Montreal’s transit agency will soon be breaking ground on a new project. But this time it won’t be the usual subway-line extension or transit hub. In a first for the Société de transport de Montréal (STM), the agency is venturing into the real estate business with plans for a residential-office complex that will go up on a parking lot it owns, located just steps away from one of its Métro subway stations in the east end of the city.
It’s a bold foray for the STM as it seeks to boost much-needed non-farebox revenues to fund capital investments, operations and maintenance costs while at the same time promoting transit-oriented development (TOB) and helping the city reach its affordable/social housing targets.
The concept of transit agencies using real estate development for financing and urban planning purposes is not new; Hong Kong’s Mass Transit Railway Corporation has been a major real estate player for decades and other transit commissions involved in property development in one form or another include Singapore, Paris, London and New York. But Canadian cities to date have not been very adventurous on this front and Montreal’s modest first step is certain to be closely watched by transit agencies across the country as they seek innovative ways to capitalize on existing or new infrastructure and land development.
“This is a project that has several aspects and it’s important it have several aspects,” STM chairman Philippe Schnobb said. “There’s a huge need for social housing in Montreal.” The venture – at the Frontenac Métro station – allows for the densification of a low-income neighbourhood; in addition, its location right next to the subway helps promote public transit use. It also gets rid of an eyesore parking lot/heat island and replaces it with a structure that will include a green roof and a courtyard.
Plans call for a four-building complex that will include 298 residential units – 60 subsidized apartments for low-income residents, 109 affordable condo units and 129 market-priced condos – as well as office space that the STM will either occupy itself or lease out. Building heights range from two to 12 storeys. An underground parking space will have room for 213 cars and 175 bicycle stalls.
Mr. Schnobb says the Frontenac venture could open the door to more real estate related transactions in the future that will provide for recurring revenues. “We could have simply sold the parking lot, pocketed the money and invested it somewhere. But what’s also important for us is to be generating recurring revenues,” he said.
Spearheading the project for the STM is its commercial subsidiary, Transgesco. Partners include the non-profit housing agency Société d’habitation et de développement de Montréal (SHDM) and local social housing groups. Under the terms of the deal, the STM is selling the land to Laval, Que.-based general contractor Cosoltec Inc. for $5.35-million. The STM will in return get ownership of the two-storey, 25,700-square-foot office building.
Construction is set to get underway next year, with delivery slated for 2021.
The Frontenac plan has been in the works for about two years, with close collaboration between the STM, the SHDM and local groups, SHDM spokeswoman Leslie Molko said.
“We need to look at what Montreal and other cities are doing,” said Cherise Burda, executive director of Ryerson University’s City Building Institute. “It’s thinking about how you create neighbourhoods around these transit lines, which is something we don’t usually do.”
There is still too much of a “silo” mindset in Ontario, with a lack of cooperation between the various transit, housing, city and other agencies, Ms. Burda said. “It’s such a wasted opportunity.
“Why not have a real estate development arm of [regional transit authority] Metrolinx or other agencies staffed with smart people who can make informed decisions and work with developers?”
James Perttula, director of transit and transportation planning for the City of Toronto, says the Montreal experience will be closely followed. “We don’t have anything like Montreal to announce, but this is something we are looking at more and more now,” he said.
“The role is to think much more strategically about the city’s real estate assets. Certainly we’re looking at opportunities for affordable housing.”
The city recently merged four separate real estate related agencies into one umbrella group, dubbed CreateTO. Its mandate is to manage Toronto’s real estate portfolio, develop city buildings and lands and provide real estate solutions to the various divisions, agencies and corporations, including the Toronto Transit Commission.
CreateTO is currently conducting an inventory of the land around existing stations and examining ways to use city-owned properties for housing solutions, including affordable housing, Mr. Perttula said.
In Calgary, Calgary Transit works with the city’s real estate and development services team to assess and plan developments at train stations, spokeswoman Sherri Zickefoose said. One recent transit-oriented development project that was approved is a 20-acre mixed use “urban village” next to the Anderson LRT Station, she said.
The key policy approach underlying many of the real estate related transit projects is known as land-value capture. Essentially, the concept is that transit agencies as a rule help boost property values via public projects such as transit hubs and should therefore be entitled to part of the returns that the private sector benefits from as a result of those infrastructure improvements.
