ESG stands for Environmental, Social, and Governance. It refers to a set of standards used by investors and organizations to evaluate a company’s performance and behavior in various sustainability and ethical issues.
In recent years, there has been a notable shift in the investment landscape as environmental, social, and governance (ESG) factors have gained prominence. This shift has extended beyond traditional sectors and is now significantly impacting the world of commercial real estate investments. Investors, stakeholders, and even governments are placing increased importance on sustainable and responsible business practices, driving the integration of ESG considerations into various industries, including the lucrative realm of commercial real estate.
The 3 aspects of ESG are:
Environmental (E): This aspect focuses on a company’s impact on the environment. It involves assessing how the company manages its use of natural resources, its carbon footprint, its commitment to reducing greenhouse gas emissions, waste management practices, and adherence to environmental regulations. Additionally, it considers the company’s efforts towards sustainability and the development of environmentally friendly products and services.
Social (S): The social aspect looks at a company’s treatment of its employees, customers, suppliers, and communities where it operates. It evaluates factors such as labor practices, employee relations, diversity and inclusion, customer satisfaction, community engagement, and philanthropy. Companies that prioritize fair labor practices and have a positive social impact often score well in this category.
Governance (G): Governance refers to the company’s internal policies, leadership structure, and adherence to ethical standards. This includes evaluating the independence and expertise of the board of directors, executive compensation, transparency in financial reporting, and measures to prevent corruption and unethical practices.
ESG factors have gained significant importance for investors due to several reasons:
Risk management: ESG factors can help investors identify and mitigate potential risks associated with their investments. Environmental risks, such as climate change impacts or regulatory changes, can affect the value and longevity of a property. Social risks, like community relations or labor practices, can impact a property’s reputation and operational stability. Strong governance practices help ensure proper management and transparency, reducing the risk of fraud or mismanagement.
Long-term performance: Commercial real estate investments are often long-term endeavors. Considering ESG factors ensures that properties are built, managed, and operated with an eye toward long-term sustainability. This can lead to reduced operational costs, increased tenant satisfaction, and enhanced property value over time.
Market Demand: ESG considerations are becoming increasingly important to tenants, investors, and regulators. Investors who prioritize ESG factors are likely to attract more socially conscious tenants and may also experience increased demand from institutional investors who incorporate ESG criteria into their investment decisions.
Regulatory Compliance: Many regions and jurisdictions are implementing stricter environmental regulations and building codes. Investors who account for ESG factors are better positioned to comply with these regulations, avoiding potential fines or operational disruptions.
Stakeholder relations: Investors that prioritize ESG factors are likely to have better relations with their stakeholders, including customers, employees, suppliers, and regulators. This can lead to enhanced brand reputation and increased customer loyalty.
Enhanced Reputation: Incorporating ESG principles can improve a real estate investor’s reputation. Demonstrating commitment to environmental and social responsibility can lead to positive public relations and better community relationships.
Future-Proofing Investments: By considering ESG factors, investors can future-proof their investments against changing market dynamics. As sustainability practices become more mainstream, properties that lag behind in ESG performance could face lower demand and potentially depreciating value.
As a result of these benefits, ESG considerations have become an essential part of investment strategies for many investors who seek not only financial returns but also sustainable and socially responsible outcomes.
Today, we will be reviewing different levers used when reviewing multi-family properties in Ontario. The property being used is an actual property that is currently for sale in Mississauga that I’m using as an example.
We are now offering services to investors who are interested in investing in real estate without the hassle of managing it. We would invest along side any investors looking to invest in multi-family properties and would asset manage the asset to ensure the asset can achieve the target value creation projected at acquisition. Our compensation is tied to the property achieving those targets hence aligning us along with the clients long term goals.
If you’re interested in finding out more, please feel free to reach out directly.
This is the first time since 2008 that there was a drop in average price for the Toronto market. It’s an exciting and terrifying opportunity as this is the time when buyers either will choose not to act or act and make the most money on their real estate purchases. I still talk to my clients that made purchases in the small slump of 2008 who thank me for helping them through to making the purchase as they saved so much money by purchasing when everyone else was holding off.
Let me explain…
There are two main emotions that run a market. Greed and Fear… Greed to get/make more or fear to avoid loosing what we have… This is very much true for real estate too… Sellers want to net the most money possible while buyers want to pay the least amount.
In a market run by greed, the fear of loosing out drives a lot of decisions.
