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Turner Drake & Partners Ltd.
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Tel.: (902) 429-1811
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Toronto, ON.
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# Monday, April 15, 2019

Turner Drake started in 1976 with the mission to “provide solutions to real estate problems”. Initially we focused on valuation practice, but as real estate and its challenges have become more diverse, so too have we. Over the decades we’ve added complementary practice areas, expanding our perspective and deepening the expertise we could bring to the aid of our clients. Not long ago we once again ventured into new territory, adding a Planning Division. Rooted in the economic perspective that all our divisions share, our planning practice is unlike any other in Atlantic Canada.

Often we are called in to lend a hand on other Turner Drake assignments; bolstering property tax appeals, identifying implications for property valuation, or accurately reviewing development potential for brokerage clients. But we work most closely with our Economic Intelligence Unit, where our combination of GIS resources and expertise in the analysis of demographic, economic, and real estate market data have led us to some truly interesting planning assignments.  Working with a variety of both private and public sector clients, we’ve been involved in some of the largest planning and development projects in the Region. And some of the smallest. We’ve even picked up a few awards along the way. The challenges and outcomes are varied, but one thing is always common; an approach grounded in real estate economics.

Now, having just crossed the five-year milestone, we celebrate another; our first staff expansion. We put out the call shortly before the New Year: thanks to the many that applied, we are humbled by your interest in what we are trying to bring to the planning profession. So who is the new recruit ready to help us continue our success?    

Say Hello to the Newbie – Andrew Scanlan Dickie

Hello world, I’m Andrew – Turner Drake’s self-declared Newbie – here to share the story that is me; a story of adventure, intrigue, and spreadsheets. Yes, I’m that guy – the one who likes numbers just a little too much. I’m no mathematician, just a fanboy hoping to put my interests to use. I suppose that’s how I ended up here, but that will come.

My last names may throw you off, but I’m a born and bred Montrealer (I can feel the maritime Bruins and Leafs fans cringing). I decided to stay local for my first university degree, receiving a Bachelor of Commerce from McGill. I was young, inspired, and ready to take on the world. What does the mean? You got it – I went back to school, but this time away from home (sorry mom).

In Spring 2017, I graduated from Dalhousie University with a Masters of Planning degree. My short two years in Nova Scotia were nothing short of amazing; I met my soon to be wife, made amazing friends, and embraced the culture and lifestyle. But like many before me, I left to seek opportunities elsewhere.

Over the last two years I worked for a small-town municipal government in Ontario, wearing the many hats allotted to me and expanding my knowledge of planning policy. Don’t get me wrong, I loved it – but two things kept nagging at me: (1) Ontario’s got nothing on the Maritimes (there’s just something about the air here) and (2) my professional life was number deficient (ahem, nerd).

At the time, my partner and I were nestled in the suburbs. We had adopted a dog and enlisted the help of a real estate agent – we were getting pretty darn serious about putting down roots. So, one might say it was an 11th hour moment when the Planning Division opportunity for Turner Drake came up. I would say it was more an aligning of the stars; a chance to return to the place my partner and I hoped to call home and the lifestyle that comes with it, and an opportunity for me to develop both my business and planning expertise.

So here I am, ready to take on the world yet again and use my skills to contribute to the well-oiled machine that is Turner Drake. I’m chomping at the bit, so if you or your organisation are wondering how our expertise in development economics and real estate market analysis can enhance your planning process, just give us a call! Hint, hint, nudge, nudge – mandatory municipal planning strategies as part of the Nova Scotia Municipal Government Act are becoming a thing, so feel free to reach out about how that may affect you or how to explore that process. Alternatively, if you’re in Ontario and require some help navigating Ontario’s Planning Act, let me know!

To see how your project can benefit from our unique planning expertise, call Senior Manager Neil Lovitt at (902) 429-1811 or nlovitt@turnerdrake.com. We’ve got more horsepower than ever.

Monday, April 15, 2019 9:47:05 AM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | New Brunswick | Newfoundland & Labrador | Nova Scotia | Planning | Prince Edward Island | Turner Drake
# Friday, March 29, 2019

You are a tenant looking for commercial space to lease. You start your search by checking the local Kijiji ads and maybe check with a few colleagues when you realise that perhaps you are in over your head. One ad is asking for $14/ft.² net plus operating and taxes, while another is asking $3,500 per month gross. How do you compare these two rents?  

