Stability, Growth, and Sustainability: Avenue Living’s Themes for 2023

Themes for 2023

2023 was a challenging year for Canadians and the broader markets. While inflation has slowed and interest rates appear to have stabilized, the overall economic picture continues to fluctuate. 

“It’s been only one year, but we’ve seen changes that you don’t normally see within five,” says Gabriel Millard, Senior Vice President, Capital Markets – Equity and Research. “We’re still in the midst of digesting one of the fastest rate-hiking cycles in history, with a lot of variables in the macro environment.” 

In light of this, investors have expressed increased interest in alternative investments for stability and returns that are non-correlated to public markets. Against that backdrop, we’ve continued to invest in the everyday, striking a balance between defensibility, growth, and sustainability across our strategies. 

Multi-family and self-storage: from pause to growth 

“During the first nine months of 2023, we took a deliberate pause on acquisitions within both our multi-family and self-storage strategies,” Millard says. “Over that time, we saw material net operating income (NOI) improvements from rent adjustments enabled by heightened service standards and introducing new operational cost-efficiency measures.” 

Avenue Living shifted gears in the back half of the year, adding over 1,600 units to our multi-family residential footprint. In November, we finalized a deal with a large institutional investor for a 700-unit portfolio across five towers and a number of townhomes.  

“We’re seeing opportunities to acquire higher-value properties from institutional players, including pension funds, which weren’t available even two years ago,” Millard says.  

As borrowing costs accelerated, the importance of vertical integration, active property management, and managing rising costs in the real estate space became acutely clear. Across both the multi-family and self-storage markets, pure capital allocators struggled to sustain their investment returns, creating more acquisition opportunities. 

“We’re exiting 2023 at just over 17,000 multi-family units,” Millard says. “The Mini Mall Storage Properties fund also grew quite rapidly to almost 8 million square feet — including the largest acquisition in its history of almost 900,000 square feet across 19 properties — making Mini Mall the top 21st largest self-storage operator in North America by rentable square footage.”  

The multi-family Prairie markets are seeing growth from record net immigration, driven by households seeking affordability. A sizeable portion of these newcomers are coming from higher-growth markets like Vancouver, Toronto, and Montreal where rent payments can take up 40% to 50% of households’ income.  

Historically, self-storage has proven to be a resilient asset class and remained stable even in times like the 2008 North American real estate crash. Robust consumer-driven demand continues to propel the investment class, painting a constructive picture.   

Strong tailwinds for Canadian farming 

Avenue Living’s two Saskatchewan-focused agricultural strategies, the Avenue Living Agricultural Trust and Tract Farmland Partners LP (Tract), have also managed well amid persistent demand for farmland investment from across Canada.  

In its mid-2023 report on farmland values, Farm Credit Canada saw Saskatchewan lead the nation with an average gain of 11.4%. Most locations in the province, the report said, saw increases between 7% and 11%. 

On the ground, Tract identified acquisition targets from word-of-mouth referrals within the farming community, a testament to its reputation as a trusted partner. Coupled with the ability to service increasing rents owing to strong commodity prices, the organization saw a steadily bullish case for its agricultural strategy. 

“It’s a consolidation play that’s still just in its early stages. An estimated 98% of transactions within the province remain outside of investment funds, and we’re continuing to acquire assets,” Millard says. “By the time we close a deal, we’re already seeing impressive appreciation.” 

ESG efforts coming to fruition 

Roughly two years after striking its partnership with the Canada Infrastructure Bank (CIB), Avenue Living is moving forward on a number of energy retrofit projects across its multi-family residential portfolio, including work on large solar arrays, exterior renovations, and mechanical upgrades. 

“A large portion of the acquisitions in our self-storage fund are within the Sun Belt region of the United States. Our portfolio is made up of assets that are wide, not high,” Millard says. “That offers an abundance of roofline where we’re able to implement solar projects.” 

Avenue Living’s agricultural strategy also lends itself well to ESG, given Canada’s outsized role in producing staple grain products. 

“The opportunity to help improve food security for Canadians and other nations is something we’re very proud to be a part of,” he says. 

