Balancing Housing and Sustainability: Insights from Bob Dhillon of Mainstreet Equity Corp.
This week, the podcast begins with Jackie and Peter reviewing recent news, including key takeaways from COP29, the escalation of the Russia-Ukraine conflict, and discussions about potentially restarting the Keystone XL oil pipeline project. They also reviewed President Trump’s nominations for the Department of Energy (DOE), the Environmental Protection Agency (EPA), and the US Department of the Interior and plans to launch a National Energy Council to coordinate policies and boost US energy production.
Next, Peter and Jackie welcome their guest, Bob Dhillon, the Founder, President, and CEO of Mainstreet Equity Corp., which is a Calgary-based real estate company specializing in acquiring, redeveloping, and managing mid-market residential rental apartment buildings across Western Canada.
Buildings, including apartment buildings, are a significant source of emissions. According to the Canada Green Building Council (CAGBC), “residential, commercial, and institutional buildings contribute 17% of Canada’s greenhouse gas (GHG) emissions. Considering building materials and construction brings that number closer to 30%, making the building sector Canada’s third-highest carbon emitter.”
Here are some of the questions Jackie and Peter asked Bob: What is your perspective on the Canadian housing crisis? What are some solutions for solving the housing shortage? Who pays for energy in Mainstreet’s apartment buildings? What projects have you undertaken to reduce energy use in the buildings? Who pays for the escalating carbon tax? How would a net zero building code impact the housing shortage?
Content referenced in this podcast:
- Liberty Energy’s Report “Bettering Human Lives”
- Mainstreet Equity Corp. website: https://www.mainst.biz/
Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/
Check us out on social media:
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LinkedIn: @ARC Energy Research Institute
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Episode 262 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. Winter has officially hit in Calgary Jackie, and it still amazes me how many people go out with bald summer tires. But anyway, that’s another matter. The good news is Ski hills are open.
Jackie Forrest:
That’s right. So the ski hills needed that snow, actually didn’t get as much in the ski hills as we did here in Calgary. But still they got more in the ski hills than they had before. So I was out at Sunshine. This is probably my earliest ski day ever, and they had some pretty good powder and they were able to open, I think the week before they had just a few chairs open and they were able to open a big part of the hill. So that’s nice to see. The ski hills really suffered last year, and so everyone’s hoping for a much better season this year.
Peter Tertzakian:
Yeah, the rocks are all covered up.
Jackie Forrest:
Most of them. They’re still rocks for sure, but big improvement from what they had… A few weeks ago there was almost no snow out there, so the snow is welcome that way.
Peter Tertzakian:
Yeah. Yeah. Well, I love the snow and it certainly takes your mind off all sorts of nasty events going on in the world. We’re going to talk a little bit about that. We have a special guest coming on a little bit later in the program, so stay tuned for that. It’s going to be a good discussion. Keep you guessing. In the meantime, well I guess the big news is to start with the COP29 wraps up in Baku. Should we touch on that?
Jackie Forrest:
Yeah, so we talked about this before and time’s gone so fast. When we first talked about it felt like November 22nd when it was supposed to wrap up would be a long time in the future.
Peter Tertzakian:
So do you think my prediction that the news would be largely overshadowed by all the Trump announcements? I mean, it really was sort of a non-event from a news cycle perspective.
Jackie Forrest:
Well, and then we’ll talk about it, but this escalation of the Russia-Ukraine war was another big thing. A lot less news people like me that seek this information out.
Peter Tertzakian:
Yeah, me too.
Jackie Forrest:
Still followed it, but I think you’re right for the general people, a lot less exposure. And you didn’t have those cocktail parties with Prince William and all the famous people. We didn’t see that.
Peter Tertzakian:
Well, we weren’t there though.
Jackie Forrest:
Yeah, we didn’t see the reports of it. I guess, like you did in the past. You’re right. Maybe they were there. I doubt they were.
Peter Tertzakian:
I doubt they were. But how did it end? It ended with a 300 billion a year commitment to help developing nations with their emissions reductions
Jackie Forrest:
And just preparing for the changing climate. So that’s by 2035. Now, that seems like a lot of money. It’s up from a hundred billion per year commitment today, but people expected more than a trillion or these countries expected more than a trillion. But considering that a lot of Western countries have a lot of money going to military spending and other things, affordability, I think it’s still a big increase and it’s still questionable if they’re actually going to achieve that. The $100 billion commitment was hard to achieve and a couple years late in delivering as well.
