Turner Drake Blog

COVID-19, despite months of rumblings that it might be on its way, arrived rather abruptly on our doorstep.  Collectively, we shifted from theoretical preparations “in case” and “if” the virus impacted us directly, to many people working from home, a transition that happened within days in some cases.  Ready or not, here it came. 

Now, just (“just”!) a couple of months later, the next transition is upon us, as the economy reopens and we figure out, industry by industry and company by company, what the new normal will look like.  It’s a question on the minds of many, and one my department has spent a fair bit of energy contemplating from our makeshift at-home workstations (check out this CBC article for a peek at mine…kids and various home schooling accoutrements banished for the deception of professional appearances).  The short answer is that it is too soon to tell, though there are rumours and rumblings that work-from-home will continue for some people and/or companies (demand for that may come from either end of the equation).

The longer answer is that major recessions usually result in a sea change in how office space is utilised.  After the 1990 recession, which coincided to a certain degree with the advent of cell phones and the internet, there was a rise in “telecommuting”, some people working from home, and “hot desking” where different people used the same desk at different times of the day.  Cubicles rose in prominence over individual offices (as evidenced by every 90s movie that takes place in an office).  Post-2008 recession, the movement was to open concept offices, with bullpen style areas where everyone has a laptop and a cell phone and shares common space and/or works from home part of the time.  Each of these shifts, from individual offices to cubicles to bullpens, equates to fewer square feet of office space per employee…which in turn equates to lower costs for companies, for whom office space is often the single largest expense after HR. 

The logical next step in the continuum is an increase in employees working from home, with an overall reduction in the amount of office space leased.  This could be driven by employees who find they like shedding their commute and are productive at home (and expect to be more so when schools and daycares reopen).  It could also be mandated by employers who find that cutting workplace expenses - from rents to coffee supplies - can come without significant detriment to their business model. 

There are some companies for whom this is a viable option, but for others, it is not practical.  Will confidential meetings between lawyers and clients take place in lawyers’ basement playrooms, or out in public at coffee shops?  Unlikely.  Further, many industries rely on the sharing of ideas to innovate and problem solve.  The benefit of casual conversations and impromptu collaborative meetings is worth the expense of working together in one location.  So there will remain demand for professional office space from certain sectors for a variety of sound reasons.   

Worth noting, too, is the consideration that the pre-COVID bullpen office set up has significant drawbacks until (unless) a vaccine becomes available: shared space is not practical from a public health perspective, and may redirect those who can’t realistically work from home long term, to shift back to individual offices that ameliorate physical distancing.  That is: more square feet of space per employee.    

And then the final elephant in the room is the total elimination of demand for office space from companies which do not survive the economic fallout of the pandemic.  It is too soon to measure how extensive this will be, but there certainly will be casualties of a recession that may well be deep and prolonged. 

So, coming full circle to the short answer: even with lots of companies opting to return to offices, a decline in overall demand for office space is certainly expected, probably over the next couple of years.  Because leases are typically signed on 3-5 year terms (or longer), a “shadow” vacancy of leased-but-vacant space could surface first (i.e. space for sublease), though if the original lessees can’t pay, the space is effectively just vacant regardless of any contractual debt on it (distinguished from, for example, a healthy company who chooses to move to a new office building when they still have a year left on their lease).  With increasing vacancy, landlords will opt first for rental incentives to entice tenants to their space, and there will be downward pressure on net rental rates.  Our June Market Survey is underway now…stay tuned in the coming months for the early indicators of impacts on the market.  

No one wants to own a “dirty” property; it is important to both Buyer and Seller that they understand how a sale can be impacted by the discovery of contamination. From the Seller’s standpoint, they may need to remediate the property prior to selling. Remediation is costly and time consuming – it can take a year or longer to test the soil and groundwater, adequately address the contamination, and ensure that the site is fully remediated. The Seller will incur carrying costs, such as property taxes, during the remediation.

