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Picture this: your business is booming, clients who
have held off on visiting your office over the past two years are comfortable
with meeting in-person again, and your business projections for the next few
years look promising. Sounds great, right? But with all of this positivity
comes a fairly significant challenge: your current lease is soon coming to an
end, and you need to upsize your spatial footprint to keep up with
rapidly-increasing business demands.
After setting aside some time in your busy schedule
to scout out new locations, you find the building you think may be the perfect place
for your company’s new home. It’s a brand-new building (the last sheet of
Gyproc was just put up yesterday), close to all amenities and complementary
services, and you’d be located in a great part of town. All you need to do is
decide how you’d like to demise the space for offices and your showroom, find
suppliers for your furniture and lighting needs, hire a contractor to put up a
few demising walls and install a staff kitchenette and bathroom. You have the
names of some reliable contacts for all the services you think you’ll need, so
you’re confident that the finishing process will move quickly and everything
will fall into place. A couple weeks later, however, after spending far too
many hours of valuable time researching all your options, you reach the
conclusion that you’re just a little bit outside of your comfort zone and need
a professional to carry some of the load.
That’s where a broker can step in to help. First,
they will review your space wish list. They’ll provide you with any other space
options they believe will match your wish list, and can inquire as to the
details of any vacancies you’ve had your eye on. Some of the options they
suggest may currently be built-out with full offices, boardrooms, meeting
rooms, kitchens, washrooms etc., but when you review your options, you may
decide that none of them completely suit your needs, especially compared to
your original choice: the brand-new space, fresh on the market, that’s ready to
be built-out in such a way that you can achieve the exact layout desired to
maximise efficiency in your space.
Brokers will tour through the space with you,
taking stock of all the key components that will need attention: they notice
the unfinished concrete floor, exposed ceiling, unpainted Gyproc walls, and
anything else that catches their trained eyes. They’ll notice the HVAC,
plumbing, and electrical that is only running to your unit, not yet throughout
the whole building. They will discuss potential layouts based on your
needs, and the landlord may provide a space planner to help bring to life your
vision for the space. Once a solid plan is in place, you’re feeling confident
that the price of the project will be pretty manageable. When the space
plan comes back and the budget is calculated, you are shocked with the quote
from the general contractor… “I could build a new house for that price!”.
According to recent research, the
average cost to fully build out a typical office space ranges between $221 and
$323 per square foot, depending on geographical location and the desired quality
of finishes. This figure has increased significantly over recent
years, due in part to supply-chain shortages, rising costs of materials,
general fluctuations within the market, and inflation; however, we can use it
as a starting point. Typically, a landlord will include a tenant
improvement allowance within the asking net rent to help offset these
costs. The remainder is to be paid by the tenant. There
are a few options of handling these costs: a tenant can cut a cheque for the
entire amount (this may have an accounting benefit), the tenant may amortise
the amount over the lease term and pay back to the landlord as part of the
rental payments (this helps spread the costs over the lease term, but the
landlord typically charges interest on this amount) and/or a combination of
both options. The landlord will make these concessions based on the strength of
the covenant of the tenant and the length of the lease term.
Construction items to consider when building a
space from a raw state:
Partition Walls (Metal Studs and Gyproc): Even
in an open concept space, washrooms, meeting rooms, etc. must be partitioned
from the main space.
Flooring: Flooring can range from carpet
tiles to laminate flooring to ceramic tiles and anything in between. Carpet
tiles can be among the more cost-effective flooring options, while ceramic and
porcelain tile are among the more expensive flooring types.
Paint: Fortunately, paint is paint.
Ceiling Tiles: A suspended T-bar ceiling grid
can help improve sound nuisances within an office.
Lighting: There are many lighting options
available today, including more efficient LED lighting.
Electrical Distribution: In a
new build, the landlord typically brings electrical into the unit, but in some cases,
it is the tenant’s obligation to install a transformer and then
distribute the electrical throughout the unit (outlets, drops, etc.).
HVAC Distribution: Again,
the landlord will typically run HVAC to the unit, but it then becomes the
tenant's responsibility to distribute the HVAC throughout the unit. This
will depend on the unit layout; an open concept office will require less
distribution and diffusers than a fully built-out space with all private
offices.
Plumbing: The landlord will have a plumbing
stack to the unit, but it then becomes the tenant’s responsibility to
distribute throughout the unit. It is more cost effective to keep all plumbing
in the same vicinity as this avoids the need to cut into concrete to run pipes
(which significantly drives up construction costs).
Millwork: Millwork comprises of kitchen
cabinets, storage cabinets, washroom counters, etc. These items will depend on
the space design.
All of these items add up, and tackling them by
yourself may be quite overwhelming. That is why a broker is committed to
working tirelessly on your behalf to ensure your vision can come to life, while
sticking to your budget as closely as possible!
Our Brokerage Team has extensive experience in handling complex leasing and sales transactions, which often include assisting clients in navigating the sometimes-complex build-out and fit-up process. If you need help with your commercial property acquisition or leasing requirements, a member of our Team will be happy to assist you through every step of the transaction. Contact Ashley, Emily, or James via email or at (902) 429-1811.