Land-value capture can take many forms, including direct involvement in real estate development by transit commissions, indirect participation through private-sector partnerships, or other mechanisms such as transit-supporting levies imposed on developers.
A new, 67-kilometre automated electric light rail network in the Montreal area being built by Quebec’s pension-fund manager Caisse de dépôt et placement du Québec includes plans for land-value capture. The Caisse will build and operate the system, known as the Réseau express métropolitain (REM); a recently upwardly revised estimate puts the cost of building the network at $6.3-billion. The project offers several options for tapping into the revenue-generating potential of property-value increases on the land the trains will pass through. The Caisse could, for example, get involved in property development through its real estate subsidiary, Ivanhoé Cambridge.
“Because transportation and land development are so intertwined in cities, pairing real estate development with transport system investments makes perfect sense,” said Deborah Salon, assistant professor at the school of geographical sciences and urban planning at Arizona State University.
“Public investments in new transit infrastructure have served to make money [and sometimes a lot of it] for those who own land near the stations and developers working in station-area neighbourhoods. At the same time, many transit agencies have trouble covering their costs.”
How the New Tax Law Affects Your Real Estate Business
Tax reform should have a positive impact on the real estate sector. Make sure your business is prepared for these major changes.
4 min read
The Tax Cuts and Jobs Act (TCJA) brings big tax changes to the real estate sector, the likes of which haven't been seen since the Tax Reform Act of 1986.
Fortunately, the impact on real estate businesses should be mostly positive. That said, there are some crucial changes that business owners and entrepreneurs in the real estate sector should look out for moving forward.
You have probably heard about the 40 percent reduction in the corporate tax rate to 21 percent under the TCJA. However, if you operate as a sole proprietor, or in a pass-through entity such as a partnership, LLC or S Corporation, the TCJA also contains a significant change to how you will be taxed.
A deduction of up to 20 percent of qualified business income is now permitted. This deduction is limited to the lesser of:
- 20 percent of qualified business income
- The greater of 50 percent of W-2 wages, or 25 percent of W-2 wages plus 2.5 percent of the unadjusted basis of qualified depreciable property
Congress and the IRS need to issue new rules to further clarify and explain some of the nuances of this provision, but real estate businesses should clearly benefit from it.
Real estate depreciation rules were already favorable, but the TCJA improved them even further. Qualifying property — including, for the first time, used property — acquired after Sept. 27, 2017 is eligible for 100 percent bonus depreciation in the year it is placed in service.
Eligible assets are those with a depreciable life of 20 years or less. This encompasses personal property, and was intended to include "qualified improvement property" defined as work done to the interior of a commercial building excluding costs related to enlargement, elevators and escalators or the internal framework. Because of a drafting error, however, it was not assigned the correct class life, so this is an important provision requiring Congressional remedy.
Remember that bonus depreciation will begin to wind down in 2023. The rate will drop by 20 percent per year beginning in 2023 until it is eventually eliminated in 2027.
Additionally, Section 179, which permits the expensing of assets for commercial properties, has been expanded. The annual limitation has increased from $500,000 to $1 million, with a phase-out beginning at $2.5 million for qualifying assets. For the first time, this provision now includes roofs, fire protection and alarm systems, HVACs and security systems.
Limitations on business interest and losses
The way the losses and gains from your real estate business are taxed is also impacted by the new law. For example, debt-financed real estate operations should note that any business with more than $25 million in average annual gross revenue over the prior three years will be limited in its interest expense deduction to interest income plus 30 percent of adjusted taxable income. Rental property owners and others in real property businesses can, in some cases, opt out of this rule and claim the full interest deduction, but that comes with certain trade-offs.
If you're on the opposite side of the scale with an overall tax loss, a new loss limitation rule allows only $500,000 for joint filers ($250,000 for single) to be used to shelter non-real estate income such as wages, interest, dividends and capital gains. These provisions will likely have the largest impact on qualifying real estate professionals.
There are many other pieces of the tax law that could affect real estate companies and investors. Section 1031 like-kind exchanges for real estate (but not for personal property) remained intact, but the taxation of carried interests, doubling of the estate and gift exemption and changes to some popular tax credits could affect your real estate holdings, taxes and financial planning.
In order to ensure you're getting the most out of your corporate and individual taxes — in real estate and elsewhere — make sure to work with a tax professional well-versed in these changes. The sooner you review these changes with a professional, the less likely you will be caught off guard when the 2018 tax filing season rolls around.