Avenue Living released its first full ESG report in 2023, with a second one set to come out this year. Beyond that, we’ve bolstered our commitment to responsible investing. In 2021, we became a signatory to the United Nations-supported Principles for Responsible Investment (PRI) and over the last year we furthered our commitment and became members of the Responsible Investment Association (RIA). 

Avenue Living continued its annual Avenue Giving campaign, bringing together donations from residents and staff to support local food banks. We also launched an Employer-Supported Volunteerism program in the last quarter of 2023. In three months, employees volunteered for over 160 hours with 10 organizations including local food banks, Canadian Blood Services, veteran and seniors’ resource centres, community kitchens, and drop-in centres across the Prairies.  

For 2024, a continued stewardship focus 

From the beginning, Avenue Living’s growth has been inextricably tied to its commitment to the customer. Millard says that focus will continue in 2024, along with a focus on ensuring defensibility across the organization.  

“Since 2020, it’s been a volatile period, and 2024 doesn’t appear to be any different,” he says. “As a responsible asset manager, we’re maintaining a leverage profile in the low 50%, and keeping over 10% of our NAV in liquidity to ensure defensibility.” 

Last year, Avenue Living acquired over half a billion dollars in multi-family assets. With a large pipeline of acquisitions, it’s pressing its growth advantage in 2024, allowing improvement of margins by spreading fixed head-office costs over a larger number of units. 

“We don’t grow for the sake of growth, but to improve our overall operations through accretive transactions,” Millard says. “Through technology and operational improvements, our focus is to continually level up our operations for the benefit of our residents, customers, and investors.”  

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://madison4.wpenginepowered.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.  

Capital Tower: A Beacon of Sustainability and Community Revival in Edmonton 

Capital Tower in Edmonton

On the periphery of Edmonton’s downtown core sits a 12-storey, 179-unit building that Avenue Living is transforming into a modern, affordable, and sustainable multi-family residential and commercial building. 

Built in 1970, Capital Tower is located at the gateway to the city’s Chinatown district. And as with so many buildings of its vintage, it’s due for a refresh. Upon completion, the building will provide warm, inviting homes to the vibrant surrounding community.  

Art Meets Sustainability 

Capital Tower’s revitalization focuses heavily on sustainability and reducing its environmental footprint — measures that will also provide an improved living experience for residents. Most notably, this project will include the largest vertical array of solar panels ever proposed in North America — one that also doubles as a stunning piece of art.  

The north face of the building will be home to a 26-metre (85-foot) tall mural designed and illustrated by Edmonton Indigenous artist Lance Cardinal. The mural represents the unity, coexistence, and cultural similarities between First Nations and Chinese Cultures using imagery from the Cree seven sacred grandfather teachings and the Chinese zodiac. Thanks to technology from solar panel innovator Mitrex, the landmark artwork also harnesses the energy of the sun to help power the building.  

Beneath the solar façade, new insulation on the building’s exterior walls — which will add an R-value of 12 — will improve the efficiency of the interior. Coupled with new triple-glazed windows, the measures will help keep residents comfortable year-round and allow the heating and cooling systems to run more efficiently. 

But the upgrades don’t stop with the building’s exterior. 

“We’re making improvements to almost every building system in order to reduce greenhouse gas emissions,” says Neal Shannon, Avenue Living’s Senior Vice President, Capital Projects.  

A Broader Commitment to ESG 

These improvements are part of our broader commitment to environmental, social, and governance (ESG) initiatives across our portfolio. This approximately $26 million project is made possible thanks to favourable financing terms with BMO. The arrangement allows us to access funds from both BMO and the Canada Infrastructure Bank (CIB) to complete the green retrofits, which meet CIB’s Environmental Consumption Measures (ECMs).  

“This project is separate from Avenue Living’s partnership program with CIB,” notes Daniel Veniot, Associate Vice President, Capital Markets — Debt. “But BMO has its own relationship with the CIB, allowing us to access advantageous lending terms through their programs. Together, these terms will allow us to offer residents upgraded suites at fair market prices, so we can continue to serve our target demographic.” 