There will be other problems too, in addition to the time delay. The Buyer’s lender will rarely finance a dirty property and will almost always require a Phase 1 environmental assessment to confirm that it is not contaminated. In most cases it will be the Buyer who commissions the Phase 1 report. This consists of historical research of site… do past uses point to possible contamination from chemicals or hydrocarbons?...  was the property previously used to house a gas station?... were manufacturing or service uses such as dry cleaning, sand blasting (lead paint), etc. conducted on the property?... The term “mad as a hatter” originates in the fact that hat manufacturing utilised mercury as part of the process, with unfortunate consequences for the participants. The Phase 1 audit will also investigate existing and surrounding property uses that may have contaminated the site; for example a bus depot whose leaking underground storage tanks have resulted in contamination of the ground water and its concomitant migration into surrounding “downstream” properties. It will also consider the building materials used on site…. are the plaster, or ceiling tiles, likely to contain asbestos; the fluorescent lights, PCBs; the paint, lead; what other horrors lurk in the building structure? If anything suspicious comes out of this research, the Phase 1 report will recommend a more invasive Phase 2 investigation requiring drilling or removal of building material for laboratory investigation.

A Phase 1 report can cost anywhere between $1,200 and $3,000 for most small to medium sized properties. Since a Phase 2 environmental assessment comprises soil and ground water testing, more intrusive testing and the use of heavy equipment, this study can easily cost over $20,000. Should the Phase 2 study identify contaminants, the level of contamination and the intended use of the property by the Buyer, will determine the degree of remediation required. If contaminants exceed the maximum allowable level, the Department of Environment has to be notified and they will issue an order to remediate the property within a specified timeline.

Remediation can be time consuming. Once the contaminated soil has been removed from the property, an environmental consultant will set up “test events” whereby the soil will be re-tested to confirm that the remediated property falls within the specified guidelines. These test events usually occur once every three months over a year long time period. However, if the groundwater below the property is not static, the test events may register that it is “clean” during one test and then show contamination at the next test event, as the groundwater migrates back and forth.  

The intended use of property also determines the overall impact of the contamination and the level of required remediation. For example, a former gas station site  to be sold for apartment development requires a higher level of remediation than a site to be utilised for industrial purposes…. properties intended for residential use are held to a higher environmental standard than properties to be occupied for commercial uses. 

Since the Seller is in the chain of title they may be held liable for contamination after the property has been sold… even though they may not be the source of the contamination! This is why mortgagees, such as banks, will rarely foreclose contaminated property… and why governments would be wise to avoid expropriating pulp mills (Government of Newfoundland take note!). It is therefore to the Seller’s advantage to establish the present extent of contamination (if any) to safeguard themselves for the future. If a property is sold and is subsequently discovered to be contaminated, the Seller will need to establish that it was “clean” when they sold it, otherwise they could be held liable for the contamination even if they did not cause it.

A Buyer is similarly advised: If they purchase a property without undertaking the proper environmental assessment to confirm that the property is “clean”, they are at risk; they could be held liable for the contamination, even though they did not cause it, and be ordered to remediate the site at significant cost. Unless the Buyer is a risk seeker they should invest in hiring an environmental consultant as part of their overall property purchase due diligence.

The moral of this story? Don’t be penny wise and pound foolish! It matters not whether you are a Buyer or Seller: a few thousand dollars spent on an environmental audit can save you hundreds of thousands in potential remediation costs. 

Ashley Urquhart is the Senior Manager of our Brokerage Division.  She has a vast network of contacts and would be happy to assist you with all your leasing needs. If you would like more information, please feel free to contact Ashley at (902) 429-1811 or aurquhart@turnerdrake.com.

As summer edges near, warm days pull our minds and hearts outdoors - reminding us of the natural areas that make Nova Scotia a beautiful place to live.  From the maple-dappled shores of the St. Marys River to the sweeping rocky coastlines of Yarmouth’s Tusket Islands Nova Scotia has an abundance of natural beauty spanning countless ecosystems.  These natural spaces from a web of protected and semi-protected landscapes across the province ranging from provincial nature reserves to prime agricultural lands protected in perpetuity from development beyond a plough’s furrow.

