Crane survey

Crane survey Greater Vancouver, 2013

Contents Introduction............................................... 3 Industrial.................................................... 4 Office........................................................ 6 Retail......................................................... 8 Residential............................................... 10 Public-private partnerships....................... 14 Our team................................................. 20 2 2013 Crane survey

T

he Deloitte Crane Survey is a survey of major construction projects in Greater Vancouver. We have detailed the largest and most significant projects that are impacting economic growth and liveability in our region. While various reports

provide information on different asset classes of real estate, few, if any, take a wider view of the overall market and consider not only the commercial, industrial and residential projects, but also the major infrastructure projects that support the continued population and business growth in our region.

All information has been compiled from a combination of publicly available sources and from the experience and knowledge of Deloitte’s real estate and infrastructure practitioners. While efforts have been made to confirm the data, individual project details including the size and timing may represent estimates and are subject to change. Projects have been chosen based on both size and the scale of impact they will have on their respective community. Some larger projects that are in the very preliminary planning stages have been excluded at this time, but as they continue to progress they will be included in future issues of the Crane Survey.

2013 Crane survey 1

2 2013 Crane survey

Introduction

What has become apparent to us is the change in how we occupy our real estate. Advances in how we use technology, changing demands in the workplace and a new generation of consumer have all impacted the role real estate plays in our personal and professional lives. Continued growth and construction activity can be felt in nearly every corner of the Greater Vancouver market. As we head into the second half of the year, we note strong development activity in the residential sector, albeit reduced from 2012 ytd. It would appear that construction, across all sectors is reaching near peak levels of activity as construction in asset classes such as retail, industrial and office have all continued to gather momentum since 2009.

We have now turned our attention to what the industry is building and how it is different from existing product on the market. What has become apparent to us is the change in how we occupy our real estate. Advances in how we use technology, changing demands in the workplace and a new generation of consumers have all impacted the role real estate plays in our personal and professional lives. Change seems to be the one constant in our industry.

Growth in our marketplace is creating ongoing demand for product. New American retailers entering the market and industrial users looking for more modern facilities are providing developers with the confidence to move forward on major projects. Concurrently, a re-emergence of first-time and move-up buyers is creating continued demand for new residential product.

We have focused this report on identifying how change will impact and shape future development and relaying our insight into what can be expected in the years to come. Understanding these changes will be critical to both maneuvering around the obstacles we anticipate existing owners will face and capitalizing on future growth opportunities.

In our inaugural edition of the Crane Survey, we discussed the interconnected nature of public investment and private development, focusing on the impact transportation (both existing and proposed) had on where and when development was taking place.

David Hilts Director of Real Estate 604-640-3138 [email protected]

Jennifer Podmore Russell Director of Real Estate 604-640-3069 [email protected]

2013 Crane survey 3

Industrial

Possible changes required to increase supply Discussion continues to mount over what the future of industrial development will look like in Greater Vancouver. Our region struggles to balance the significant demand for available land with the available supply, which is greatly restricted by geographical constraints and the Agricultural Land Reserve (ALR). This has led to a continued rise in land values that challenges the feasibility of certain uses. Debate continues regarding the need for an industrial land reserve and potential adjustments needed to the ALR to help preserve and/or increase the supply of available industrial land. While this continues to take place in the background, both public and private entities are preparing for the expected additional demand for distribution space that will be driven by the changing face of retail, the expansion of Deltaport Terminal and our growing economy and population.

Unlike most North American markets, the Greater Vancouver region has rarely suffered from a lack of demand for industrial land but instead has experienced a continued shortage of supply. Who are we saving the land for? Unlike most North American markets, the Greater Vancouver region has rarely suffered from a lack of demand for industrial land but instead has experienced a continued shortage of supply. Historical absorption in the region is more reflective of the availability of appropriate, entitled and deliverable land, or lack thereof. This restriction has translated to the exit (or lack of settlement) of major wouldbe tenants to alternative locations in Western Canada. As recently as within the last six months, the market has been challenged to accommodate mandates for large-scale western Canadian distribution centres from retailers such as Target and Canadian Tire. The lack of serviced and available industrial land combined with a long-held expectation that