Meeting the CIB’s ECMs also allows us to take part in the Canada Mortgage and Housing Corporation’s (CMHC) multi-unit loan insurance project, MLI Select. MLI Select is a points system that offers insurance incentives based on affordability, energy efficiency, and accessibility. “This project qualifies for MLI Select based on the environmental upgrades alone,” says Veniot. 

Building Comfort and Community 

The renovations and retrofits are designed to improve the experience for those who call the building home. The property will have features and amenities that foster community, including a rooftop garden, library, games and movie room, fitness centre, storage area, and refurbished commercial space on the main floor.  

The in-suite upgrades will provide increased comfort for residents while contributing to emissions reductions. Heat pumps in each suite — along with smart thermostats — will allow residents to accurately control the temperature of their environment through both heating and cooling. The addition of new makeup air units also helps improve air circulation throughout the building, eliminating cooking odours, improving air quality, and keeping temperatures more even throughout the space. These measures all contribute to improved health for occupants, according to the Canada Green Building Council

Other improvements include LED light fixtures in both common areas and suites, modernized elevators, and updated bathrooms and kitchens. Taken together, the renovations all contribute to an elevated experience for future residents.  

A Community on the Rise 

The result will be a high-quality, safe, affordable and comfortable property that contributes to the revitalization of the surrounding community. In recent years, the area has seen renewed education, hospitality, and entertainment options. The building is within walking distance of the ICE District (Edmonton’s entertainment hub), Epcor Tower (one of the newest AA office buildings in the city), and Grant MacEwan University. It’s also close to transit lines which gives residents easy access to the University of Alberta and other business districts. Nearby, the Station Lands development is revitalizing an underused part of the downtown core, transforming it into a vibrant, walkable community. 

The project, which is already underway, is set to be completed in late 2024. We’ll provide regular, more detailed updates here, so follow along for the full story as it unfolds.  

 

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://madison4.wpenginepowered.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them. 

The Benefits of Submetering in Multi-Family Residential 

Submetering in Multi-Family Residential

Rising energy costs and the environmental impacts of energy consumption are at the forefront of Canadians’ minds. Statistics Canada reported that Alberta’s electricity prices rose by 128% year-over-year in July. These increased costs, along with the environmental impacts around energy consumption, have prompted organizations and individuals to look for ways to reduce their utility usage. 

Traditional methods of charging residents for utilities by including them in fees (based on square footage, for example) might seem straightforward on the surface, but it can end up costing both property owners and residents more.  

Residential and commercial buildings in Canada account for 17% of our energy consumption. Reducing that consumption is a key part of the overarching strategy to reduce our greenhouse gas emissions and help meet the Government of Canada’s commitment to achieve net-zero by 2050.  

Different Methods of Utilities Distribution 

There are three main ways to deliver utilities to a residential unit in a multi-family property.  

  1. Master meters: Traditionally, utilities have been delivered to a master meter, and the total cost of these services is split evenly between the units and included in each resident’s monthly rent. Every resident pays the same price, regardless of how much water or electricity they use each month.  
  1. Individual unit meters: Some properties use individual meters in each suite, and utility hookups and pricing are managed directly by the resident. They assume the costs of access fees and other riders connected to their utility bill and are subject to rate fluctuations. In this case, property owners have no visibility into what the resident is using or how much they pay. 
  1. Submeters: Properties with submeters receive water, gas, and electricity through a master meter, but also have a submeter in each unit to measure individual consumption. Residents pay the submetering company for their utilities, based on how much they use. The property owner might assume the access fees and the resident may have the benefit of a lower rate if the property manager has negotiated one with utility providers. 

The Benefits of Submetering 

When it comes to energy consumption, knowledge is power. With submeters in each unit, both residents and property owners have a deeper understanding of consumption habits and opportunities to reduce waste. 

A clear picture. Individual submetering allows residents to see how much energy they use, and property owners can understand their residents’ usage. With a clear picture of consumption, property owners can make informed decisions about equipment maintenance and upgrades, finding ways to optimize the building’s energy use overall. In turn, residents can see their own consumption patterns, and make decisions accordingly.  

