Opportunities to Accelerate Building Decarbonization

Part 1: 

Bryan Flanagan:
There's a lot to be hopeful for in terms of the projects that we're seeing. But to put it into context, we're currently investing about $80 to $100 billion per year in building renovations. That's both for the commercial and residential sectors. And according to the most recent article I saw by Corporate Knights, for example, we need to add about 75 billion to that a year to meet our climate goals. So we're seeing movement, but we're only really seeing about half the speed that we really need to in terms of meeting our climate objectives.
Michael Torrance:
Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer at BMO. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.
Disclosure:
The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.
George Sutherland:
Hi, there. My name is George Sutherland, Senior Advisor at BMO. In today's two-part episode series, we'll be talking about trends and opportunities related to reducing emissions from the built environment. To help me unpack this topic, I'm joined by Bryan Flanagan, Executive Director at the Building Decarbonization Alliance, by Max Graham, Chief Operating Officer at Avenue Living, and by James Burrow, Director of Sustainable Finance at BMO. Thank you all for joining me today. Bryan, to begin, can you provide our audience with an overview of the Building Decarbonization Alliance?
Bryan Flanagan:
Yeah, thanks, George, and thanks for having me on the show. So the Building Decarbonization Alliance is a Canadian not-for-profit. Our main objective is really to advance the decarbonization of buildings through a systems change or a market transformation approach. And this approach really places a focus on economy-wide decarbonization, otherwise recognizing that other sectors of our economy need to decarbonize simultaneously to the building sector. And that changes the focus a little bit.
Our main approach places a really high emphasis on shifting away from incremental efficiency paradigm, I guess, if you will, toward more of a new carbon elimination paradigm. We think that there's a bit of a game changer there in terms of how we think about doing retrofits and how we move forward. So we convene stakeholders from across the entire building ecosystem to help us identify really pressing issues and high leverage pressure points in the system that can unlock or catalyze change and accelerate adoption of low carbon solutions.
George Sutherland:
And you've mentioned energy retrofits. Can you describe what's unique about deep energy retrofits as well as the current rate of deep energy retrofits today and where this needs to be to align with federal targets?
Bryan Flanagan:
Yeah, for sure. Well, I'd love to start off by saying this is all well in hand and we're good and this sector is leading the charge to decarbonize not only in Canada but globally, but it's not the case. To put context on it, the building sector is responsible for 89 megatons of emissions, a bit more than half of which is from the commercial sector. And to put that into context, that's about twice as much as the entire electricity system emits in Canada, or it's about the same amount as all on-road vehicle emissions in Canada. So it's one of the major pillars of our emissions nationally. And where do those emissions come from? Well, the commercial buildings consume about 750 petajoules of natural gas, and ultimately the sector needs to really aggressively work to eliminate this on-site combustion of natural gas, which is responsible for their, what we call, scope one emissions. They're the ones that are happening at the site.
This is really where deep retrofits come in. And for those that are new to the idea, a deep retrofit would be a project that results from a really comprehensive review of all energy consuming and GHG emitting equipment, as well as all the future capital renewal requirements for a given building or a portfolio of buildings. Our own contention and observations at the BDA, now that we're into a bit of a shifting paradigm, an elimination paradigm, is that these retrofits now need to shift focus to eliminating carbon emissions by really working to retrofit fossil fuel combustion equipment where possible for more efficient technologies like heat pumps, along with supporting demand management technologies like thermal storage, and really leaning into our energy efficiency learnings over the past decades to minimize the impacts on the electricity system.
So beyond the lifetime operating cost savings, these projects would also ideally be justified on the basis of future carbon policy and other climate risks by building owners. And I think we're really starting to see that, but it's a real change in focus from the light retrofits that we've seen in the past where people just change light bulbs or change a few motors.
George Sutherland:
And just carrying on that thread, where are you seeing the most movement on this in the building sector today?
Bryan Flanagan:
Yeah, so there is movement, for sure. There's a lot to be hopeful for in terms of the projects that we're seeing. But to put it into context, we're currently investing about $80 to $100 billion per year in building renovations. That's both for the commercial and residential sectors. And according to the most recent article I saw by Corporate Knights, for example, we need to add about 75 billion to that a year to meet our climate goals. So we're seeing movement, but we're only really seeing about half the speed that we really need to in terms of meeting our climate objectives. We're seeing things like university campuses across the country are taking on net-zero deep retrofit programs and ambitious longer term plans that are driven by strategic visions and the opportunity really to create a test bed for research and best practices.