Another topic I raised in our intro to the meeting was the Carbon Market trading rules getting approved, and they actually were approved on day one of the summit. Delegates passed Article 6.4 on how a new global credit mechanism will function. And then further Article 6.2 was agreed just before the summit closed.
Peter Tertzakian:
Okay, so let’s just back up. What is Article six? Because that was sort of the big discussion point that was unresolved even as far back as when the Paris Agreement was first agreed upon nine years ago. So Article six is the ability to trade carbon credits globally.
Jackie Forrest:
For example, if Canada would increase our emissions because we are exporting LNG, but that LNG goes to reducing the emissions in China. China could give us some credits so that we could offset the domestic emission increases associated with producing the LNG. So it’s a way for countries to not only reduce emissions within their borders, but also trade credits with other countries so they can achieve their credits using offsets. I think there’s still some skepticism. This is all going to work. I think we should have a future episode on this.
Peter Tertzakian:
Yeah, I don’t want to get into the fog of 6.4 versus 6.2 and all the nuances of this thing. But the bottom line is that a market mechanism has been agreed upon in principle. It’s sort of like saying, okay, we’re going to construct a farmer’s market, but who is going to bring vegetables and fruits to the market has yet to be decided. Who’s even going to come and buy the vegetables and fruits? I mean, okay, so the substitute vegetables and fruits for carbon credits and how that accounting is all going to work. But is that effectively what’s going on here? Is that there is an agreement as to how the market should work and a basic understanding of how the accounting is going to work. Although I read that there’s no agreement yet as to where the accounting jurisdictionally is going to reside.
Jackie Forrest:
I think there’s still lots of questions and questions too about the quality, if the requirements are enough to make sure that these are good quality. And then I think there’s also-
Peter Tertzakian:
You mean like rotten tomatoes versus good?
Jackie Forrest:
Yeah, you give these carbon credits are still kind of not good quality, which has been an issue. And the other issue is, let’s go back to my example. Why would China want to give the carbon credits to us? Wouldn’t they want to keep them for their own country? Because if they provide them to us, that means it’s harder for them to achieve their goal. So will countries actually even be motivated to make these?
Peter Tertzakian:
Recognizing that buying a carbon credit is like transferring dollars from say, Canada to China or Canada to another jurisdiction. We’ve had on our podcast many discussions about how we can’t even trade within Canada, let alone internationally. We’ve got 11 carbon markets here, potentially at 12th with the emissions cap, and now we’re going to also trade globally so there’s a 13th. How does this all work?
Jackie Forrest:
Right. Yeah. So let’s talk about that on a future episode. Because, I still maintain if this could work, it could actually be quite good in terms of reducing the risk associated with clean energy investing. But let’s come back to that.
Sad news. Russia and Ukraine war is escalating, so lots of things have happened. Russia changed its policy on using nuclear weapons. It is also, this was several weeks ago, involved North Korean soldiers, whether they’re in the country or getting prepared to be in the country. That’s another part of the escalation. And Russia fired new intermediate range, hypersonic ballistic missiles. I had to practice that. Haven’t used that word before. And that was in retaliation for the US agreeing that Ukraine could use Western made missiles, and they actually sent to one of those Western made missiles and then Russia retaliated.
So this thing is really escalating and I think has the potential to spill beyond the borders of Ukraine, the way things are going. Now, Trump has pledged to end this war quickly, which would most likely require Ukraine to give up some territory, and I’m not sure Ukraine would want to go for that. They probably would want some security that they aren’t going to be invaded. Again, whether that be a NATO membership, I don’t know if Russia would want that. So this is not going to be easily resolved.
Peter Tertzakian:
Well, there’s a lot of dynamics here, and it may not be up to Ukraine. Because also there is some fragmentation occurring in Europe as to, whether or not, the support is there for continuing to support Ukraine militarily and the costs of doing so, and so on and so forth. So it’s a very complex mess. As a child of the Cold War myself, this is really disturbing because it’s not really a Cold War anymore. It looks like a hot war potentially spilling over into the rest of the world. But from our perspective, what are the implications to the oil markets?