Imagine, if you will, a market running on greed, the buyers keep paying higher and higher amounts because they see it as a profitable prospectus with little downside. Buyers keep paying more and more because they don’t want to miss out on making money on the product (real estate) when they will sell/flip it. Buyers want to desperately enter the market but there aren’t enough products available as sellers are also holding off on selling their property as prices keep going up. This greed and need for housing fuels the market and pushes the value even further up. Greed is high and fear of loosing money is low so there is lots of confidence in the market and prices keeps climbing to new records.
Now, let’s introduce the provincial liberal government who in an effort to get some votes in the next election, pander to the tenants in the city, and introduce laws for rent control and taxes for non-residents. The news of Home Trust Mortgages failing creates a market of uncertainty and buyers suddenly start to pull back.
This pull back is evident from the market report issued by Toronto Real Estate last month that showed overall year over year number of transactions down by 20.3% and number of days up from 11 to 15 days. There are also a lot more listings available in the market right now too. Last month we saw 25,837 new listings enter the market as compared to 17,356 from 2016. The prices were still shown as up 14.9% to $863,910 compared to 752,100 from 2016 but down from April 2017‘s record setting $920,791.
What does this all mean?
Number of transactions are dropping… Prices have dropped and are expected to drop further…
Let’s take a look at what prompted this change… Here are the factors that are at play here…
When looking at the market today, there isn’t much that has changed in the fundamentals. One of the big reason prices were being driven up is immigration as we don’t have enough homes being built to sustain the incoming population and this still holds true. The non-resident tax and paper flipping restrictions introduced are designed to primarily impact pre-construction market tax evasion as there aren’t many international buyers, that I know, looking to invest their money in resale market and deal with tenants. The Home Trust meltdown had a market exposure of under 2% across Canada which is hardly a trickle for the Toronto market… So why did the prices pull back?
Market perception: Perception is reality!
We saw the early signs of market slow down back in April in the weeks leading up to the Liberal announcement to help Toronto Real Estate cool down. There are different ways I keep track of market activity… Showings on listings is the main one we use as it gives us a live feed into what the buyers are doing in the market. We definitely saw a slow down in our showings and even postponed listing properties in April as not many buyers would come to see them.
Another vehicle I use is my online advertising metrics: The effectiveness of an advert is measured by how many times it’s exposed to the public before a request is made by a prospect/buyer for more information. In March, one of our advert was getting an inquiry after 240 impressions and we saw that number jumped up to 473 impressions per inquiry in April, back to 224 in May and is now sitting at 1753 impressions per inquiry. This shows how buyers who are looking for properties are reacting to market perceptions. It’s worth noting that the numbers are from two different adverts; both were for income properties for sale, one in Cabbagetown (Ask $2.2M – March and April numbers) and second an income property for sale in Annex (Ask $3.4M – April, May and June numbers).
Buying a property was getting more and more expensive each day hence buyers were opting to rent more which is why our vacancy rate in the city is below 1%. There is some pent up demand among the renters which is waiting for property prices to drop so they can jump into the market as well. There are also buyers that can purchase now who are holding back as they aren’t sure what will happen to the market.
The big question now is… where will the market go from here? Is it going down further or will it bounce back?
I don’t know the right answer as I’m just a student of Real Estate in Toronto but do believe in the following…
I do know that based on the fundamentals that I have studied, there is nothing wrong with the market… The prices are inflated… yes! which is a result of low supply and high demand. With increasing supply, we will see a drop in pricing as sellers will be forced to become more competitive.
I also know that there will be more buyers entering the market place who have been renting and waiting for this as the prices come down. Buyers have, after a long time, choice of properties to pick from and are able to negotiate with seller. This may take sometime as buyers will fear that the market will go down further and will keep holding off.
In my humble opinion, I don’t think we are going to see massive price drops in the Toronto market. I believe that we will see a price drop in the next coming months and sellers who aren’t willing to sell at a lower price will start taking their properties off the market and renting them (remember we have a really low vacancy rate). This may again create an environment where supply will be limited and demand will start to increase causing prices to start going back up. Conversely, we might start to see a very balanced market where prices will drop over the next six to eighteen months (based on articles I’ve read) and we will have a market with average days on market close to 25 and about 2 months of inventory.
So… What to do in this market?
It goes without saying; find yourself a real estate professional who knows how to deal with this shifting market. Due to low barriers to entry in real estate sales, the number of agents have swelled in Toronto and everyone has a friend who is an agent. It’s important that you find an agent that does this full time and has proven record showing that he can get the property sold or negotiate well on your behalf to get you the best price possible.