Or perhaps you are a new landlord, eager to fill up your new investment property and start making a return. You are not sure what to charge for rent, but you want to ensure that all of your operating expenses are recovered at the end of each operating year and you are not out of pocket for any expenses.

First, let’s summarise the rental terminology:

Net Rent: Often called “Base Rent”.  This is what you pay for the right to occupy a given space

Additional Rent: Often called “Common Area Maintenance (CAM) and Realty Taxes” or “Service Rent”:  This is the cost of operating a given space or property.  It includes such things as electricity, heat, garbage removal, snow clearing, etc.  It is typically paid for by the landlord and then recharged to the tenant on a per square foot basis.

Gross Rent: This is the sum of all rent paid (Net and Additional Rent).

In order to compare a net and gross lease, the rents must be converted to the same basis (ie: both must be compared on a per square foot basis, or both on a monthly rental basis).  For example: let’s say that a particular unit is 1,500 ft.2 and it is being offered at a Net Rent of $14/ft.² and CAM and Taxes of $11/ft.².  Converting this to a monthly rent is as follows:

 

($14/ft.² + $11/ft.²) X 1,500 ft.² = $37,500 annual or $3,125 per month.

 

Alternatively, if you are provided with a rental rate of $3,500 per month gross for a 1,500 ft.² space, converting this to a per square foot rent is as follows:

 

$3,500 per month X 12 = $42,000 per annum / 1,500 ft.² = $28.00/ft.²

 

Now that you know how to calculate and compare net and gross rental rates…which one is better?  A net lease or a gross lease?...well it depends which side of the lease you are standing on.  The main difference between a net and gross lease, comes down to who shoulders the risk of increasing operating costs.  Under a gross lease, a tenant has committed to a set amount of rent for the lease term.  If the operating costs increase during the term of that lease term, the landlord “eats” those costs, thereby cutting into his/her effective rent.  Under a net lease however, the Additional Rent charged for operating costs fluctuates throughout the term of the lease.  Since landlords are recharging the tenants for common area costs, any increases are simply passed on to the tenant.  Tenants may prefer a gross lease since it represents a steady and guaranteed rent, and no risk of increasing common area costs during the length of the lease.  Landlords on the other hand tend to prefer a net lease where there is a steady and guaranteed base rent, and any risk of increased expenses is simply passed along to the tenant.

Ashley Urquhart is the Senior Manager of our Brokerage Division.  She has a vast network of contacts and would be happy to assist you with all your leasing needs.  Feel free to contact Ashley at (902) 429-1811 or aurquhart@turnerdrake.com.

Friday, March 29, 2019 11:05:01 AM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | Brokerage | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Wednesday, January 23, 2019

Now is the time of year where many companies are cleaning house. Auditing departments are analysing and assessing inventory, and looking for ways to minimise losses – kicking off the New Year in stride!  Unfortunately, during this process many building owners and managers overlook the main driver of their revenue – the very square footage upon which leases are based.

It has become increasingly common for building owners and managers to rely on historical figures when selling or purchasing a property.  Many put their trust in building and unit sizes that have been carried forward for years, or even decades.  Considering building revenues and overall property values are directly correlated to building size, wouldn’t you want all of your ducks in a row before purchasing or selling a property?  In other words, when making an investment decision, why rely on areas that have not been certified?  

Space certification is more than just an independent, third party confirmation of the size of an existing space.  It can also be a crucial vehicle for unlocking additional property value.

Recently one of our clients was in the process of negotiating the purchase of a large multi-tenant industrial building.  The owner provided our client with the overall building area together with segregated unit areas.  The owner had openly stated the areas had not been measured in at least ten years and so prior to making his final investment decision, he engaged our Lasercad® team to verify the areas with a space certification of the building.  Once the tenant spaces were measured and the rentable areas calculated in accordance with the appropriate standard method of measurement, we came to an astounding conclusion.  Our space certification rendered a total rentable area which was more than 10% higher than the owner-provided areas!  The building area had been understated for the past 10 years (or more).  From an investment standpoint our client was floored.  Based on the current market rates for the area, the owner had been losing out on approximately $35,000 per year of additional revenue.  The potential revenues which could be realised from the previously understated building size played a major role in determining the overall value of this multi-tenant industrial building.