Jackie Forrest:
Well, we continue to watch it closely. I mean, President Trump has pledged to end this war quickly, and if he does, it has implications to oil and gas markets. Since a resolution could mean a lifting of the sanctions on Russia, who knows? But we continue to watch this closely. It has lots of potential implications for energy markets, and we hope that it doesn’t escalate anymore.
Peter Tertzakian:
We don’t. So we’ll watch it carefully in terms of the global dynamics and energy security is increasingly in discussion. It’s increasingly at a premium. We have from an energy security perspective, the continental discussions, and we had the announcement or the… I don’t know if it was an announcement, but it was certainly a headline that the Trump team plans to resuscitate the Keystone XL pipeline. What do you read into that?
Jackie Forrest:
And it was according to people familiar with President Trump’s plan for day one, but they were anonymous. They didn’t want to say who they were because they’re not able to be talking about these things. So again, it’s one of those articles. I don’t know what to read into it when you hear that sort of thing. But it’s interesting that Keystone XL was put forward 16 years ago, in 2008. That’s actually when I started covering oil markets, and I spent a lot of time talking about all the different stops and goes to this project.
It was canceled by Obama, restarted by Trump, and canceled by Biden. And it’s definitely the most expensive pipeline that was never built with TransCanada at the time, attempting to get a one and a half billion dollars of damages from the U.S. I don’t think they were successful in that. And Alberta government also tried to get 1.3 billion in damages from the US. Now, it’s interesting that the anonymous source said everyone knows what Keystone XL is. It’s energy, it’s infrastructure, it’s construction. So day one, it makes sense for Trump to want to sign this project, which doesn’t even exist. So I’m not sure what he’s going to be signing into on day one, but do you think it’s likely, Peter?
Peter Tertzakian:
No. I mean, first of all, it’s not the US federal government that’s going to pay to get this done, nor is it going to be the government of Alberta. They’ve written it off. From my understanding, they’ve sold off all the excess pipe they bought as scrap. I can’t imagine TC or any other big company coming back in and financing it. I can’t see finance here supporting this thing, given that we’ve seen this movie before and it ended very badly. There was over a billion dollars. Well, the TC lawsuit is a billion and a half in damages to try and recover. So there’s going to have to be a lot of guarantees before anybody steps up to the plate to build this. Now, I understand that there’s a new company that owns Keystone, South Bowl. I’ve never actually really followed that.
Jackie Forrest:
TS spun out the Keystone pipeline, and so it’s a separate company now.
Peter Tertzakian:
Okay. Okay. So it’s called South Bowl.
Jackie Forrest:
So it’s the owner of the Keystone.
Peter Tertzakian:
Right. So I mean, I just don’t see how this is going to go forward without substantial federal provincial government backing on both sides of the border. And then there’s all the states to deal with, because remember, a lot of the states like Nebraska and others were very much opposed to having the pipe go through key sensitive environmental areas. There was lawsuits galore. So I just don’t see the appetite from a corporate perspective to proceed with this unless something substantially changes.
Jackie Forrest:
Yeah, you need something like the Trans Mountain where it’s government backed. All right, well talking about that because one thing that is supposed to change in the US is they’re going to be much faster at permitting these types of projects. That’s one of the goals of the Trump administration. Although I agree with you, states still have a lot of power and so does the legal system to slow things down. So we are watching President Trump’s appointments. They’re coming out. It’s hard to not follow the daily news of new appointments. But I just wanted to focus on some of the ones that are more influential for the future of energy policy. Chris Wright has been nominated for Secretary of Energy. He’s the Liberty Energy CEO. Which is a fracking company in the US. They also have operations in Canada. He’s definitely pro oil and gas and has stated there’s no climate crisis.
And then Lee Zeldin, he is being nominated for the Environmental Protection Agency. When he sent a message out through X when he realized he was going to get this nomination, he said, “We will restore the US energy dominance, revitalize our auto industry, bring back American jobs, make the US a leader in AI.” And so not a lot of focus on the environment maybe, but I think you can get a sense of what the important things are going to be in terms of jobs and energy security.