Recently, you may have come across some news coverage of a project we’ve started; from
now until early 2023 we will be working on a Housing Needs Assessment for the
entirety of Nova Scotia. It’s a bit unusual for us to be fielding media
requests about the beginning of a project, usually the interest comes at
the end when we actually have some results to talk about… if the interest comes
at all. Yet, we shouldn’t be too surprised. Housing challenges continue to grow
across Canada, and in many ways Nova Scotia has been particularly impacted. This
is an issue we’ve been engaged in for some years now, building up our experience
from Truro, NS to Terrace, BC. We are very excited at the opportunity this
project creates for us to set a new standard for conducting these types of
analyses, all right here in our home province.
I would be remiss to not prominently mention
the collaborating firms we have on our team. While Turner Drake is getting the
name recognition due to our role as project manager, the reality is this is
very much a combined effort. In fact, the budget for this project is more directed
to public engagement than data analysis – my excel file doesn’t care if I load
in data for 1 municipality or 49, but talking to people can’t scale like that.
We have an enormous geography to cover, and a diversity of stakeholders in each
community to engage with. So, we are thrilled to have Upland
Planning & Design Studio as well as Colab undertaking that process with us. Back closer
to our focus, we are excited to be collaborating with MountainMath on the analytics and data
dissemination.
Beyond the team itself, the scope of work we
have gives us even more to look forward to. The RFP issued by the Province for
this study was thorough enough to ensure the right questions will be answered,
but was also flexible enough that we were able to put our own spin on things to
ultimately propose a Needs Assessment as we think they should be done. We can’t
get into everything, but here are a few highlights: - We
are excited to finally undertake this work with the benefit of data from the
2021 Census as it is released over the course of this year. While data sets
related to the housing market and inventory are updated at least annually, this
is not the case for many important socio-economic indicators that tell us about
the people who are trying to access and maintain that housing. The 2021 Census
will give us a contemporary view into these factors, something that has been an
increasing challenge with this work over the last number of years. Until this
point, we’ve had to rely on the 2016 Census, which predates virtually every
important trend affecting our housing situation today.
- We
are also eager to introduce a much more detailed understanding of Short Term
Rental activity (i.e. AirBNB) across the province. This is a fraught topic; the
use of our housing stock for short-term rental purposes has very clear negative
and positive impacts, and these are highly variable between communities, and
even across different neighbourhoods in the same community. Up to this point a
lack of detailed data has prevented us from clearly understanding where the
problems are, and how severe they may be. We’re looking forward to pulling back
the curtain on this facet of the housing market!
- Finally,
this project is an opportunity for us to up the ante in terms of making our
work useful and accessible. While government is our client, housing issues are
top of mind for many across the province and we want our efforts to benefit anyone
working toward housing solutions. It is incredibly difficult to write a static
report that presents such a breadth of information (both thematic and
geographic) in a way that is useful to more than a few end users. That is why
we are exploring how to better share our results so more people across the province
can adapt it to their needs, interests, and locations. A more dynamic, web-based,
and customizable approach to disseminating housing-related data and insights is
one of the outcomes I am most excited for.
While this project will
provide our client with key information they need to design and target public
policy responses, the unfortunate reality is that our work will take time, and across
the board we are playing a game of catchup where time is the most precious
commodity. Housing affordability has rapidly eroded over the course of the
pandemic, and was being degraded more slowly for years before that. Take a look
at trends just in the owner-occupied market (which has lagged the rental market
in terms of demand pressure):

This is only a narrow view of a larger and more
complex picture, but it helps to illustrate just how severe the problem is for
lower income households. Not long ago, a household earning $40,000 had a shot
at about half of the ownership opportunities across HRM, these days they’re
fighting it out for the cheapest 10% of the market. While across Canada we are
starting to see more serious engagement in the issue and more on-the-ground
interventions, my perspective is that no jurisdiction is yet grappling with the
elephant in the room; that a sizable proportion of the population is now firmly
outside the boundaries of what market-rate housing can serve. None of the low
hanging fruit or amount of “innovative” policy and partnership that is
comfortably within the boundaries of government intervention is going to get
around this basic fact, and it’s going to take time for government to tool up
and get back to engaging with this issue at a scale that approaches historic
precedents.
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Neil Lovitt is the Vice President of Turner Drake's Planning and
Economic Intelligence divisions. He engages in numerous consulting
assignments, including non-market housing feasibility studies, Housing Needs
Assessments from coast to coast, land inventory analyses, and infrastructure
studies. To see how you can benefit from the unique expertise of our Planning
and Economic Intelligence team, call Neil at (902) 429-1811 or nlovitt@turnerdrake.com.

In 2010,
the Building Owners and Managers Association (BOMA) released their first
Standard Method of Measurement specifically designed for Retail Space. Prior to this, BOMA did not address the
measurement of retail space, except where it existed within office buildings,
and so measurement of retail space was done solely as a sub-set of the Office
Standard. With a Standard dedicated specifically
to retail space, BOMA was able address a much wider variety of retail space as
well as incorporate industry-specific scenarios.
In 2020,
BOMA released an updated version of the Retail Standard. The updated version was more comprehensive
and provided greater clarity over its previous original version. It also introduced the following advancements:
·
Two
levels of measurement:
o
Partial
Measurement
o
Overall
Measurement
·
“Inter-Building
Area”
·
The
concept of the “Retail Experience”
Two
Levels of Measurement
Partial Measurement
When a building contains multiple leased units,
partial measurement may be employed in order to calculate the Gross Leasable
Area (GLA) for a single unit. This allows landlords to calculate a certified
GLA for any individual unit, without the need to measure the entire building. Leasable Exclusions benefitting the measured
space can be measured in order to complete Inter-Building area calculations.
This helps landlords determine the common area and maintenance fees for the
occupant.
Although Partial Measurement allows a single space
to be certified, any adjacent spaces may still need to be accessed in order to
determine the thickness of demising walls, and confirm wall priority between
spaces.
Overall Measurement
As the name suggests, this is a complete measurement
of the retail property. The Overall
Measurement of a retail space is recommended by BOMA over the Partial
Measurement since it provides a complete picture of the building (it is also
less invasive to tenants since units only need to be visited once). When landlords have access to more information
(available through Overall Measurement) they are able to make better-informed
decisions regarding the efficient use of space in their building.
Inter-Building
Area
In the
original BOMA Retail Standard, the GLA of a tenant space was effectively
defined as the space physically occupied by a particular tenant—parking lots,
major vertical penetrations, and the various common areas were not allocated to
the occupants of a retail building. The
latest Standard changes this by providing landlords with the option to allocate
this space (called “Inter-Building Area”) to the various occupants who benefit
from it.
A simple
example of Inter-Building Area can be found with a shopping mall with available
on-site parking. The standard allows us
to take this parking area and proportionately allocate it amongst the occupants
of the mall.
Example: Imagine a building with a total GLA of 30,0000
ft2 and an associated parking lot of 10,000 ft2. We can calculate how much can be allocated to
a tenant based on the percentage of total GLA that they occupy. If Occupant #1
has a GLA of 5,000 ft2, their proportionate share of the building is
5,000 ft2 / 30,000 ft2 = 16.67%. The tenant will then be allocated 16.67% of
the parking lot, in this case 16.67% X 10,000 ft2 = 1,667 ft2.
The
“Retail Experience”
When you
walk into a nice restaurant, there are several factors which contribute to your
overall experience—the nice carpet, fancy lighting, music, an outdoor patio or
rooftop terrace, etc. All these factors
contribute to the “Retail Experience”, a concept that is introduced in the 2020
BOMA Retail Standard.
This
concept allows landlords to define (and capture) unenclosed areas of a retail
property which contribute to the overall shopping environment. These factors are most notable in strip malls and
restaurants since they often include permanent outdoor areas. Covid-19 restrictions led to a surge in patio
dining, however in the past, landlords had no way of capturing these areas
within a tenant’s retail space. If these features are permanent, and under the
exclusive use of a particular tenant, landlords now have the ability to capitalise
on these features by including them in the certified GLA of the tenant space.
Are you unsure if you
are efficiently utilising every square foot in you building? Our Lasercad® division would be happy to certify
your space to the latest measurement standard, ensuring that you know exactly
what you’re working with!
Tyler Manning is a consultant in our Valuation Division and is heavily
involved in many of our Lasercad® projects. For more information about our range of Lasercad® services, feel free to contact Tyler at (902)
429-1811 or tmanning@turnerdrake.com.