Although some building owners and managers may overlook the source of their building and unit sizes, many others have been pro-active in implementing space certification as a standard procedure - especially when making investment decisions.  Regardless of whether you are buying, selling, or leasing, it is essential to know where the underlying areas originate from.  The square footage of your building is typically the core revenue driver and often times, these areas are understated.  Now is the time to get a grip on your inventory and ensure you’re maximising its value.  

Patrick Mitchell is the Senior Manager of our Lasercad® Division and also highly involved in our Valuation Division.  For further information on how to maximise your property’s value through space certification please don’t hesitate to reach out. Patrick can be reached at pmitchell@turnerdrake.comor by phone at 902-429-1811.  

Wednesday, January 23, 2019 2:29:15 PM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | Lasercad | Valuation
# Thursday, December 13, 2018


Specific Claims are launched by a First Nation band against the Government of Canada for historic grievances, typically over issues like unfulfilled treaty obligations, loss of reserve lands and mishandled First Nation funds. The most common cases that cross our desk involve the sale of reserve lands by the government of the day without the Band’s consent, either because it was never surrendered by them or because it was invalidly surrendered.

The events are always historic and quite often pre-date Confederation – a time when settlers were actively seeking to establish themselves in the new world and the government of the day was eagerly trying to accommodate them through grants and leases of land.  And sometimes that happened to be unsurrendered reserve land.

Those readers with a penchant for all things historical will find interesting reading on the origins of these claims by researching King George III’s “Proclamation of 1763”, issued in those turbulent times of squabbling between the French and the British. It imposed a fiduciary duty of care on the Crown which endures to this day, and is enshrined in the Constitution Act of 1982.  Heady stuff.

Our involvement in these files begins when the historical research has been done and the claim has been accepted by the government for negotiation. The stage is then set for negotiations to begin over the amount of compensation that the FN should receive from the Government of Canada.

The structure within which these negotiations take place is laid out in federal government guidelines. The first, released in 1982, set out the policy on specific claims and established guidelines for the assessment of claims and negotiations. These were tweaked under successive governments but the fundamentals remain the same.  They can currently be found in the document entitled “Specific Claims Policy and Process Guide”, available online and currently (still) under review.

We have been actively engaged on claim files in the Maritime provinces since the company began over 40 years ago – impressive, but a mere blink of the eye within the context of the time periods actually covered by these types of claims. Our involvement occurs in one of two ways.

1.       As an independent Consultant, hired under a joint terms of reference to calculate the ingredients of the claim, which then forms the platform for negotiations between the parties.

2.       As a Technical Expert on behalf of the First Nation, advising their negotiation and legal team on the technical aspects of the claim, ensuring that the process follows the guidelines and that the FN receives the compensation it is due.

We have represented (or continue to represent in currently active claims) over half a dozen First Nations throughout NS and NB, usually in the role of Technical Expert.

The structure of a claim is set out in the guideline and usually there are two components, calculated separately but intrinsically linked through the historical record.

(1) Current Unimproved Market Value - Where a claimant band can establish that certain of its reserve lands were never lawfully surrendered, or otherwise taken under legal authority, the band shall be compensated either by the return of the lands or by the current unimproved value of the lands. A relatively straight forward process…..

(2) Historical Loss of Use - Compensation will include an amount based on the loss of use of the lands in question, where it can be established that the claimants did in fact suffer such a loss. This can include losses from timber, agriculture, minerals and aggregates, fishing rights, land rental losses and a myriad of other components.  A far from simple process, often involving experts from different fields … and forests. The claim clock begins when the lands where first taken – usually 100 years or more in the past.

The process is not a quick one. Reconstructing historical events – and placing a value on them - takes time and diligence.  This is no splash-and-dash appraisal job.  And rightly so because there is much at stake here. Claims typically run into the millions of dollars and the calculations behind them must withstand robust scrutiny by both sides.  The cost of righting past wrongs does not come cheaply – or quickly.


Lee Weatherby is the Vice President of our Counselling Division. If you'd like more information about our counselling services, feel free to contact Lee at (902) 429-1811 or lweatherby@turnerdrake.com
Thursday, December 13, 2018 10:43:20 AM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | Counselling | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Friday, November 16, 2018


Happy GIS Week! 

