Charting the Path to Net Zero: BMO Real Estate Forum
- Keywords:
- sustainable real estate
Given the role buildings play in greenhouse gas emissions, it falls on the commercial real estate industry to take the lead in decarbonization. Whether it involves retrofits for existing buildings or designing new construction with sustainability in mind, developers and operators will have to navigate new and emerging regulations designed to meet Canada’s net-zero ambitions. For the industry, complying with tomorrow’s regulations means taking action now.
At the recent BMO Real Estate Forum, four industry leaders offered their perspectives on decarbonization regulations and their impact, as well as the tangible next steps developers and operators can take.
- Peter Gilgan, founder of Mattamy Homes and CEO of Mattamy Asset Management. A leading advocate for housing affordability, Gilgan has received some of Canada's highest honors in recognition of his impact on Canadian society, including an appointment as an Officer of the Order of Canada.
- Sean Pander, manager of green and resilient buildings for the City of Vancouver.
- James Nowlan, Executive Director of environment and climate for the City of Toronto.
- Sandrine Tremblay, Co-President and Chief Technology and Innovation Officer of Kolostat & Krome, which specializes in HVAC re-engineering projects to decarbonize real estate assets.
Kate Low, BMO’s Regional Vice President for Real Estate Finance, served as the moderator. Following is a summary of their discussion.
One step at a time
As Gilgan noted in Mattamy Homes’ inaugural sustainability report 
, “It’s been said that we are the first generation with the tools and technology to do something about climate change, and the last generation that can.” The trick for the industry is negotiating the tension between sustainability, affordability and making financially prudent business decisions.
“We look for the low-hanging fruit first—the things that are easy to achieve and with the highest impact—and then we keep chipping away at it,” Gilgan said. “Initially the industry is going to need some level of support from the government. Not necessarily writing checks, but some other form of incentives for the mainstream of the industry to want to adopt these things.”
Pander understands firsthand how governments can help real estate developers and operators consider carbon emissions in their projects. As he explained, Vancouver is unique in that it has its own building bylaw . The city also approved a Zero Emissions Building Plan that requires a majority of new buildings to have no operational greenhouse gas emissions by 2025, and all new buildings to be zero emissions by 2030.
Vancouver is also the first jurisdiction in Canada to set greenhouse gas and heating energy limits on existing buildings. Pander noted that the first greenhouse gas limits apply to large office and retail buildings and will take effect in 2026; the heat energy limits will take effect in 2040. While that sounds like plenty of time, Pander cautioned that the window of opportunity to act is smaller than it seems.
“There's only going to be one cost-effective opportunity to meet [those limits], and that's when your heating or cooling plant is coming to near end-of-life, and you only get one shot at it,” Pander said. “It's important for people with portfolios in those buildings in Vancouver to look at their gas usage and start to consider when those pieces of equipment are coming near end-of-life and to start planning to replace them. You still can use a little bit of gas; it's not a ban on gas. It's a large reduction in gas, and you need to start looking at heat recovery chillers, air source heat pumps or other common technologies that can do that heating and cooling function very efficiently.”
Toronto’s approach is similar to Vancouver’s. The Toronto Green Standard will require buildings constructed from 2030 onward to be near net zero . "The timelines are always challenging, whether we're talking about 2040 or even just in terms of making significant reductions in emissions,” Nowlan said. “It's critical for building owners to start planning early for those reduction pathways and to start building that into their capital plans at the earliest possible time.”
Support systems
For developers and operators in other regions, Nowlan said the larger cities often set the tone, which trickles down to other municipalities. “Typically, Vancouver, Toronto or Montreal often leads the way in terms of policy development. The larger cities do the heavy lift, and then part of what we do is pass that on to other municipalities. We work very closely with Ottawa and our partners around the region to establish some consistency in how municipalities are approaching this.”
Developers should understand that a wave of net-zero construction regulation is coming, and now is the time to start investing in the people and technologies you’ll need to comply. But how are municipalities supporting developers and operators in planning for upcoming regulatory changes? Pander said Vancouver is looking to develop digital tools for smaller portfolio owners—who may not have access to the sophisticated tools available to larger operators—to assist them with their retrofit plans.
Nowlan said Toronto’s focus is two-pronged. First, providing resources such as integrated retrofit support to help building owners who may not have in-house energy consultants to help them determine the steps they can take to reduce their greenhouse gas emissions. They’re also helping developers lay the groundwork for the inevitable market transformation that sustainability and decarbonization will bring.
“One of the biggest challenges is going to be around the workforce that is needed for these types of activities,” Nowlan said. “Working with the installers and suppliers in the marketplace to ensure that there is the right pipeline for the technologies and the actions we want to happen. We are a fairly large jurisdiction, so we can play a key role in helping to provide some certainty to the workforce in terms of the activities and investments they'll make in training and in supply. That will then provide some certainty for the building owners—that when they come to actually take action, there's someone there to do the installations and support their work.”
Internal alignment
Decarbonizing assets to comply with planned regulations can sound like an intimidating task. But as Tremblay pointed out, regulations exist to spur action. As an industry leader well-versed in developing solutions to comply with emerging climate and sustainability requirements, Tremblay said organizational buy-in is a key to success. Regardless of company size, the first step includes making sure all key departments are in alignment regarding how to approach carbon emissions as a financial risk.
Additionally, whether you have one or 100 buildings in your portfolio, Tremblay said you’ll need a 10-year roadmap that details how you plan to comply with existing and emerging regulations. When it’s time to replace a boiler, for example, new regulations will likely mean you’ll need a different solution.
“But in order to think outside the box, you need to have a fully aligned internal team and a good partner that can navigate those new regulations and a lot of the technical challenges that can come up,” Tremblay said.
The benefits
For owners and operators of certain building classes in large municipalities, retrofitting should be on your list of priorities now to comply with planned regulations. That includes making sure you have the financing and partners you need to deliver the work.