So for example, Concordia University has a thing called [foreign language 00:05:43], which sets a 2040 net-zero goal. So they want to get their 10 years ahead. We're seeing interest in developing de-carbonization roadmaps in the commercial office sector, but this sector I think is still really facing headwinds from the pandemic. I think we're still hearing that particular part of the sub-sector more in the context of challenges that they're still facing rather than major activity. But I think a lot in our field are really anxiously awaiting for the pipeline of big commercial sector projects to start kicking into gear.
James Burrow:
Bryan, can I actually ask you a bit of a question, because as I've been thinking about the space for the last couple of years, there was almost this tension, not tension, but dichotomy framed between a shallow retrofit and a deep retrofit. And a shallow retrofit was a bad thing. It's like, "Well, you're only doing LED lighting and that's about it, and it will generate some limited incremental energy improvements, but probably not much de-carbonization." And then, on the other hand, there was this deep retrofit that was this quite intimidating thing because it involved taking out as much natural gas out the building as possible, some pretty invasive envelope improvements, and it was really this big bang project that really changed the building.
Now, obviously, that's a positive thing, but it's not necessarily super attainable in a lot of buildings. So I guess the question I have to you is, is there a world where there's almost a happy medium between shallow retrofits and deep retrofits where it's just like, look, you're focusing really aggressively on removing natural gas from the building? Is there a middle ground that the market can move towards there, or should we really be focusing on these multi-measure projects each and every time there's an opportunity?
Bryan Flanagan:
Yeah. Well, I really think this is where there's a convergence of a few things. This idea that we're really into a different paradigm really requires us to shift, and in the framing of your question, you've really encapsulated a lot of the issues. The cost of de-carbonizing is already really high, and so I think it's imprudent to place too much burden on ultimately getting to the highest efficiency levels without really addressing the carbon emissions. I think we need to get into a mindset where the carbon emissions rise to the top of the project and that, that project is supported as much as possible by what we call supporting technologies or approaches that ultimately reduce the negative impacts of de-carbonizing on the grid.
And so we suggest really tempering the project requirements so that the de-carbonization aspects are first and foremost. And then, of course, buildings have capital renewal requirements. Those need to be brought to bear. You need to protect the value of the asset. You need to keep the systems functioning properly. Ultimately, we have to get natural gas out in the long term. In the short term, lots of different pathways to get there and stepping stones to get there. But by the time 2050 rolls around, we shouldn't be combusting unabated fossil fuels anymore, and that needs to be on the ledger as high priority.
George Sutherland:
And James, from your perspective, what do these trends and strategies mean for the landscape of building retrofit financing?
James Burrow:
I mean, I guess there was a lot of really valuable stuff in Bryan's answer there. I would say, look, I think the middle market has been underserved historically in terms of financing retrofits. And what I mean by that is, if you're a super big company that can aggregate 10, 15, 20 projects, you've got options. Historically, you could go to the CIB and you could say, "Give me 120 million of your funding." And I know Max has experience with that. Or you could say, "Well, we want to do a green bond. We want to tap the debt capital markets to lower our cost of capital, and here is the basket of projects we're going to issue that green bond against." So that's for some of the larger entities or bigger groups of projects.
And at the other end, you've got residential single family homes, which is, as Bryan pointed out, about half of the building related emissions in Canada. And there've been some fantastic government schemes recently that have been oversubscribed, which is a good thing, to decarbonize single family homes. But when you get into that middle space, commercial and industrial, medium-sized residential buildings, retail, light manufacturing, stuff like that, there's really a bit of a gap in the public and the private capital markets in terms of what's being provided. Now, part of what we've done with our retrofits partnership with CIB is trying to plug that gap, but more does need to be done.
George Sutherland:
Now, we've been talking a lot about some of the broad trends here, but Max, Avenue Living has a tangible example of undertaking the types of retrofits that we've been referring to. So I'm wondering if you can speak to your priorities at Avenue Living as well as the retrofit initiatives that you're undertaking.
Max Graham:
