Lexpert Magazine

82 LEXPERT MAGAZINE | NOVEMBER/DECEMBER 2016 | COMMERCIAL REAL ESTATE | vations, a Nasdaq and TSX-listed compa- ny that engineers natural gas engines and vehicles leasing more than 50 per cent of the development's 14-storey office tower. e best part, according to proponents? Marine Gateway is the first SkyTrain sta- tion ever to come into South Vancouver directly from the airport. It will bring densification without all the usual road congestion that entails a residential pock- et at the city's edge. For legal practitioners, transit-focused development brings additional legal work. For one thing, they require ne- gotiating agreements with Translink, Metro Vancouver's regional transporta- tion authority. Smythe of McCarthy says the agreements "become more complex" where the transit station itself, as opposed to just the transit line, is integrated with the new development. ese kinds of developments are also changing the physical landscape, he says. Before Marine Gateway, there were some commercial strips in that area, "but not much to speak of. Now, all of a sudden, there's nothing but towers. People want to live by transit. ey don't want to have to drive if they don't have to." ere's a lot more of that going on in a variety of bedroom communities, he says, including a "massive new development in Burnaby and around Brentwood. ere are going to be thousands and thousands of new condo units all clustered in the vicinity of a SkyTrain." So densification in Vancouver is spread- ing far beyond the traditional downtown — it's driving things out as well as up. The advent of mixed-use build- ings as a response to the densification is not confined to Vancouver's runaway real estate market but anywhere land scarcity and density is an issue. Where it is, it's af- fecting not just the commercial real estate work but also the work on financing end. Because the large mixed-used develop- ments are also "for sure" blurring the lines between commercial and residential real estate work, it's making it more difficult to finance some projects, says Elias Ben- hamou of Davies. Take a building with just a couple of floors of stores, then a hotel and condos on top. Not every lender lends on hotels, not every lender lends on residen- tial, so you may have three different credit facilities each financing its own tranche of the development. "We see that all the time. And it has to be documented because, should the lender foreclose on the hotel, for example, he wants to make sure he has the rights to use the front entrance, use the parking. So that's making it more complex than it used to be. Each part of the development may also have different owners, adding another level of complexity." In Canada's largest cities, most com- mercial real estate practitioners say de- mand for their services is sky high and has been for the past few years. But if there is one potential cloud on the horizon, it's the prospect of rising interest rates. If interest rates eventually do go up in any significant way, suddenly the cost of everything would go up and "that would have a real impact on real estate," says Jim Hilton at Blakes. "For a major commer- cial project, if you're suddenly paying two per cent or three per cent more interest on X number of dollars, to see the project through, my God, things start to become less viable for sure. Low interest rates have been a real blessing." In other words, while urban scarcity in Canada's big-city downtowns is a fact of life, the developments that are being tai- lored to accommodate it could slow down. But even if rising interest rates stop the cranes temporarily, there's no going back. Urban culture is changing, neighbour- hoods that used to be delineated as either commercial or residential increasingly include bits of everything, and that is in- evitably changing the relationship between municipalities, developers and business. e city has evolved into a new kind of organism — one with components inte- grated as never before. Lawyers will also be forced to adapt, to write new contracts and navigate new relationships that form the connective tissue allowing this urban organism to thrive. Sandra Rubin is a Toronto-based writer and strategic consultant. MANAGED SUPPLY FOR PARKING Calgary's anti-development policy on parking has created an artificial shortage In Calgary, where the sting of oil prices has dampened demand for new office and residential development, urban scarcity is being felt in a different way: parking. Calgary only allows office buildings to create 50 per cent of the parking spaces called for by the development; the developer has to pay the city for the rest at "north of $40,000 each," says Kevin Keyes, a commercial real estate and leasing practitioner at Borden Ladner Gervais LLP. "So a building requiring 600 spaces can only build 300, and you're writ- ing a cheque for $10 million or $12 million for some of those big buildings." With the money, the city builds public parking, which are, with a couple of exceptions, mainly surface lots. The city's rationale was that it wanted to constrain reliance on cars in favour of encouraging people to use the city's LRT system, preventing congestion and saving wear and tear on the roads. The result of 25-plus years of little parking downtown? "We've got buildings here where parking is $750 a month," says Keyes. "You used to be able to get an apartment for that. To give you an idea of how tough things are right now, I got my first parking-reduction notice in the last 25 years, $50 a month less. I've never seen parking go down." Another result of the policy, which counsel recently recommended "be concluded" over the next two years, is there is an awful lot of undeveloped land in downtown Calgary. When Keyes looks out his office window he's looking at "two full city blocks, and a half city block, that were paved and permit- ted," owned by a developer waiting for another 30- or 40-story building to be needed. When things turn back up, look out. Real estate lawyers are busy enough in the meantime, he says, but "we've been doing deals that we haven't done in 20 years like sub-leasing. Sub-leasing never gets to the high-rises downtown; sub- leasing gets dealt with by somebody in the suburbs or somebody in a smaller firm. But we've been doing sub-leasing, joint ventures, vendor-backed mortgages on financings, things like that. So there's work. We just haven't had to do this kind before."

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