Canada’s legal concept of ‘owning’ land, though heavily based in a euro-centric view culturally, does provide tools to assist in the protection of our natural environment.  Most of the time when someone purchases a property what they are actually paying for is a registered legal interest in the property which allows them to use it unencumbered by others (the “Fee Simple” Interest). However, there are many ways to split up this interest and each comes with a value reflecting what the interest holder can and cannot do on the property.  For example, by placing a restrictive covenant on lands, or placing ownership with a land trust, it is possible to prevent the spoilage of natural places.

Valuing a partial interest in land is a critical step in protecting wild areas through the use of Land Trusts, which are not-for-profit organisations dedicated to the protection and stewardship of special places including rare species habitat, areas of historic cultural significance, and precious agricultural land.  Sometimes these Land Trusts acquire property outright through donation or purchase, and other times an interest is granted to the Land Trust as a Conservation Easement which details what is – and is not – permissible activity on the land.  In this way, these Land Trusts have steadily grown a network of protected places over the course of many decades.

For many landowners, the decision to donate land is driven by a love of nature or a desire for a lasting legacy.  As an added incentive there can be tax breaks associated with these ecological gifts – the value of which must be determined by a professional appraiser.  In this way Turner Drake has played a quiet (but important) role in the protection of an abundance of properties which ultimately contribute to Nova Scotia’s roster of important wild places.  We are fortunate that through this process, we have walked across places few Nova Scotians have seen or heard of, but which nonetheless provide safe haven for many plants and animals.

The season for outdoor exploration is here and given current restrictions in urban-based gatherings Nova Scotians have a unique opportunity to explore their surroundings and connect with their natural environment in a meaningful way.

Just how important is proper fire safety planning?  In addition to potential loss of life and property damage, lack of proper Fire Safety Plans can land you with a hefty fine…or even potential jail time!

Section 2.8 of the National Fire Code of Canada states that any building required by the National Building Code to have a fire alarm must also have an approved Fire Safety Plan. Halifax Regional Municipality By-law F100 also states that, “Every person who contravenes or fails to comply with these regulations or fails to carry out an order made under these regulations, is guilty of an offence and is liable on summary conviction, to a fine of not more than $5000, or in default of payment of the fine, to imprisonment for a term not exceeding six months”.

Concerned? Turner Drake’s Lasercad® Division can prepare two types of Fire Plans to help manage your properties’ fire safety concerns: Fire Emergency Plans and Fire Exit Plans.

Pictured below are examples of both types of plans prepared for a local client. Fire Emergency Plans provide a detailed layout of each floor in a building, showing the location of all demising walls, doors, windows, plumbing fixtures, etc. In addition to providing a detailed layout of the space, Fire Emergency Plans indicate the precise location of all implements relevant to fire safety. The lower ground floor of a Halifax Heritage Building pictured below illustrates the exact location of all fire safety devices on the floor, such as Fire Extinguishers, Smoke Detectors, Exit Signs, Pull Stations, etc.

Fire Exit Plans are prepared to show the general layout of a floor’s common area accessible to the general public, and indicate key features necessary to ensure a safe evacuation in the event of a fire. Pictured below is a Fire Exit plan prepared for the ground floor of the same building.  The plan clearly indicates the location of the Fire Exit Plan, marked “You Are Here”.  Additionally, it shows readers the location of all Pull Stations in the event these must be activated to trigger the building’s fire alarm. Most importantly, Fire Exit Plans guide readers to safety via proper evacuation routes while also highlighting all emergency exits, and applicable Muster Points for the assembly of building occupants at a safe distance from the building.

If your building exceeds 3 storeys and does not currently have Fire Emergency or Fire Exit Plans please give us a call. Our Lasercad® team would be happy to discuss how we can help improve your building’s Fire Safety while also answering any questions you may have regarding local safety requirements.