Yeah, absolutely, George. So for us, there's really, I call it, three levels of retrofit, and we'll start with the deepest and work down. So the first example is our deepest example of retrofit and this is in partnership with BMO and the Canada Infrastructure Bank. We're doing a single project in Edmonton. It's a mid-rise concrete apartment building with a little bit of street retail and commercial space, 179 units. And what that project is, is a complete deep energy retrofit and renovation. So it's unique in that respect of both tackling the underlying asset and the carbon emissions. So for Sunrise, the targeted emissions reductions is between 60% and 65%. I call that on the high end. We're not completely doing away with gas, but all of our suites are heated with heat pumps. We're bringing this really cool external panel solar system, so the entire exterior of the building will be active solar panels, and then a ton of other work. We're really excited about this project, but it combines both that renovation and retrofit.
The second is our broader Canada Infrastructure Deep Energy Retrofit Program. So we've got total commitment of about $130, $140 million to spend on our Canadian portfolio in that we'll tackle several thousand units. The goal of that program to reduce our emissions footprint in that basket of goods by between 40% and 50%, I would say. That core Infrastructure Bank retrofit work is really focused on base building systems. So not a huge renovation element. We're really focusing on, okay, what is the boiler system? What is makeup air? How are the windows? How are the envelopes? How are the roofs? And then targeting that core emissions. And then the third level, and I call this tactical work, is a handful of disparate programs that we've got across the portfolio in addition to those other two that just, I call them, shallow retrofit's a good parallel, but really looking at, okay, we did an acquisition of a relatively new portfolio in Edmonton.
Upon due diligence, we realized that the energy, the electrical consumption was just an anomaly. It was 30% higher than it should be. So in those handful of properties, they're not very old, we're doing a tactical electrical reduction program, so some sensors, lighting, upgrades, handful of other things. Those are our three big buckets of emissions priorities.
George Sutherland:
And in your experience, when is a good time in a building's life cycle to do these types of retrofits?
Max Graham:
So a good time for us, and what we've really instituted in the last few years, is looking at the end of life of certain systems. For example, we just closed on this property in Calgary. It's a '60s build, original windows. So those are at end of life. And so rather than just looking at, okay, well, let's just go through and do a window replacement program, what else can we do in that series of properties to reduce our emissions? It can be the end of life of a boiler, end of life of makeup air, end of life of envelopes or roofs, but we usually try, and really what we've done in the last few years, is take a single end of life decision and make it a bigger contemplation. And that's where we found we're making the best decisions for both the underlying asset but also the residents and the emissions profile.
James Burrow:
Max, just a quick question from me actually to build on that. Is the maturity of the financing structure on the building a material factor you think about when timing retrofits? And I guess what I mean by that is, sometimes it would be an elegant way of refinancing the cost of the retrofits to roll them into a commercial mortgage, but obviously you don't want to break that mortgage midterm, and if the mortgage is currently on 2.5% and to break it and refinance it would involve going up to five point something or six point something, you might not want to do that. Is that something you guys think about or is that a secondary factor versus the equipment life cycle that you just described?
Max Graham:
No, I think you're absolutely right, James, a financing event and with the other CMHC products around MLI on existing properties can be structured around emissions. We're actually working through an energy audit on an existing property in the portfolio here in Edmonton for that very reason. It's a 45-year-old property, great shape, but re-fi coming up and we're looking at it and saying, "Hey, what if we did more here? What if we look at a reposition, make an investment, and then take advantage of some financing tools on the back end?" So you're right, I would put a financing event part and parcel with that end of life decision. It's just one of those decision points where you go, "Hold on. We could just go at this the normal way and go conventional and do a takeout and move on. Or we can spend a bit more time, see what's available. Maybe there's some systems we can look at. Maybe there's a resident base that needs a bit more. Maybe there's something else here that we can tackle a series of issues as opposed to just one."
Bryan Flanagan:
Yeah, and if I could jump in on that, I think what I'm really hearing, it's not said explicitly, but you need to have a bit of a series of playbooks and understanding the state of the assets in terms of capital renewal requirements and a state of the assets in terms of their energy use and their consumption profiles. This is the ongoing data collection activities that are required. And then an overarching strategy for, if this, then that so that action can be taken based on those opportunities and events that arise in accordance with an overall de-carbonization strategy.