Some owners and developers may balk at the initial expense associated with decarbonization efforts, but Gilgan explained why taking the long view is critical to understanding the financial benefits.
“When there's an energy saving, there's also a financial saving,” Gilgan said. “And that financial saving in the annual or monthly utility bill isn't for free. It comes at the cost of a bigger investment in sustainable features. And those sustainable features, while they cost extra money, can in some cases be easily financed by the savings in the energy bill. That's a part that a lot of us are missing—half of the solution is right in front of our face. The money is already there.”
“It's a matter of risk management for building owners now,” Tremblay said. “The big developers already have their plans in motion. When developers start to have cleaner portfolios, if you're left with a brown asset, the value is going to be impacted more and more down the line. So, it's a risk management issue to start to prep for it and do something about it. It's not even an environmental consideration anymore; it's financial. To secure the value of your asset, you have to do something now.”
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Mike Beg:
Greetings everyone. I am Mike Beg, Head of BMO's Commercial Bank Canada Real Estate Finance Business. Thank you all for joining us today.
I would like to start with a land acknowledgement.
We honour and recognize the First Peoples of this territory, and all the territories on which we each live and work and the ongoing contributions of First Nations Inuit and Métis people for the vibrancy of our communities today. We are grateful for the opportunity to live and work together on these lands.
I am delighted to welcome you to today's event. We are excited to be joined by industry leaders who are actively involved in Canadian commercial real estate and have perspective on decarbonization, regulations and their impact, and tangible next steps for your business. It's guaranteed to be an informative discussion.
We have a lot to cover this hour, so I will quickly introduce our panelists and then we will get started. Joining us will be Peter Gilgan, Chairman and CEO of Mattamy Asset Management. Peter is a respected philanthropist and entrepreneur and a leading advocate for housing affordability and supports social and economic growth. Peter has received some of Canada's highest honours in recognition of his impact on Canadian society, including a member of the Order of Canada for innovative leadership in Canada's construction industry, and philanthropic support of initiatives in health care education, and athletics.
He was promoted to an Officer of the Order of Canada in 2020. Most recently he was awarded the prestigious Canadian Business Leader Lifetime Achievement award by the Canadian Chamber of Commerce in 2023, for setting new standards in leadership and innovation. Peter, we would like to congratulate you on this and your many other well-deserved recognitions. We are pleased to have you joining us today.
Also joining us is Sean Pander, Manager of Green and Resilient Buildings for the City of Vancouver. Under Sean’s leadership, Vancouver established the regulatory framework underpinning the BC Energy and Zero Emissions step codes.
Following this innovative framework, Vancouver’s building bylaw has been updated in a series of steps to reduce operational greenhouse gas emissions from new buildings by over 70% today and approved changes that will reduce emissions by 90% by 2025.
And James Nowlan, Executive Director of Environment and Climate for the City of Toronto. James oversees the team responsible for the development of corporate environment and climate policies such as Transform TO, the city's strategy to be net zero by 2040, the net zero existing building strategy, and the electric vehicle strategy working with many city divisions, agencies and external partners in the community.
We also have Sandrine Tremblay, who's the Co-President and Chief Technology and Innovation Officer of Kolostat & Krome, a sustainable construction engineering firm specializing in decarbonization and energy efficiency. With more than a decade of experience in building energy efficiency and a passion for sustainability, Sandrine is a recognized thought leader in the industry.
Moderating the discussion is BMO’s own Kate Low. As Regional Vice President for Real Estate Quebec on my Real Estate Finance Leadership Team, Kate brings in-depth career experience in real estate finance with well over a decade in the industry.
One last thing before we get started, if you are watching the event on the desktop or laptop you will see a chat box next to the video screen. Please feel free to use it anytime during the presentation to submit questions for the panellists. Thank you for all the questions we received during registration as well. We will address as many as possible during the round table discussion. With that I’ll now turn it over to you, Kate.
Kate Low:
Thanks very much, Mike. Alright, guys, let’s get started here. Peter, you are the lucky winner - the first panellist getting to speak with us today. Now, you opened Mattamy Homes’ inaugural sustainability report with this quote: “It has been said that we are the first generation with the tools and technology to do something about climate change, and the last generation that can. That is a message I take to heart, as founder and as a father, and a grandfather.” Peter, you are admirably committed to doing the right thing for the environment and generations that will succeed us. Tell us, is there a tension between doing the right thing and making decisions that are financially prudent for your business?
Peter Gilgan:
You know, it always appears so. On the surface and in fact, as recently as this morning, I was chatting with another person in the industry and her immediate response was “Wow, we always find the tension between sustainability and affordability. That is profound.” So, to deny that there is not a challenge is superficial, but challenges are meant to be overcome.
And as I said to this individual this morning, you know, the challenge is an elephant and we eat the elephant at one point in time, as they say. We don't need to do it all at once. We look for the low-hanging fruit - the things that are easy to achieve and with the highest impact, first. Then we keep chipping away at it. There is no question I think in my mind that initially, the industry is going to be needing some level of support from government. Not necessarily writing checks, but some other form of incentive for the mainstream of the industry to want to adopt these things. We think, we are close to finding a solution to be able to make all of our products net zero ready within the next couple of years and heading towards net zero by 2040. We think we are close to figuring out what that might look like, and it is a set of financial tools as well as cooperation with government.
Kate Low:
Wonderful. Thank you, Peter. Now, Sean, this one is coming over to you. Peter talked about how increasingly doing the right thing for the environment and doing the right thing for your business, how it’s overlapping, and it is a bite-by-bite scenario. Can you give us a sense of how the city of Vancouver is helping to regulate real estate developers and operators and when businesses should actually start thinking about carbon emissions?
Sean Pander:
I would be happy to. I think that you know, in Vancouver, Vancouver is relatively unique in that we have our own building bylaw. We don’t follow the provincial and national frameworks. And in the Vancouver building bylaw, if you are building new construction, detached homes or low-rise residential or commercial, the bylaw requires you to be effectively zero missions already.
