businessincalgary.com | BUSINESS IN CALGARY September 2014 • 47

Publisher’s Note

D espite the various stats and trends about Calgary as a magnet for migration, the popular reputation that Calgary is the

place to be, Canada’s most booming city and even considering rave reviews like the recent MoneySense magazine survey (which rates Canadian cities on criteria like quality of life, standard of living, high incomes, lots of jobs and low unemploy-ment) ranking Calgary as undisputed No. 1 for best overall city, best large city and best place to raise children – Calgary has issues.

There’s a stealth but festering consensus among developers, urban planners, real estate analysts, academics, the city and, most impor-tantly, Calgary homebuyer consumers.

Depending on who you listen to, living in Cal-gary is becoming, or has become, a problem. Some even go as far as to warn about an urgent problem of an out-of-whack municipal planning strategy, running out of approved land for residential development, artificially overpriced property val-ues, no choice and unaffordable homes.

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This article was inspired by Simon O’Byrne, a professional urban planner and designer with Stantec, as a result of a speech he gave at the Leaders of Tomorrow awards gala that Business in Calgary and Business in Edmonton organize each year. O’Byrne’s talk went back to the early days of Chicago when a group of businessmen realized that the greatness of Chicago would determine the greatness of their business. “As goes Chicago, so goes our business.” With this in mind they created a long-term “collective vision” that has made Chicago America’s third largest city for no apparent reason. By all accounts, they are punching well above their weight. In fact, one account of why Chicago is named the Windy City is not because of weather but because of the enthusiasm with which its city leaders extolled its virtues. The name came from competing cities that were sick of hearing how great the city was.

So here we sit, Calgary is a city of just over a million people. Somewhat comparable to the size of Chicago all those years ago. The real question is: will we be a great world-class city or will we continue to fill the dailies with fights between industry and our city politicians; will we dedicate pages to bicycle paths or will we get on with a collective vison, a plan that will make our city great?

The beauty of the Chicago story is that it was created by business people who were fully invested and had everything to lose or gain by the building of a great city. There was little room for civil servants who may have a new job next year or frankly for politicians whose long-term vision is fighting for their next term.

So that is the intent of this article … to create discussion from the people with a long-term vested interest in what our city should look like. To engage those who care about our city and not about a job. We hope that we have achieved this and that you will engage in this discussion, in our city.

BY JOHN HARDY

48 • September 2014 BUSINESS IN CALGARY | businessincalgary.com

Calgary’s problem is compounded by intense competition from increasingly popular, short-commute suburbs to the south, east, north and west.

The reasons, the causes, the talking points, the arguments and the possible solutions are many. They are also matters of opinion and sometimes touchy topics for agreeing to disagree.

But there is a generalized and unanimously accepted bottom line.

“About 30,000 people come to Calgary every year,” says Donna K. Moore, the terrifically knowledgeable dynamo of positivity and CEO of the Canadian Home Builders’ Asso-ciation (CHBA), Calgary Region. “Jobs are one of the main reasons why they are coming. Those potential employees need affordable choices when it comes to homes. We must ensure they have all the choices to keep them here. As sim-ple, as complicated and as urgent as that.”

Why mince words? Some Calgary insiders have opinions on the subject but don’t want to be either implicated or the ricochet of a spitting match with city hall. So they opt to lay low and fly under the radar.

Others don’t. They are speaking out, not so much AGAINST city hall as

much as FOR Calgary. Some with objective and harmlessly professional exper-

tise. Others, maybe subjectively and with bias, but with sound business sense and genuine Calgary concern.

“They’re not making any more land!” roars mega-suc-cessful Calgary business leader, second-generation Calgary builder and passionate Calgary-booster Jay Westman, CEO of Jayman MasterBuilt. “I don’t want to make it sound sim-ple, because it’s not. We’re headed for a Calgary crisis. We’re running out of serviceable approved land, there is very lim-ited choice and unaffordable housing.”

Economists, local developers and other number crunchers share Westman’s dire warning that Calgary’s housing market –

which has a documented ripple-effect through most sectors of Calgary life and business – is dangerously out of bal-ance. Perhaps even threatening the long-term and positive momentum of Calgary’s boom.

According to recent CHBA stats, even though there were fewer new homes built in Calgary last year, Calgarians invested $6.1 billion in new homes and renovations. Undis-putedly, the building and development industry is a major cog in Calgary’s economic engine.

Aside from the clichéd domino and spinoff effects of every-thing from mortgages, utilities and furniture to fridges and stoves, groceries and property taxes, the facts and figures show that new home construction provided 42,600 Calgary jobs and area builders and developers are one of the largest Calgary employers, paying out some $2.7 billion in wages.

