Insider Only Real Estate, Residential

Developers urge City to cut red tape, clear path to more office-to-residential conversions

January 23, 2023

Editor's Note

Editor’s note: This is the second in a series of articles exploring the issue of converting office towers into residential spaces.

As municipal leaders brainstorm new ways to revitalize Ottawa’s downtown in a post-pandemic world, real estate insiders say making the office-to-residential conversion process easier by cutting red tape at city hall should be right at the top of their agenda.

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When District Realty bought an eight-storey office building at 170 Metcalfe St. from the Canadian Red Cross five years ago with the aim of converting it into residential apartments, the firm’s CEO never imagined that gutting the structure’s interior and essentially rebuilding it from scratch would be the easy part. District, one of Ottawa’s most prominent landlords, had transformed aging office space at nearby 169 Lisgar St. into a fully leased rental apartment complex a couple of years earlier and was hoping to duplicate that success on Metcalfe Street. According to District’s chief executive, however, the path to getting there was far more circuitous the second time around. Jason Shinder says all that city hall required to make the Lisgar Street conversion happen was a building permit – a relatively straightforward process that typically takes anywhere from 90 to 120 days. But when it came time to get approval for the Metcalfe Street project, Shinder says, the number of boxes his firm needed to check had grown considerably. In addition to obtaining a building permit, District Realty had to file a new site plan application with the city, get a record of site condition from the provincial environment ministry, and ask the city for minor variances to existing setback requirements. “All of a sudden, you had to jump through these hoops that added nine months in process and … close to a million dollars in costs for 60 (apartment) units,” Shinder says. A new bylaw passed last year that hiked the fees developers pay to the city in lieu of parkland at highrise building sites could add millions of dollars in additional costs to future conversion projects in the downtown core, he adds. “It’s a cash grab for the city, and it could be the difference in (a conversion) making sense or not making sense,” Shinder says. If the 170 Metcalfe conversion opportunity came up today, the veteran real estate broker adds, he’d have to think long and hard about whether it would be worth the time, money and effort needed to make it happen. “You can fix structural issues,” he says. “That stuff’s all easy. The hard stuff is the municipal stuff and the environmental stuff. And if our city is serious about adding (residential) units … the fastest, easiest way to get units is to go back to saying, ‘A building is a building. We just need a building permit.’” Don Herweyer, the city’s general manager of planning real estate and economic development, says office-to-residential conversions usually don’t require zoning amendments. But any plan to convert 10 units or more typically triggers a site plan application that looks at issues such as whether a building’s sewer system can handle additional capacity and the potential need for noise-reduction measures. “It’s not a blanket (policy),” Herweyer said. “It really depends.” New provincial regulations aimed at fast-tracking site plan approvals now require all such applications to be processed within 60 days, but Herweyer said provincial environmental studies and other forms of due diligence can stretch on for nearly a year depending on their complexity. Shinder says more needs to be done to speed up that process. He cites CLV Group and InterRent REIT’s conversion project at 473 Albert St., which began in March 2021 and is slated to be completed this spring, as an example of how government bureaucracy can stymie a developer’s plans. “Once it takes two years, why don’t you just build from scratch?” Shinder says. Other local developers also argue the city needs to streamline its regulations when it comes to allowing worn-out office buildings to be turned into housing. It’s a call that’s being heard more often as the idea of office conversions gains momentum. With more and more employers rethinking their need for downtown office space as the hybrid work model becomes a way of life, class-B and C buildings that were already hard to fill before the pandemic have become even less attractive to tenants, real estate experts note. According to Colliers International, the vacancy rate for B-class buildings in the core was 18.4 per cent at the end of 2022, up from 17.2 per cent a year earlier. For class-C buildings, the rate jumped from 17.1 per cent in 2021 to 20.2 per cent in December. Observers say office-to-residential conversions could help reverse that trend. They point to cities such as Calgary, which subsidizes development projects that give hollowed-out office towers new life as apartments. As municipal leaders brainstorm new ways to revitalize Ottawa’s downtown in a post-pandemic world, real estate insiders say making the conversion process easier by cutting red tape at city hall should be right at the top of their agenda. CLV Group president Oz Drewniak says it took more than a year for the site plan application at his firm’s conversion project at 473 Albert St. to be approved, even though the property was already zoned for residential use. Drewniak said in order to get the aging highrise up to code, the company also had a build a stormwater retention pond on the 50-year-old former government office tower’s roof and install a 3,000-gallon cistern in the underground parking garage to collect rainwater – work that added more than $1 million to the project’s total price tag. “It’s an existing building. Why would we have to change that?” Drewniak says. “When you add it all up, it’s a big nugget.” Scanning the downtown cityscape, Shinder sees plenty of opportunities to reimagine aging B- and C-class commercial highrises as apartments or condos. The 170 Metcalfe project has been a “home run,” he says, adding that District is looking at acquiring other outdated office buildings in the core for the same purpose. Office-to-residential conversions remain “very viable,” Shinder says, even as soaring inflation, rising interest rates and higher cash-in-lieu of parkland fees drive up construction costs. “I don’t see an occupancy risk,” he adds. “Ottawa’s never had a double-digit vacancy (rate) in (residential rental) product, and I don’t see that changing. If you’re building a practical, good product that meets the desires of the tenants, I think it will be full.” While subsidies or other incentives could help kickstart a new wave of conversions, Shinder contends that “the simplest fix” is less bureaucracy. “Anything that brings down the cost makes it more attractive,” he explains. “That said, I think the more valuable input from the city than free money or some type of subsidy is reducing the amount of time needed to do (conversions). And the best thing the city can do to encourage this stuff that doesn’t involve any taxpayer dollars is just simply changing the process of doing it … to just (needing) a building permit.” Herweyer says the city might also be willing to consider creating a team of planners dedicated to dealing solely with conversion applications in a bid to cut through red tape. “That’s something the city … would certainly be interested in looking at and supporting,” he says.