We’re all well aware of the trajectory of housing prices since the start
of the pandemic: The Canadian Real Estate Association (CREA) reported a 17.7%
increase in average housing prices nationally between December 2020 and 2021. Reported increases in Atlantic Canada range
from 9.3% in St. John’s NL, to 41.9% in Yarmouth NS. We’ve arranged the following table of
reported Atlantic Canadian areas in descending order by rate of increase, and
included the dollar value that increase translates to.
Source:
CREA. * MLS® HPI benchmark prices; all
other areas are average prices. We don’t
know why Charlottetown is not reported.
Another thing we’re all aware of is
current rock bottom interest rates, which were lowered from already low levels
at the outset of the pandemic in an effort to keep the economy from coming to a
crashing halt. As someone who first
bought a house when interest rates seemed low to those who held a mortgage in
the 1980s, but high to those who weren’t yet born in the 1980s, I wanted to
take a look at the cost of buying a home with a mortgage over the course of the
past few decades, and how that relates to income.
The following charts show average
income for “economic
families[i]
and persons not in an economic family[ii]”. The available data goes as far forward as 2019
and it was provided in constant 2019 dollars.
I wanted to look also at current dollar income, so I adjusted it using
the relevant consumer price index (CPI).
Over the past four decades, average incomes have approximately quadrupled in Canada (+290%) and the Atlantic provinces (NL +318%; PE +291%; NS +284%; NB +295%; maybe a little more since 2019?)
Source:
Statistics Canada. Table
11-10-0191-01 Income statistics by
economic family type and income source; and Table 18-10-0005-01 Consumer Price Index, annual average, not
seasonally adjusted.
Source:
Statistics Canada. Table
11-10-0191-01 Income statistics by
economic family type and income source.
Historic lending rates are provided on
a weekly basis. From the start of 1980
to the start of 2022, lending rates have declined substantially, by 8.46
percentage points (pp) for posted mortgage rates and 13.5 pp for the bank
rate. Mortgage rates peaked at 21.75%
for a 10-week period in 1981 and reached their lowest between 2015 and 2017, at
4.64%.
Source:
Statistics Canada. Table 10-10-0145-01
Financial market statistics, as at Wednesday, Bank of Canada.
And the final piece of the puzzle is
housing prices. Part of our Compuval™
suite of databases is our residential database, which captures details of
housing sales transactions in Halifax Regional Municipality, dating back to the
mid-1970s. So, with apologies to all the
other areas, for this portion, we are looking only at the housing prices for
HRM. The average price for a house in
1981 was $60,738; in 2021, it was $486,861, an increase of just over 700%, well
above the quadrupling of incomes over the period.
Source:
Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics
Canada. Table 10-10-0145-01 Financial
market statistics, as at Wednesday, Bank of Canada.
We also used the CPI to adjust average
housing prices to 2021 levels: the increase over the forty years was 187%, even
accounting for inflation.
Source:
Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics
Canada. Table 10-10-0145-01 Financial
market statistics, as at Wednesday, Bank of Canada.
No matter which way you look at,
adjusted or otherwise, housing prices have increased over the past 40 years
(what??!), and quite sharply over the past 2 years. But interest rates have declined, so where
does that put mortgage payments? The
following two tables show mortgage payments on the average priced home annually
since 1981. The mortgage rates are
necessarily approximate because mortgage rates vary throughout the year – these
are the annual averages of the reported weekly rates – and because there are
other factors at play that might mean someone pays a different rate from that
posted (negotiation, general discounts off the posted rate, etc.), but the
purpose here is to show the trend over time.
I’ve also ignored down payments, so these payments are based on the full
average price of houses, purely for simplicity.
The first table shows the five-year fixed rate, while the second shows
the variable rate; payments are shown on average house prices in current
dollars, and also adjusted to 2021 dollars using the CPI.
Source:
Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics
Canada. Table 10-10-0145-01 Financial
market statistics, as at Wednesday, Bank of Canada (for fixed mortgage rates);
Super Brokers Mortgage Rate History https://www.superbrokers.ca/tools/mortgage-rate-history
(for variable rates).
Source:
Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics
Canada. Table 10-10-0145-01 Financial
market statistics, as at Wednesday, Bank of Canada (for fixed mortgage rates);
Super Brokers Mortgage Rate History https://www.superbrokers.ca/tools/mortgage-rate-history
(for variable rates).
The analysis shows that interest rates
and mortgage payments followed a similar pattern until approximately the year
2000 for fixed rate mortgages, and 2009 for variable rate mortgages, at which
points the two diverge, with interest rates continuing their downward
trajectory while mortgage payments climbed with relative consistency to the
present day (side note: over the study period, there were just three years
where the annual average for variable rates was higher than that of fixed
rates: 1981, 1989, and 1990).
“Affordability”
for housing is relatively refined in its definition (you can read a bit about
it in our blog from June of last year), and this next table isn’t intended to
comment on affordability in that regard, but rather to show the pattern of
change in average incomes, annual mortgage payments, and consumer prices (CPI),
all indexed to a common starting point (1980).
It is noteworthy how closely together the three moved between 1980 and
1990, at which point annual mortgage payments dropped relative to income and CPI;
the latter two continued apace for about the next eight years, till incomes
started to outpace consumer prices. Even
in 2020, the index for annual mortgage payments fell below that of income, but
in 2021, these two came back together, suggesting that mortgage costs (index
value in 2021 = 411.7) relative to income (index value in 2021 = 414.4) is now
approximately equivalent to where it was in 1980 (both 100), or 1990 (index
values 181.7 and 184.8, respectively).
Source: Turner Drake & Partners Ltd. Compuval™ Residential Database;
Statistics Canada. Table 10-10-0145-01
Financial market statistics, as at Wednesday, Bank of Canada (for fixed
mortgage rates); Statistics Canada. Table 18-10-0005-01 Consumer Price Index, annual average, not
seasonally adjusted; and Statistics Canada.
Table 11-10-0191-01 Income
statistics by economic family type and income source.
One more exercise in modelling prices,
payments, and interest rates: what would someone pay, including interest, if
they bought an average house in 1981, versus in 2021? In order to estimate this, I used a 25-year
amortization period with 5-year terms.
For the first 5-year term, I used the average house price and fixed
mortgage rate in the year of purchase, and then used an amortization schedule
to determine the balance owing at the end of the term. I repeated the process for each of the 5-year
terms, using the end balance for the previous term as the mortgage amount,
reducing the amortization period by five years, and using the prevailing
interest rate of the first year of each term.
This is reasonable for the 1981 purchase, but the 2021 purchase is trickier
because future interest rates are unknown.
Therefore, I simply modelled it looking backwards at interest rates in
five-year increments, on the assumption that maybe rates will work their way
back up. Is it perfect? No. Is
it reasonable? Probably. Is it interesting to speculate? I think so.