And then another big one is the Department of Interior. They have a lot of oversight into federal lands and oil and gas. And Doug Burgum, North Dakota governor. It’s an oil producing state, but they also have renewable energy. So the other thing that’s probably worth noting is they have also announced plans to establish what they’re calling a National Energy Council to streamline the permitting process. And that’s going to be, I think a major focus, is getting these energy projects going faster. From a Canadian perspective, I think one of the biggest threats of that might be if they could build natural gas pipelines much faster. For example, the Marcellus and Utica have a lot more gas, they’ve already taken a lot of market share from Canada and right now what stops them from doing that is they can’t really build pipelines out of that area. So if they are to be successful, I think there are implications, especially for Canadian gas.
Peter Tertzakian:
Yeah, I think the one to really watch is Chris Wright, the CEO of Liberty Energy who has been a strong proponent of oil and gas. Regardless of what you think of that, I definitely recommend reading his ESG report that he put out about a year ago. It really gives an insight into where he is coming from. And I think it’s important to understand, but there’s no question that these appointees all point to deregulation, streamlining of energy systems, particularly oil and gas in the United States. Meanwhile, on our side of the border, it’s more regulation. The emissions caps, this clean electricity regulations, the methane regulations, and of course those are layered on top of a whole bunch of existing policies and regulations.
So the gap, the contrast between cross-border policies has never been wider in my opinion. And as a consequence, I think you’re going to see potentially more capital flow out of our industry and into the US. It’s called carbon leakage on one hand, but I just call it capital flight. It’s just that like, okay, I just cannot take all the regulations here and we’ve talked about. I can’t understand the density and the complexity of the regulations here, so I’m going to go and put my money in a place where there’s less. So this is quite concerning because we’re talking about $180 billion a year industry here in Canada, and a significant fraction of that 180 billion is likely to be sent south of the border.
Jackie Forrest:
Well, we’ll see, but I hope you’re wrong. But for sure there’s a focus, especially on oil and gas that I think for clean energy it might be a little different. But for oil and gas, there definitely is a thrust towards growing oil and gas production and making that more efficient. So we will learn more. Well with that, I think we should switch over to our new guest.
Peter Tertzakian:
We should. And so we are delighted to talk about something different today, something we haven’t talked about. We’ve talked a lot about electric vehicles, we’ve talked a lot about other sorts of energy systems, but today we’re going to talk about a sector of the economy that also has significant amount of emissions, and that is buildings. So who do we have, Jackie?
Jackie Forrest:
Bob Dhillon, founder, president, and CEO of Mainstreet Equity Corp. Welcome Bob.
Peter Tertzakian:
And that’s not Bob Dhillon the singer. It’s Bob D-H-I-L-L-O-N.
Bob Dhillon:
Bob, thank you Peter. First of all, it’s a great honor to be here. I’ve been a big fan of yours for the last number of years, reading your books and your write-ups, and because you’re the direct impact to Alberta economy and whatever happens in Alberta impacts Mainstreet Equity Corp.
Peter Tertzakian:
Yeah. So talk about Mainstreet and give us a sense of… For those in our audience that don’t know Mainstreet, give us a little historical sketch and talk about how you got to it. I think it’s like over 900 apartment buildings that you own.
Bob Dhillon:
900 buildings, 18,500 units. Peter, I’m a first generation immigrant that started flipping homes right through university and college and fixing these boarded up homes during the foreclosure national energy plan era. And I built this up to a public company called Mainstreet Equity, where we are this side of the great Lakes and 20 geographic location, 18,500 units, 900 buildings all through internally generated cash flow.
What’s really important, Peter, for people to realize is that we’ve done that by improving the life of middle class Canadians. Because a whole universe and apartment buildings are 40 to 70 years old and they all need tender loving care. And if you don’t have the systems and the processes to fix these buildings up, while it’s very difficult to get new supply into the present economic situation, we are out there improving the life.
Peter Tertzakian:
Right. And consolidating all these apartment buildings and units allows you to get economies of scale, to get preferential suppliers to do everything from maintenance and so on to keep costs lower.
Bob Dhillon:
And most of the time, most the buildings we buy are distress, Peter, so they’re offshore owner or a foreclosure or a receivership deal, and the present tenants are not being dealt properly. We bring a quality service at an average rent of $1,200 a month. So we are not the $3,500 rents that you hear on Globe and Mail, tenants getting squeezed out, we are average $1,200 rent while improving the life of middle class Canadians.
Jackie Forrest:
Okay, we’re going to get to the GHG emissions and the energy side. But I think since we’re on it, I think businesses like yours that own apartments have come under some scrutiny because of the affordability crisis and the view that people can’t afford their apartments and the costs for rents are going up. What is your perspective on the issue?