And for high-rise multifamily buildings it will require zero emissions, which translates to pretty much fully electric unless you are connected to a low carbon district heating system, but you know, those are in place high-rise, multifamily buildings. Those take effect at the beginning of 2025. If you are planning to build a building in Vancouver, you are probably already aware that those regulations are in place, and they have been for a while now.
The other thing that’s important to note there is that the province has adopted the energy step code and the zero-carbon step code, which are kind of modelled on Vancouver's regulatory format, and local governments are opting into those same requirements for very low carbon, low energy new construction.
I think the thing that I want to highlight, though, is that Vancouver is the first jurisdiction in Canada to set greenhouse gas limits and heating energy limits on existing buildings. The first limits apply to large office and retail buildings, and those greenhouse gas limits will take effect in 2026. Now, those first limits that come up quite quickly, there are simple, low-cap things to do, and you can do it by using renewable energy. I think one thing that a lot of real estate operators, of those large office and retail portfolios, need to be aware of is the heat energy limits that will take effect in 2040, there is only going to be one cost-effective opportunity to meet them and that is when your heating or cooling plant is coming to near end-of-life. So, while 2040 seems a long way away, the regulation will require you to reduce your gas usage by between 60% and 90%, in order to comply. And again, you only get one shot at it so I think it is important for people with portfolios building in Vancouver to look at the gas usage and start to consider when are those pieces of equipment coming near end of life and just start planning to replace them with- You can still use a little bit of a gas, it's not a ban on gas. It’s just a large reduction in gas, so just start looking at heat recovery chillers for sourcing very common technologies that can do that heating and cooling function, and do it very, very efficiently.
Kate Low:
Thank you. So that requires some foresight. So now going from one coast to not quite the other coast, but close enough, over to you James. Can you tell, us how does Toronto's approach align or differ with what is happening in Vancouver?
James Nowlan:
I would say that in Toronto we are very aligned with Vancouver. We have the Toronto Green standard that currently is in place for existing buildings, for large buildings. And that will require near net zero new large buildings by 2028, and that has been a stepwise approach that we have been ratcheting up those requirements over time. So, kind of similar to the approach that Vancouver has taken with their building code, though we don't have the same authorities under our building code.
As it relates to existing buildings, we are also following the same path as Vancouver in terms of establishing building performance standards or emission performance standards for existing buildings. Earlier this year, we had the council reconfirmation of a policy approach that was outlined in our existing building strategy to set building standards for all sizes of building, and we have been directed to report back on those standards by the end of 2024, with some interim reports related to reporting requirements for different sized buildings. So, we are a little bit later in the process than Vancouver, but we are now into that world of setting emission building performance standards for all building types, so it will be large commercial institutional, all the way down to low-rise residential. So that’s the path we are on right now, and I agree again with John that the timelines are always challenging, whether we are talking about 2040 or even just in terms of making significant reductions in admissions and it’s critical for building owners to really start planning early for those reduction pathways and to start building that into their capital plans at the earliest possible time.
Kate Low:
And, so James, for those of us not living in Toronto and Sean for those of us not living in Vancouver, from what you're seeing it what you understand across other municipalities and regions, can our developers and operators expect to see some sort of a similar approach in our local environment compared to where you are? James, maybe we'll start with you on that one.
James Nowlan:
I will start off. I think that typically you will see Vancouver and Toronto and Montréal leading the way in terms of policy development. We have seen that in the past in other instances, whether it is financing programs that have started in larger cities that we are now seeing the roll out across the country, but I think that is generally often the way that the larger cities set those policies, or do the policy work, do the heavy lifting. Part of what we do is we pass that on to other municipalities, so part of our work is not just establishing for Toronto but also looking at ways that we can support others, especially Ontario. We work very closely with Ottawa and our partners around the region so we can start to establish some consistency also in how municipalities are approaching this, so I would say there is significant work across municipalities to share information and share approaches, and wherever possible, be consistent in our delivery and the activities that we set up.
Kate Low:
Thanks, James. So as of now, we have kind of covered a little bit with Peter about his philosophy and what he is seeing and what he's bringing into the industry, and across the country with our regulations that we're seeing in cities, seeing them bring in. But, on the other side of the coin, decarbonizing assets to comply with all of these planned regulations can sound like a potentially intimidating task. I would like to turn it over to Sandrine who is one of our experts with some of the solutions here. Sandrine, can you give the audience a sense of where do we even start or what steps we should be thinking about, and should we be taking immediately?
Sandrine Tremblay:
Yes, for sure. I think regulations are intimidating but they are there to make people move and, in my opinion, every building has to be decarbonized but nature and then things are pushed forward, but regulation is kind of there to make people move. And that works. So, it is intimidating but at the same time we need to do the decarbonization of the portfolio, and as Peter mentioned, it is not the point of swallowing the entire elephant at the same time. It is really to go bite-by-bite. What I see is the first step I would say would be for the portfolio owner or the owner to have a team that is really aligned. So, the finance, the sustainable ESG department and the operation has to have a common goal in terms of decarbonization for it to work. So, establishing the goal of the company and the targets, the targets could be different. Financial target can be different, the pace of decarbonization, but for sure, having a plan and looking at the entire portfolio building-by-building. Timing, as Sean mentioned, timing is the essence of everything. You have to go in a project when you have the tactics, when you are in multi-residential, when you are in the mortgage renegotiation, that is your timing to do the decarbonization. And that timing won’t come back before 20 years, so once you are in that project, now regulation will force you to look at that CapEx project and make it a decarbonization project. That is what I like because before it was based on goodwill of everybody. Now regulation is telling you, okay you have a boiler replacement coming up, you have to think outside the box. But in order to think outside the box you need to have a full internal team and a good partner that can navigate with those new regulations. And a lot of technical challenges came up as well, with refrigerate change and a lot of technical challenge that comes with regulation as well.