The results: an average house
purchased in 1981 cost $60,738; when fully paid off 25 years later, the total
cost of principal and interest was $196,564 (note that the starting principal
and total principal are off by $91, likely due to rounding). The average house purchased in 2021 cost
$486,681. The full cost including
principal and interest 25 years hence is modelled to be $858,865.

Alex Baird Allen is the Manager of Turner Drake's Economic Intelligence Unit. In her role, Alex frequently undertakes market surveys, site selection studies, trade area analyses, supply & demand analyses, and demographic reports for a wide range of property types throughout Atlantic Canada. If you'd like more information on market research or our semi-annual Market Survey (recently updated and published with December 2021 results), you can reach Alex at 902-429-1811 Ext.323 (HRM), 1-800-567-3033 (toll free), or email ABairdAllen@turnerdrake.com

Accurate Space Requirements: Carefully study your real estate needs. When budgeting, it’s
important to consider not just the purchase price (or if leasing—the base
rent), but also any additional costs associated with the property. It is easy
to overlook or underestimate extras such as: renovations, due diligence costs,
legal fees, production downtime during the transition, recurring operational
expenses for the property and (in the case of a lease) possible leasehold
improvements. The lender wants to see evidence of solid planning. Determining
whether you want to buy or lease
and how you’ll accommodate projected growth is important in determining your square footage needs.
The Subject Property: If you don’t already have a property in mind, a lender may agree
to a preliminary meeting to give you a ballpark idea of how much financing it
could provide. However, such a meeting is generally advisable only if you
already have a good relationship with the loans officer. You can leave a poor
impression if it looks like you’re not a serious buyer and are wasting the lender’s
time. Lenders decide how much to lend based not only on your finances, but also
on the type of building, and its condition, age, resale potential, ability to
generate a cash flow (which will support the debt service and marketability). Without
a specific property, it’s hard for a lender to be precise on how much financing
it can offer.
Business Plan: Do you have a property in mind? You should. Prepare the documents you’ll need to show the lender. These will include a solid
business plan, up-to-date financial statements, and
details of the property you’re interested in. You should plan to make a good
first impression and be well prepared.
How do your books look? Start by making sure your company’s finances are in order and
organised. One of the most important requirements for getting financing is
having a profitable and growing company. A business with no profitability hurts
your chances at obtaining a loan. Lenders like to see a proven record of
profits year over year.
Meet the lender to clarify the terms and conditions: It’s best to meet the lender before bidding on the property you
have in mind, especially if it’s your first venture into commercial real
estate. The lender will also advise you on its conditions for granting
financing. Those may include obtaining environmental and building
condition assessments, an appraisal, and a title search. It helps to
use approved experts for this kind of due diligence,
and each lender has its own list of such experts. If you use someone else, the lender
may require a second opinion and the transaction could be delayed.
Don't rush the conditional period: Your purchase offer should give the lender enough time to review
the terms of the deal. It’s common for offers to provide 4 weeks of
“conditional acceptance” while lenders often need six to eight weeks and
possibly more (especially if due diligence issues arise). The last thing you
will want to do is ask for an extension, especially on a “hot” property or
“remove conditions” without having the full approval from the lender.
James Dunnett is a Consultant in our Brokerage Division and has extensive experience in handling complex leasing and sales transactions. If you need help with your commercial property acquisition or leasing requirements, James will be happy to assist you through every step of the transaction. Contact him at (902) 429-1811 or jdunnett@turnerdrake.com.

During the first week of November, the reminders were everywhere:
“Change your clocks, check your batteries”. The end of Daylight Savings is a
great time to check your smoke and carbon monoxide detectors to ensure they are
in good working order. Although the
majority of properties are equipped with this equipment, many are overlooked. Functioning
smoke and carbon monoxide detectors are critical to fire safety and reduce the
risk of fire related death by nearly 50%. Another key aspect of fire safety is having up-to-date
Fire Emergency and Fire Exit plans. When
was the last time you reviewed yours?
According to the National Fire Code of Canada, the fire safety plan of a
building must be reviewed at least every 12 months, but in reality, your fire
plan should be reviewed whenever there are changes to the floor plan. As noted in our April blog post, changing
trends in remote work have created opportunities to alter workspaces, renovate
offices, or even convert buildings to adapt to today’s commercial real estate
environment. It is important to review
your Fire Emergency and Fire Exit plans whenever these changes take place to
ensure they are an accurate representation of your space’s current
configuration and use. An outdated fire
safety plan may be of little help in the event of a fire.
Having a fresh look at your Fire Safety Plan can also identify
opportunities to make changes to your fire safety equipment—especially if your
property is undergoing renovations. Regular
reviews of your fire safety plans also helps to ensure adherence to evolving
building codes and fire safety regulations.
Don’t have a Fire Emergency or Fire Exit plan? Our Lasercad® division can assist
in creating or updating these by measuring the space and laying out a clear exit
path, as well as identifying the locations of safety equipment for your tenants.
Christine Spurr is a consultant in our Valuation Division and
is involved in many of our Lasercad® projects. For more information about our range of Lasercad® services, feel free to contact Christine at (902)
429-1811 or cspurr@turnerdrake.com.