Max Graham:
You're absolutely right. We've had the luxury of commissioning 60 energy audits now, and we've got wheels in flight on retrofits of different depths, but really breaking down as many scenarios as you can and then arriving at a goal as fast as you can is the secret sauce because that informs every action after. How you're engaging with your finance, okay, is this an MLI thing? Do we want to do also a renovation? Do we want to pull this into a deep energy retrofit? Are there some other things that we can tap into? Or maybe it's just, "Hey, this property is using way too much electricity. What can we do for a low cost to just bring that down?" But the faster you can arrive at that goal, the better all the knock-on steps are.
James Burrow:
When we're talking about a playbook that considers all the factors, the financing events, the end of life or the maturity of the equipment in the building, I guess this is just a question back to both of you. Whose job is that to produce those playbooks? Is it each company has to do their own? Whose job is it to produce those?
Bryan Flanagan:
Well, I mean, there's organizations such as mine that can help to make templates for those sorts of things and advocate for their use. Ultimately, I think the large portfolio owners really need to be pulling together multidisciplinary teams to make this a reality. We're seeing a lot of bigger players in the consulting field get into this area of really positioning the de-carbonization as a longer-term play a roadmap process rather than one-off approach to retrofitting buildings. I remember quite a while ago now in my energy efficiency programming days where we were just causing unlikely meetings to happen within organizations between the technical staff at a given operation and the management and C-suite of those buildings. They just hadn't really communicated about financial criteria and about what would direct the priority of investments.
And the technical folks are certainly really clear on how the buildings perform and what they'd like to do, but really lacking guidance in terms of where the priorities need to be or what's possible. And so ultimately the building owners need to, I think, take the full responsibility to recognize that that's required, but then bring in the assistance that's necessary to make a cogent plan take shape. And I don't think it's the thing that you just do once. I think organizations that are really doing this well now have been trying and doing different things over years to get to a spot where they feel comfortable with their strategy. And it's probably still very much in a state of evolution and trial and error to get the right outcomes that you want with a given investment.
Max Graham:
I'd say on that, just to build on it a bit internally, I smash people together a little bit and it's definitely interdisciplinary. You've got a little bit of an energy management group, asset management capital, some engineering, but smashing them together with the financing group can be a challenge sometimes. Externally, I think there's a lot of room for these database catalyst organizations that collect case studies and do education around retrofits and what the path looks like. I think for owners that's really important. A lot of smaller owners, they're not going to have an energy manager. Probably not going to have an engineer on staff. May not even have dedicated treasury or financing.
So the shorter you can make their learning cycle, the more likely we are to have deep energy retrofits outside of large players really pushing education on owners to say, "Hey, don't just replace that boiler when it dies. Take a second. Take a second, see what you can do beyond that." And if you still land in the same place, fine, but that's an opportunity where you're going to crystallize a 30, 40 year decision that you could make some emissions reduction decisions.
Bryan Flanagan:
Yeah, I would really jump in on plus one for that capacity question, especially with the smaller buildings. You get down into 50,000 square feet, 100,000 square feet, there's just no capacity to really have the time to invest in learning all of these approaches and how things are shifting, or what future liabilities might even look like in terms of building performance standards or any of those important factors that should come into a decision. Lots of people are operating just on an emergency basis. They've got failed equipment, they've got to move and make a decision. And so the environment there is one where at the right moment they need to have the right information. And I think there's lots of organizations that are out there trying to pump that information out, and ours is one of them.
George Sutherland:
Thanks for listening to Part One of our Two-Part Commercial Retrofit Series. Tune into our next episode for Part Two of our discussion.
Michael Torrance:
Thanks for listening to Sustainability Leaders. This podcast is presented by BMO. You can find our show on Apple Podcasts, Spotify, or your favorite podcast player. Press the Follow button if you want to get notified when new episodes are published. We value your input, so please leave a rating, review, and any feedback that you might have, or visit us at bmo.com/sustainabilityleaders. Our show and resources are produced with support from BMO's Marketing Team and Puddle Creative. Until next time, thanks for listening and have a great week.
Disclosure:
For BMO disclosures, please visit bmocm.com/podcast/disclaimer.

