Ask the Expert: Michael Brooks

For decades, Michael Brooks has led market and regulatory transformation in Canada in different capacities on the legislative, business, education, and advocacy fronts. As a lawyer, CEO of the Real Property Association of Canada (REALPAC), professor, and advisor on different boards and committees, he has been part of several initiatives that supported the evolution of the real estate industry and the transition to greener building and sustainable corporate practice. His work and dedication were recognized with CAGBC’s 2023 Lifetime Achievement honour, presented at Building Lasting Change last June. He reflects on his career and shares important insights about our industry’s future in this interview.

You’ve worn the professor, lawyer, and CEO hats together for a long time, all within the real estate industry. How did your passion for real estate develop?

Probably accidentally. I did my undergrad in urban planning at the University of Waterloo and it piqued my interest in what goes where and why. Going to law school after planning school was actually a Plan B move, as there were few jobs for planners available when I was graduating. After graduating from Law, and several years doing municipal and planning law in a private law firm, I really became curious about the financial side of real estate and that’s when I moved into more transactional legal work: buying, selling, developing, leasing, financing, joint ventures and the like. Real estate generally is a vast field with always something new to learn. I’m still learning and still have that passion.

Did the green building movement change your vision of the real estate sector? If so, how?

When you go to planning school, you take courses on ecology, field biology and even environmental law, but the green building movement didn’t catch my attention at REALPAC until about 2006 and the release of Al Gore’s An Inconvenient Truth. Up until that time, energy was a cost to be managed by building owners, and the threat of greenhouse gases hadn’t really hit the mainstream media, nor my attention. That shocked me into realizing I had missed something enormously important that I needed to address. That time was transformational for me. I knew the real estate sector needed to change dramatically, both in respect of its sustainability practices, but also in respect of its corporate social responsibility. I needed to identify the leading socially responsible and sustainable companies, and the leading buildings in the world, start that educational journey and bring the Canadian commercial real estate industry along.

How have the drivers for decarbonization changed over the last few years?

Professor Jennifer McArthur and I researched this back to 2006 in an academic paper released in 2019 (Journal of Sustainable Real Estate 11(1) 130-155). We investigated the factors (“drivers”) that motivated investment in energy efficiency in commercial real estate office buildings over the 2006–2011 and 2012–2017 periods, and looking forward from 2018 in the context of growing concern over carbon emissions around the world. These insights were collected from large Canadian asset managers through interviews conducted in 2017 and 2018. Key findings were that:

• organizations noted an increasing number of factors driving investment decisions over the three periods;
• cost drivers (payback period and anticipated financial returns) were the top two drivers in 2006–2017;
• public relations factors became significantly more important looking forward, with brand (reputational impact) as the top-ranked driver and tenant attraction tied for third place; and
• mitigation against risks such as resilience and anticipated compliance consistently increased in importance.

While it’s probably time to update this survey, my feeling is today’s drivers are again different. Certainly, regulatory pressure is there much more than in the past – green building codes, carbon taxes, mandatory energy disclosure, – but we also see increasing pressure from tenants, lenders and investors to decarbonize buildings, and see increasing government incentives on the debt (e.g. CMHC financing, Canada Infrastructure Bank loans) and equity (grants) sides to do so.

What do you think will be the top three issues in real estate over the next five years?

Number one is survival. High interest rates and putting a damper on new development and existing operations for those with higher loan to value ratios. Hybrid work and post pandemic lag are emptying out, and devaluing, many office buildings nationally. This could mean a potential reduction of decarbonization-focused capital expenditure budgets over the next few years.

Number two is affordable housing. We are vastly undersupplied in housing of all types in Canada now, with most governments very focused on new supply. We have an immigration/foreign student mismatch with available supply, and new supply can’t quickly respond. See www.nationalhousingaccord.ca for our work so far in this space.

Number three is return to office and downtowns. Most in the industry are not sure where this issue settles and how firms (as office tenants) will respond. Renew leases with less space? Start “hoteling/hot desking” with employees? Move offices to the suburbs in whole or in part? Use WeWork type facilities more? The amenitization of space by some owners, to make coming to work more enjoyable, is but one possible response. How will downtown retailers and restaurants survive?

From your experience in global green building initiatives, what do you think are the biggest differences facing the world at large for green buildings versus here in Canada?

We generally have a very sophisticated commercial real estate industry in Canada, reflected in the scale of institutional and public ownership of income producing assets in our major cities. Many third world non-OECD countries do not have such a mature, professionally managed market. That means we have the means and capacity to decarbonize our buildings over time. Our national grid is slowly evolving to eliminate high carbon sources (e.g. Alberta, Saskatchewan and Nova Scotia coal fired power), but globally, 36 percent of all energy is coal powered. That has to be transitioned out everywhere, and we certainly have a government tailwind for decarbonization, generally at all three levels. We just need a carbon border tariff to make sure we aren’t punishing our own economy versus the real sources of global warming.

If you had one message for portfolio owners and project teams, what would that be?

Patience, perseverance and playing the long game. Even if the economics aren’t favorable to continuously fund and execute on decarbonization initiatives, make your long-term plans and make progress every day within your portfolio as best you can. You will be rewarded over the long term economically and socially. Karma.