If you are a seller and have a property coming for sale soon, you will need to review your expectations from the sale. If you have your next property purchased already, double check your numbers and review the details thoroughly. What will you net from the sale if you don’t get the number you have? What’s the least amount of money you need to close your next home? You will probably have to bring your property to the market a lot sooner than you were anticipating. If you haven’t purchased yet, wait till you have your property sold before signing any agreements of purchase. If you haven’t gotten an evaluation of your current property, you should get one as soon as possible. This is a solicitation to help you; only if you’re not under an agency agreement.
As a seller, if you have to sell in the near future…
Don’t expect to see offers lined up right after listing your property for sale. Don’t set offer dates for your listings rather list at a competitive price and leave offers open at anytime.
Don’t expect to get that crazy number you had in mind. With more listings available for buyers, chances of crazy offers are low unless you have a very rare house, listed at a VERY discounted price, is immaculate and highly desirable, and you find two buyers that are just in love with the place… Chances of this happening are low…
Expect to do some work on your home before selling it. Properties aren’t only judged based on price, rather also on how they look and any work that needs to be done. Everything that needs to be fixed becomes a $10,000 problem. If you have a property that is a fixer upper, chances are that you will have to get that work done to make it attractive to buyers coming through.
Expect that buyers will be buying properties on conditional offers which means your property will likely be inspected.
Be bold when everyone is scared
As a buyer, it’s simple but not very easy… You have to be bold when others are scared.
I sold my private residence earlier this year as I truly believed this was coming. I’ve been keeping tabs on the market and touring properties over the past couple of months and am now making offers on properties at prices that listing agents would’ve laughed at before. No… these are not low ball offers by any means but full asking price offers on their listings that didn’t get offers on offer night. I’m hoping to secure a home for my family this weekend.
The idea is to get out there and start looking now! There might be a very small window for buyers to take advantage of this market. If you have a home to sell, I would highly recommend selling it first before buying your next place.
Following are some videos that show the details of what’s happening in the market that will help you get more detailed information on the market. If you want to talk about this market, you can always reach out to me
The province made an announcement last week showcasing 16 measures to help real estate buyers and sellers and to help create more supply for the region. I’ve broken down the rules more in the video above for your review. Here are the sixteen rules that are introduced:
Actions to Address Demand for Housing:
Introducing legislation that would, if passed, implement a new 15-per-cent Non-Resident Speculation Tax (NRST) on the price of homes in the Greater Golden Horseshoe (GGH) purchased by individuals who are not citizens or permanent residents of Canada or by foreign corporations. Ontario’s economy benefits enormously from newcomers who decide to make the province home. The NRST would help to address unsustainable demand in this region and make housing more available and affordable, while ensuring Ontario continues to be a place that welcomes all new residents. The proposed tax would apply to transfers of land that contain at least one and not more than six single family residences. “Single family residences” include, for example, detached and semi-detached homes, townhomes and condominiums. The NRST would not apply to transfers of other types of land including multi-residential rental apartment buildings, agricultural land or commercial/industrial land. The NRST would be effective as of April 21, 2017, upon the enactment of the amending legislation. Refugees and nominees under the Ontario Immigrant Nominee Program would not be subject to the NRST. Subject to eligibility requirements, a rebate would be available for those who subsequently attain citizenship or permanent resident status as a well as foreign nationals working in Ontario and international students. See technical bulletin for further information.
Actions to Protect Renters
Expanding rent control to all private rental units in Ontario, including those built after 1991. This will ensure increases in rental costs can only rise at the rate posted in the annual provincial rent increase guideline. Over the past ten years, the annual rent increase guideline has averaged two per cent. The increase is capped at a maximum of 2.5 per cent. Under these changes, landlords would still be able to apply vacancy decontrol and seek above guideline increases where permitted. Legislation will be introduced that, if passed, will enact this change effective April 20.
The government will introduce legislation that would, if passed, strengthen the Residential Tenancies Act to further protect tenants and ensure predictability for landlords. This will include developing a standard lease with explanatory information available in multiple languages, tightening provisions for “landlord’s own use” evictions, and ensuring that tenants are adequately compensated if asked to vacate under this rule; prohibiting above-guideline increases where elevator work orders have not been completed; and making technical changes at the Landlord-Tenant Board to make the process fairer and easier for renters and landlords. These changes would apply to the entire province. Actions to Increase Housing Supply
Establishing a program to leverage the value of surplus provincial land assets across the province to develop a mix of market housing and new, permanent, sustainable and affordable housing supply. Potential sites under consideration for a pilot project include the West Don Lands, 27 Grosvenor/26 Grenville Streets in Toronto, and other sites in the province. This builds on an agreement reached previously with the City of Toronto to ensure a minimum of 20 per cent of residential units within the West Don Lands are available for affordable rental, with an additional 5 per cent of units for affordable ownership.