Part 2: 
 

James Burrow:

If organizations can beat competitors to the punch on being really, really smart about how they're renewing their portfolio, in 10, 15 years, operators will have rolled over their portfolios from being energy intensive legacy assets to high performing assets that hopefully benefit from a green premium, lower operational expenditure, have an enhanced tenant value proposition.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer at BMO. On this show, we will talk with leading sustainability practitioners from the corporate investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment business practices and our world.

Disclosure:

The views expressed here are those of the participants and not those of Bank of Montreal, it's affiliates or subsidiaries.

George Sutherland:

Welcome back to part two in our series on commercial real estate retrofits with Bryan Flanagan, Max Graham and James Burrow. And Max, picking up on our previous discussion, given what your investment team is doing around energy and equipment audits, do you see a green premium or a brown discount for buildings depending on their energy or carbon performance?

Max Graham:

You know what, I think there is a little bit for sure right now, today. We go fast-forward to 2030 and I'm sure everyone on this call is familiar with the path on carbon tax and all that sort of thing, but I suggest it'll get a lot more pronounced, that divergence of performing versus non-performing asset will really diverge and you'll see it come through in cap rates and other things. What we do now is we essentially have two tranches on the investment side. The first is, okay, a stable, maintained potentially newer asset, we'll go down one. And then the other for older stock, maybe well maintained, but just older systems. We're doing an energy audit as part of DD and looking at what is the profile, what emissions reductions are possible, and baking that into our investment decisions. So I don't think it's as pronounced now, but fast=forward maybe as little as five years, you're really going to see us spread in the underlying fundamentals, cap rate, that sort of stuff based on energy profile for sure.

James Burrow:

Max, I'm super interested. As you mentioned, you're doing energy audits as part of your DD, and feel free to decline to answer this question if it's getting too much into Avenue's secret sauce here. But that's interesting because if you find a building that is underperforming in energy terms versus a peer, there's something wrong with it, you could view that in two ways. You could say that's an opportunity for us to drive value and drive the performance of that building by doing work that we're experienced in doing. We can dramatically improve the energy performance. We can get an outsize return on that building based on that. Or you could just say, nah, there's something wrong with that building. Don't like the way it looks. Leave it. Can you give us any more insight into your thought process in which of those paths you might go down?

Max Graham:

Yeah, without [inaudible 00:03:04]. On the former, absolutely. Older stock. you've got some, say, non-combustible buildings, older systems where you look at it, you go, okay, the energy audit reveals some opportunities. Totally. If they're well located, we do look at that as an opportunity to potentially reposition and invest. And we are long-term owners, so little things that will impact resident experience are important. Like you swap windows and make repairs and boilers, the building's better. It just feels better, smells better, quieter. So that's a big plus for our residents for us.

And then we have had examples where you're doing underwriting, especially in our big markets where we have a lot of product. Sometimes you don't have the answers on an energy audit as to why the profile or energy profile is not great. And there have instances where we go, okay, this is only a twenty-year build, but it's using 30% more natural gas in our peer group and we don't have a great set of measures on conservation, so are we willing to accept that or do we just move on?

So no, it plays in big time. We're investors, so usually we're on the former hopefully. But yeah, there have been ones that just follow. George on your other question, the way I would liken the green and brown premium and discount is not dissimilar to insurance when it comes to big risk areas. And you're seeing it in places like Florida right now, big catastrophic risk area. Insurance is two or three times the cost that it is elsewhere in the country. And so that's just impacted everything from prices to everything else in that market because of that underlying risk. So I think the path on that green premium or brown discount will follow a similar cadence where you, it'll just be in the fundamentals of the financials and then the resulting outcomes.

George Sutherland:

One question that I'd like to get each of your perspectives on is what have you seen that's working well and what hurdles still need to be overcome in this space?

Bryan Flanagan:

Yeah. Well, I mean to this conversation, we're seeing a lot of interest in trying to find products that are specifically tailored to the sector. We're seeing big banks and smaller community investment banks paying a lot closer attention and really actively engaged. I think also we're seeing groups like Efficiency Canada, Efficiency Capital or SOFIAC and others trying different models and really trying to make a go of it and what I think are fairly tough markets right now. And so seeing that kind of interest and attention being paid to just mobilizing more capital into the area is really encouraging.

I think in terms of hurdles, we're largely not talking about technology issues here. It's not like we need to do a bunch of R&D to find the killer silver bullet technology that's going to help us to decarbonize. There's lots of decades of approaches and systems that we can use to do that. What I think is really a big hurdle right now is just consistent policy signals for the market to really understand what the future is going to look like with respect to their risks, to their investments, and just clear signaling about where we need to go so that markets can be driven in the right direction. And when we see discussion of building performance standards and other things, it does drive activity.