Bob Dhillon:
First of all, let me give you the macro view on what’s going on in apartment buildings. Anytime there’s demand, you just create more, but you can’t create more apartment buildings. So I’ll walk you through the journey of apartment buildings real quickly. 60% of all the Canadians make less than $50,000 a year. To produce a new apartment building it costs you approximately 350 to $450,000. That’s a production cost of a new product.
Peter Tertzakian:
Like a new unit within an apartment.
Bob Dhillon:
Brand new unit.
Jackie Forrest:
Just the unit.
Bob Dhillon:
Just one unit.
Jackie Forrest:
Wow,
Bob Dhillon:
I’m just using that. You build a hundred, maybe you bring the cost down different suburban area, land cost drops, but I’d just stay at 30,000 foot level. It costs you around $400,000 to 450 to build an apartment unit. That’s assuming you can find the trades. That’s assuming the interest rates drop, and that’s assuming the cities will give you the development and building permit. To build a brand new building at 400,000 a door, you need rents of approximately $3,000 per unit, while 60% of the Canadians make less than $60,000 a year. That’s issue number one.
Then the issue number two. In the last decade, Canadian population has grown by approximately 6 million people. It’s like 5.9, but who’s counting? And who knows exactly what it’s grown by? So there’s 6 million people. And the total supply in Canada is 2.3 million apartments. And the universe of apartment buildings has grown by 300,000 apartment units in the last decade, 300,000 while the population’s grown by 6 million. And the three buckets of the population, which is very important to understand are international students, temporary international workers and PR guys. Why I bring this up, those three buckets are generally renters. Then 45% of the population is millennials and Z cohort. So they’re renters, right? So we got tsunami of demand and supply. Anything you got demand on, you just create more supply.
Peter Tertzakian:
And then those people can’t afford a home because house prices have gone through the roof.
Bob Dhillon:
And the CPI index and construction’s going up, and if all the stars were lined up, all the stars, interest rates dropping, bringing the trades from wherever in the world, carpenters and trades, electricians, et cetera, how long is the cycle time? Eight years maybe to produce one?
Jackie Forrest:
Eight years.
Bob Dhillon:
Eight years.
Jackie Forrest:
Because of the permitting and that sort of thing?
Bob Dhillon:
Just building these buildings and permitting. Land use, building permit, development permit, then building permits, then financing and et cetera, et cetera.
Jackie Forrest:
Wow.
Bob Dhillon:
While the overall housing, overall, not only multifamily is dropped in the last two years. Then we had covid, then we had pent-up demand and covid, then we got the aging demographic, so we need to let immigration in. So we’ve caught ourself in the demand supply cycle crunch. Maybe it’s happened before after World War II, but we are in this unique cycle time where on the ESG, the social element of ESG is to be socially responsible Canadian corporation by improving the life of middle-class Canadians. But it’s got to be on a profit-driven model. Otherwise, if it’s not a profit-driven model, you can’t throw enough money at any business like carbon capture to produce results.
Jackie Forrest:
Well, what is the solution then? Because I hear what you’re saying. It costs a lot to build these units. It takes a long time to build them and therefore the rents have to be… And we have high interest rates to add to that. So you have to get a return.
Bob Dhillon:
And then inflation and tradesmen and bureaucracy, multilevel of bureaucracy.
Peter Tertzakian:
Just to summarize, basically what you’re saying is that the middle class is no longer the middle class, which is I think somewhat obvious given all the headlines and stories that we read about our economy. The middle class has become the lower class at an average of 50, $60,000 a year, and they can’t afford to pay three grand a month to be able to justify building new apartment buildings. And then on top of that building apartment buildings is burdened with regulatory and all sorts of other issues. So we’ve just created this real problem situation. So what can we do? What can the government do? If you were housing minister, what would you do?
Bob Dhillon:
Well, I developed 33 dials. How we can put the pressure off. One is prefab homes from Asia, drop the duties, let the shadow market boom. What I mean by shadow market is what’s Uber? Uber is taking access capacity of the car when you’re not using it and you drive a couple of trips a day and subsidize your cost of insurance, which is going through the roof. I know personally RBC bank team member who before work and after work does a couple of Uber trips, subsidize her income. And then what she does is her townhouse. She built basement suites access capacity.