4 2013 Crane survey

any remaining land be treated as jobs land has meant the region has missed out on recent opportunities for new distribution centres. These challenges have reignited both the calls for an industrial land reserve and a debate on the meaning of “jobs land”. The manufacturing industry has long been thought of as a creator of a high number of jobs. Along with the growing field of agro-industrial, manufacturing is viewed by some to be the ideal occupier of the remaining land based on the number of permanent jobs per acre they have traditionally supported. But two questions remain: is Vancouver poised to accommodate such tenants and where, if anywhere, should they be accommodated? The region has never hosted a major manufacturing base; an untested labour force and lack of proximity to Central Canada have most often been cited as the main reason the sector has never taken off in Greater Vancouver. There is little to no indication that manufacturing, short of a smaller group of niche tenants, will ever create major demand for land in the future. However, the same cannot be said for agroindustrial. Increased calls for food security, demands for locally sourced foods and the sheer efficiency of hothouse food production versus traditional farming all support the growth of agroindustrial users. The sector creates demand for labour on-site and it has been shown to develop local economic spinoff. Increasingly, agro-industrial is being discussed at the municipal level and the question is now converting to where, and not if, the region will support increased agroindustrial growth. Discussion will most certainly continue about the role the ALR will have in accommodating this sort of tenant and what additional resources and land will be required to ensure ongoing growth of the sector. The debate will continue With land remaining a commodity in short supply, we can expect both the debate to continue and the new face of distribution to consume more of the dialogue. Unlike our conventional view of distribution, online retailing has dramatically changed the tenant profile. Internet procurement facilities have reshaped the programming of these buildings and have greatly increased the level of employment they generate.

Despite continued increases in demand and our understanding of tenants who will create meaningful employment for the region, accommodating growth remains the single-largest challenge for the market. Fragmented ownership, lack of contiguous land and a lengthy entitlement process all dissuade major national tenants accustomed to a more abbreviated process from procurement to occupancy.

Online retailing has dramatically changed the tenant profile.

Industrial

Project

Municipality

Owner

Status

Size (acres)

Norampac Business Park

Burnaby

Oxford Properties

Proposed

64

Queensborough Business Park

New Westminster

Beedie Group

Phased completion

40

Golden Ears Business Centre

Maple Ridge

Onni Group

Phased completion

94

Canada Post Mail Processing Facility

Richmond

Federal Government

2014 completion

42

Boundary Bay Airport

Delta

Corporation of Delta

Proposed

150

Boundary Road

Delta

Dayhu Investments

Proposed

80

Tsawwassen Gateway Logistics Centre

Tsawwassen

Tsawwassen First Nation

Proposed

330

Campbell Heights North Business Park

Surrey

Surrey City Development Corporation

Phased completion

250

PacificLink Business Park

Surrey

Wesgroup

Phased completion

83

2013 Crane survey 5

Office

Using the skyline of downtown Vancouver as a barometer for the confidence of institutional investors, it is clear that new office product is a desired commodity. Groundbreakings continued to be announced through 2012 despite initial low levels of pre-leasing success. This confidence in the market has certainly been proven through the first half of 2013 with leasing (confirmed or anticipated) leading to the commitment of nearly 80% of all supply currently under construction. This new round of office development ends nearly a decade of zero growth. Current expectations are for more than 1.6 million square feet of office product to be delivered to the market by 2015, creating a long-awaited opportunity for tenants to relocate and expand. Real and anticipated demand from existing tenants, new market entrants, availability of land and eagerness from institutional investors has led to construction announcements of nearly 1.6 million square feet in the downtown core, and a further 1.5 million square feet of proposed development continues to work its way through public process. Yet as daunting as three million square feet may sound for a market that absorbed only two million square feet of office space in the past decade, an efficient uptake of new supply is expected. One key factor in the leasing of new space is how it may afford a company to transform its operations. Technology is at the root of this building boom as companies are now looking at the investments they need to make to drive future productivity. Tenant relocations to new office space allow a business to completely transform its operations and invest more in information and communications technology while optimizing its physical footprint. It is this rationale that

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has enabled many major tenants to absorb the premium associated with new office space. Perhaps unlike any other time, save that of the introduction of air conditioning in the early 1960s, the introduction of new building technology will significantly impact tenant demand moving forward, resulting in landlord investment into existing stock. We expect that the current construction boom may have a widespread impact in the years to come as landlords work to upgrade existing stock in an effort to maintain and attract tenants. An increasing number of businesses are shifting perceptions of their real estate to match the changes they see in the related workforce. The changing demographics of the workplace have challenged the conventional design of an office environment. Not only has there been a noticeable shift toward open office configurations, employee productivity in this new work environment has proven the effectiveness of the model. Moving forward, we expect tenants to place greater importance on the functionality of building floor plates; as such, new buildings that offer programming flexibility will continue to attract tenants. As this boom of construction comes to a crest, one should expect to see increased renovation activity in existing stock as landlords upgrade older buildings to compete in a changed market. This change in tenant mindset translates to a need for existing landlords to assess their assets’ ability to compete based on a building’s positioning and physical condition. While tenants who examine the market will certainly compare the cost of office space, the potential impact their address might have on their overall brand and workforce may now weigh more heavily on their bottom-line decisions.

Office Project

Municipality

Owner

Status

Size (sq ft)

MNP Tower

Vancouver DT

Oxford Properties

2014 completion

275,000

Rogers Arena

Vancouver DT

Aquilini Investment Group

2014-15 completion

180,000

Telus Garden

Vancouver DT

TELUS/Westbank Corp.