And so I would still see that our current regulatory and policy environment is just not up to the task of really driving the investment that we need and the market is responding. We've got players who are seeing this as a business opportunity and a competitive advantage, and so they're making moves. But I think to get the laggards and to get the smaller building owners and others into the space, we're just going to need a lot more sort of clarity in terms of the policy environment that we're dealing with.

James Burrow:

And I can maybe pick up on some of Bryan's points there. I agree with you, Bryan, about financial innovation. It's something we're trying to do in absolutely name-checking SOFIAC Efficiency Capital and some of those other providers. I think they do a great job and I think they've got really, really fantastic offerings. Technological innovation, you're right, the technology is mature. But yeah, Bryan, sometimes the business case for the technology, although the technologies are mature in there, is sometimes more nuanced to make because the capital cost upfront of installing some of these low carbon technologies like heat pumps is sometimes a little bit higher than furnaces. So you need to look at things on a total cost of ownership basis. And then just the process of working that out, the total cost of ownership and comparing those two scenarios is something that puts a lot of investors off from going down the decarbonization route versus just status quo. So I would point to that being a hurdle.

You mentioned policy, and I think this is related to policy, Bryan, but utilities costs. In some jurisdictions, natural gas is still super cheap form of energy for heating buildings, and until the true environmental externalities associated with using natural gas are priced into that versus electricity, it's going to be really, really challenging for owners of big portfolios or buildings or any building to make a business case to go down the low carbon route. So I'm hoping that the policy will focus on adjusting that, really.

Bryan Flanagan:

Yeah, really not a lot to disagree on there. First, cost is certainly a barrier, the stock price difference across the country is just all over the map too. So for those who have holdings across the country, the decisions are different in every jurisdiction that you're dealing in. So those are definitely barriers, but please continue your last point. It was a couple of good points at the beginning there.

James Burrow:

Yeah, no, absolutely. And actually maybe what I can kick back over to you, Bryan. Awareness for me is a big thing. Not every company is an Avenue Living where you've got 60 energy audits that you've done. You've got three retrofits in flight. For every Avenue Living, there's going to be another company that just isn't aware about what needs to be done. What's your sense, given the work that the transition accelerator does and the Building Decarbonization Alliance does right across Canada, what's your sense of where awareness is in the industry right now? It does like a bit of a hurdle.

Bryan Flanagan:

Yeah. I would still characterize the status of this transition as early stage. If you think of the market, the diffusion curve and the rate of adoption of these technologies, we're starting to see some promising signs like key pump sales passing furnace sales and residential sector. And the market is moving, but it is moving very ...

James Burrow:

That's exciting. Sorry, I had to jump in on that. Wait, that's, wait, what?

Bryan Flanagan:

Yeah, for 2022 and 2023, residential furnace sales have been surpassed by residential heat pump sales. So two years running according to the latest HRAI data. So there are signs that this transition is happening. Our own research shows that we would need to triple the pace just to stay on a market diffusion curve that gets us to our target. So we've got a long way to go, in other words. And at this stage in a market transition, that question of awareness is really front and center. A lot of participants in the market are not aware. The building sector is very diverse. We've got a huge ecosystem of suppliers and architects and engineers and the portfolio, the fleet of Canadian buildings is just a massively diverse space. And so reaching all of the building owners, reaching all of the investors, reaching all of the contractors, reaching all of the installers to raise awareness of this is a huge lift and it's a part of the work that we're doing.

And not only that, there's still a lot of myths out there about the technologies, there's a lot of, at this stage, incumbents also are really quite keen on making sure that the status quo is maintained as long as possible. And so there's a lot that takes place in the information space that needs to sort of be managed. And a lot of the organizations that we work with across the country, like the Sub-Xs and the MXs are working regionally to raise awareness. And our organization nationally, of course, is working to raise awareness by trying to bring facts into the space and to sort of adjust narratives where we really hear myths still being propagated or just misinformation based on old understandings of the technologies and things like that.

And also just monitoring the cost and where we're at at scale when we get to scale, to help keep our finger on the pulse of what's happening and what the environment really looks like for decision makers as time moves on and as we get to greater scale and penetration of the technologies.

Max Graham:

I just to piggyback on a few of those, I think what's working well is the financing landscape is actually pretty good. I think with what's coming through BMO between that, the infrastructure bank, MLI, the aggregators mentioned previously, I think the financing options are probably probably not been better for doing deep energy retrofits than they currently are, which is great. Hurdles, adjusting perspectives big time. A lot of small owners, a lot of unsophisticated owners that just aren't going to make emissions decisions.