HST Self-Supply on new apartment
buildings has been around for a long time. We were first introduced to the
world of HST (or GST as it was then known) back in 1990 at a seminar put on by
one of the leading accounting companies to help the appraisal profession adjust
to the new rules. GST was officially
launched in January 1991 and the world of Self-Supply was unleashed. For the
first 35 years or so it lay relatively dormant with scarcely a call to our
offices from new apartment builders, who are the most affected by the new rules.
Rarely were we consulted on Self-Supply valuations. Everyone was seemingly happy in apartment
land. But the last 5 years has erupted with calls coming in on a regular basis from
clients old and new, anxious to escape the inevitable battle with CRA’s
auditors and appraisers. (For those looking for a tutorial, see our blog post
of August 24th, 2016, “HST Self-Supply Rules: Is CRA on the Warpath”. And feel the pain). Undoubtedly the biggest practical
problem for apartment builders is the uncertainty it leaves after the building
has been completed. HST on new buildings is based on “Fair Market Value”, not
on the cost of construction. The latter
is easily calculated because ITC’s (Input Tax Credits) will have been filed
with CRA throughout the construction process. The former – “Fair Market Value”
- cannot be calculated until the building is completed and it is, like any market
value figure, just an opinion. But CRA’s
opinion increasingly is at odds with the builder’s opinion. To make matters
worse, CRA’s review will come along well after the building has been finished,
and therefore well after the mortgage financing has been committed, and
occasionally even after the building has been sold. In jurisdictions with regulatory rent
controls, rents too will have been committed. In short, the final HST tax bill
comes in well after all the dust has (literally) settled. Too bad that it can’t
be agreed in advance, or based on something more predictable than “Fair Market Value”.
"Just levelling the playing field..."
The reasoning behind the Self-Supply rules is
succinctly laid out in an official CRA
publication (GST/HST Memoranda series 19.2.3, paragraph 5) which begins
“Purpose of self-supply rules: level playing field”. In essence, it is an
attempt to put the builder who wants to keep the building on the same footing
as an investor who wants to buy it. The selling price will (fingers crossed)
include a profit component for the builder and that’s what CRA wants a piece
of. It’s difficult to argue with the
principle, but what it overlooks is that HST is just another construction cost to
be recovered through the eventual selling price. If HST is charged on the
elusive profit component, it simply adds to the cost of the building and hence
adds to the selling price. The builder pays tax on the profit and recovers it
from the purchaser as part of the selling price. The playing field is level.
But if no tax is charged on the elusive profit component, the cost of the
building is marginally lower and, assuming a balanced market, the selling price
will be marginally lower. The playing
field remains level, just slightly smaller. CRA’s concern is that the tax on
the builder’s profit will simply end up in the builder’s pocket, but a
competitive market will address that. Viewed from that angle, the pain, anguish
and sleepless nights endured by the builder waiting to settle the tax bill with
CRA is more to do with the size of the playing field than its degree of tilt. All
of that pain and anguish could be removed if the tax on profit were a
predictable formula, agreed in advance, rather than an elusive opinion coming
after the show is over.
HST on Apartment Rents
So, what if the profit – or rather the tax thereon – is
occasionally underestimated? Eventually
it is the end user who pays the HST on goods and services anyway. That’s how
value-added taxes work. For apartment buildings that means the tenant
ultimately bears the cost of the builder’s HST, even though residential rental
property is, for the most part, officially exempt from HST. Rents must be
sufficient to recover all of the costs or else buildings don’t get built. So
that troublesome tax on the builder’s profit ultimately shuffles through to the
tenants. Is it a bad thing to give
tenants a break these days? And for more
on THAT debate, check out our recent June 21st blog, “Affordable,
Attainable, Available”.
Lee Weatherby is the Vice President of our Counselling Division. If you'd like more information about our counselling services, feel free to contact Lee at (902) 429-1811 or lweatherby@turnerdrake.com.

Boy howdy, let me tell you how tempting it is today to write another blog post about housing, what with a new majority provincial government, and the shameful campaign of homelessness evictions launched by HRM. It's a topic we will be sure to revisit soon, but the honest truth is a while ago I started writing this piece about a different issue in pressing need of attention, and there just is not the time to pivot.
That other issue, of course, is the long emergency
of climate change. A long emergency that is rapidly becoming shorter according
to the recently released 6th Assessment Report of the
Intergovernmental Panel on Climate Change. The outlook is grim, with some
irreversible effects of climate change now baked into our future, and an ever-diminishing
window of opportunity to take action and head off the worst. This is ‘code red
for humanity’ as put by UN Secretary General, Antonio Guterres.
A few months ago, I turned 35. Old man, I know.
But even from here, just past the threshold of maturity, let me tell you that
aging is a hell of a trip. With a few decades and milestones under my belt, I
can now regularly perceive the arc of time, but still hold clearly in my mind
the memories of early childhood when nothing existed beyond the “now”. I can vividly
remember, for example, sitting in the school library in Grade 4 and learning
about the Montreal Protocol and how it reversed the depletion of the ozone
layer (something very topical to a pasty redhead with British genes). I
remember learning how something called the Kyoto Protocol was going to help
prevent a different environmental crisis called Global Warming. It felt like an
imperceptible eon away at the time, what a different world we would be facing
if that had panned out.