Responsibility… and accountability. With submeters, residents are responsible for their own energy, heat, and water use rather than paying a portion of the bill for the entire building. They only pay for what they use, rather than what their neighbours might be consuming. This motivates residents to be mindful of their daily energy usage. 

The potential for better rates. Some property owners, like Avenue Living, can negotiate lower bulk utility rates for their residents rather than a single customer could on their own. In addition, property owners might assume some or all of the access fees.  

Environmental benefits through reduced emissions. Studies suggest that submeters can reduce a building’s energy consumption significantly — a study in New York revealed that submetering reduced consumption by 18-25%, while a building in Ontario recorded even bigger savings (approximately 40%). This is likely because residents can see their consumption and make choices to reduce it, and property owners can realize the tangible benefits of installing energy-efficient fixtures.  

Increased efficiency and building value. The ability to monitor consumption also helps property owners and managers spot equipment failures or building inefficiencies. A spike in water consumption could indicate a leak, for example, or high energy use could flag the need for appliance upgrades. This insight allows the property owner to be proactive about maintenance, increasing the property value and comfort for residents. 

Avenue Living’s Submetering Strategy 

Avenue Living has transitioned several buildings to a submetered system. The submeters we have installed are certified by Measurement Canada, and the program is implemented through a certified third-party provider.  

“Avenue Living still covers the cost of utilities in common areas and vacant units,” notes Daniel Klemky, Energy Manager at Avenue Living. “But with submetering we can now give residents the tools to take control of their own costs and be accountable for them. In many cases, we also give people the benefit of a much lower utility rate, due to our negotiations with the providers as part of our procurement strategy.” 

The comprehensive insight we get from submetering will allow us to accurately measure the impact of our energy efficiency capital improvements (e.g., replacing a furnace or installing solar panels). And as we continue to upgrade our properties through the deep energy retrofit program, in partnership with the Canada Infrastructure Bank, submetering will play a crucial role in meeting the reporting and data collection requirements.   

Submetering provides numerous benefits to both the resident and the owner and is becoming a common tool for property managers to quickly take control of energy consumption, and reduce emissions and operational costs.  

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://madison4.wpenginepowered.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them. 

Revitalizing Canada’s Housing Landscape: The Crucial Role of Retrofits  

retrofits

As cities across North America deal with a growing crisis in affordable housing, it is clear that the solution is not one-size-fits-all and it involves more than simply building new stock. The Canada Mortgage and Housing Corporation (CMHC) estimates that Canada needs to add an additional 3.5 million units, above the current build pace, by 2030 to restore housing affordability. With rising interest rates and inflated costs, the ability to own a home is becoming out of reach for many. Further, there’s a concern that there are not enough rental properties for the population who need them. Add to that the constraints of building permits, labour shortages, and spiralling costs for developers, it is essential to look at other ways to support individuals and families. One such approach is to retrofit existing housing stock.  

While building new homes is essential and necessary, reinvigorating existing housing is equally as important to ensure that people have safe and comfortable homes and to curb greenhouse gas emissions. With approximately 90% of Canada’s existing multi-family housing built before the year 2000, many of these buildings are reaching an age where renovations and upgrades are required to improve overall energy efficiency and quality.  

In a recently published CMHC report, it states that in order to achieve housing affordability, there must be a “variety of housing options available” including those for both ownership and rental, a mix of single-family and multi-family homes, and new builds and retrofits. “Partnerships and innovation are needed in all parts of the housing system,” says the report.  

Strategic Retrofits Are Key 

In 2022, Avenue Living embarked on a landmark partnership with the Canada Infrastructure Bank and other key industry partners to retrofit approximately half of its multi-family portfolio. The initiative demonstrates a solid business case for the property management industry to make widespread changes.  