“It’s undisputable and documented,” Moore emphasizes. “Housing choice and affordability play a huge role, not only in Calgary’s future prosperity but Calgary’s ability to attract popula-tion growth to ensure the city’s continuing strength and success.”

There is wide acceptance and respect for the basic business logic that the municipality must generate revenue to fund services and the constantly ballooning costs of infrastructure.

But the Calgary problem, and the time-sensitive standoff, is not so much about the city’s money.

According to most perspectives, accusations, arguments and well-intentioned points of view, the problem stems from a clash of contemporary consumer trends versus municipal ideology and strategy. A standoff about the supply-and-demand use of land that Calgary developers are pushing for versus the use that is consistent with the city’s ideology and planning strategy.

“Calgary desperately needs to create urban vibrancy,” says urban planning savvy Simon O’Byrne, vice president, urban planning, with Stantec. “Urban vibrancy doesn’t just mean an exciting downtown where people come to work. It must

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Know and Manage Your Risks to Protect Your Profit MarginsBy David Yager, MNP LLP

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Donna K. Moore, chief executive officer, CHBA – Calgary Region Jay Westman, chairman and CEO of Jayman MasterBuilt Simon O’Byrne, vice president, urban planning, with Stantec

The oilfield services (OFS) industry has a number of risks that require management to improve profits and valuations. Being realistic about margins with thorough job costing and monitoring day-to-day operations and can help protect profits and increase security.

In the restaurant business they call it “leakage”. What that really means is theft. OFS managers have had to deal with fuel theft for decades. Stealing fuel is an occupational hazard when field operations personnel drive company vehicles equipped with credit cards. Managers struggle to ensure fuel, automotive accessories and everything else purchased at gas stations is for company use. Even managers aware of the problem are frustrated by their ability to eliminate it, particularly when labour markets are tight. Managers can protect profits by starting with clear “zero tolerance” HR policies and the consequences of violating them. The right accounting, purchasing and monitoring activities can help them achieve tight job costing, monitored mileage logs and restrict fleet cards.

Another growing problem is information theft. Everything is digitalized, from proprietary operations protocols and procedures, customer contacts and price lists to confidential financial information. Having this data leave the company for the wrong reason is economically damaging. It is increasingly difficult to monitor and prevent with the near universal proliferation of personal electronic devices. IT systems to control to monitor activity and detect violations are key. Data protection requires investing in secure and robust IT systems that track activity and restrict access to the most sensitive information to the fewest people possible.

Other risk arises from a mistake in perception—the default of many in OFS sales and operations is to confuse activity with success. But having personnel who are working hard, burning diesel and putting in long hours doesn’t necessarily translate to profits. Without understanding and controlling variable expenses on job costs and field margins, operators may be taking operational risks without earning an adequate profit in return.

Successful organizations analyze variable field operating costs to ensure that an adequate direct profit margin exists before the job is sold. Major expenses are labour, subsistence, travel, fuel, third-party rentals and expendables. Gross profit from operations must also cover equipment repair and maintenance, service locations, field operations support staff and head office administration. Then there’s cash required for equipment replacement, debt servicing and— if all the work is priced right—next up is taxes.

Operators can ensure adequate field margins with two approaches. First, equip sales and operations with job cost templates and basic financial training so that when OFS quote or bid, there is an adequate field margin built into the price. That way, if operators lose the work on price because it costs more to do the work than they will invoice, margins are protected.

Second, prepare timely and accurate internal monthly financial statements that include gross field margins in meaningful detail. Review them with sales and operations to ensure progress and success. The reports will reveal the accuracy of pricing models and flag unplanned expense increases. Then the company can make the appropriate corrections on a month-by-month basis. Using this tool, operators can have a bad month or two and still salvage the year.

Remember, the goal is more profits, not more practice.

The OFS industry has a lot of moving parts on every job every day. Tight internal controls for job pricing and field margins will help increase profits and implementing and maintaining controls around fuel and IT systems can reduce non-operational risks.

To find out more about how MNP’s Oilfield Services team can benefit you, contact David Yager, National Leader, Oilfield Services at 403.648.4188 or david.yager@mnp.ca

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Know and Manage Your Risks to Protect Your Profit MarginsBy David Yager, MNP LLP

50 • September 2014 BUSINESS IN CALGARY | businessincalgary.com

be a balance of a vibrant community where people live, go to school, go shopping and enjoy their life.

“Look around! There’s lots of land in Calgary. That’s not the problem. The issue is what use of that land will the city approve? Of course we must use the land efficiently and consider vital aspects like sustainability, the environment and public transit. But the Canadian dream is still home ownership,” he says.