As a child I imagined what it would be like to score a goal for the home team in a sold out stadium.  The deafening sound of tens of thousands of fans celebrating my efforts was amazing.  I still have a passion for sport, but by day, my passion is property tax so I read with interest some recent reports on how a handful of pro sports franchises significantly reduced their property tax bills.  The Montreal Canadians, San Francisco 49ers and Carolina Panthers had their property tax bills slashed by 40%, 50% and 56% respectively.  Chances are your business doesn’t occupy a stadium, but there are tax lessons to be learned for any businesses that owns or occupies a Special Purpose Property.      

Special Purpose Properties are properties that are designed in a way that makes them good for a single use.  Some uses (like hotels) appeal to a broad array of investors, but others appeal to a very limited market making them difficult to value.  Stadiums obviously fall in this category but so do churches, schools, power plants, hospitals, and most purpose built manufacturing facilities.

The most common method for estimating the tax assessment of a limited market, special purpose property is the cost approach.  You start by estimating how much it would cost to construct the improvements, deduct allowances for all forms of depreciation and then you add the land value.  Simple enough.  So how is it possible that Bank of America Stadium (the home of the Carolina Panthers) can have estimates of its value ranging from $87m to $472m? 

It’s because valuation experts will differ in how they account for “all forms of depreciation”.  Physical depreciation is readily understood, however properties can also suffer from functional and/or external depreciation. Although a stadium, pulp mill, food processing plant, church or hospital may have been meticulously maintained, it may be subject to significant amounts of functional and external depreciation if its configuration is sub-optimal, if it is poorly located, or if the economic prospects for which it was built have deteriorated in some way- all of which are grounds for a reduction in its assessed value.

The Bell Centre in Montreal opened in 1996.  It cost roughly $240m to construct (roughly $485m today).  The land is currently assessed at just over $50m and the total assessment now stands at $167m.  This implies a total depreciation from all causes of approximately 75%. Only a small amount (+/-1/3^rd) of this relates to physical depreciation as stadiums can have very long physical lives.  Anfield, Old Trafford, Fenway Park, and Wrigley Field are all more than 100 years old so the key to accurately estimating the total depreciation in a stadium (or any other special purpose property) is in identifying and quantifying functional and external depreciation. Unfortunately there aren’t any tables an assessor can use to estimate these forms of depreciation.  It requires an understanding of why the property was configured the way it is, how it would be configured were it to be re-built from scratch, and an understanding of the location and economic factors that apply to the use it was designed for.

During my career, consulting on behalf of taxpayers I’ve often heard the argument from assessing authorities “the owner is using it for the purpose in which it was built” and/or “the business is very successful” which leads to the question “how can there be significant functional and/or external depreciation.” In the Panthers case it’s true the stadium was being used for the purpose in which it was built.  It’s true that the business is viable (David Tepper acquired the Panthers including the stadium for $2.2b in 2018) but those are the wrong questions.  The right question is “would the business be worth more if it had the right stadium in the right location?”

The right stadium might have more seats, more private boxes, more places to sell advertising and might cost less to operate.  It might also be built in a location to make commuting easier so more fans buy tickets and spend more on concessions while they are at the game.  The same concepts hold true for any special purpose property.  A church located distant from its parishioners, a school with declining enrolment, a power plant compelled to use high priced coal, and a poorly configured manufacturing plant located too distant from its markets or its raw materials can all suffer from functional and/or economic depreciation.    

2020 property assessment notices are rolling out across Canada (New Brunswick is up next!).  If you own or occupy a special purpose property, make sure you ask the right questions when you decide if it’s time to request a review this year.  

Andre Pouliot is Vice President of our New Brunswick operations and Senior Manager of our Property Tax Division. For more information about our property tax services, feel free to contact Andre at (902) 429-1811 or apouliot@turnerdrake.com

CMHC has just released its annual rental market survey data, and the results are concerning for the Halifax Regional Municipality. After 2018’s record low vacancy, we’ve been eagerly waiting to see whether supply or demand would win the race this past year as both construction and population growth continue their fevered pace. Unfortunately for renters, it looks like demand has again won. With new supply undershooting by 280 units over the year, the overall vacancy rate has now plummeted from 1.6% to a new record low of 1.0% in 2019.

