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Welcome to Altus Insights Podcast Series. This podcast brings together some of our leading brainiacs at Altus Group to discuss, debate, and on occasion complain about the evolving state of Canada's residential and commercial real estate. Join Ray Wong, Marlon Bray, and Avi Zelver for monthly podcasts covering the latest market and construction cost trends across major markets in Canada.
So today we have a special guest star, a local media Darling, of all things, construction, Costa da guru himself, Mr David Schoonjans. If you've been at one of my market presentations, he's the patron at the end. I'm not supposed to use as well as heading up our internal cost, our software team for the costing. He is the editor in chief, so to speak, of the Canadian coast guard, which is largely a dog driven foundation, combined with a lot of knowledge and experience from our preconstruction experts across the country. He starts a slight twist of scotch at the end just right. So the cost guide is the most downloadable insight product each year, and in fact, the popularity keeps going up. might call it an old staple these days for the Cree market in Canada. So welcome, David. Thank you. I'm not sure how exactly I'm going to live up to that introduction, but I'll do my best. So maybe David, for the one or two people actually live under a rock in Canada. Could you give a quick overview of what the Canadian coast guide is and then maybe touch on what it is supposed to be useful and then obviously what is not intended to be used for? Yeah, really, I think probably the best way to describe it is it's, it's a useful tool, a guide just that for developers and mostly our clients to answer a question primarily in a very preliminary stage of the project, what is a, for example, average condo in Toronto cost for an early proforma? That doesn't mean that when you ask that question of an average cost in Halifax for a condo, we're not talking about the same building. It's not meant to be comparable. Average in Halifax is going to be different than average in Vancouver and average in Calgary. The reason for that is just local codes. Local kind of preferences are what's expected of an average condo on place. An average condo might have carpet another place. It might have marble floors in the kitchen. That just depends on where you are. And then, of course, you've got the local codes and environmental considerations that also make the buildings different. So that's literally what it's for, to ask those questions of what is a average building of this type in my city for my proforma, not to necessarily do comparisons between cities or even over time. And the other thing I think is because I know you mentioned condor quite a lot, that all asset types are covered in pretty much institutional and commercial. Yeah, good point. All asset types are covered. I think there is kind of a difference between the different asset types and in the volume of data you get. So condos is kind of, well, I'll say easier and to some degree a more reliable number. And there's two reasons for that. Number one, you get a lot more data points for a condo, especially if you're in Toronto. We all know there's two types of buildings in Toronto, those that are condos and those that will be condos. So you have lots of data in that. If you're talking about a sun specialty medical facility, there's very few of those built in the country in a year, let alone a city in the air. So you've got very few data points and there's a very wide range and the potential design of some of these buildings. So you'll notice that the ranges for some of those are fairly wide and they're also going to be possibly less consistent with your experience on your own project. So I think you have to recognize that there is kind of some differences in consistency or reliability in different asset types. And I think that's a discussion we often have when we do in the market updates and stuff is generally it is a guide is to say when we talk escalations and whatnot, they're all, I call it relatively this every project. It's own bubble. A developer could be a single bubble with 10 project bubbles. A sees its own bubble with 100 different bubbles connected to it. Each one of those interact slightly different. The intent of this document is more so average. Some range is to give a guide. This is necessarily actually using it to provide an estimate which I think you'd built. Can you build and have a product that helps out, especially on the residential side, we've only level numbers and then the guide can just sort of help confirm that. Yeah, we've recently launched construction cost analytics and really a lot of that stems from kind of requests to improve the guide or address what I'll say, some of the shortcomings of it. And really there's a few things and you know, this isn't knocking the guide. It's very valuable. It's available for free. It's downloaded thousands of times a year, but it's necessarily limited and some of what it has, number one, it's only published once a year. And so by the end of the year, especially in the last few years, it's getting a little bit long in the tooth. And less reliable. We in construction cost analytics, we're updating that every quarter. The cost guide doesn't have forecasts. A lot of times what you need is to know what the buildings in it cost two years from now and construction cost analytics we have forecast in it. And then kind of the last major things that construction cost analytics addresses is SOC costs, soft costs, although there's a lot less kind of factors that influence them than your hard costs. Your higher cost is literally thousands and thousands of different factors that can influence that. But every one of those factors can sway the needle relatively little. The soft costs, there's fairly few factors, but you can sway it massively by just going across the road to another municipality, can sway your development charges significantly. So there's a lot more questions we have to ask then. Just what type of building is it in? What city is it in? It gets far more complex to be able to give a reasonably accurate estimate of soft cost. So we do that and construction cost analytics, we have a lot more parameters. We estimate soft cost, we give you a forecast and we update it regularly. Now, we can't give all of that away for free because the lot of work and resources that go into developing it and maintaining it, but it is available for subscription now for multi-family residential in Toronto and we do plan on expanding that to other cities and other building types. But we started with that and we're going to see how it goes from there. OK so you touched on a few topics there in the answer. So one of them, though, is, I mean, obviously, this is a 2023 cost guide. What are some of the