My daughter turned 5 this spring and at the
moment her “now” is a lot more focused on Covid than climate, but that will
probably change soon. That long arc of time leading to climate-driven environmental
and social crises has converged with the now. As the IPCC report lays out, our window
of opportunity to shape future impacts and head off the worst is running out.
Not in imperceptible eons, not in generations, but in a decade (singular), in near-term
political cycles. In all likeliness, I will know whether or not my daughter is
inheriting a disastrous +2°C world before I know whether or not
she’s passed her driver’s test.
But even that sentiment downplays the issue. In
fact, we are already living with the impacts of climate change and it’s easy to
find the real estate angle. Earlier this week our social media accounts shared this article from the CBC examining the lack of
climate risk information in the typical real estate transaction process. The
topic is presented against the background of raging wildfires in the BC
interior, which have destroyed numerous homes and disrupted even more
communities. This is already leading to some early musings that the housing
markets of Vancouver Island could see a groundswell of demand pressure over the
long term as people are increasingly motivated to move upwind of areas where
“50-year fires” are now happening multiple times in a decade, threatening life
and shelter, and choking out the rest.
So far, the smoke is dissipating before it
reaches this side of the continent, so our concerns are not so focused on
forest fires (though, not to be ignored). Sea level rise and flooding are the
risks du jour. We’ve visited this topic a number of times already, in research
articles from 2006, 2007, 2013, 2016, and most recently 2019. It’s a subject that we care about and have integrated
into our valuation practice, adding a climate risk section to our standard
reports just a few years ago. But as one small firm in this big industry it is
difficult for us to push that envelope.
Well, reality is on its way to force the issue.
Back in the fall of last year the National Bureau of Economic Research
published a working paper from a couple good eggs at the Wharton School
examining the capitalization of climate risk in real estate prices. More
specifically, their analysis of home sales in coastal areas of
Florida noted that properties more exposed to the risks of Sea Level Rise
started to see lagging sales volumes in the early 2010s, with price
appreciation starting its underperformance a few years later. Their conclusion is
this is a demand-side trend, buyers are now thinking about climate change in
the timespan of their own mortgage term! Here’s the money chart: 
This trend is just starting, and with the IPCC
telling us that a +1.5°C world is now
unavoidable, it will only grow in impact in the years to come. Not eons, not
generations, years. We’ll continue to look for ways to integrate climate risk
assessment into our work, and we recommend that anyone considering a real
estate acquisition these days do the same. Even if you don’t expect to own the
property long enough for sea level rise and other climate impacts to physically
threaten your asset, the next buyer sure could be, and property values look to
be a leading indicator now, not a trailing one. In other words, without due
care, your mortgage could be underwater long before the property itself is.
[1][2].jpg)
Neil
Lovitt is the Vice President of Turner Drake's Planning and Economic
Intelligence divisions. He engages in numerous consulting
assignments, including non-market housing feasibility studies, Housing Needs
Assessments from coast to coast, land inventory analyses, and infrastructure
studies. To see how you can benefit from the unique expertise of our Planning and
Economic Intelligence team, call Neil at (902) 429-1811 or nlovitt@turnerdrake.com.