So, you have to have a good partner and you need, if you have 1 or 100 buildings, a good road map of how it is going to happen with those projects year after year. You need to kind of have a ten-year plan to make sure that you grind at the elephant year after year to make sure that you're going somewhere with your project, but you don't have to put too many capital in one year to achieve those regulations or those goals. It's basically a systematized approach on regular CapEx project but bringing up level to the very C-suite of the ownership of the building or asset management and dealing really cold-hearted at it and have great partners, for sure.
Peter Gilgan:
Sandrine, I think that we have all sort of heard, those of us on the business end, have talked around this issue, I think you got very close to what’s dear to my heart, which is recognition that when there is an energy saving there is also a financial saving at the same time. And that financial saving to the building owner, the tenants, whatever the case might be, that financial saving in the annual or monthly utility bill is not for free. It comes at the cost of a bigger investment in sustainable features in the building. And those sustainable features, while they cost extra money, can in some cases, be easily financed by the savings and the, basically, in the energy bill. That's the part that a lot of us are missing. That half of the solution is right in front of our face. The money is already there, the monthly utility bill that gets cut in half, that money is available to support the payment of increased sustainable features in any building. The other thing is when we talk about doing it around the end of life, that I guess James had mentioned, so the end of life or new building is the beginning of life, same thing. And that’s the right time to do it as well - much more effective to do it at the beginning. Right now, ironically in Ontario, it would pay a homeowner to buy an unsustainable house, and then rip the HVAC system out a year later, because there is an incentive program for the homeowner to upgrade a one-year-old house, which is not available to new construction. That has got to change. It is clear that those are the kinds of things that we have to smooth out to make this whole thing work, to make it acceptable to the industry at large.
Sean Pander:
You, know Peter, I think one of the things, when we have done our work, especially in new construction, we do take that kind of life cycle analysis here in Vancouver, and that is where when we wrote the bylaws requiring zero emissions in pretty much all new constructions, we did the analysis of here is what you have to spend extra on better insulation, better windows, airtightness, high-efficiency heat recovery ventilation, whatever that kit is to lower the energy. But then we look at the energy and what we’ve come is on a life cycle, and that’s where the regulator goes. For the people living in these buildings, there might be some hesitancy to see that extra three or 5% up front, but they're going to more than save that money in the utility bills. It’s like we know this isn't affecting the affordability in terms of owning and living in a home. And so, I really think that is the role regulation comes in, and that is sort of the basis by which we began to have introduced regulation.
Peter Gilgan:
It is to make sure we have the financial tools available to make that transition. I know, Michael, at BMO, you've got something in the commercial space where you have a program. I know that the savings from the energy equipment upgrades is guaranteed to be able to pay a financial cost of putting in new equipment. It is guaranteed by, as I recall, Siemens and someone else. Those are the kinds of programs that I think are going to shrink the size of this pill if you will, to something that is easy to swallow.
Kate Low:
You are absolutely right on that, Peter. As you, mentioned BMO's ground-breaking retrofit program is something we’re incredibly proud of, and we’re excited to get it further out into the market. That is specific to being able to retrofit and decarbonize existing assets. But what I am curious about also, you touched on this as well as Sean, what about our new construction? How does Mattamy approach building for net zero from the ground up?
Peter Gilgan:
Well, you know, for a big focus starts with the building outflow, reducing the need for any kind of energy is the first most important thing that we continue to address. And airtightness, the amount of insulation, the air changes per hour, we’re really reducing those down. Everything to do with the building outflow, that's the place to start. And then it is just looking at the mechanical equipment: the most efficient, the air source or ground source heat pump or other circumstances, and outwards from there. Ontario, I guess, we are changing weather patterns, but we can't substantially change the amount of sunshine that Ontario gets. So, fortunately, our electric grid in Ontario is quite clean, it’s 85% - 90% clean energy. Other jurisdictions that we work in, where there is a lot more sunshine, solar starts to move towards paying for itself. We build in many places across North America. One of the cities we build in has 340 days of sunshine a year. Those solar panels are working a lot.
I’m just finishing my own house in Florida right now, and it will be a net zero energy house completely, with the combination of building outflow geothermal system as a really phenomenal solar rate where we took many of the solar panels made of really terrific architectural feature out of them to really demonstrate that solar panels don’t need to be ugly.
Sean Pander:
I think just building on Peter's point briefly, I know Kate you probably want to move on to the other questions. He spoke to solar and where you’ve got solar exposure, it can be a great, relatively cost-effective solution. Where you have a milder climate like on the West Coast out here, one of the things we are finding in the new construction space is air source heat pumps, you can get cold climate air source heat pumps. What that does is yeah, they cost more than a conventional gas-fired boiler or furnace, but they offer the cooling. They do zero carbon heating, and you get the cooling as well, which is rapidly becoming an issue out here where we have lots of buildings without air conditioning or cooling capacity in the summer. In 2021 we had the heat dome, we have over 100 people just in the city alone perish in that brief period of extreme heat. We're going to see more and more of that and more and more you see the market say we have to have cooling, and so if you want cooling, you get the zero emissions heating almost for free anyway. So, in our climate, those cold-temperature air source heat pumps are a fabulous solution.
Kate Low:
Thank you, Sean.
While we are with you, we have already heard, through both yourself and through James, about how Vancouver and Toronto are phasing in regulations to support the decarbonization of our building stock, but how are your municipalities helping support our developers and operators plans for the upcoming changes? Where can they go to get support and what kind of support can they expect to receive? Sean, why don’t we start with you?
Sean Pander:
Okay, yeah. A lot of our support is focused on the existing buildings. As we bring in those regulations that are impacting the existing buildings, we’re really focused on let’s support those owners.