changes in this year's cost guide? And then I want to ask a few questions about some stuff that might change in the future. I think really the content, the general content and structure is similar. We've tried to kind of keep it just down to the numbers like most people are going there to answer that question, what do I need to? My forma for a class-a office building in Toronto. So, you know, we have tried to kind of take out a lot of the flops and just get down to something that's the meat of it. And so really what updates we've got our frequently asked questions section and we always add or modify that to address any kind of major questions we're consistently getting. And I urge you to please look at things like the frequently asked questions section that can avoid a lot of big errors and mistakes that people make when using the cost guide. And then, of course, we've updated the tables in there. The categories that we have are relatively consistent. The only minor changes we made there's a couple of asset types that we took out. It was just that they were too specific that was too wide of range, that the number would basically be so wide it wouldn't be useful. So we took a few of the less common asset types out of there, but other than that, it's very similar. I think what people want to usually do when they talk about the changes is compare one cost guide, the cost guide this year to the cascade last year, and I understand the desire to do that. I guess sometimes there's some misleading conclusions people draw from doing that. It's really not designed to be a measure of cost escalation. It's not designed to index, you know, Toronto to Vancouver, as we already talked about. You're not necessarily even talking about the same building. A average building in an average condo in Vancouver is not the same as the average condo on Halifax. They're just totally different markets with totally different revenue expectations. And therefore the underlying building of what average is in those cities is different. So I think people get into trouble trying to compare over time or compare between cities. And we do have other products that do that. We have a construction cost escalation report which is set up specifically to compare escalation and to define the scope of what's in escalation versus design change. So I'd just be careful about the temptation to do that with the cost guide. Yeah I mean, I think me and you, especially over the last few years, have been living and breathing constructive escalation. We're talking to stakeholders, both formal market presentations, informal questions on I'd say it's multiple times of the day and I often find people refer back to, say, Stats Canada or even when people are doing their own cost guides, that there's over ones out there. A lot of people rely a lot on Stats Canada. When you look at the cost escalation information, the chance for little interest in, I would say how reliable do you find the stuff that comes out? Again, without being critical to stats commitment, it seems iffy. Yeah, I think stats Canada's data is reasonably good when things are consistent. Over the past couple of years, I don't know. There's been some really wacky things in the Stats Canada numbers and seen some pretty big differences versus our own data. I think the recent one that came out, I looked at again condos and in Toronto those are the ones that definitely there's the biggest volume of data to be had and we see tons of information there. So we're highly confident in our numbers in that and like Stats Canada and Toronto in the past two years, so 2021 and 2022 combined, they're saying a high rise apartment building in Toronto increased by 41% in those two years alone. And there's a couple of red flags there. Three, number one, that's quite a bit more than what we were tracking. It was very high, but it wasn't 41% If it were 41%, like developer's profit is not nearly that high. So if there were 41%, there would be exactly zero new project started. And if it were 41%, we would basically see carnage. The whole industry would have collapsed by now at 41% The revenues haven't kept nearly that pace in order to not send everybody bankrupt. And the other kind of odd thing that you see in there, you start digging into the numbers of where this cost escalation they think is coming from. And you look into the trades last year, they're saying that division three, which is mostly your formwork, but also your Rebar in your concrete supply, they're saying was. 99% for an apartment building in Toronto last year. And there was years where it was 29% But that was like back in 2018 when they were saying it barely increased at all. And it really was like 30% increase in a year last year. As you know, Division III was actually probably the lowest increase we've seen in probably almost a decade. Rebar costs went down. Concrete supply cost granted did go up. But relative to the overall division three, it's not the biggest part. And four mark was only a marginal increase for the first time in how long? So and Stats Canada thought that was 29% I have no idea where they're getting that number. There's been some bizarre things come out of Stats Canada in the past, say, 12 to 24 months. And in fairness, we might be that wrong, too, if we didn't actually have the numbers there where we're seeing the numbers not just in estimates, but in monitoring actual cost. So I they obviously don't have access to that now. So needless to say, if we do, Stats Canada for our cost guide just added another 10 20% to the costs and then we just closed down the whole city for a couple of years. Yeah Yeah. Well, I mean, here's the difficult part, though. The cities, municipalities use the Stats Canada numbers to index their development charges. So the fact that Stats Canada said that cost escalation has been way higher than it has been over the past 12 to 24 months. Well, that becomes a self-fulfilling prophecy, because now all the municipalities hike up their development charges based off of those Stats Canada numbers. So they really actually made it true, at least in part of the building costs. Right so now I've got a couple more questions for you. But the mainly as I go around doing these market presentations, I mean, I did like to think over 80 last year, I got a lot of requests and questions about the cost guide. So I'm going to hit you if I'll just give you a quick list of the main ones they always ask me for, and then you can let me know what the chance has seen them. A lot of requests for the mid-year update. I think you mentioned a little bit like the cost escalation of get updated. I've been asked for regional versions that go down to the city level. So in Ontario it's not just say Toronto. We actually get a few more of the cities spread out, even breaking up. Toronto has been a request. And then the biggest one, I'd