2015 completion

450,000

745 Thurlow Street

Vancouver DT

bcIMC

2015 completion

365,000

The Exchange

Vancouver DT

Credit Suisse

Proposed

400,000

320 Granville Street

Vancouver DT

Carrera Management Corp

Proposed

380,000

Sears Retrofit

Vancouver DT

Cadillac Fairview

2014 completion

292,000

980 Howe

Vancouver DT

Manulife Financial

Proposed

275,000

Burrard Gateway

Vancouver DT

Reliance Holdings Ltd./Jim Pattison Developments Ltd.

Proposed

250,000

Containers

Vancouver

Rize Alliance

2013-14 completion

180,000

Marine Gateway

Vancouver

PCI Group

2015 completion

250,000

Broadway Tech Centre (Building 6)

Vancouver

bcIMC

2015 completion

175,000

3030 East Broadway

Vancouver

bcIMC

Proposed

870,000

Renfrew Business Centre (Phase 2)

Vancouver

Pacific Capital Real Estate

Proposed

169,000

MEC Head Office

Vancouver

MEC

Under construction

175,000

Oakridge Centre Redevelopment

Vancouver

Ivanhoe Cambridge / Westbank Corp.

Proposed

400,000

Broadway Central

Vancouver

Orca West Developments

Proposed

120,000

Metrotower III

Burnaby

Ivanhoe Cambridge

2014 completion

400,000

Solo District

Burnaby

Appia Developments

2015 completion

225,000

Brentwood Town Centre Redevelopment

Burnaby

Shape Properties

Proposed

TBD

Village at Fraser Mills

Coquitlam

Beedie Group

Proposed

100,000

Brewery District

New Westminster Wesgroup

Phased completion

265,000

Merchant Square

New Westminster City of New Westminster

2014 completion

137,000

Braid Street

New Westminster bcIMC

Proposed

400,000

801 Harbourside Drive

North Vancouver

Concert Properties

Proposed

210,000

Vancouver International Plaza

Richmond

Jingon International Development Group

Proposed

1,100,000

Sea Island Business Park

Richmond

Vancouver Airport Authority

Proposed

800,000

City Centre Professional Building

Richmond

Ampar Ventures Ltd.

Proposed

125,000

Central City Professional Building

Surrey

Lark Group

2014 completion

142,000

Gateway Business Park

Surrey

GE Capital/Dundee REIT

Proposed

500,000

Central City

Surrey

Bosa Properties/Surrey City Development Corporation

Proposed

175,000

Boulevard Tower

Surrey

The Circadian Group

2013 completion

140,000

King George Station

Surrey

PCI Group

Phased completion

495,000

Gateway 200 Business Park

Langley

Wesgroup

Phased completion

TBD 2013 Crane survey 7

Retail

Retail in Canada has fared well across all the major markets as spending continues to increase and new market entrants have muted the impact of any vacancies created by retailers exiting the market. Year after year, Canada continues to be a target destination for more international retailers. The relative economic health of Canada combined with our low per-capita ratio of retail space and continued retail spending

The relative economic health of Canada combined with our low per-capita ratio of retail space and continued retail spending has continued to make the major Canadian markets a must-have on many shopping lists. has continued to make the major Canadian markets a must-have for bluechip retailers. But retail is changing: online spending now accounts for nearly 15% of all purchases. Retailers across the spectrum are making major alterations to their store concepts and everyone, without exception, is increasingly focused on knowing and servicing their customer. The establishment of online shopping as a valid retail channel is reshaping the purpose of a retailer’s bricks and mortar location. Regardless of earlier predictions, online shopping has created a new and complementary alternative for Canadian consumers. Savvy retailers are realizing the power that online shopping has on their competitiveness, awareness and ability to access new consumers. The storefront, whether it’s in an enclosed mall, a high street location or elsewhere, has become the medium to reinforce their branding and shopping experience. While the integration of these two channels has translated to ongoing strength of the markets, it has also introduced new challenges to both owners and tenants. Retailers are continuing to adopt a push-and-pull strategy between their two sales channels. Online sales can easily be returned and exchanged at any store location. Conversely, 8 2013 Crane survey