Some of the things that we're developing right now, and looking to launch in February next year, is we're looking to sort of build upon the utilities recommissioning programs, super cost-effective just to recommission your building. You can reduce energy use by 10%, with simple paybacks like two years. It's a really cost-effective approach, there's incentives and programs that utilities have to help, but unfortunately, the smaller portfolio owners can't access those incentives, so we’re working with the utilities where the city can help bridge that and make those utility programs available, so that’s one of the things. As I was signalling, for our 2024 heat energy limit you really have to know what are the major steps your building will take, and you need to know them pretty quickly because some of those key opportunities could be next year or could be coming up in the next few years. There is a growing array of digital tools that you can complement with just a little bit of operator interview or a little bit of onsite time that can plot out, not a detailed retrofit plan, but can point you at: this is coming up, you should be looking at this in the next couple of years or what kind of time frame.
So, we’re going to look to develop tools, especially for the smaller building owners, the smaller portfolio owners who may not have access to the sophisticated tools who maybe haven’t done this. I think making those tools available, especially for the smaller, less sophisticated operators, will really point them at “Wow, you’ve got 4-5 years, you need to start paying attention yesterday” sort of thing, and “This is where you should focus your energies, here are probably your most cost-effective opportunities.” So, again, I think really supporting those smaller folks. And then, yeah, we are working with Metro Vancouver and a local organization called ZEBx (ZEBx.org) to look at providing that concierge service of, people coming in and you got the tool, you're still not quite sure how to do things, and how can we help those less sophisticated operators through their own planning process. So, we’re looking to launch that and have received funding commitments to provide that concierge service, so we would be hoping that they be in a position to offer that handholding as early as later next year.
Kate Low:
Great. Sean, while we have you here, we do have one quick question from the audience. They are interested in hearing from you about how the city of Vancouver is assisting health authorities with turning this corner when the priority is maintaining and improving quality and capacity to deliver health care.
Sean Pander:
We have begun looking with Vancouver Coastal Health and looking at the opportunities when we are decarbonizing for cooling and for new construction, we've done this again. We’ve looked at requiring the highest levels of air filtration that is commonly interfaceable with HVAC equipment. I think a big part of our focus now is looking at the overheating risks in existing buildings, especially multifamily buildings, where they don't have cooling typically out here. And looking at: okay, adding heat pumps could take a while, it’s expensive, there’s electrical capacity things that you have to work through. So are beginning to look, at what are some of those lower-cost measures that will help the population with those impacts. We're also looking at those opportunities to increase airtightness and make sure that the air during a high smoke event can be filtered. So, we've took on that work with the health authority here.
Kate Low:
Awesome, thank you. Now, James over to you in Toronto. How can our clients reach you, and where can they go for support, and what sort of support should they be able to find within the city of Toronto?
James Nowlan:
So, I think we are very similar to Vancouver, but I’ll run through some of our programs that we have now, but we’re also, as part of our development of our building performance standards or emission performance standards, we’re going to be looking at our suite of tools, what we need to enhance, what is necessary to really aid building owners to achieve those standards.
So, part of the work that we're going to be doing is that review, but right now there are a few areas that we focus on, and I’ll say two main groupings. One is support in resources, and the other is support in laying the groundwork for market transformation, so that won't necessarily directly help building owners, but will speak to how that helps them indirectly. I think one of the biggest challenges is going to be around the workforce that is needed for these types of activities.
On the first one around support in resources, one is around integrated retrofit support. Through the city of Toronto, we provide something called navigation services, so we're actually able to help building owners who may not have in-house energy consultants and others, to look at what types of activities they can take to reduce their greenhouse gas emissions or their overall intake. In addition to the city of Toronto, our partners in Toronto Hydro, the local utility, are also establishing an advisory services group, and they will also be available to provide customers and building owners direct support in terms of activities that will help them to focus on decarbonization.
For Toronto, the greatest focus will likely be energy efficiency, but around electrification, just because of the clean, or cleaner, grid that we have here, with 90% clean electricity, so a lot of our activities are focused on electrification. In that case, you've got direct support: what you can do, what activities you can take. Then there is the financing, so the city of Toronto does not do funding; we look to the federal government, provincial governments in terms of funding, but we do have financing programs, and right now for example we do have the sustainable initially planned financing program that the city provides, where we are supporting all types of buildings, but primarily larger buildings, including commercial, to actually take energy retrofits. We provide low-interest financing, in certain cases, or lower-interest financing, and really work through business case, and that can be up to 30 years in terms of investing in the business case for return on investments of that upfront capital. Depending on what is happening in the market is not always the best time to invest in 30 years’ worth of financing. I think we're hearing from some of our interested parties, now might not be the best, but that is something that people can look at as well. And we will be looking at other opportunities for financing that we have.
We'll also look at opportunities to work with partners such as commercial banks in this area, and that’s part of what we'll be doing over the next year, is looking at types of partnerships we can establish, as well as looking at work with folks such as the Canada Infrastructure Bank in terms of how we can potentially support aggregation of projects to bring some larger projects into their thresholds.
One of the other areas that directly benefit is we are reviewing and will be reviewing our permitting and approval processes for deeper retrofits. We know that taking action on retrofits for new builds isn't always about that capital – there is cost in time, there is cost in permitting, there is cost in the process, and so looking at our process, our approvals is one way we can also reduce upfront costs that can add to the business case of taking action.
So that’s a few of the areas we’re focused on, and then kind of into the groundwork side, I’ll really maybe talk about two areas. Building awareness is a key area – we work with a lot of partners, especially on the large commercial side who are very aware of what's going on. I would say that in the mid-tier commercial, we are probably seeing much less awareness in terms of where we are going with regulations, especially for existing buildings, so we'll be taking a real proactive approach to communication engagement and awareness building. And not just about regulation, but about the opportunities – so building road maps and retrofit road maps for all different types of buildings, and then building those template business cases, so having that upfront. And just kind of going back, for example, we talked about solar. We have a program SolarTO where anyone can go online, put in their building address, put in a bit of information and they can get a desktop right away business case related to their solar potential, based on whether the building sits, potential for shading from other buildings or from the canopy nearby. But even just that initial upfront information is helpful to people to think, what type of investment could I make, what type of paybacks can I see. That is all available right now, so proactively getting that information out.