June
28, 2021 marked the twenty-eight year anniversary of my employment at Turner
Drake. Time really does fly when you’re
having fun. Originally
hired, trained and educated as a commercial appraiser, I’ve spent the majority
of my career in our Property Tax Division. True to our in-house training
program of the time, I was hired freshly graduated from University; started as
a trainee valuer; moved into a Manager’s role six years later, and then,
commencing in 2006, became divisional Vice-President, where I lead a team of six.
That team assists hundreds of owners every year in mitigating their tax
burdens. Twenty-eight
years in property tax translates into tens of thousands of appeals filed and,
over the course of addressing those appeals, some recurring themes have
emerged. I’ll discuss them below…and in the process, try to do a little bit of
property tax myth-busting. Thou Shalt Not Covet
Thy Neighbour’s Assessment If
you own property in Nova Scotia, it’s tempting (and, with the information
available online free-of-charge, relatively easy) to compare your assessment to
competing properties. For some owners I’ve encountered, logging on to
assessment sites and feverishly clicking on surrounding properties has become
sport…in some cases, bordering on an obsession. While
comparable assessments are undeniably a useful benchmark, as well as a helpful
tool to identify an over-assessment (we do it too!); and while some assessors
will even consider assessments on similar properties as grounds for reducing an
assessment at the (relatively informal) initial appeal review stage, the fact
that your assessment compares unfavourably to others will carry no weight
before Nova Scotia’s administrative Tribunals, Boards, and Courts. Nova Scotia’s Assessment Act requires uniformity of assessment…but legislated
uniformity is achieved across entire classes of property in a Municipality (and
there are only two such classes of property: residential and commercial). Sadly,
ensuring that your property’s assessment is consistent with similar properties
does not ensure uniformity. This is one of the most common misconceptions
that we encounter in dealing with property appellants. And
don’t even get me started on New Brunswick, where there is no uniformity or
equity provisions in the assessment legislation- none! Comparable assessments
have zero evidentiary value. Sad, but true. There are reform moves afoot to
address the issue, but given the current glacial pace, I may be another
twenty-eight years in before they come to fruition. The Best Opportunity to Reduce Your Assessment (and Taxes) is NOT
on Appeal In
every Province in which we operate, assessing authorities are willing to
discuss assessments prior to those
values being inserted onto the official assessment rolls. In our experience,
such preliminary consultations often produce better results- at lower cost-
that waiting to file formal appeals. A number of provinces- Nova Scotia among
them- fully embrace the opportunity to discuss proposed values and to make
changes, where required, at the “pre-roll” (referred to also as the “advance
notification”) stage. Of
course, it’s not always possible to do so, as values may not be available with
sufficient lead time in advance of the filing of the roll. But where the
opportunity presents itself, my advice is always to be proactive, and to
address a problem before it becomes one.
A stitch in time really does save nine. (Nova
Scotia owners, take note: the opportunity to pre-negotiate your 2022
assessment- the first assessment year when the COVID-19 pandemic will be
technically relevant for assessment purposes- will open in mid-to-late
September. Carpe diem). Not Every Property is
Overassessed There.
I’ve said it. It’s
the truth- not every property offers the opportunity for tax relief. My
colleagues and I take many, many calls where we have to break that unwelcome
news to owners…sometimes in spite of a double- digit increase, or an assessment
that exceeds its neighbours by a considerable margin, or a revenue stream that
has tanked due to the COVID-19 pandemic. In fact, for every appeal we file,
there is probably a second property that was reviewed and its value
accepted. Assessors- They’re
Just Like Us.
They
worry about mixing vaccines. They wonder about going gluten-free. They drive
their kids to countless sport practices and extracurricular activities. They
think about work while they’re walking the dog.
They fret about how they look on Zoom calls. And, for the most part,
they’re well educated and professional, and open to reasoned argument. That’s
not to say that we don’t take the gloves off from time to time. But
professional relationships built on mutual respect with assessors from across
the country have allowed for the settlement of hundreds of appeals every year
without the need for Board and Court appearances.
[1][2][3].jpg)
Giselle Kakamousias is the
Vice-President of Turner Drake’s Property Tax Division. Her experience
negotiating and appealing property assessments is extensive: it is a wise
property owner who follows her advice. If you’d like more of it, she can be
reached at (902) 429-1811 ext. 333 or gkakamousias@turnerdrake.com.
Affordable housing has been a hot topic in
recent years, and is even more so now as rental vacancy rates are extremely
tight and housing prices have experienced record rates of increase in Atlantic
Canada. A recent news article caught my
attention, with its reference to a price point – “attainable” – I
haven’t heard as much about, and it inspired me to take a look at what the
difference is, and how each lines up with Atlantic Canadian markets. Then, because alliterations sound better in
threes, I needed a third A: the obvious choice in this context is to look at availability.
First, the definitions, a slipperier
thing to pin down than one might imagine.
Canada Mortgage and Housing Corporation (CMHC) defines affordable
housing as housing that costs less than 30% of a household’s before-tax (gross)
income, absent any requirement for the housing to be provided or made possible
through a government program, and without restriction on tenure or type.
With that definition, affordability
is very much relative: in theory, a $4.3-million home would be “affordable”,
provided your household income is $300,000 – about 1.7% of Atlantic Canadian
households. Relatively affordable: on the market for approximately
$4.4-million. Source: ViewPoint Realty
Seems likely that this is not the
intention of the definition, or any measures put in place to encourage the
supply of affordable housing. And in
fact, CMHC’s Housing Continuum graphic implies that affordable housing is
separate from market housing. Wikipedia
offers a slightly more specific definition:
…housing which is deemed affordable
to those with a median household income or below as rated by the national
government or a local government by a recognized housing affordability index.
 If we combine the two, that would
indicate that affordable housing is housing which costs no more than 30% of the
median household income – and for practical purposes, let’s assume that is in
reference to local median incomes, and not, for example the national figure…more
on that later.
We conducted a very high-level
analysis of the median incomes for the four Atlantic provinces and a selection
of cities. We used average rental rates
for 2-bedroom units because this is by far the dominant unit type for rental
accommodation. The calculation is simple
(very!): divide 30% of the median household income by 12 to get the monthly
income, subtract off the average rental rate and an allocation for utilities of
$150 per month (property tax and water are included in the rental rate;
electricity/heating may or may not be included, so to play it safe, we assumed
that it’s not for most units) and see what’s left over. Great news: positive balances all-round,
averaging $620 per month surplus – hoorah, there’s no affordability issue!
Data Sources: Environics Analytics via Sitewiseweb;
CMHC; Dalhousie University
Here’s the “but”…and it’s not
inconsequential by any stretch. Median
household income is, by definition, the middle of the income spectrum. So, a household earning the median income
being able to afford average costs for rental housing tells only half the
story. Our next analysis worked the
figures backwards: we took the average rent plus the same allocation for utilities,
on an annual basis and figured out how much a household would need to earn in
order for housing costs to equal 30% of their gross income – then figured out
approximately how many households fell below that income threshold, based on
the number of households in various income brackets. Reports of an issue don’t look overblown at
all.