And then Bryan, your outlying comment on the regulatory environment, big time. Even just little things like we're doing solar across the board on our broader retrofit program. The path to installing solar by jurisdiction is very challenging between your own roof systems and then local transforming and panels and interconnects and distribution capacity. And that in Alberta and Saskatchewan is a key element of a deep energy retrofit where our grid is not as green as others. So there's just a lot of little hurdles that you talk to the utilities and they're trying, but we see a lot more movement.

Building performance code I think is a challenge. It's great from a distance, but in an environment where we have a huge deficit in housing, layering on more barriers to that housing won't help affordability and supply, it just won't. If we look at BC as an early adopter, some of those things are a perfect example. So it's trying to balance those competing goals and providing clarity at the same time. So yeah, regulatory environment's tough, but I think there's a lot going on in terms of opportunities with the financing landscapes working really well right now, from our view, and even in the last few years, the depth of trades, I've seen more depth in certain areas that we just didn't see 2020 when we started looking at this stuff.

George Sutherland:

And what do each of you see as the biggest opportunity for business to drive value while also reducing emissions?

Max Graham:

For us from an owner's perspective, it's about pulling in that holistic view of the asset We kind of touched on a little bit earlier. So maximizing your financing arrangements, working with your debt and equity stakeholders, looking at the end of life and asset level decisions, and then ultimately looking at what the resident is feeling and benefiting from. That's a huge part of it. Like I mentioned with some of this work, there's a huge benefit to residents on a multifamily front. So wherever we can, I'm optimistic about smashing those together and getting these, not to be too cliche, but these synergistic outcomes, which were really, really ... Sunrise, for example, that we're really excited about a project like this where it's just tackling so many things at once.

Bryan Flanagan:

Yeah And I couldn't agree more. The idea is that doing this right and taking a careful approach and following sort of a longer term investment roadmap with the buildings ultimately is going to lead to much better buildings. We haven't talked about climate resiliency a whole lot. If we get to a spot where we're heating with heat pumps, we also get cooling. Cooling is going to be critical in a lot of jurisdictions going forward. We've got forest fire events in the summer where people are being asked to close things up for air quality reasons. So the idea of having buildings that have cooling, to the extent that we can improve envelopes and make the buildings tighter, the buildings are quieter, they're more comfortable. There's a lot of things that we can look forward to.

And I think that's what really makes me optimistic is having the building stuck. If I cast my mind forward to 2050 and imagine what it all feels like to occupants in those buildings when we've done our work and when we get to that goal, I think overall it's going to be much better places to live and work at the end of the day. And I think from an investor perspective as well, doing the right things and making the right moves in a carefully planned way, ultimately is going to lead to greater value overall.

James Burrow:

And for me, I'd kind of jump off on a point that Max mentioned, which is that the financing landscape right now is pretty good for retrofits, and hopefully that's on the private side and in terms of on some of the incentives that are available, whether that's in the form of discounted loans, direct grants, or even tax credits. So what that says to me is that savvy real estate managers and portfolio operators can actually beat their competition by developing the kind of organizational muscle to do what Max was describing, which is smashing together your finance, your building performance people in a way where you can look across your portfolio and say, Hey, there's actually a ton of support out here to do stuff we would probably have to do anyway. You're going to have to replace those furnaces. You're going to have to think about windows one day, but just do so in a way that's much more intelligent with a long-term lens on and that incorporates all the financial incentives and support that are available in today's market, and probably frankly through till 2030.

So if organizations can beat competitors to the punch on being really, really smart about how they're renewing their portfolio in 10, 15 years, and Max, I expect this is the hope with Avenue Living, you'll have rolled over your portfolio or operators will have rolled over their portfolios from being energy intensive legacy assets to high performing assets that hopefully benefit from a green premium, lower operational expenditure, have an enhanced tenant value proposition. And I think if they can be smart about doing that, they can do that at very, very low incremental cost. It just requires building the muscle memory, the muscle in the organization to do exactly what Max is talking about, bringing together those different parts.

George Sutherland:

Well, thank you very much Max, Bryan and James for joining me to discuss trends and opportunities related to building decarbonization.

Bryan Flanagan:

My pleasure. Thanks.

Max Graham:

Thanks.

James Burrow:

Thanks guys.

Michael Torrance:

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