 

We were working recently on an assignment in the Annapolis Valley, the land of orchards and sloping vineyards…and that got us thinking about the impact of elevation on land area.  Ultimately, the question is one of land value: inherent in the value of agricultural land is potential crop yield.  More land area equals more growing potential equals more value.  Where slopes are acceptable or even advantageous, they may serve double duty in that sloped land is larger than it seems.

 

Our Valuation Division’s MO is to maximise your property value…this is an Economic Intelligence Unit blog post, and this is GIS Week, so we’re going to geek out on how to ensure you’re counting all your land, using a GIS, a little high school math, and a fair bit of Pythagoras[i]

 

Pythagoras’ Theorem defines the relationship between the sides of a right triangle with the equation a² + b² = c².  Side “c” is the hypotenuse, and is always the longest of the three sides. 





For illustrative purposes, we created a convenient, perfectly rectangular, parcel.  It measures 500 x 1,150 m, for a total area of 575,000 m² (57.5 hectares).





That is: 

But the land comprising this parcel is sloped.  The contour lines added to the image below demonstrate the degree of the slope; on average, there is an elevation differential between the highest and lowest elevations of 140 m.  




Thus, the 500 m parcel dimension is effectively 519.2 m:



and the effective land area is 597,080 m² (59.7 ha.), a difference of 22,080 m² – over 2 hectares of extra space for crops! 

 

This is a highly simplified example of the impact of slope on land area.  There are many other factors to take into account, such as the tipping point between beneficial slopes and unusable inclines.  But in a world where “land: they’re not making any more of it,” holds true, the most informed decisions are the best ones.  Where a precise figure is required, you’ll need to call in a professional land surveyor.  But when an area scaled from a map is fit for purpose, using a GIS and a little high school math can yield a more useful number than you’d get from a regular map. 

 

P.S. a related fun fact was shared at Wednesday night’s Geomatics on the Town event (part of the 2018 Geomatics Atlantic Conference): tree planters space their seedlings at a certain distance from each other.  For one tree planter, this was the equivalent of 3 steps on flat ground, but on sloped terrain, it was 12 steps in order to leave sufficient room between trees! 



[i] Mainly for defining the relationship between the sides of a right triangle, but a little bit for first floating the idea that the Earth is a sphere...it comes into play in measuring distance.  There are two methods of measurement in a GIS, Cartesian and Spherical.  The Cartesian method calculates distance and areas based on data as projected onto a flat surface (like scaling from a paper map), while the Spherical method accounts for the curved surface of the Earth (like scaling on a globe).  The distances in this example were measured in MapInfo using the Spherical method.   




Alex Baird Allen is the Manager of Turner Drake's Economic Intelligence Unit, and has a high level of expertise and interest in GIS. If you'd like to reach Alex, call 902-429-1811 Ext.323 (HRM), 1-800-567-3033 (toll free), or email ABairdAllen@turnerdrake.com 
Friday, November 16, 2018 12:36:31 PM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | Economic Intelligence Unit | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Monday, October 22, 2018

 Why Hire a Commercial Broker? How a Commercial Broker Adds Value in Real Estate Transactions

There are ample online and offline resources available at your fingertips to help you purchase or sell a commercial property on your own – so why hire a broker? If you have the time, negotiating skills, real estate market information, and understand your target market and how to reach them, you don’t!

However, unless you can say yes to all of the above, here is how a commercial Broker adds value to your transaction:

1. Your time is valuable.  Letting a Broker do the heavy lifting and deal with “tire kickers” allows you to focus on your business.

2. Brokers have the contacts and resources to market your listing or find you a suitable property, ensuring all opportunities are uncovered.

3. Brokers understand your target market and how to reach them.

4. Brokers do not have an emotional attachment to the property or transaction.

5. Brokers are often members of local real estate associations, which can provide you with access/exposure to the MLS system in addition to their own websites, social media platforms, and databases.

6. Brokers have the inside track on market data, sales transactions, planning considerations and players in the market who are looking to purchase or sell commercial properties. They can help you determine a reasonable price and can help maximise market exposure.

7. Brokers know how to properly measure a building and collect the property information required, such as any material latent defects that must be disclosed in a transaction, which can avoid future lawsuits.

8. Brokers prepare Purchase & Sale Agreements, Counter Offers, etc. on your behalf, saving you from hiring a lawyer to assist with these items.

