable with a $600 monthly rental. But if renovations were made to meet code, this would another $20,000 per suite in renovation costs, raising the minimum profitable rent to $800 per month and eradicating the affordability aspect.
Everyone wants affordable housing to be available. There is universal acceptance for its need and broad recognition for the service it provides to the community particularly from a mental health perspective. Give a person a home, and you give them self-respect. And if they can pay for it themselves without subsidies, they have a stronger sense of self-worth. “Housing First” works.
We have created a society of regulation for protection. And in the case of affordable housing, those protections and regulations stand in the way and in many cases, entrench buildings in unsafe conditions. Let’s think of affordable housing in a new light. Let’s revisit the barriers in a sensible manner. Let’s not allow people to live on the street because we can’t find a way to make housing safe and affordable.
There are investors, properties, and endless opportunities to have the private real estate investor community put a major dent in the issue of affordable housing. And as we innovate moving forward, we may find many unseen and unintended benefits. As we look for new ideas in this field, we may find that we bring some older dis-used properties back to life. Some buildings would be re-used preserving some vintage character, neighbourhoods will be revitalized, employment will be provided, and existing substandard housing may be driven out of the market. More importantly, the end result provides people with safe and affordable places to live and a start down a new path in appropriate homes.
Fast forward 17 years to now owning and running my own office of 25 agents, where “you’re just not that special” is a catchphrase that is used often when agents need advice on how to deal with a particular difficult real estate situation. I think we all need that sage advice in life to give us perspective; particularly in difficult situations or dealing with difficult people (clients and other realtors alike). Difficult situations are not meant to be personal – so why go down that route? You’re just not that special. They are about the situation. Therefore, it’s up to the realtor to go beyond self and deal with the matter in a fair handed, objective manner. Do not let yourself get in the way. It is this personality trait that is inherent in all good, good agents. They. Get. It.
So what does this look like from a Broker’s perspective? Well, good agents come in all shapes, sizes, ages, personalities, etc. There is no gold standard. However, the agents who possess a higher level of emotional intelligence are the ones I hear from the least. They pop in, have a few direct questions or clarifications and then they are back into “battle”. Life and work are much simpler when you do not allow yourself to get in the way. You can get more done, clients find you extremely easy to work with and success breeds more success when communication is simple.
WHAT MAKES FOR A GREAT REAL ESTATE AGENT
A Broker's Perspective
A lot has changed in the real estate industry over the 17 years I have been practicing, and continue to change – that is unavoidable. I suppose one could say things were simpler back in the day. We did not have the wormhole of social media, connecting tech tools and the wave of paperless technology. However, one thing that remains a staple in this game called real estate is that there are telltale traits of successful agents throughout the years that do not change. This article, albeit a brokers' perspective, will attempt to examine the positive, successful traits of a real estate agent that makes both broker and client alike sing their praises.
I remember my very first office weekly office meeting; I was to introduce myself to the rest of the office staff and associates. I was full of nerves and excitement. Nervous, as I knew I was one of the very few agents this office had signed on with zero previous experience. They knew it and I knew it (things, of course, have changed. Nowadays, it happens all the time). What was I going to say, how was I going to say it? How would they perceive me? And how could I get my empty nervous stomach from growling like a lion defending its pride? Well, I went for it – I was honest. I introduced myself as a former finance auditor/bank administrator turned at-home mom of four boys under 9 years and now aspiring real estate agent. There was a collective hush, then silence. I knew it. I just knew it. I, clearly, knew what the hush was about but I also knew I needed to be upfront and honest with these people I was to work alongside with every day. The hush signified the general consensus “oh, poor thing, what is she thinking, she’s got way too many babies to think straight nor survive in this business”. Moms, by the way, are some of the toughest multi-taskers out there – especially ones who have raised four boys! I was to defy their hush and silence.