The next area we are focused on, more on the indirect side, is around workforce development training. Working with the installers in the marketplace and the suppliers to ensure that there is the right pipeline for the technologies and the actions we want to happen. We know Toronto, alone, won’t dictate the workforce, but we are a fairly large jurisdiction so we think we can play a key role in helping to provide some certainty to the workforce in terms of activities and investments that they’ll make, both in training and supply that will then provide some certainty for the building owners, that when they come to actually take actions, there’s someone there to do the installations, there’s someone there to support the work, and they're not kind of getting into long lines and timelines for that installation to happen.
A couple areas that are focused on that are more interactive, but that I think will have longer-term payoffs in terms of these broader shifts of the market to lower carbon or zero-emission technologies.
Kate Low:
Wow, I have got to say that between James and Sean, there's a lot to unpack there. It is wonderful to hear that there is so much work and so much effort being done behind the scenes to make sure this can support all of our builders and developers to move forward in the right direction.
Now, so far, we are 40 minutes into our chat today and we've already touched on the hurdles and the opportunities that we have. We've touched on the resources and the incentives and the tools that are being put in place to help us get there. It's been quite heavy-duty in terms of the information.
Just to take a step back, if we can go to Sandrine and Peter, given your everyday roles in your particular environments, and based on what you've heard today, can you help us sum up maybe just one or two key takeaways that you think the real estate developers and operators should leave with today? Sandrine, why don’t we start with you?
Sandrine Tremblay:
I'm a bit pushy, so I’ll go with there is no reason not to move. Regulation is pushing and we have great incentives and programs in every city. And you didn't mention, James, but TAF as well in Toronto is very helpful, Toronto Atmospheric Fund. I was thinking of them when you were, talking about the programs. But my point would be, it is a matter of risk management for building owners now. Those buildings will be decarbonized and at different paces, but the big corporation already have big plans already in motion for that. We’re helping the big portfolio – they all already have their plans, have their partner, they’re looking at incentives and taking up a lot of the space in that area. So, it's not a race but it is a race. In the end, when people start to have cleaner portfolios, if you are left with the “brown asset,” the value is going to be impacted greater and greater down the line. So, I think it is risk management to start to look at it and prep for it and do something about it now. It's not even an environmental consideration – it’s financial. To secure the value of your assets, you have to do something now. That would be my takeaway.
Kate Low:
And Peter, what about you?
Peter Gilgan:
Touching on a couple of points that James mentioned. First of all, James, I was pleased to hear you conclude new construction with retrofit in one of your comments. And I think just to focus on a retrofit without recognizing the impact that new construction can have and addressing it to the same level of concern as with a retrofit is a very valid thing to do, and I appreciate you mentioning that.
The other thing, I’m just going to go a bit sideways here, Canada, we have a great track record for inventing things, and a terrible track record for commercializing them. And there are situations where I'm aware of very early-stage inventions, if you will, that will create a couple of sources of renewable energy, that today don't even exist. I'm not going to take up everybody’s time today to talk about them, but they are learning to become commercialized, it would provide an ability to achieve net zero energy much more easily, and a technology that could be shared and sold around the world.
So, I would encourage us, as a country, to go out of our way to support these “mad scientist” guys that are working in the back room, trying to invent some technology that we're not even talking about today. I’m aware of two of them in fact, that’s something I just think, it is more federal jurisdiction, but as a country, we need to do better in supporting these guys.
Kate Low:
I like the idea of a mad scientist, I have to say, very supportive. Coming back to the cities, Sean and James you’ve just heard from Peter and Sandrine in terms of their key takeaways. Peter touched on the things that we are not even thinking of yet. Sean, I will bring it to you first. What else aren’t we thinking of? If there is one thing that you feel there is a strong need to bring into our industry and our organizations, what would be the one thing that we need to see more of?
Sean Pander:
Well, I was going to go to support to attract youth and more people into the trades because all this innovation is really handicapped by the lack of skilled trades. But I’ll use my one to just focus on, as we regulate these existing buildings that we’re looking to industry to transition to the relationship between tenant and owner of the building. What we are aware of is, the regulations apply at the building level but in some cases, your tenants have their own HVAC equipment, and you are responsible for those greenhouse gas emissions, but you don't control the capital assets that are causing those. Now, the way we have structured our fee, for a greenhouse gas limit, you’ll be paying $350 a ton that you’re over the fee on an annual basis. And it is an operating fee, so in theory, you can pass it onto your tenant, but because you don’t have their specific meter data, you just have your specific building meter data, I think to begin advancing that work, I think owners really should be looking at, as leases come up for renewal, to begin looking at a lease structure that enables you to work with them to address that carbon limit that they need to come into compliance with.
Kate Low:
Excellent, thank you. And James, back over to you, what do you think?
James Nowlan:
So maybe kind of two takeaways, I would say. With municipalities being a level of government closer to the building owners, I think while you’ve heard a lot from Sean and I today talking about some of the resources that we have, there are a lot of resources out there. A lot of what we’re doing, I think we view this more in terms of a partnership with building owners in terms of achieving these outcomes. The regulations are there, setting a baseline, setting direction, but a lot of what we are doing in terms of the work on actually achieving emission reductions is going to be direct engagement, whether it’s with the municipality, whether it’s with our partners, I forgot the Atmosphere Fund who is doing fantastic work across the region and is another municipal entity that’s out there working. There are a lot of resources and a lot of opportunities to work with municipalities and to think about different ways we’re approaching this. I think to look at this as problems, as set out at the beginning that can be solved, and we are partners in that problem-solving as opposed to regulators at all points in time. We like to set direction in terms of where we need to go but working together is the best way to get there.
Then lastly, between the municipalities and other levels of government, I think certainty is going to be a key element. We know that the world changes constantly, and that can bring certain levels of uncertainty, but the more that we can work together to advocate for certainty, to establish the right processes that enable that certainty, I think it will benefit in terms of creating a much smoother transition to net zero or low carbon than if it was a reactive approach or done in an ad-hoc manner. I think that is something we can all work together from a broader perspective.