She’s uberizing her home to pay for the mortgage payment. And we have access capacity, like the building we are in right now. We’ve got empty office buildings. Now, I know City of Calgary has made some efforts on transforming empty C office space into residential, but we have a lot of capacity. Look across the street, there’s empty lots. There’s empty office buildings. You can have the London England model where you take a strip mall and you build units. Why? The $400,000, you can bring the cost down. Temporarily we’ve got the shadow market, that we can absorb all this access supply without killing international students and killing immigration and creating another problem three years from now where the universities will all go broke. It’s knee-jerk reaction, policies of knee-jerk reaction, which is causing other problems. We have enough capacity within other bones, what we call it, to create supply. And why do we want create supply on existing bonds? Because it brings a cost up.
Peter Tertzakian:
Right. Right. So you’ve got, I mean that’s one example. The office space, you called it the Uberization, the temporary-
Jackie Forrest:
But Airbnbs, do you mean Airbnb? Because isn’t that part of the problem? Is a bunch of houses are now being used for Airbnb and not rented out for full-time owners?
Bob Dhillon:
Bad analogy, Jackie. Is international students a problem? No. Airbnb, similarly is not the problem. You’re killing one industry and subsidizing homeowners who are uberizing their residents to pay their mortgage payments and killing the economy. What you got to do is create supply. So the question is how do we create more supply while creating the supply at 200 to $250,000 a door? Which justifies if the rates drop a hundred basis point, maybe $1,600 rents. Like all the cities, major cities have done. Density, zoning, legalizing basement suites, converting office buildings, building on existing footprints. Let the developers develop, recreate how many swimming pools are in these apartment buildings that are not utilized in storage spaces? We can probably increase capacity 15, 20% on existing bones.
Peter Tertzakian:
And that’s your business is the existing market. So Jackie, shall we move on to the energy?
Jackie Forrest:
Yeah, well let’s talk about energy. Just to give introduction. According to Canada, green Buildings council, residential, commercial and institutional buildings contribute 17% of Canada’s greenhouse gas emissions. And when you look at the building materials like the concrete and all of that that goes into it, it’s closer to 30% making it want to Canada’s third-highest carbon emitter in terms of a segment if you look at construction as well. So we want to talk about what are the options. So let’s start with what do you use today for energy in your apartments? Is it mostly natural gas for heating or do you have electricity?
Bob Dhillon:
Large percentages, natural gas. Let me walk you through the buckets. Bucket one is a townhouse where the tenants pay for everything natural gas and the hydro. Then let’s talk about the normal three storey frame of four storey concrete walk up. The landlord pays for the gas and the tenants pay for the hydro. And in certain locations in B.C. the newly built 44% of a net asset value is British Columbia. So we are not just an Alberta company. Large portion of 44% is electric heat. So they were just recently built or that’s just a B.C. phenomena. And so the tenants pay for the electric heat and they pay for the hydro as well, all in.
Jackie Forrest:
So in general, the tenants it seems like are paying in many cases for the energy use?
Bob Dhillon:
Natural gas part, the landlord pays in which we get hit by heavy carbon taxes on it and it goes up. And what happens to the carbon taxes in this inflationary world, the tenants who cannot afford to pay the rent, end of the day, consumer pays. And the consumer is going to get paid for not being able to move the dial on carbon capture on a global standard.
Now I know I’m opening up a different can of worms by discussing this, but we are basically punishing the middle-class Canadian who are already punished. There’s one Stats Canada number that people are consuming less food right now. That’s how bad it is. And then you put more carbon tax and it’s getting flowed down to the tenants. The biggest victims on this whole inflationary cycle.
Jackie Forrest:
The carbon tax is at, I think about $80 right now, is that creating-
Peter Tertzakian:
$80 a ton.
Jackie Forrest:
… a ton. So when you put that on the natural gas use and every unit gets an increase in their cost, is that a material price increase for people?
Bob Dhillon:
Absolutely. Well, it’s not per unit. We can break it down. So the whole building gets a bill and then the cost of the buildings go up. And then there’s other costs like property taxes and insurance and labor and all these inflationary costs that are going up, which are most of them directly related to government policies. And then the poor tenant end up paying the bill.