Opinions expressed by Entrepreneur contributors are their own.
Ottawa real estate firm Minto looks to create real estate trust
One of Ottawa's biggest landlords is looking to convert to a real estate investment trust, a move that would allow investors to cash in on the rent it charges for suites across the city.
Minto Properties announced Wednesday it's seeking to create the trust, which will include 22 properties across the country, including 14 here in Ottawa.
Other properties are in Toronto, Calgary and Edmonton.
Real estate trusts allow investors to essentially buy shares in residential properties, giving them a cut of the rent payments the company receives from tenants.
Carleton business professor Ian Lee said this is a chance for Minto to take the buildings, which are valuable assets, and get some money to potentially move in another direction.
"It appears they have decided to focus on a different part of the real estate market," he said.
"Usually, when you're selling off your entire portfolio, as they announced they are today, that suggests a change in strategic direction."
No changes likely for renters
In their prospectus to investors, Minto claims its properties are 98 per cent occupied and charge an average monthly rent of $1,358.
Lee said this isn't really going to change anything for renters.
"It's just as if the name of the company collecting your rental cheque every month has changed and you're indifferent," he said.
The move still has to be approved by regulators, but in a release Minto said it could eventually add more units to the 4,279 included in the initial offering.
CBC reached out to Minto CEO Michael Waters, but he declined to comment as the process unfolds.
Toronto Real Estate Leads The Country In Average Price Declines, Saint John Pops Higher
The average sale price of Canadian real estate is falling, and fast. Canadian Real Estate Association (CREA) numbers show the average price of a home is down 11.3% in April 2018. Most of the declines are being attributed to the country’s largest and fastest falling real estate market – Toronto. Yeah, I haven’t heard of it either.
The rumors are true, average prices aren’t great for determining how much you’ll pay for a home. When the range of distribution for sales is normal, the average price is a very effective measure. However, when the range of distribution is wide, it will tend to skew higher and lower, depending on extremes. That is, extremes to the high and low of prices can skew the number in either direction. It’s still a useful indicator if you know what you’re looking for.
The average price can be a useful proxy for dollar volume, and upgrade flow. After all, CREA only deals with resales. Usually people that sell will be upgrading, buying a more expensive home as well. This typically sends the average higher. If people are selling, but have no plans on buying again in this market, you’ll see the average slide. Who sells and doesn’t plan on buying again you might be asking? At least a quarter of people planning to sell in Toronto this year.
Vancouver Has The Highest Average Sale Price In Canada
Vancouver, Toronto, and Fraser Valley are still the priciest markets in the country. Vancouver has the highest average sale price at $1,067,266. Toronto comes in second with an average sale price of $804,584. Fraser Valley is in third with an average sale price of $780,736. These markets have remained in the same order for quite some time.
Average Sale Price of Canadian Real Estate (April)
The average sale price of all homes in Canada by major CREA regions. In Canadian dollars.
Source: CREA. Better Dwelling.
Toronto Has The Fastest Dropping Average Sale Price
Saint John, Saguenay, and Victoria had the fastest rising average sale prices compared to last year. Saint John had an average sale price of $199,136, an increase of 22.9%. Saguenay had an average sale price of $202,729, a 15.8% increase. Victoria had an average sale price of $703,592, an 11.9% increase. The first two cities are seeing huge growth, but are still cheaper than the national average. Victoria has been on a tear, but it also has one of the biggest drop in sales-to-new listings in the country.
Toronto, Thunder Bay, and Hamilton regions are the fastest falling compared to last year. Toronto saw the average sale price drop to $804,584, a 12.6% decline. Thunder Bay had an average sale price of $217,745, an 11.9% decline. Hamilton – Burlington saw the average sale price drop to $569,490, an 11.3% decline. Toronto and Hamilton-Burlington saw huge gains last year, so a drop was expected.
Canadian Real Estate ASP Percent Change (April)
The percent change of the average sale price (ASP) of all homes in Canada by major CREA regions.
Source: CREA. Better Dwelling.
The average decline in prices across the country is being attributed to B-20 Guidelines. The Guidelines subject uninsured mortgage borrowers to undergo a stress test. This reduced the maximum size of a mortgage people could borrow. Some have claimed the stress will have minimal impact on borrowers. However, the Bank of Canada estimates over 81,000 buyers last year would have been impacted by the new rules.
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