Introducing legislation that would, if passed, empower the City of Toronto, and potentially other interested municipalities, to introduce a vacant homes property tax to encourage property owners to sell unoccupied units or rent them out, to address concerns about residential units potentially being left vacant by speculators.
Ensuring that property tax for new multi-residential apartment buildings is charged at a similar rate as other residential properties. This will encourage developers to build more new purpose-built rental housing and will apply to the entire province.
Introducing a targeted $125-million, five-year program to further encourage the construction of new rental apartment buildings by rebating a portion of development charges. Working with municipalities, the government would target projects in those communities that are most in need of new purpose-built rental housing.
Providing municipalities with the flexibility to use property tax tools to help unlock development opportunities. For example, municipalities could be permitted to impose a higher tax on vacant land that has been approved for new housing.
Creating a new Housing Supply Team with dedicated provincial employees to identify barriers to specific housing development projects and work with developers and municipalities to find solutions. As well, a multi-ministry working group will be established to work with the development industry and municipalities to identify opportunities to streamline the development approvals process. Other Actions to Protect Homebuyers and Increase Information Sharing
The province will work to understand and tackle practices that may be contributing to tax avoidance and excessive speculation in the housing market such as “paper flipping,” a practice that includes entering into a contractual agreement to buy a residential unit and assigning it to another person prior to closing.
Working with the real estate profession and consumers, the province is committing to review the rules real estate agents are required to follow to ensure that consumers are fairly represented in real estate transactions. This includes practices such as double ending. The government will modernize its rules, strengthen professionalism and improve the home-buying experience with a goal to make Ontario a leader in real estate standards.
Establishing a housing advisory group which will meet quarterly to provide the government with ongoing advice about the state of the housing market and discuss the impact of the measures in the Fair Housing Plan and any additional steps that are needed. The group will have a diverse range of expertise, including economists, academics, developers, community groups and the real estate sector.
Educating consumers on their rights, particularly on the issue of one real estate professional representing more than one party in a real estate transaction.
Partnering with the Canada Revenue Agency to explore more comprehensive reporting requirements so that correct federal and provincial taxes, including income and sales taxes, are paid on purchases and sales of real estate in Ontario.
Making elevators in Ontario buildings more reliable by establishing timelines for elevator repair in consultation with the sector and the Technical Standards & Safety Authority (TSSA).
Working with municipalities to better reflect the needs of a growing Greater Golden Horseshoe through an updated Growth Plan. New provisions will include requiring that municipalities consider the appropriate range of unit sizes in higher density residential buildings to accommodate a diverse range of household sizes and incomes. This will help support the goals of creating complete communities that are vibrant, transit-supportive and economically competitive, while doing more to address climate change, protect the region’s natural heritage and prevent the loss of irreplaceable farmland. As part of the implementation of the Growth Plan for the Greater Golden Horseshoe, 2006, enough land was set aside in municipal official plans to accommodate forecasted growth to at least 2031. Based on discussions with municipalities across the region, the government is confident that there is enough serviced land to meet the Provincial Policy Statement requirement for a three year supply of residential units. The Greenbelt provides important protection of natural heritage and farmland, and neither the area of the Greenbelt or the rules about what can occur inside of it will be weakened. The upcoming Growth Plan will promote intensification around existing and planned transit stations and will promote higher densities in the suburbs to support transit.
The city of Toronto introduced new by-laws yesterday for apartment buildings where apartment buildings with more than 10 units will be required to be registered and licensed with the city of Toronto. Here are the main details of the by-law for your review:
Yearly registration of rental buildings with 3 or more storey and 10 or more units
Annual registration includes details regarding building owner and manager as well as their contact information
Annual registration fee of $10.60 per unit
Each Building must have tenant request process
Urgent requests require a response within 24 hours
Non-urgent requests require a response within 7 days
Pest Management Program and details are required
New set of “administrative cost recovery’ fees including a flat fee of $1800 if a full building audit is required.
While this is just another cash grab for the city, there are some good services that will help neighbors get rid of absent landlords and slumlord too. I don’t like the fact that this is all going to cost the owners more money as the city is downloading all their responsibility onto the owner and tenants.
What the politician writing these laws are failing to realize that the deterioration of our rental assets is in part because we don’t have enough units available to be rented. The units that are in good condition are also in higher demand and some owners just can’t justify spending extra money due to the rents that are being collected. Further, there haven’t been many new buildings added to our rental pool causing lower than 1% vacancy in the city and having schemes such as these implemented allow the politicians to pander to the tenant base for votes.