most sales that occur at a retail location often conclude with an inducement for the customer to continue their experience online. This strengthening of the retailer’s relationship with a consumer is seemingly benign until the challenge of allocating sales to a specific channel is added. Online shopping has created the ability for most retailers to successfully sell products despite a lack of inventory at a specific location. For example, ALDO can arrange to ship a desired purchase to the customer’s home if the retail location fails to produce the desired size or style. Similarly, lululemon can provide online shoppers the option of picking up their purchase at the store of their choice. Online retailing has become a necessity for most successful retailers, but it is causing difficulties in calculating store revenues. This is challenging because landlords would suggest that all sales originating or concluding at a storefront should be allocated to the store’s revenues and therefore apply to the percentage rent. Retailers would argue that online retailing merely creates the opportunity to service the consumer, which is something they were previously unable to do. Calculating sales will be a major point of discussion in new leases and renewals in the months and years ahead. With no precedent for calculating store and associated online sales, both tenants and landlords continue to negotiate while waiting for an industry standard to emerge. One thing is certain: the continued change in retail creates more questions than answers. Retailers will continue to review, revise and likely reduce their physical footprint, and the role of a storefront will continue to be redefined. This is likely to create additional strain on the landlord/tenant relationship. More retailers are now opting for five-year terms as certainty of location becomes less critical to many businesses, and the growing lag time between leasing commitment and construction further divides landlords and their tenants. Time creates uncertainty for the tenant in a changing retail market and as such, we anticipate increased reluctance from tenants to provide meaningful pre-leasing covenants until the role of retail is once again more clearly defined.

Retail Project

Municipality

Owner

Status

Size (sq ft)[1]

Marine Gateway

Vancouver

PCI Group

2015 completion

230,000


Vancouver

Ivanhoe Cambridge/ Westbank Corp.

Proposed

350,000+

River District

Vancouver

Parklane Homes/Wesgroup

Proposed

200,000

Brentwood Town Centre Redevelopment

Burnaby

Shape Properties/HOOPP

Proposed

1,000,000

Lougheed Town Centre Redevelopment

Burnaby

Shape Properties/LTC Equities Inc.

Proposed

400,000

Station Square Redevelopment

Burnaby

Beedie Group/Anthem Properties

Proposed

300,000


Coquitlam

Beedie Group

Proposed

275,000

10770 72 Avenue

Delta

MK Delta Lands Group

Proposed

TBD

Seymour Creek Village

North Vancouver

Squamish Nation/Emerson Real Estate Group/Progressive Properties

Proposed

430,000

Fremont Village

Port Coquitlam

Onni Group

Phased completion

650,000

Vancouver International Plaza

Richmond

Jingon International Development Group

Proposed

1,575,000

McArthurGlen Outlet Centre

Richmond

McArthurGlen Group/YVR

Phased completion

390,000

Central at Garden City

Richmond

SmartCentres

Proposed

380,000

Tsawwassen Mills


Ivanhoe Cambridge

2015 completion

1,200,000

Tsawwassen Commons


Property Development Group

Proposed

600,000

Guildford Town Centre Expansion

Surrey

Ivanhoe Cambridge

2014 completion

500,000

King George Station

Surrey

PCI Group

Phased completion

345,000

High Street

Abbotsford

Shape Properties

2013 completion

600,000

[1]

For redevelopment projects the size listed for each development consists of the net increase of space.

2013 Crane survey 9

Residential

The outlook for Vancouver residential, specifically for high-rise condominium development, would appear to be unchanged for the past several years. Issues of affordability and sensitivity toward price ceilings have continued to translate to more efficient unit configurations. An analysis of new construction over the last 10 years indicates that overall unit sizes have decreased by 18% in concrete buildings. The largest decrease can be seen for one-bedroom units, which have shrunk by more than 22%. Barriers to entry exist and continue to mount as high land costs, significant competition for development sites and restrictive lending requirements are translating to high presale requirements and/or increased equity investment for developers. Despite the normal spring rush with multiple project launches in Richmond, the Tri-Cities, Burnaby and Surrey, we see little indication of developers’ interest in construction without pre-sales. Construction will continue but the market will set the pace, and with increased competition the industry will maintain its focus on intelligent design and pedestrian programming to create inclusive mixed-use communities. The idea of developing communities rather than stand-alone buildings is a growing focus for the Vancouver construction industry. Land availability constraints combined with increasing affordability pressures necessitate the continued design of vertical neighbourhoods. As such, the evolution of

10 2013 Crane survey

design, integration of uses, connection to transit and need to accommodate a diverse tapestry of the population will inevitably continue. Regardless of temporary swings in the market, living space will remain at a premium, so developers will continue to challenge their thinking on how to offer the lifestyle to which Vancouverites aspire through, not despite, densification. Current and future density in nodes such as southeast False Creek, Metrotown, Brentwood, Richmond Town Centre and Vancouver’s Marine Drive, which have traditionally been viewed as secondary condominium markets, are now recognized by buyers as desirable communities. The integration of rapid transit and meaningful retail and office space has created communities of a scale, diversity and brand that resonate with consumers. Moreover, these new communities have redefined and expanded community amenities. A renewed focus on retail and high street shopping is creating a greater sense of place and additional outdoor amenities for residents. The integration of substantial office space into projects like PCI Group’s Marine Gateway and Appia’s Solo developments create increased daytime traffic, ensuring a vibrancy to the community throughout the day.