So, once you’ve decided to hire a commercial broker, how do you choose which broker/brokerage to represent you? The short answer is to simply hire the broker with whom you feel most comfortable. There are many excellent commercial brokers locally, so meet with a few, ask them questions, and choose the broker you feel will best represent you, and who understands your wants and needs. Each commercial broker has their own strengths; it is up to you to determine which one is the best fit for your organisation. 


As Senior Manager of our Brokerage Division, Ashley Urquhart assists both landlords and tenants meet their space requirements, and vendors and purchasers optimise their property portfolios. For more real estate brokerage advice, you can reach her at aurquhart@turnerdrake.com or 1 (800) 567-3033.

Monday, October 22, 2018 10:44:48 AM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | Brokerage | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island
# Tuesday, October 9, 2018

October 7th through 13th is Fire Prevention Week in Canada.  With firefighters in Nova Scotia responding to over 1,400 fire related incidents in 2016/2017, it is important to ensure that you have the resources in place to help tenants safely clear a property in the event of a fire.

The theme of this year’s Fire Prevention Week is “Look. Listen. Learn. Be aware. Fire can happen anywhere.”  The “learn” component of this year’s them refers to the need for everyone to learn two ways out of every room.  We can help.

Our LaserCAD® team is able to assist with “learning” by creating fire escape diagrams for your building.  We can add additional crucial details to your fire escape diagrams by including the locations of fire extinguishers, pull stations, hose cabinets, and emergency lighting, as well as clearly indicating escape routes.  These maps allow tenants to quickly identify an escape route and the location of fire safety equipment in the event of an emergency.  We can also customise the diagrams as needed, showing separate escape routes for each individual tenant space and noting any other relevant details, such as muster locations.

You may not be able to predict when a fire will occur, but you CAN plan for it.

For further information feel free to reach out to any one of our Lasercad® space measurement experts at (902)-429-1811 or toll free at 1-800-567-3033

Tuesday, October 9, 2018 11:24:57 AM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | Lasercad | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island
# Tuesday, October 2, 2018

Several blog posts (and a few years) ago, drawing on the experience amassed over my twenty-five year career at Turner Drake, I did some property tax myth-busting.  One bears repeating- particularly at this time of the year:

 

The Best Opportunity to Reduce Your Assessment (and Taxes) is NOT on Appeal

 

In every Province in which we operate, assessing authorities are willing to discuss assessments prior to their values being inserted onto the official assessment roll.  In our experience, such preliminary consultations often produce better results- at lower cost- than waiting to file formal appeals.

 

Nova Scotia’s assessing authority, the Property Valuation Services Corporation- the “PVSC”- and its predecessor, Service Nova Scotia and Municipal Relations, is a pioneer in this regard, and has been pre-publishing its assessments for over twenty years.

 

This year, 2019 pre-roll assessments for commercial property and apartments containing six or more units were pre-published on September 25th.  Proposed values can be accessed on the PVSC’s website at www.pvsc.ca, and the underlying valuations can be obtained by using the AAN and PIN from the top right- hand corner of 2018 assessment notices at:

 

 https://www.pvsc.ca/en/home/findanassessment/multiple-report-tool/default.aspx

 

Owners with concerns with their proposed assessments have about eight weeks to contact the PVSC: assessors have the ability to amend values until the last week in November. The 2019 roll officially closes on December 1st.

 

PVSC’s management embraces the opportunity to discuss assessments (and to make changes, where warranted) at the “pre-roll” stage.  Property owners are encouraged to avail themselves of this opportunity, and PVSC should be commended for publishing its proposed 2019 values.

 

Of course, it’s not always possible to engage in preliminary consultation, as not all values will be available with sufficient “lead time” in advance of the filing of the roll.  But where the opportunity presents itself, my advice is always to be proactive, and to address a problem before it becomes one.  A stitch in time saves nine.


Giselle Kakamousias is the Vice-President of Turner Drake’s Property Tax Division.  Her experience negotiating and appealing property assessments is extensive: it is a wise property owner who follows her advice.  If you’d like more of it, she can be reached at (902) 429-1811 ext. 333 or gkakamousias@turnerdrake.com.

Tuesday, October 2, 2018 2:34:17 PM (Atlantic Daylight Time, UTC-03:00)  #    -
Nova Scotia | Property Tax | Turner Drake
# Tuesday, August 28, 2018

It is a common misconception that a piece of real estate has a single value.  This is simply not true.  Determining which value is appropriate likely has the biggest impact on property value.