Catalys, an energy and sustainability program designer, and one of the partners we have engaged to help achieve our deep retrofit goals, understands exactly what a difference these improvements can make. The firm has a track record of working with a variety of enterprise clients to help reduce their environmental impact by designing energy and sustainability programs, either through retrofits or improved processes. Catalys employs a data-driven technology and AI analysis model that helps property owners maximize the environmental benefits of retrofits and other investments. 

“The environmental impacts of demolishing an existing building and replacing it with a new development can be significant,” says Luke Ferdinands, CEO of Catalys. “Both deconstruction and construction are waste-intensive, and a deep refurbishment of an existing building cuts operational carbon emissions — without the emissions associated with building new.   Approximately 60% of embodied carbon emissions are associated with the sub-structure, frame, upper floors, and roof of a building. A deep retrofit will generally retain these elements, meaning on average, the carbon footprint of a refurbished building is about half that of the newly-built replacement.”  

The firm has provided consultation and support to Avenue Living throughout the project, from feasibility studies to ongoing program management. As the retrofits scale, Ferdinands and his team will continue to assist with managing complexity, verifying performance, and measuring success through data tracking and analysis.  

Benefits of Retrofits, from the Bottom (line) Up 

Retrofitting can be completed much more efficiently than new builds, which often require lengthy schedules due to permitting and other considerations. “In Canada, a new building can take well over two years to be completed”, says Ferdinands. “Retrofits can take far less time — and they can benefit from streamlined processes that some municipalities have in place to expedite the permitting for such projects. 

“When executed properly, deep retrofits can deliver buildings that appear to be totally different — they look newer and with a more modern aesthetic,” continues Ferdinands. “But more importantly, the resident experience of living there is also significantly improved.” 

Studies show that living in an energy-efficient or “green” building improves residents’ overall quality of life. Not only are they living in more comfortable spaces, but they experience better health through upgraded lighting and balanced heating and cooling. In many cases, these buildings can become a vital part of the social fabric of a community — as Canada’s Green Building Council (CGBC) notes, “everyone benefits when community members have access to healthy, affordable housing and when communities are resilient and can withstand extreme weather events.” 

Not all retrofits involve turning over the entire building; some upgrades can be quite simple, yet still achieve positive results. Less complex upgrades, such as boiler replacement or rooftop solar PV installations, mean residents can remain in place as retrofits occur with minimal disruption in their daily lives. “From a continuity perspective, it’s really important to make these upgrades as seamless as possible  to minimize the impacts to the people who have made that building their home,” says Ferdinands. 

These retrofits bring aging stock up to today’s standard, but they also ensure buildings are optimized for the future. “We’re making these buildings much more resilient,” says Ferdinands. “With more extreme weather — hotter summers, colder winters, and wildfire smoke – these upgrades really tighten up the building. We’re redoing roofs, adding insulation, improving windows, all of which help the building perform better in different conditions.” 

Social Benefits 

Ensuring existing buildings remain comfortable, desirable, and affordable places to live helps preserve communities. The ability to live in established neighbourhoods close to transit routes, schools, employment, and amenities offers a better quality of life for renters and encourages neighbourhoods to remain vibrant. Residents who are happy with their neighbourhood and comfortable in their homes are likely to stay, bringing added economic stability to a community. In addition, retrofitted, affordable rentals support a growing and stable population, and encourage local economic growth as working renters, seniors, and children all participate in their community, supporting nearby businesses and services. 

“Renewing these older buildings is vital for communities,” says Gabriel Millard, SVP, Capital Markets – Equity & Research, who notes that many are often demolished and replaced with larger, more expensive rental properties. “In Canada, where we have fewer and fewer options at the less costly end of the rental spectrum, renewal helps extend the lifespan of these buildings so they can keep housing families. We’re making sure that important piece of the rental puzzle stays on the market.”  

Retrofits for the Future 

As we deal with two major challenges — housing affordability and environmental impact — it’s becoming clear that retrofits to existing buildings are a key part of the solution. Through a strategic and sustainable implementation, property managers can bring buildings up to date without losing occupancy. At the same time, residents can reap the health, social, and financial benefits of having a comfortable, affordable place to live in an established community.  

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://madison4.wpenginepowered.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.