Kate Low:
Very well said, James, very well said. Thank you. Mike we're going to turn it back over to you with a question from the audience. We would like to know, has there been any discussion around using an alternative certification other than Investor Ready Energy Efficiency, or IREE, given the material delays being experienced through the Canada Green Building Council, in order to obtain that IREE certificate?
Mike Beg:
Thanks, Kate. As with any real estate lending we do, I think it's important to have confidence around the basis of the transaction, and that’s why we use third-party opinions so much in this industry to support our credits decision-making. The same is true for retrofits. The Investor Ready Energy Efficiency, or IREE certification gives BMO and Canada Infrastructure Bank confidence that the work has been correctly scoped and costed, with credible and verifiable emission reductions. IREE is the solution that best fits this need at the moment we’ll continue to transact around IREE while this remains the case.
However, the certification must evolve as the market expands. Capacity needs to be added to ensure quick processing and the certification must have the ability to adapt to emerging use cases. BMO recognizes the current backlog for IREE certification and we’re partnering closely with the federal government, and Canada Green Building Council, or CAGBC, to address these obstacles. Where these backlogs directly impact our clients, BMO and CIB are committed to showing flexibility to minimize the impact and construction surges.
Kate Low:
Thanks, Mike. One more question for you. What are the financing rates and incentives available for sustainably related lending?
Mike Beg:
I will just say that BMO has most recently launched a retrofit program mentioned earlier, which offers great incentives for sustainability-related lending. It is the first-of-its-kind in North America, and in partnership with Canada Infrastructure Bank, gives BMO clients access to deeply discounted capital. It’s tied to the Government of Canada 10-year bonds, the program finances energy efficiency retrofits to existing buildings. There is also opportunity to bundle the retrofit program with our sustainability-links deposits, offered within BMO, where depositors are offering an improved yield in return for verifiable greenhouse gas reductions. Our appetite for continued innovation and leadership remains stronger than ever, and we are evaluating options to incentivize net zero-ready construction, as well as tools to advise our clients on their own decarbonization journeys. Additionally, we remain open to bilateral partnerships with clients seeking help to realize ambitious sustainability agendas.
Kate Low:
Thanks again, Mike. We have one last question from the audience, and I am going to elaborate a little bit on this question. Unfortunately, Peter, I am putting you back in the hot seat here. The question from the audience is, can Peter weigh in on how their GeoExchange program is working in Markham? And then my own question, acknowledging ignorance, is what is your GeoExchange program? Peter, over to you.
Peter Gilgan:
You know it is a pretty significant experiment where we've built a few hundred homes – single-family homes in Markham using a geothermal system, and it's working well. It is spectacularly unaffordable, actually. The size of the community and the distribution pipeline involved to connect everything together is proving to be very difficult to justify from a financial standpoint, to be blunt about it, and we are now looking at more individual systems for each house. This is a communal-type system. On paper it made sense, but we are not finding it in practice to work from a financial standpoint. Having said that, the system itself is working great, and maybe over time, like everything costs way too much to start with, we will beat it into submission. I believe it is 400 homes in the community
Kate Low:
That sounds exciting, Peter. And quite frankly it sounds to me like you're being your own mad scientist, which I applaud. And the more that these ideas are shared and incubated and talked about across the country, the more we find solutions and different ways for making things work.
Peter Gilgan:
We are hosting an event here in Toronto and inviting builders of any significant size at all to an event at the end of February, and BMO of course is invited, to talk about everything we are doing, every mistake we have made, everything we’re doing right, and it is absolutely an open book, because we're saying this is not to gain a competitive advantage, all the work that we're doing. The only advantage we want to get is on top of the environment – that’s our challenge. We may well be the largest builder in Canada – so what? That’s only 3% of all houses, so we need to get a substantial portion of the rest of the industry to agree with us as to the achievability of really building much more sustainably than we do today.
Kate Low:
Couldn't agree more. Thank you, Peter. I think we can all safely say that we all have the same end goal, we are all on the same road together, and the more we work together, the easier the transition and the easier the road will be. Thank you, Peter, for your insight.
Peter Gilgan:
One hundred percent.
Kate Low:
Now turning a back over to Mike for our closing comments. Thank you, everyone.
Mike Beg:
Thanks, Kate, and thank you all again for joining us. We hope that you enjoyed today's session, and I want to thank you again for taking the time out of your busy day to spend time with us here. The topic of decarbonization and regulations can be very daunting. Noting I've been contacted by clients across this country, seeking guidance around regulatory specifics that are still unfolding, so there is uncertainty. But we hope today’s speakers may have helped with both information and to inspire you to have a strategy if you don't, or further build on the one you already have. On behalf of BMO, we want you to know that we are here to help and are well-prepared to serve our clients. As a reminder, today's call was recorded and is available for playback. You will receive details on how to access that in an email later this week. This concludes our call today, thank you and take care.
Mike Beg
Head, Real Estate Finance
Mike Beg as Head, Real Estate Finance, Canada is responsible for management of BMO’s Commercial Real Estate Finance group and its client relationships across …(..)
View Full Profile >Given the role buildings play in greenhouse gas emissions, it falls on the commercial real estate industry to take the lead in decarbonization. Whether it involves retrofits for existing buildings or designing new construction with sustainability in mind, developers and operators will have to navigate new and emerging regulations designed to meet Canada’s net-zero ambitions. For the industry, complying with tomorrow’s regulations means taking action now.
At the recent BMO Real Estate Forum, four industry leaders offered their perspectives on decarbonization regulations and their impact, as well as the tangible next steps developers and operators can take.
- Peter Gilgan, founder of Mattamy Homes and CEO of Mattamy Asset Management. A leading advocate for housing affordability, Gilgan has received some of Canada's highest honors in recognition of his impact on Canadian society, including an appointment as an Officer of the Order of Canada.