 

The Royal Institution of Chartered Surveyors’ Global Valuation Standards, specify six types of real estate value (Market, Rental, Equitable, Investment, Synergistic, and Liquidation). The Appraisal Institute (of America) has identified ten distinct, and valid, property valuation bases in common use in North America. Legislation, case law, and the purpose of the real estate assignment, result in many variations of these property valuation bases. Any conversation about valuing your property has to start therefore with an understanding of the purpose of the valuation assignment or you can end up with a conclusion which is worthless at best, or seriously misleading at worst.

 

Let’s discuss the two most common types of value.

 

Market Value (Highest and Best Use) is typically quoted and understood by many (including appraisers) to be the only type of value.  It is the highest price you would get for your property on a specific date, if it was offered for sale, properly marketed, and exposed for a sufficient period of time to alert and allow all potential purchasers to submit offers.  It assumes that both seller and buyer are knowledgeable of property values, that neither are under pressure to sell or buy, are typically motivated, and are each acting in their best interest. It assumes a cash purchase, or typical mortgage financing, in Canadian dollars. It also anticipates that the purchaser will be able to put the property to its “Highest and Best” use, which may for example, include redevelopment, if this will create a higher value than the existing use of the property.

 

But beware, Market Value is not the price you could expect to get if the purchaser (1) was an adjoining owner, (2) was undertaking a land assembly, (3) was a relative or business associate, (4) knew something that the vendor should have known but did not, (5) did not know something known to the vendor of which the purchaser should have been aware, (6) wanted a “vendor take back” mortgage, (7) intended to lease back the property to the vendor, (8) enjoyed a negotiating advantage because, for example, the vendor was in dire financial straits, … and so on.

 

I was recently contacted by an existing client looking to secure financing for their property located on the Halifax Peninsula.  Their property was improved with an older, single storey commercial building.  The underlying land was worth considerably more than the building and property under its current use.  After discussing the purpose of the assignment with the client and their bank, it became clear that the bank was interested in more than just the Market Value (Highest and Best Use) of the property in this instance.  The bank’s goal was to determine if the income generated by the property, under its current use, was sufficient to keep the lights on and pay the existing mortgage.  However, the bank also wanted to know what they could expect to sell the property for if they ended up taking possession of it and selling it on the open market. Effectively, the bank had two different goals which gave rise to two different values.

 

We completed a thorough analysis of the property and provided the owner, and their bank with two values (1) Market Value (Highest and Best Use), which in this case was for redevelopment of the property, and (2) Market Value (Value in Use) as it currently exists without regard to redevelopment potential.  Market Value (Value in Use) is similar to Market Value (Highest and Best Use) but is based on the assumption that your property could only be utilised for its existing purpose.   

 

Difference in Value

 

In this instance the difference in value was significant: $1.5 million (Market Value - Value in Use) versus $2.3 million (Market Value – Highest and Best Use).  Both values were included and supported in the report, allowing the bank to make an informed decision on lending.

 

 

Looking for explanations on the different types of values listed above?  Visit our Valuation and Advisory Services site https://www.turnerdrake.org/WhichValue for more information on the various types of values.
 

Nigel Turner, Vice President of our Valuation Division, can be reached at nigelturner@turnerdrake.com
Tuesday, August 28, 2018 5:06:03 PM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake  | Valuation
# Wednesday, July 25, 2018

The Halifax Regional Municipality is in the throes of moving its long awaited Centre Plan from draft to reality.  With the first package of draft policy and regulation released in late February, it’s come a long way from the high-level guiding document that Turner Drake assisted with in 2016. However, there is still a ways to go. As one might imagine, when replacing multiple planning policy and development regulation documents for the most dynamic and complex urban environment in Atlantic Canada, the devil is truly in the details.

One of the biggest details being grappled with is the deployment of density bonusing, which is principally designed as an affordable housing tool. Depending on what you read, the current framework may actually backfire by delivering no affordable housing and even drive up market-rate housing prices by suppressing supply, or it may be perfectly fine and a good replacement for present ad hoc negotiations which are falling short of the Centre Plan’s achievable outcomes. Either way it provides an opportunity to highlight the perks and pitfalls of this increasingly common strategy.

What is Density Bonusing?