Data Sources: Environics Analytics via Sitewiseweb;
CMHC; Dalhousie University
Prices for owner-occupied housing
have increased substantially over the course of the pandemic. We ran the same sort of analysis as above,
for average/median sale prices in 2020 and 2021. The geographic availability of data is a bit
inconsistent, but our aim is a general idea, so overall, the data is fit for
purpose. Mortgage rates impact the cost
of housing; we used discounted rates (rather than the posted rates) relevant at
the relative times. To keep things
simple, we assumed a 5% down payment, then based on a very unscientific poll
around the office cross referenced against an online monthly expenses
calculator, we allocated 40% of the mortgage cost to cover property tax,
utilities, and insurance costs: rough idea, fit for purpose.
Data Sources: Environics Analytics via Sitewiseweb;
CREA; ratehub.ca
We also looked at the year-over-year
change in house prices: in 2020, the median income was sufficient to afford a
house in all Atlantic provinces, and the selected cities (2020 house price data
for Moncton is conspicuous by its absence), but in 2021, the income needed to
afford a typical house climbed over the median level for Nova Scotia and PEI,
and their capital cities.
Data Sources: Environics Analytics via Sitewiseweb;
CREA; ratehub.ca
Obviously, averages and medians are
the central figures: there will be houses priced
lower as well as houses priced higher, so the above analysis is not to say that
in HRM, for example, you couldn’t find a house priced within your means if your
household income is less than $100,000 (though it’s getting trickier,
especially with our recent embrace of the “offers over” system of home
buying). But this does provide an
indication of affordability, and leads us to the next A on the list:
attainability.
Again, the definition is slippery,
and in some senses, attainability is defined the same way as affordability,
i.e., at no more than 30% of gross household income. It seems that the key difference is the
removal of reference to median income: each income bracket will have its own
price range of attainable housing – and associated appropriate housing types,
categorized by type, size, and tenure.
Implicit in the idea of attainability is that suitable housing exists in
the local market in a variety of forms and price points, sufficient to meet the
needs of the population.
We used data on household income
brackets to model the proportion of households in each province/city by maximum
monthly housing budget. We then used the
same $150 allocation for utilities for rental units to determine affordable
rental ranges, and the same ratios for expenses-to-mortgage (i.e., 60% of
budget is available to service the mortgage, with 40% allocated to property
tax, utilities, and insurance) to determine affordable house prices, as were
used in the earlier analyses. All
figures are approximate at best and should not be relied upon for life
decisions, but they give a sense of what is attainable to each income bracket
from a price perspective.
 Data Sources: Environics Analytics via Sitewiseweb
Data Sources: Environics Analytics via Sitewiseweb. Note that the annual income from a minimum
wage job, at 40 hours per week and 52 weeks per year varies by province but all
four Atlantic Canadian provinces would fall towards the low end of the
$20,000-$39,999 income bracket, averaging $26,000 overall.
And so we come to the final A: availability. It's an important one, because it's effectively the supply side of the supply and demand equation, which is the driving force behind prices. For this portion of the discussion, we're abandoning price points in the interest of balancing level of effort that can be allocated to a blog post.
One of the components of the attainable definition was that a variety of housing formats would be available locally to serve the various budgets - the CMHC housing continuum graphic gives a rough sense of what this might look like, as does this Housing Life Cycle graphic borrowed from the City of Belleville, Ontario.
From an availability perspective, we
start with rental tenure. With the
exception of Cape Breton and St. John’s, vacancy rates are low across the
selected cities.
Source: CMHC (annually in October)
At a provincial level, in October
2020, there were just over 3,000 vacant rental units in Atlantic Canada, of a
total rental universe just shy of 114,000 units. Once those 3,000 units are sliced and diced
by price, style, and location, availability is probably problematic.
Source: CMHC (October 2020)
For residential sales listings, we
have to rely on data for Nova Scotia only, due to availability, but we suspect
that a similar pattern will be in evidence in the Maritime provinces at least. Prices continue to climb in 2021, but it
appears that the supply-side driving force behind that trajectory may no longer
be in play: the number of listings for the period 1st January to 16th
June in 2021 was greater than any other year in the past five years,
versus 2020, which had the fewest listings of the five years.
 But what about affordability of
these available houses? That’s a
question that could have many answers – in that it can be answered in a myriad
of ways. We’ve opted for a very simple
one, using price points of affordability for the median household income under
two interest rate scenarios: the current posted rate and a current available
discounted rate, and ignoring down payments because we’re more concerned with
monthly costs in this analysis. We’ve also ignored time – and changes to
mortgage rates and income levels over its course, for illustrative purposes
(horseshoes, hand grenades, and this blog post).
Median Household
Income
|
$67,115
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30%
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$20,135
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Monthly
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$1,678
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Mortgage amount @ 1.68% (discount rate)
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$410,793
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Mortgage amount @ 4.79% (posted rate)
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$293,120
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Mortgage rates from ratehub.ca
Let’s just pause on the one-hundred-and-seventeen-thousand-dollar
difference in what is “affordable” under those two rates. In some areas, you could buy a house for
that. Maybe not for much longer, if
interest rates stay low, but there are rumblings from economists that as
interest rates rise, the “affordability” of houses will contract and what some
fear is a housing bubble, may burst.
The second half of 2021 is yet to
be, so here are the Nova Scotia listing counts annually to 16th
June. A few things jump out: (1) there were more listings in the first
half of 2021 than in the same period of any other year in the past five (we
already knew that from earlier); (2) other than at the outset of the pandemic,
when home was so distinctively the safest place to be and few wanted to let
strangers walk through theirs, 2021 had the fewest listings below the posted
interest rate affordability threshold; and (3) 2021 had the fewest listings
below the discounted interest rate affordability threshold, full stop.
 Source: NSAR MLS®, with affordability
thresholds calculated using data from Environics Analytics via Sitewiseweb;
and ratehub.ca.
Back to that mention of localized
median household incomes. In the absence
of sufficient NOAH (Naturally Occurring Affordable Housing: see TDP VP Neil
Lovitt’s excellent blog from earlier this year) in the region,
programs that encourage affordable units in new developments are an important
part of the solution moving forward.
There’s a knife edge on which
balances the costs of development with what is affordable to those who need
non-market housing. It is highlighted by
reaction to a recent announcement of a sizable federal loan on a new apartment
building that will be approximately one-quarter designated affordable units. They’ll be priced in relation to the median
income for the area, which has generated a fair bit of blow back (to be fair: the
perception of how widespread negative reviews of policy are is almost certain
to be skewed, since those who really disagree are far more likely to speak out
against it, while those who agree or are neutral have less incentive to chime
in on the discussion). The issue they
raise is that the local (Halifax) median income referenced is close to $90,000
(as in, one large Costco order close to), so the affordable units could be
priced as high as $2,238, though most are actually going to be less than that
since the agreement includes provision for a further discount to the 30%‑of‑median‑income
standard. The underlying questions in
the flak are really: is median income a reasonable metric on which to base
affordability measures? And what median
should be used? And is there any
relationship between the maximum “affordable unit” price tag and unit size? One-bedroom versus four at $2,200 is a
pretty substantial difference.
There’s a geographic driver of
housing prices, and it costs more to commute less, generally. Maclean’s magazine published an analysis in 2014 that showed a minute of driving time
could save you thousands in housing costs.
Inspired, we devoted a TDP Trends to the topic; with some variation, in general,
the farther you get from the downtown core, the less expensive houses are.

Source: Turner Drake & Partners Ltd. (2015)
This is relevant to a discussion of
housing that is affordable, attainable, and available because cars are
expensive to own and operate. Pushing
affordable housing to the far reaches of the city, where transit options are
limited/nil (and don’t forget that commute times via bus are going to be
longer), is short-sighted at best, and counter-productive at worst. But median incomes are likely higher where
housing prices are higher, whether that’s localized within a city, or the city
median is used in lieu of the provincial one.
Is there a conclusion? Not in terms of a solution. But an acknowledgement of the complexity of
the issue, and the fact that a broad stroke approach to the metrics may provide
little in the way of assisting those who need support to find and keep suitable
housing that fits both the budget and the family structure. That, and the fact that “affordable housing” as defined, is only of
use if it is also attainable and available.

Turner Drake refines high-level,
surface-scratching analyses like the foregoing, into fine-grained, location
specific consulting assignments, including market and non-market housing supply
and demand analyses throughout Atlantic Canada, and Housing Needs Assessments
from coast to coast. To see how we can
provide solutions to your real estate problems, you can reach Alexandra Baird
Allen at (902) 429-1811 or abairdallen@turnerdrake.com.
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