While the challenge of finding an apartment is stressful enough, unfortunately for renters the bad news doesn’t stop there. Vacancy rates are a leading indicator for rental rates, and this year’s results show the first hard evidence that tight market conditions are translating into price increases within the existing rental stock. Once the competition for limited available units heats up, price increases kick in as the market begins rationing too little supply among too much demand. While the statistics of overall average or median rents have been on the rise for a number of years, this has largely been driven by the addition of new, more expensive buildings to the rental pool. Yearly increases in existing buildings were muted, proceeding at around 2% per year even in record-setting 2018. However, thanks to the knock-on effects of that year’s diminutive vacancy rate, same-building rents in 2019 show an increase of 3.8%. This is nearly double the historical average, and the largest single-year increase on record. The 2019 vacancy rate of 1.0% therefore does not bode well for renters in this year to come. Things are going to get worse before they have a chance to get better!

On that note, what is it going to take for things to get better? Despite record-levels of construction in the purpose-built rental sector, the market supply is not growing fast enough to meet demand (hence the reduction in vacancy). Based on average figures for the last 3 years, the period where population growth has driven vacancy below its typical range, the calculations are humbling. HRM would need to increase the supply growth rate by about 13%, delivering an extra 230 units per year, just to stabilise the vacancy rate and keep up with the growth in demand. Of course, holding vacancy at 1% won’t help with prices. In order to return the market to a reasonable 3% vacancy rate, there would have to be a further increase of 23%, another 410 units per year, and this would have to be sustained for the next 3 years in order to get back to balanced market territory.

Multiunit starts were up in 2019, but only by 15%. This is an industry already at record activity levels and it strains to push the pace further. Additionally, provincial level data is suggesting HRM’s population growth may still be accelerating. As a result, odds are that a sufficient increase in the growth of rental supply is not about to materialise in the short term to provide relief.

So what solace can we offer? Well, it’s not much to take to the bank, but we may be seeing the start of demand-side trends that could help blow off some pressure. Much of the population growth pressure is driven by new people arriving in the city from elsewhere in the province, county, and world. Having a few years under their belt now, not-quite-so-recent migrants and non-permanent residents could start to flow out of the rental sector. Having found their feet, these groups may look to transition into the homeownership market as they seek to become more established (or, in the case of international students, simply move away as their studies conclude). Of course, there are also domestic trends to consider as well, and while rental demand growth from downsizing boomers is unlikely to relent, an increasing number of millennials are aging into their prime home buying years.

Often lost in the rental housing conversation is the fact that despite the frenzy of apartment construction, HRM has actually not built very much housing in the last few years overall. Unlike other Canadian cities where a surge of rental construction has come only after owner-occupied markets launched out of financial reach, HRM’s rental supply is the first preference for many. This means rental housing has been voraciously consumed at the same time that homebuilders have struggled to find demand for their available lots. As a result, the explosion of apartment construction has been largely offset by a drop in subdivision development.

Perhaps things are turning around, however. This past year may have heralded disappointment for renters, but it provided encouragement for owners; price action in the resale market showed strength that we haven’t seen since the early 2010s, and with it came an uptick in new construction activity as well. Is this evidence that some of HRM’s recent population growth is starting to flow from the rental sector into ownership?

This would certainly be good news for the homebuilding industry, which has been a shadow of itself for several years. It would also be good news for those still in the rental market, as a revived owner-occupied market would ease pressure on rentals by siphoning off some of the housing demand. Further, reactivating the idle resources in the homebuilding sector is an easier means of increasing the growth rate in total housing supply than hoping for the multiunit sector to conjure up a significant escalation in their maxed out production levels. 

Turner Drake is engaged in Housing Needs Analyses from coast to coast. To see how your community can benefit from the unique expertise of our Planning and Economic Intelligence team, call Vice President Neil Lovitt at (902) 429-1811 or nlovitt@turnerdrake.com.