Unit configuration by year 1,400 1,200 1,000 Unit size

Whether it is the result of land scarcity in the downtown core, demand for affordability, or current market opportunities, residential construction continues to diversify itself throughout Greater Vancouver. A pattern of growth is now visible along every major transit corridor, which is certainly a sign of a growing acceptance of new and emerging urban nodes. There are currently 57 high-rise condominium projects under construction throughout Greater Vancouver representing approximately 13,700 units. Of these, only 28% remain available for purchase. A further 8,200 condominium units within 47 buildings have been recently completed, leaving just 15% available for purchase. Moreover, half of the completed and unsold units reside within only seven projects indicating that for now, Vancouver and its outlying regions do not have an oversupply issue.

800 600 400 200

2002 2004 2006 2008 2010 2012 2014 Studio

One

One Plus

Two

Source: Data extracted from MPC Intelligence

Residential Project

Municipality

Owner

Status

Units[1]

Harbourside Village

North Vancouver

Concert Properties

Proposed

700

Seylynn Village

North Vancouver

Starmark Properties

Phased completion

720

River District

Vancouver

Parklane/Wesgroup

Phased completion

7,000

Wesbrook Place

Vancouver

UBC Properties

Phased completion

2,000

Wall Centre False Creek

Vancouver

Wall Financial Corporation

2013 completion

575

Rogers Arena Rental

Vancouver

Aquilini Development and Construction Inc.

2015 completion

625

TELUS Gardens

Vancouver

Westbank

2015 completion

500

Marine Gateway

Vancouver

PCI Group

2015 completion

425

Little Mountain

Vancouver

Holborn Group

Proposed

2,000

Plaza of Nations

Vancouver

Canadian Metropolitan Properties

Proposed

1,700


Vancouver

Ivanhoe Cambridge/ Westbank Corp.

Proposed

2,800

Wall Centre Central Park

Vancouver

Wall Financial

Phased completion

1,125

Concord Place

Vancouver

Concord Pacific

Proposed

1,100

Shannon Mews

Vancouver

Wall Financial Corporation

Phased completion

725

Squamish Burrard

Vancouver

Squamish Nation

Proposed

650

Burrard Gateway

Vancouver

Reliance Holdings/Jim Pattison Proposed Developments Ltd.

550

UniverCity

Burnaby

SFU Community Trust

Phased completion

4,000

Solo District

Burnaby

Appia Developments

Phased completion

1,350

Station Square

Burnaby

Beedie Group/Anthem Properties

Phased completion

1800

Brentwood Town Centre

Burnaby

Shape Properties/HOOPP

Proposed

2,000+

Lougheed Town Centre Redevelopment

Burnaby

Shape Properties/LTC Equities Inc.

Proposed

TBD

Safeway Distribution Centre Site

Burnaby

Ledingham McAllister

Proposed

TBD

10770 72 Avenue

Delta

MK Delta Lands Group

Proposed

1,850

Brewery District

New Westminster

Wesgroup

Proposed

850

Port Royal

New Westminster

Aragon Properties

Phased completion

650

Foothills at Burke Mountain

Coquitlam

Wesbild

Phased completion

2,500

Windsor Gate

Coquitlam

Polygon Homes

Phased completion

950


Coquitlam

Beedie Group

Proposed

3,350

Fremont Riverfront District

Port Coquitlam

Onni Group/Mosaic

Phased completion

650

River Green

Richmond

ASPAC Developments Ltd.

Phased completion

2,600

Parc Riviera

Richmond

Oris Consulting

Phased completion

975

2013 Crane survey 11

Residential (cont’d) Project

Municipality

Owner

Status

Units[1]

550 Cottonwood Avenue

Coquitlam

Concert Properties

Proposed

1,000

Sears Metrotown

Burnaby

Sears

Proposed

TBD

Pinnacle Living at Capstan Village

Richmond

Pinnacle International

Phased completion

1,200

Concord Gateway

Richmond

Concord Pacific

Proposed

1,175

Tsawwassen Shores

Tsawwassen


Phased completion

1,700

Southlands

Tsawwassen

Century Group

Proposed

1,000

Urban Village

Surrey

WestStone Group

Phased completion

1,600

Quattro

Surrey

Tien Sher Group

Phased completion

1,250

Bosa Central City

Surrey

Bosa Properties

Proposed

1,600

Holland Pointe

Surrey

Century Group

Proposed

1,050

Park Avenue

Surrey

Concord Pacific

Proposed

875

King George Station

Surrey

PCI Group

Proposed

1,300

Yorkson Creek

Langley

Quadra Homes/HJ Properties

Phased completion

1,125

Willoughby Town Centre

Langley

Qualico®

Proposed

1,250

3068 Gladwin Road

Abbotsford

Diverse Properties

Proposed

800

The number of units listed for multi-phased developments represent the total amount of units that have yet to be constructed. In some cases these developments have been under construction for multiple years and the majority of their overall units have been completed.