- Sean Pander, manager of green and resilient buildings for the City of Vancouver.
- James Nowlan, Executive Director of environment and climate for the City of Toronto.
- Sandrine Tremblay, Co-President and Chief Technology and Innovation Officer of Kolostat & Krome, which specializes in HVAC re-engineering projects to decarbonize real estate assets.
Kate Low, BMO’s Regional Vice President for Real Estate Finance, served as the moderator. Following is a summary of their discussion.
One step at a time
As Gilgan noted in Mattamy Homes’ inaugural sustainability report , “It’s been said that we are the first generation with the tools and technology to do something about climate change, and the last generation that can.” The trick for the industry is negotiating the tension between sustainability, affordability and making financially prudent business decisions.
“We look for the low-hanging fruit first—the things that are easy to achieve and with the highest impact—and then we keep chipping away at it,” Gilgan said. “Initially the industry is going to need some level of support from the government. Not necessarily writing checks, but some other form of incentives for the mainstream of the industry to want to adopt these things.”
Pander understands firsthand how governments can help real estate developers and operators consider carbon emissions in their projects. As he explained, Vancouver is unique in that it has its own building bylaw . The city also approved a Zero Emissions Building Plan that requires a majority of new buildings to have no operational greenhouse gas emissions by 2025, and all new buildings to be zero emissions by 2030.
Vancouver is also the first jurisdiction in Canada to set greenhouse gas and heating energy limits on existing buildings. Pander noted that the first greenhouse gas limits apply to large office and retail buildings and will take effect in 2026; the heat energy limits will take effect in 2040. While that sounds like plenty of time, Pander cautioned that the window of opportunity to act is smaller than it seems.
“There's only going to be one cost-effective opportunity to meet [those limits], and that's when your heating or cooling plant is coming to near end-of-life, and you only get one shot at it,” Pander said. “It's important for people with portfolios in those buildings in Vancouver to look at their gas usage and start to consider when those pieces of equipment are coming near end-of-life and to start planning to replace them. You still can use a little bit of gas; it's not a ban on gas. It's a large reduction in gas, and you need to start looking at heat recovery chillers, air source heat pumps or other common technologies that can do that heating and cooling function very efficiently.”
Toronto’s approach is similar to Vancouver’s. The Toronto Green Standard will require buildings constructed from 2030 onward to be near net zero . "The timelines are always challenging, whether we're talking about 2040 or even just in terms of making significant reductions in emissions,” Nowlan said. “It's critical for building owners to start planning early for those reduction pathways and to start building that into their capital plans at the earliest possible time.”
Support systems
For developers and operators in other regions, Nowlan said the larger cities often set the tone, which trickles down to other municipalities. “Typically, Vancouver, Toronto or Montreal often leads the way in terms of policy development. The larger cities do the heavy lift, and then part of what we do is pass that on to other municipalities. We work very closely with Ottawa and our partners around the region to establish some consistency in how municipalities are approaching this.”
Developers should understand that a wave of net-zero construction regulation is coming, and now is the time to start investing in the people and technologies you’ll need to comply. But how are municipalities supporting developers and operators in planning for upcoming regulatory changes? Pander said Vancouver is looking to develop digital tools for smaller portfolio owners—who may not have access to the sophisticated tools available to larger operators—to assist them with their retrofit plans.
Nowlan said Toronto’s focus is two-pronged. First, providing resources such as integrated retrofit support to help building owners who may not have in-house energy consultants to help them determine the steps they can take to reduce their greenhouse gas emissions. They’re also helping developers lay the groundwork for the inevitable market transformation that sustainability and decarbonization will bring.
“One of the biggest challenges is going to be around the workforce that is needed for these types of activities,” Nowlan said. “Working with the installers and suppliers in the marketplace to ensure that there is the right pipeline for the technologies and the actions we want to happen. We are a fairly large jurisdiction, so we can play a key role in helping to provide some certainty to the workforce in terms of the activities and investments they'll make in training and in supply. That will then provide some certainty for the building owners—that when they come to actually take action, there's someone there to do the installations and support their work.”
Internal alignment
Decarbonizing assets to comply with planned regulations can sound like an intimidating task. But as Tremblay pointed out, regulations exist to spur action. As an industry leader well-versed in developing solutions to comply with emerging climate and sustainability requirements, Tremblay said organizational buy-in is a key to success. Regardless of company size, the first step includes making sure all key departments are in alignment regarding how to approach carbon emissions as a financial risk.
Additionally, whether you have one or 100 buildings in your portfolio, Tremblay said you’ll need a 10-year roadmap that details how you plan to comply with existing and emerging regulations. When it’s time to replace a boiler, for example, new regulations will likely mean you’ll need a different solution.
“But in order to think outside the box, you need to have a fully aligned internal team and a good partner that can navigate those new regulations and a lot of the technical challenges that can come up,” Tremblay said.
The benefits
For owners and operators of certain building classes in large municipalities, retrofitting should be on your list of priorities now to comply with planned regulations. That includes making sure you have the financing and partners you need to deliver the work.
Some owners and developers may balk at the initial expense associated with decarbonization efforts, but Gilgan explained why taking the long view is critical to understanding the financial benefits.
“When there's an energy saving, there's also a financial saving,” Gilgan said. “And that financial saving in the annual or monthly utility bill isn't for free. It comes at the cost of a bigger investment in sustainable features. And those sustainable features, while they cost extra money, can in some cases be easily financed by the savings in the energy bill. That's a part that a lot of us are missing—half of the solution is right in front of our face. The money is already there.”
“It's a matter of risk management for building owners now,” Tremblay said. “The big developers already have their plans in motion. When developers start to have cleaner portfolios, if you're left with a brown asset, the value is going to be impacted more and more down the line. So, it's a risk management issue to start to prep for it and do something about it. It's not even an environmental consideration anymore; it's financial. To secure the value of your asset, you have to do something now.”
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