Density bonusing is a planning policy tool whereby new development projects can access higher regulatory limits on built area in return for provision of some public benefit. In other words, trade height for amenities. It is sound in concept. The value of urban land (but not the buildings on it) is primarily driven by where it is located, and what can be done on it. Thus, it is value created by our collective society through the infrastructure and services provided to it, the legal framework that governs it, and the surrounding public and private activities which would make one desire a particular location over another. When local governments “add density” by increasing regulatory limits over what is currently anticipated by the market (i.e. already reflected in its price), they literally create additional land value out of thin air. In requiring a developer to provide public benefits for this added density, local governments are recapturing the value they created in the first place.

There is an obvious tension here in terms of why this ‘bonus’ density was not permitted in the first place, but in the messy world of city-building, ideological purity will always lose to practicality. Density bonusing thus becomes something akin to racketeering: nice development application you’ve got there… what say you give us some art and affordable housing, and maybe that shadow ain’t so bad anymore.

How Does it Work?

While it’s a clear win-win in concept, it can be complex in practice. There are four important factors that determine whether or not density bonusing works on a given site:

·         the value of the property as it exists today

·         the value of the land if purchased for redevelopment

·         the value created by adding bonus density

·         the value captured through required public benefits

It is important to note that all but the last factor on this list are determined by the real estate market. The value captured is set by the municipality, and is typically based on an estimation of the value of the bonus density. In HRM, the tradeoff of density for benefits is structured under a predefined framework. Other municipalities negotiate these arrangements on a case-specific basis, but this approach it generally used in far larger centres due to the complexity and sophistication involved.

Roughly speaking, development projects are feasible in areas where the market price for land exceeds the value of properties as currently developed.  Adding a density bonusing program to the mix will increase the redevelopment value, but also add a new cost in the form of requisite public benefits. On net, this is usually a positive value; these programs are designed to recapture only a portion of the value they create.

It should be apparent that density bonusing is not, in principle, a drag on development. In fact, a properly designed program should improve the feasibility of existing projects and even increase the total pool of viable projects where the net positive addition of value (bonus density minus benefit cost) actually tips the balance of feasibility. For all intents and purposes, this is indistinguishable from a basic upzoning.

Where Can It Go Wrong?

There are plenty of opportunities for density bonusing programs to go awry, but most are the usual pitfalls of any public policy. There needs to be a logical and efficient administration process. The program needs to be supported by accurate data so that its function lives up to its intent. Appropriate buffers needs to be left to account for secondary costs and added overhead created by the program itself. There needs to be additional mechanisms in place to deal with the outputs (this is an important topic of conversation in the Centre Plan context, in which the majority of benefit is supposed to be in the form of affordable housing while the municipality has no formal jurisdiction or established programming).

However, the fundamental issue of whether a density bonusing program works is the value relationship between what is proposed, and what exists today. Most of the debate and discussion in HRM has been focussed on aspects of the former: what is the best value capture rate to use, what is the right threshold for triggering the bonus requirements, what are the correct value assumptions? Important questions, but their answers are all derived from the latter issue, not determined in a vacuum.

At the scale of a city, form follows finance. Whether density bonusing is implemented or ignored by the private sector will ultimately depend on whether the total value of entitled and bonus density, less the cost of delivering it (development costs plus public benefit), is a sweeter deal than exists today. If a profit incentive exists, a badly designed program will still deliver. If a perfectly designed program equates to a downzoning, don’t count on anything happening until prices rise, or losses are written off.

How to Get it Right?

As municipal planning increasingly makes use of economic and market-based tools (and it should) it also needs to expand its understanding of the principles and systems that underpin them. Weight does need to be placed on the market conditions of the present given their influence on the future (to say nothing of the municipality’s complicity in forming them).

The traditional approach would state planning policies cannot be captive to past practices and existing conditions, otherwise change would never be possible. While this is true, it is not justification for being willfully ignorant either. Understanding the basic value relationship between today's conditions and those proposed under new policy is the key to understanding whether density bonusing, or any planning policy for that matter, will deliver on its promise.

Neil Lovitt, our Senior Manager of Planning & Economic Intelligence can be reached at 429-1811 ext. 349 (HRM), 1 (800) 567-3033 (toll free), or nlovitt@turnerdrake.com.

Wednesday, July 25, 2018 3:00:58 PM (Atlantic Daylight Time, UTC-03:00)  #    -
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