[1]


Residential construction continues to diversify itself throughout Greater Vancouver.


Public-private partnerships

Public-private partnerships: A well-established approach for delivering public-purpose infrastructure in Canada Over the past decade in Canada, public-private partnerships, often referred to as P3s, have moved from obscurity to becoming a relatively common approach for governments to procure and deliver large public-purpose infrastructure projects. Provincial governments in British Columbia, Alberta, Ontario, Quebec, New Brunswick and most recently Saskatchewan have established agencies or departments to facilitate P3s and standardize the model. The federal government established PPP Canada Inc. in 2009 to provide funding to other levels of government for projects implemented using a P3 model through the P3 Canada Fund. This has resulted in a number of municipalities across Canada now pursuing or using P3s to develop infrastructure projects. Examples of P3 projects in B.C. include the Canada Line, Sea-to-Sky Highway, RCMP “E” Division Headquarters and Britannia Mine Water Treatment Plant, as well as many hospital and highway projects. To understand what a P3 is, one needs to understand the traditional way governments deliver infrastructure: a government starts an infrastructure project by hiring an engineer or architect to define the project and develop detailed designs and specifications. These are then tendered and a contractor is selected (usually based on the lowest bid price) to build the project. The government pays the contractor based on progress and, when the construction is complete, the project, or asset, is left to the government to manage and operate. While the traditional model is relatively straightforward, it often exposes a government to significant risks related to delay, cost overruns and asset performance. The other issue with traditional procurement is that the focus is usually on initial construction cost only, with scant consideration of the cost and funding of major maintenance and rehabilitation of the infrastructure over its useful life. The result is a chronic deferred maintenance issue with infrastructure in most parts of Canada. What are the benefits of P3s? Under a P3 approach, various components of project delivery are integrated to reduce risks retained by government, stimulate innovation and improve accountability. The P3 models, which include long-term financing with equity investment by the infrastructure developer, provide an implicit long-term warranty on the asset and ensure that major maintenance and rehabilitation 14 2013 Crane survey

are funded. This type of P3 is referred to as a design-buildfinance-operate (DBFO) or design-build-finance-maintain (DBFM) model. Pension funds and institutional investors are the primary lenders to these projects because of the potential for stable, long-term returns. There is a cost to private financing compared to government cost of capital (currently about 190 basis points), but in cases where a government proceeds with a DBFM, the additional cost of financing is expected to be outweighed by the risk transfer benefits and efficiencies that the model provides. There are other types of P3 models, such as design-build-operate (DBO), that do not include long-term financing. Numerous case studies on capital projects demonstrate that compared to the traditional model, P3s offer early project completion, or at least significantly reduced completion delays. Furthermore, P3s provide cost and resource efficiencies through innovative design solutions, which are often leveraged by the full integration of design, construction, maintenance and operational aspects during the planning phase. These efficiencies are identified and exploited by P3 bidders applying life-cycle costing analysis. This analysis considers and evaluates the schedules and costs of construction, operation and maintenance, including the expected condition of the asset over time. Another important feature of Canadian P3s is government ownership of the infrastructure asset throughout the term of the P3 project agreement, which typically is in the range of 30 years. At the end of the term, the responsibility for the asset’s operation and/or maintenance is handed back to the government in accordance with pre-established conditions and at no additional cost at the time of transfer. Considerations for P3 procurement Key to the success of P3 is not only allocating project risks to the party (i.e., government owner or P3 contractor) who can best manage it (which is decided upon contractually in the project agreement), but also having the government owner effectively manage the P3 procurement process and related risks to assure that value for money is obtained over the entire term of the agreement. The complexity and size of large P3 infrastructure projects and their project agreements require specialized resources with the expertise to design and actively manage the P3 procurement process. Such expertise can be acquired in-house but more often is sourced externally. In some

cases, the need for suitable resources had been significantly underestimated, in part because the public sector was unwilling to fund the necessary upfront investment. Another challenge is the development and use of performance standards instead of definitive specifications to define the project. The introduction of performance standards enables innovation and risk transfer but also requires government to develop significant investment to which bidders can respond. Suboptimal P3s can result from procurement processes that are unable to attract sufficient market interest or the required expertise for successful delivery. To maximize value for money, competition has to be maximized. Leading practices to attract the market include the development of P3 policies and well-defined processes to ensure P3 is the best delivery model for the project. A good starting point is P3 Canada’s business case development guide. The guide has been developed to assist owners in developing business cases to support their funding applications. Each provincial P3 agency, including Partnerships BC, also published policies and processes that ensure strong market interest and competition for P3 projects.