Jackie Forrest:
I thought your tenants were paying the energy prices. You should have some motivation to invest in new technology to reduce your use of energy. Is that the case or with these higher carbon taxes, is it creating the incentives for you to go and invest in new technology?
Bob Dhillon:
Jackie, as you know, it’s very fashionable to be green today, but if you go back to Cedar and our website, we were green before green was popular 24 years ago, because it’s smart business. Every incremental drop in operating costs goes to the bottom line. So what are some of the steps We took? Tool flush toilets, energy efficient lights, brand new windows, high-tech furnaces. If you drive around Calgary, you’ll see we wrap all our buildings up in insulation plus hardy board to capsule the heat.
So we’ve taken steps like this because the whole universe is 40 to 70 years old, and it all needs tender loving care inside and out. So we are not focused just on aesthetics, interior and exterior. We are from day one aesthetic from being green to improve the bottom line. So we’ve been doing this a lot and we haven’t received any government grants to do it and we haven’t anything at all. We just did it from our own internally generated cash flow.
Jackie Forrest:
Now the government has hundreds of millions of dollars of grants for piloting retrofits and they’ve got the green home loan and the energy guide, like why haven’t you used any government programs? It seems like there’s lots out there.
Bob Dhillon:
It is sometimes very bureaucratic. Sometimes you need to file big engineering reports and do studies and before and after effect. And public companies are measured on quarterly results, and we can’t hold our renovation process till we receive a grant or a special loan from the governments or above. So we are fast moving company, and it’s sometimes very bureaucratic to get the right source of funding. If we did, we could really experiment on some of these energy moves.
For example, we are in process right now putting a plan together on our own dime, no grants to create a carbon-neutral apartment building. Now are we going to be successful? Is it going to move the dial? It’s like the old Goldman Sachs report that came out that after spending many, many trillions of dollars 10 years ago, we consumed 82% carbon hydrids after spending $3.8 trillion. Now we’ve dropped down 1%. Is that going to be the same effect in our building? We don’t know.
Jackie Forrest:
Now you talked about building a carbon-neutral apartment building. I’d be interested in an estimate of how that increases. You talked about $400,000 a unit. How much more expensive is it to do that?
Bob Dhillon:
It’s an existing building that we are converting, not a brand new.
Jackie Forrest:
So what does it take to go carbon-neutral though? What are some of the actions you’re having to take?
Bob Dhillon:
Well, we’ve hired a consultant because I basically don’t have a clue. And we are process of putting a strategic plan on what are the steps we need to take. So the end result is after we implement all the things we have to do, like maybe solar panels or whatever, and high-tech wrap the building up, different type of windows, whatever bells and whistles we need to do, and then we are going to see if we can really improve the consumption. And if the green millennials would pay more rent.
I’m going to look out eight, nine months from now and the green millennials will say, “No, I don’t want to pay more rent.” And my finance team says, “We marginally move the dial or the green.” Millennials say, “Man, you guys are the greatest company on this planet earth.” And we moved energy operating costs by 30%.
Peter Tertzakian:
So on this terminology of green millennial, is that the dominant demographic of people who rent from Mainstreet? I mean surely there are retired people who I’ll just for the sake of argument, say are indifferent to this whole thing. The number one issue is how much rent they pay and they want it to go down.
Bob Dhillon:
Great question. First of all, our strategy always has been inner city urban living, catering to lifestyle oriented on transit track, New York colleges, universities, like for example, we own the ICE district in Edmonton, we own it. And in inner city Calgary, we have 120 buildings. So you’ll see a science everywhere now, Peter. So we’ve clustered. It started out as an operating strategy cluster, inner city, mid-market, apartment buildings. Then it became a lifestyle millennial strategy. Now it’s become the blue sky of owning inner city land because it changed the density and zoning. So it become a great strategic play for us.
Peter Tertzakian:
Yeah. So you’re saying that-
Bob Dhillon:
To us, 75% is millennial.
Peter Tertzakian:
What is the definition of a millennial under 45?
Jackie Forrest:
Under 42 or something like that?
Peter Tertzakian:
Under 42 years old. Is that the demographic that you cater to, whether they’re students or just young professionals, and so on?
Bob Dhillon:
Young people, lifestyle, entertainment. But it has changed a lot to international students, immigrants.