I recently read an article by the CBC entitled “From sacred to secular: Canada set to lose 9,000 churches, warns national heritage group.”  The article discusses shrinking congregations as member’s age, move away or switch to new spiritual practices.  The article notes that in Eastern New Brunswick alone the Roman Catholic Archdiocese for example predicts that 20 of its 53 parishes will likely close if the congregations can’t find a way to generate more money.  With less money coming in and higher maintenance and operating costs churches face a challenging future.  

This article resonated with me on a professional level and personally as a member of a local church.  In the past few years our firm has been contacted by a number of churches, in particular church committees made up of congregation members.  These committees are assigned the unenvious task of exploring what to do with their beloved church as it faces the challenges of a shrinking congregation.

The common questions asked by committee members to aid in their decision making include:

• Scenario #1: What is the value of the church as it currently operates?
• Scenario #2: What is the value of the underlying land as a redevelopment?
• Scenario #3: What if the church were sold for an adaptive re-use, what would it be worth?

Essentially the committees want to determine the Highest and Best Use of their property, with values determined for each scenario so they can be make an informed decision, and ultimately present it to their congregation. 

Churches serve a number of roles for their community.  Outside of Sunday church services and funerals they are used as polling stations, a place of refuge after disasters, a place for private and not-for-profit groups to meet, a venue for concerts, fundraiser dinners and suppers and a place for performing arts to operate out of.  While church layout and design elements vary between denominations the fundamental church layout is fairly consistent.  Typically it includes a large entrance lobby, a sanctuary, parlour, large multi-use hall together with a kitchen and a number of smaller rooms used for meetings and general storage.  They tend to have several large, wide-open areas with high ceilings together with a large number of smaller classrooms.  As a result of their special purpose design they are challenging to value.

Scenario #1 - determining the Market Value of a church as it currently operates may not be as hard as it sounds.  There are numerous examples of church properties that have sold to other congregations for continued use as a church. 

Scenario #2 – determining the value of the underlying land for redevelopment is more challenging.  Often times the property has an institutional zone assigned to it, reflecting its current use.  However, this doesn’t necessarily limit the property to its current use.  It can often be re-zoned and redeveloped for a more intensive use.  Exploring this scenario involves discussions with the local planning authority, and in the end professional judgement is needed.  In addition to re-zoning, heritage designation issues, service and utility easements on the parcel and demolition costs for the existing building must be explored and considered under this scenario.     

Scenario #3 considers the value of the church for an adaptive re-use.  This can certainly be the most challenging scenario to consider when determining value.  The question here is “does the existing building actually provide additional, measurable value?”  Older buildings often have a lot of character and heritage value.  However, the cost for repairs and maintenance for these older buildings can be substantial.  They typically have masonry exterior walls with decorative features that require a lot of maintenance.  Their walls are often load bearing, meaning they cannot be easily reconfigured for another type of use without substantial structural work.  In addition they typically sit on expensive land, located in more central downtown locations with increasing pressure on land values.  All of these things can point to demolition of the existing church to make way for a new development.  However, that’s not always the case.

Recently I completed an assignment for a registered heritage property in Halifax.  The Centre Plan envisioned a low-density residential use for the property.  However, Package A contained significant implications for the property as it contains policy applicable to registered heritage properties.  This general policy allows for consideration of new development via discretionary approval processes (a “Development Agreement”) rather than zoning.  The overarching goal of the municipality is to encourage the rehabilitation and retention of heritage buildings. In order to do this, they will support a significant amount of new development intensity on sites containing a heritage building, using this as a tool to create sufficient value that the required conservation measures can be accommodated within an economically feasible project. This opens the possibility for significant building height and floor area ratios, as well as consideration of other cost-savings, such as lower parking requirements.

In that instance, the cost involved with demolishing the existing building coupled with only low-density anticipated for the site meant that demolition of the building was not the best option.  Alternatively, retaining the existing structure, or a substantial portion of it under policy contained within Package A of the Centre Plan opened up the possibility for significant building height and floor area ratios, as well as consideration of other cost-savings, such as lower parking requirements.  This second option meant a higher value for the property.  In that instance the best option was retaining the existing building for an adaptive re-use as part of a larger development.