As part of the 2013 budget and the Economic Action Plan 2013, the federal government has announced plans to renew the P3 Canada Fund by providing additional funding totalling $1.25 billion over the next five years. The Economic Action Plan 2013 proposes to implement a P3 screen on projects with capital costs of more than $100 million that are submitted by provinces, territories and municipalities for funding under the Building Canada Fund and to allocate $10 million from the P3 Canada Fund to support procurement option assessments undertaken by provinces, territories and municipalities. Significant municipal interest in P3s has been driven largely by the potential for partial federal funding from the P3 Canada Fund. In Western Canada, the Province of Saskatchewan’s 2013–14 budget provides funding for SaskBuilds to begin preparatory work and review the financial viability of P3s on several high-priority capital projects. In Alberta, the 2013 budget highlighted the continued use of P3s to deliver capital projects. The B.C. government’s position and commitment to P3s. Given the outcome of the last election we expect the continued use of P3s in B.C. at all levels is likely to remain strong.

Government budgets and P3 trends in Canada Today, Canada has one of the world’s most significant P3 markets in both capital size of transactions and total volume. Part of the success of P3s in Canada can be attributed to the creation of dedicated P3 agencies at the provincial and federal levels.


The complexity and size of large P3 infrastructure projects and their project agreements require specialized resources with the expertise to design and actively manage the P3 procurement process.


Transportation infrastructure Project

Municipalities

Owner

Status

Capital Cost

Evergreen Line SkyTrain

Vancouver to Coquitlam

BC MoTI[1], Translink

2016 completion

$1.40B

Expo Line SkyTrain Upgrade

Vancouver to Surrey

BC MoTI, Translink

Proposed

$1.1B

UBC Rapid Transit

Vancouver

BC MoTI, Translink

Proposed

$0.3B – $3.2B

Surrey Rapid Transit

Surrey, Langley

BC MoTI, Translink

Proposed

$0.25B – $2.1B

Port Mann Bridge/ Highway Vancouver to 1 Improvements Langley

BC MoTI

2012-13 completion

$2.46B

South Fraser Perimeter Road

Delta to Surrey

BC MoTI

2012-13 completion

$1.26B

Roberts Bank Rail Corridor Grade Separation Improvements

Delta, Surrey, Langley

Translink

2014 completion

$307M

Pattullo Bridge Replacement

Surrey, New Westminster

Translink

Proposed

$1.0B

George Massey Tunnel Replacement

Delta

Translink

Proposed

TBD

Public Transportation

Bridges, Roads and Highways

Airports and Harbour Facilities Port of Vancouver Centerm Expansion

Vancouver

VFPA[2]

2020 completion

$950M

Vancouver International Airport Expansion

Richmond

VIAA[3]

2027 completion

$1.78B

Delta

VFPA

Proposed

$750M

Deltaport Terminal 2 Expansion [1]

Ministry of Transportation and Infrastructure British Columbia

[2]

Vancouver Fraser Port Authority

[3]

Vancouver International Airport Authority


Social infrastructure Project

Municipalities

Owner

Status

Capital Cost

BC Children’s and Women’s Vancouver Hospital Expansion

PHSA[2]

2017 completion

$682M

Surrey Memorial Hospital Redevelopment

Surrey

Surrey Memorial Hospital

2014 completion

$512M

Royal Columbian Redevelopment

New Westminster

Fraser Health Authority

Proposed

$750M

St. Paul’s Hospital Redevelopment

Vancouver

Providence Health Care

Proposed

TBD

Police Facilities and Prisons Hospitals and Medical Facilities

Art Facilities, Convention Centres, Exhibitions, Sports and Entertainment Facilities Vancouver Art Gallery

Vancouver

VAG[3]

Proposed

$350M

UBC Acadia Road Elementary and Middle School

Vancouver

SD 45

2013 completion

$34M

International Village Elementary School (False Creek)

Vancouver

SD 45

2015 completion

$12M

General Gordon Elementary Vancouver School (Kitsilano)

SD 45

2016 completion

$15M

John Robson Elementary School

New Westminster

SD 40

2014 completion

$14M

New Westminster Middle School

New Westminster

SD 40

2015 completion

$18M

New Westminster Secondary School

New Westminster

SD 40

Proposed

$70M

Centennial Secondary School

Coquitlam

SD 43

2015 completion

$50M

Burke Mountain Secondary School

Coquitlam

SD 43

Proposed

$64M

Pitt River Middle School

Port Coquitlam

SD 43

2013 completion

$20M

Moody Middle School

Port Moody

SD 43

2014 completion

$20M

Anmore Middle School (Heritage Mountain)

Anmore

SD 43

2014 completion

$23M

Goldstone Park Elementary School (Newton)

Surrey

SD 36

2013 completion

$15M

Katzie Elementary School (Clayton East)