What that first office meeting taught me was that it wasn’t about me. If it were, that first collective “hush and silence” would have been enough to lock me down six feet under. I was an agent first and foremost to my clients, oftentimes they referred to me as “the Realtor”. I was lucky enough for some to even have remembered I had a first name, much less a family or personal life. And I was A-OK with that, for I understood early on, to never allow myself to get in the way of the task at hand with my clients. They hired me to get the job of selling or finding the right home for them.
Now, here is my “uh huh” moment: First off, this situation happened in my first year of real estate. I was presenting an offer to my seller. I was also representing the buyer as well. So that basically meant, I wrote the offer. And that offer was NOT appealing in the least to the seller, and he let me know that in no uncertain terms. He was an older man in his early 60’s and I could tell he liked his scotch as it would have seemed all that I could focus on was his looming “scotch nose” getting closer to me as he waved his finger in the air ranting about the low ball offer. And it was at that very moment his lovely wife entered the room and so delightfully asked if we would like some tea and biscuits, to which the seller breaks from his rant and politely asks… “oh yes, of course, and Jennifer what will you take in your tea? “ It was at that moment I realized it was not about me. It was about the offer. It was like the seller’s rant was a torrential verbal storm that I just allowed to swirl over my head and keep going without getting personally caught up in its wrath. We had a lovely tea time, eventually got the deal done, and went on our merry ways.
In closing, I really should share how it was that I first came upon those words: “You are just not that special”. I have told this story a number of times, and it still rings true for me to this day as a way to keep things/life in perspective. The year was 1992. The year my husband Sheldon and I were to marry. We were the last of a string of friends and family to tie the knot in a short amount of time. One of those couples that got married early on, Kim, said to me “remember it is YOUR special day, not necessarily anybody else’s”. Now, this was said out of love and kindness. For anyone who knows Kim, knows it comes from a place of great consideration and thoughtfulness. Always be respectful and mindful of the context and situation and do not let your sense of self derail the task at hand. Weddings are the bride’s special day, not necessarily anyone else’s, so keep that in the context of your expectations and “demands” of those around you on that day. This same notion can apply for a myriad of other situations you may find yourself in at work, home, relationships… “You are just not that special” will take you to great places in life.
To be part of the next publication, contact Manuel3@ualberta.ca
My brother in law had a litmus test for choosing what type of realtor he would want to work with and would ask himself this question “would I want to or enjoy spending two hours riding around in a car looking at homes with this person?” Pretty simple, right? So how does this play out in everyday Realtor life? Well, here is an example:
It is easy to take things personally when a seller gets upset about a lowball offer. The emotionally intelligent agent will understand that the seller is not mad at THEM (Why? you’re just not that special) but at the lowball itself and to that end they keep their focus on keeping the negotiation alive and to a successful close – without fanfare. The emotionally intelligent realtor does not allow situations like this to internalize, because that is not only not healthy but not where the energy needs to be directed. When dealing with a “know it all Realtor” in a negotiation, the emotionally intelligent agent will not allow personal attacks/degradation or outlandish statements to alter the priority of the situation. Get the deal done.
In that example, the end result truly is a win-win situation for all. The client is grateful for an agent that knows how to take the heat and keeps on ticking, and the “know it all realtor” is grateful that they are getting paid in spite of themselves because the emotionally intelligent agent did not cave to their own sense of self. Don’t get in the way of the deal. Ever.
ABOUT THE CLUB
The University of Alberta Real Estate Club (UARC) is a student group dedicated to providing insight into the critical role of the real estate industry in life, business and the community. We are guided by the mission to provide excellence in real estate education to the future builders of our communities. Our collective vision is to ensure the University of Alberta is recognized as a leader, both nationally and globally, in real estate education and research.
The University of Alberta Real Estate Club was created to emphasize that real estate is so much more than the buying and selling of houses. It has developed into various business sectors including:
Appraisal | Brokerage | Development | Leasing | Valuation
Property Management | Real Estate Marketing | Real Estate Investing
Relocation Services | Corporate Real Estate