Jackie Forrest:
Well, okay, so let’s talk about supply. Because one of the things the government’s talking about is in net-zero building codes. And that going forward, you’re saying that new buildings already cost a lot of money, but if we’re going to have net-zero, every new building has to be that way. It can only mean higher costs. How likely is it that that actually can happen and still meet this issue of the affordability issues and the housing crisis that we have?
Bob Dhillon:
Well, that’s a question to ask them. If this net-zero is going to bring the replacement cost higher, how are we going to get supply on top of CPI index inflation, on top of tradesmen demographic shift that’s happening, on top of high interest rates. And already the universities are saying yesterday on CBC, I saw that we cannot, we are shutting down courses. We are laying off people because international students subsidized the kids today to go to university. Government’s going to write a bigger check for universities or there’ll be less classrooms. Every action has a reaction, and without really thinking it through the steps or it’s today’s populist strategy, we are in this situation because of policy.
Jackie Forrest:
One thing that intrigued me, you said that we could bring in modular homes made in Asia, much cheaper. Has that been done in Canada? And how much cheaper is that? And if so, why aren’t we looking for that as a solution?
Bob Dhillon:
There’s lots of things we can do, Jackie. Bring in modular homes, drop the duties on it, do a fast track immigration policy for tradespeople, electrician, plumbers, whatever. We can bring in all these, instead of having fast track immigration policies for HR degrees, let’s have all the construction workers six months in SAIT, you got your work permit and go ahead and start building. We can improve the cycle time on development permits, zoning, there’s a lot of things we can do. Access capacity.
I’ll give you an example. Real life example. I had a concrete deck on a building on Eighth Avenue, right on the LRT station, high density location. And I had all the engineers do studies. I said, “Listen, you can build 10 to 20 lofts on the concrete deck. It’s an empty access capacity London model.” I’m still fighting with the city. It’s been like five years on these 20 units. Now multiply that with 900 buildings building capacity over 20%, everybody else sees it to do it. It is brain damage. Now why is that important, Peter? I could probably build it for $150,000 a door while replacement costs is 400 because land is free and you’ve got a lot of the infrastructure costs already built in. So then let’s say that City does give us the permit, then we’ve got financing, then we’ve got tradesmen. But how you can solve that problem is module homing, homes, tiller design. We won’t mention the countries, go there, they come, comes on a container, plop them on, done. That’s how you do it.
So how did London, England once solve a housing shortages? Because they had all these slow rise buildings, and they popped up prefab units on top of it. Now you thinking one or two, times that by 10,000, it solves the housing problem. Housing problems has been an ancient old problem from the cave days to Singapore, Hong, Kong, London, all the high density location. We just have to take their model and replicate it.
Peter Tertzakian:
So Bob, what about EV chargers and parkades and stuff? That’s often been a contentious issues, whereas whether it’s condos or apartments, are you tackling that issue for tenants or tenants wanting it? I guess you’re sort of like in the high density downtown people take Uber, I guess. I don’t know. I’m just musing.
Bob Dhillon:
I have a philosophical answer to that. Anything there’s demand for, we’ll produce. If there’s demand for EV charges in our buildings, we’ll put them up.
Peter Tertzakian:
Is anybody asking?
Bob Dhillon:
Nobody’s asking. No, but to be fair, we have $1,200 average rent. We have workforce, supplier, millennial, international students, foreign workers.
Peter Tertzakian:
They’re not the target market for-
Bob Dhillon:
They’re not the target market. You’re thinking of these brand new condos that are right next to this podcast room where these guys are looking for EV. I am the workforce generator. I’m the backbone of middle class Canadians. I’m improving the life of middle class Canadians.
Peter Tertzakian:
Well, Bob, you’ve certainly give us a lot to think about buildings. I think we got to talk about buildings more Jackie, because it’s such a big part of the energy economy. You talked about emissions, but actually I did some back of the envelope numbers based on the statistics that are out there. I think apartment buildings consume about 10% of the total energy consumption of Canada, United States, just ballpark. So it’s pretty significant in terms of energy environment issues. Bob, thanks very much for joining us.
Bob Dhillon:
It’s a great honor to be here, Peter.
Peter Tertzakian:
Okay, wonderful.
Bob Dhillon:
I’m a big fan of Peter’s for the last 20 years.
Peter Tertzakian:
And now Jackie.
Jackie Forrest:
Yeah, that’s right. Well, it’s great to have you on the show and thanks to our audience. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
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