Surrey

SD 36

2013 completion

$14M

Yorkson Elementary School

Langley

SD 35

2013 completion

$13M

Yorkson Middle School

Langley

SD 35

2014 completion

$23M

Schools


Project

Municipalities

Owner

Status

Capital Cost

UBC Pharmaceutical Sciences Building

Vancouver

UBC[4]

2013 completion

$133M

Emily Carr Great Northern Way Campus Development

Vancouver

ECUAD[5]

2015 completion

$126M

Universities

Municipal Facilities, Community Centres and Other Facilities Surrey City Hall and Community Plaza

Surrey

City of Surrey

2013 completion

$50M

Vancouver Aquarium Revitalization and Expansion Project

Vancouver

Vancouver Aquarium

2013 completion

$60M

Plaza of Nations Community Centre & Ice Rink

Vancouver

Canadian Metropolitan Properties

Proposed

TBD

Edmonds Pool & Community Centre

Burnaby

City of Burnaby

2013 completion

$46M

Clayton North Secondary School

Surrey

SD36

TBD

$34M

Public Works and Government Services Canada Provincial Health Services Authority [3] Vancouver Art Gallery [4] University of British Columbia [5] Emily Carr University of Arts and Designs [1] [2]

Water, sewage, waste and utilities Project

Municipalities

Owner

Status

Capital Cost

Seymour-Capilano Filtration Project

North Vancouver

Metro Vancouver

2014 completion

$600M

Vancouver City Central Transmission (VCCT) Project

Vancouver

BC Hydro

2013 completion

$177M – $195M

Interior to Lower Mainland Transmission Project

Vancouver

BC Hydro

2015 completion

$709M

Iona Island Wastewater Treatment Plant Upgrades

Richmond

Metro Vancouver

Proposed

$1.0B

Metro Vancouver Wasteto-Energy Incineration Facility

Vancouver

Metro Vancouver

Proposed

$500M

North Vancouver

City of North Vancouver

Proposed

$400M

Lions Gate Wastewater Treatment Plant


Our team

Deloitte Real Estate Advisory When real estate is one of your organization’s major assets, there’s no shortage of interested stakeholders – and pressing issues. Deloitte can help you finance, develop and manage your real estate into a high-performing and low-maintenance asset. Our specialists have considerable experience in all areas of the industry – from site selection and facility management through complex tax and financing solutions. We advise on capital markets, debt and equity positions, securities, property analysis and valuation of interests. We also provide a complete range of real estate accounting, corporate governance, audit and tax services.

Contact Deloitte Real Estate David Hilts 604-640-3138 [email protected] Jennifer Podmore Russell 604-640-3069 [email protected]

Audit Mike Brankston 604-640-3118 [email protected]

Tax John Ormiston 604-640-3015 [email protected] Norman Yurik 604-640-3119 [email protected]

Liam Brunner 403-267-0601 [email protected]

Kathleen Blom 604-640-3024 [email protected] Albert Kokuryo 604-640-3232 [email protected]

Andrew Evans 604-640-3048 [email protected]

Dave MacDonald 604-640-3349 [email protected]

Ryan Adkin 604-640-3218 [email protected]

Saki Murachi 604-640-3153 [email protected] Jeff Ashton 604-640-3317 [email protected]

Todd Ponzini 604-640-3195 [email protected]

Kristina Singer 416-601-5939 [email protected]

Sherry Fung 604-640-3177 [email protected] Jessi Lally 604-640-4987 [email protected]


Tracy MacKinnon 604-640-3072 [email protected]

Deloitte Infrastructure Advisory & Project Finance Public-purpose infrastructure and related services are being stressed like never before in Canada. Population and economic growth is driving the need to expand infrastructure systems. Yet, the existing systems are often in dire need of refurbishment or replacement. Government infrastructure owners are only just starting to come to grips with the true lifecycle costs of infrastructure provision, which is creating challenges optimizing the way that our public infrastructure is designed, constructed, maintained, operated, and financed.

Deloitte’s Infrastructure Advisory & Project Finance practice is dedicated to helping government infrastructure owners meet these challenges. Our team of specialist advisors has a passion for infrastructure that has led them to coalesce in a team that draws from a diverse range of backgrounds including finance, engineering, accounting and law. The team has more than 100 years of combined public and private sector experience in bringing large, complex public infrastructure projects to market. Our clients receive the very best talent Deloitte Canada has to offer and the perspective, knowledge, and skills of a firm with vast international experience in delivering innovative financial and transactional solutions for public infrastructure projects.

Contact Financial Advisory Mark Hodgson 604-640-3236 [email protected] Mark Harrison 604-640-3008 [email protected] Chris Baisley 604-640-3357 [email protected] Marcos Martinez 604-640-3104 [email protected] Nurez Damani 604-640-3005 [email protected]


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