say, over the last three or four years is are we going to do a US version? Obviously we would have been expanding to the us, would do quite a lot work in the US when the cost guide for the US likely to come. Yeah that's a lot in one. So a mid-year update I suppose it's something that's been discussed in some synods. See you know I don't think a lot of people realize it's a compact document, but it takes a lot of time and resources and input from many people right across the country. So it takes us a couple of months just to pull this together. Now, in fairness, over half of that is choosing the colors. So I think we could consider it, but especially being a free guide and people actually need to do their day job and get an estimate, some low lying reports out. We can only focus on that for so much time. And that's part of why we've created the construction cost analytics is, you know, if that's valuable to you, you know, we need you to pay some nominal, relatively small amount for those updates. So we are trying to address that. But we also have to be cognizant of other priorities, the other smaller cities. It gets difficult, like even in a city the size of Hamilton. The volume of projects that happen there just aren't huge. So that creates two problems. I don't think it'll be a surprise to anybody that we're creating this as a marketing document, as business development. So putting a lot of money and time. Business development in small centers, they're unlikely to get jobs. Just isn't a wise financial decision. But the bigger problem is you need a certain volume of projects and data to have a high level of confidence that the number you're putting in the cost guide is accurate and useful and not going to mislead the client. So the smaller the center, the less confident you can be that the numbers you're giving are accurate because there's just not enough projects on a daily basis. So a lot of times that's sorry, you know, I was going to move on to the last question, so finish off before and then we'll go on to the last question. Well, the other question we get related to that is, you just give us some sort of index? How much should I adjust Toronto to get to some other secondary market outside toronto? The problem you end up in there is can have one number that represents all building types. She may very well be in a situation where if you're going to build a 40 story apartment building, it's a big premium versus Toronto because you got to bring in trades from Toronto. Whereas if you're going to build a three story wood frame townhouse, it's less expensive than Toronto. So you can have one number that's going to represent all building types. There's your problem with an index. It can actually be more dangerous than helpful if unless you're going to go through a lot of work in order to build different indexes for different building types. Yeah, I still remember. That's why we ended up having to get rid of it because we ran into a scenario where one of the government departments was trying to do that to justify the cost, and it was actually giving them the complete wrong answer because it was the numbers that were in there weren't representative of that specific asset, which I think at that time was jails or cars or something very, very specific and unique that was actually much more expensive in that location, whereas the guide was indicating it could be a lower cost. So yeah, it's one of those things that people ask for because it's multiple. So the last question is both yourself and myself, we got a lot of interesting questions about how to use the cost guide. So if you've got like a best tip on its use or the most common question you get, we could answer. And that covers off a lot of the questions. And I know we've had some that are really quite spectacular down to the more usual ones that you'd expect anyone to ask. Yeah so I guess number one, I'll say don't use it to substitute an estimate if you have a set of drawings that you can do more than measure just the floor of the building. And actually if you have a set of drawings, you measure the floor of the building, you can measure a whole bunch more things like the facade. Like even at that point, you should be doing something more than just a cost per square foot. So don't try and replace that estimate. But there's really two times, I think that it's useful and we do describe these in the guide itself. Number one, in the very early stage, the very early performing, you don't even have a set of drawings yet. You just know I want to build a building of this type. That's approximately this size. And if it's residential, you know, this many units. And if you don't have anything more than that, the guide is the best you're going to do. You can't measure anything. You can only do a cost per square foot. So definitely do that. Please make sure that you add on your below grade cost because we've separated the below grade from the above. Great dump zoning areas as well is always a good one. Yeah and all these are in the frequently asked questions. Don't use the zoning areas. You could be off by 10% or 12% So that's a very expensive mistake that people use. If you want to use the Guide later on while you're developing your design, I think it's still useful. So you get an estimate from a third party contractor and you always say one price to go back to the guide and say the contractor is telling us $5,000 a square foot and all those things that should be 500. You know, the guide is a useful benchmark to say, well, maybe we should be going out and getting another price. Or better yet, we should be getting all of us to do a detailed estimate to verify that. So I think at that point, using it as a benchmark and realizing that it's an imperfect benchmark. But it's going to give you a ballpark of what we would typically expect for that type of building. Maybe our building is different than the guide. And there's a very logical explanation for that. But, you know, it's a good place to start. And if there's a red flag, dig deeper. Perfect So we're going to have links to the cost guide on our website connected with the podcast. And we'll also link a couple of things. David mentioned the escalation report cost analytics tool as well, so you can also find them in the website easily funded by Google. So if anyone is interested, you could go take a look at those later on today we're recording the next podcast that's going to be on market condition escalation in Ontario. Obviously, David touched on a little bit that we're bringing you back in. He's going to make an appearance again now. Now the golf courses are closed. We might actually get them. They'll get released in a couple of weeks. Dave, we just want to say Thanks. It's always a pleasure to have you on your podcast. This was a great episode and a lot of fun, right? Thanks, Marlon. No problem.