The take-away here is that valuing churches or special purpose properties is not a straightforward exercise.  With shrinking congregations and higher operating costs these types of assignments are becoming increasingly more common.  They can be complicated and require a team approach to valuing the property with assistance from planners with a solid understanding of the Centre Plan.

For more information on the valuation services we provide visit our Valuation and Advisory Services site https://www.turnerdrake.org.

On Wednesday September 4^th, I had the pleasure of presenting before the Standing Committee on Law Amendments regarding the assessment and taxation of heavy industry in New Brunswick.  I was pleased to see such a high level of interest from Committee members in understanding how property tax assessments (which are based on market value) are calculated. 

Fair assessments start with accurate estimates of a property’s value.  In a market value assessment system, there are no “breaks” or “deals” for property owners.   Assessment professionals take their cues from the market and adjust their models so all assessments approximate market value.

Understanding the assessment system means understanding market value and the factors that influence it.  Most of us have a reasonable understanding of the factors that influence the value of our homes.  We understand that a strong housing market drives higher values for all houses.  We understand that a property with features that purchasers desire (e.g. great kitchen; open concept design; a finished basement) will have a higher value than one that lacks these features or is in a state of disrepair.   We understand “location, location, location”, and the benefit of being close to amenities like parks and schools, and the disadvantage of being located next to negative influences like landfills or flood zones.  

Although the market for heavy industrial properties is global as opposed to local, the factors that influence their value are not dissimilar.  When markets are strong (i.e. there is a balance between the number of buyers and sellers), values can be stable.  When markets are weak (there are more sellers than buyers), values will fall.  Individual facilities can become less appealing to buyers as they get older, or if the building design and layout will not accommodate the most efficient technology or process.  Location also applies.  Instead of proximity to parks and schools, ask if the facility is located close to its raw material, or close to where it sells its final product?  Does the location offer a competitive advantage or disadvantage in terms of the cost of inputs to production?

The 2013/2014 re-assessment of pulp and paper mills in New Brunswick generated questions from the Committee and provides an excellent case study for the factors that impact the market value of heavy industrial properties generally.  If you understand the factors that impact housing values, consider the following scenario. Imagine an older neighborhood with houses built up over a period of 100 years.  The market is poor, and there are significantly more sellers than buyers.  When you look up and down the streets, approximately 1/3^rd of the houses are vacant and boarded up while they wait to be demolished.  Demand is weak generally, but the houses in this neighborhood are especially less appealing than newer houses because they are older and are lacking in amenities that purchasers require.  The purchasers themselves have concluded that it would be much less expensive to build a new house than to modernize the older structures. In fact, the houses are so functionally obsolete, there are builders constructing houses across town with all of the amenities purchasers demand for less than half the cost of reconstructing replicas of the homes in the older neighborhood.  

This was the state of the market for pulp and paper mills at the time of the reassessment.  Maritimers will recall closure of mills in Bathurst, Dalhousie, Miramichi, Brooklyn, and Port Hawkesbury; all but one were subsequently demolished.  Assessors and Appeal Boards in assessment jurisdictions across the country were tasked with coming up with an estimate of the market value of these assets. Many experts provided testimony, and Appeal Boards in contested hearings in Ontario ordered assessment reductions ranging from 60% to 75%.  It shouldn’t be surprising that experts tasked with determining the values of mills in our region came to similar conclusions. 

To be clear, the assessment process is about ensuring that assessments reflect market value, not about providing a “break” or a “deal” on property taxes.   

André Pouliot is a Senior Manager in the Property Tax Division at Turner Drake & Partners Ltd.  André holds professional designations in Valuation with the Appraisal Institute of Canada, Royal Institution of Chartered Surveyors and has more than 20 years of experience in the assessment and valuation of heavy industrial, commercial, and investment properties.