“Calgary is growing. There is a definite demand for family-oriented housing, walkable streets, backyards, a bar-becue and a place for the dog to go. If they can’t get it in Calgary, they will drive out of town until they find what they are looking for.

“Calgary puts way too much focus on regulating land use, instead of the form of development that’s best to achieve urban vibrancy,” O’Byrne suggests. “Calgary needs to be an inclusionary city, designed not only for oil executives but teachers, firefighters, accountants, nurses and truck drivers.”

Greg Morrow, assistant professor of urban design and planning at the University of Calgary, is experienced, impar-tial and objective. “This is such a terrific city, with so much growth and so much potential. The problem is not irresolv-able. It takes will and dealing with what people want, not what politicians think they should have.

“Zoning is one of Calgary’s most glaring issues,” he cautions. “The logistics of urban planning is full of buzzwords but, for now, Calgary seems stuck with dated ‘use-based zoning’ instead of the more effective and contemporary ‘form-based zoning.’”

He outlines that innovative planning requires innovative zoning. “Calgary’s urgent challenge is choice and afford-ability. How to spark more homes in already built-up, transit-accessible areas by allowing a variety of housing types to supply the heavy demand.

“From the city’s perspective, it’s revenue-driven. And that’s valid. It’s necessary and it’s their mandate,” he con-cedes. “But when there is more land not generating revenue than does, there is a structural imbalance. Calgary is danger-ously close to this situation, if not already there.”

Morrow is among a growing chorus of Calgary-savvy pro-fessionals and business types who are frustrated that, when it comes to managing Calgary’s robust growth, the city has confused priorities, is out of touch and missing (or stub-bornly ignoring) reality, population and lifestyle trending while clinging to well-intentioned but impractical ideology.

Rollin Stanley, general manager of planning, development and assessment for the City of Calgary, doesn’t agree and sometimes shows telltale exasperation at criticism about the city’s planning strategy being a problem.

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Rollin Stanley, general manager of planning, development and assessment for the City of Calgary

Greg Morrow, assistant professor, urban design and planning, at the University of Calgary

Alan Norris, president and CEO of Brookfield Residential Properties

businessincalgary.com | BUSINESS IN CALGARY September 2014 • 51

He explains that municipalities are required to have a Municipal Development Plan (MDP) and refers to Plan It Calgary, an opus planning document passed by council in 2009. It integrated Calgary’s MDP with the Calgary Trans-portation Plan (CTP), charting how Calgary will evolve, develop and adjust to accommodate about 1.5 million more people in the next 60 years.

The Calgary master plan is enormously detailed and complex. It is laced with many sustainability and environ-ment-driven goals and targets. While it does include some single-family, inner-city suburb subdivisions, the prime focus is overwhelmingly on rapid-transit expansion and high-den-sity development, especially near LRT stations.

“We’re right on track and our growth strategy is one of the best in North America,” Stanley insists with confidence. “We have tied the land use plan to the transportation plan and it makes a lot of sense. It links how we intend to grow, with our ability to pay for infrastructure and operating costs.

“Of course it’s also a matter of tax revenues, because our sole revenue is from property taxes. And density is the way to go.” He defends the lightning rod planning strategy of “building up” (highrises) instead of “building out” (single-family homes).

“A 210-unit, downtown condo uses 55 metres of front-age and generates a significant revenue stream for the city. By comparison, single-family units with the same frontage generate limited revenue. It’s one of the reasons why we target land development to have higher densities.”

Alan Norris, one of Calgary’s most respected business leaders and president and CEO of Brookfield Residential Properties, also suspects that the city’s original planning strategy has triggered time-sensitive problems about the future growth of Calgary.

“When Plan It was introduced, targeting the 60-year intensification of the city, developers and builders were initially concerned but supportive, because it would be implemented over time. For some reason, the plan is sud-denly in overdrive. There seems to be an urgency to do it by tomorrow, and it is definitely leading to a serious constraint on approved land.”

Brookfield is a successful, giant developer doing business in some 15 markets throughout North America, so Norris can easily compare apples to apples when it comes to the efficient planning strategy and development of other, similar markets.

“Calgary’s housing market is dangerously out of balance, and getting worse,” says a passionate but angry Jay West-man. “Of course my thoughts are suspect because I am a successful builder. But it’s absolutely not about me or my business. I’m a second-generation builder and I love Calgary.

“This is about living in Calgary! The city’s plan to man-age growth by reversing the established, free-market-based demand of 70 per cent single-family and 30 per cent multi-family for the sake of high-density intensification of existing communities, might have been well intentioned, but the facts and figures show that it is a disaster. It’s simply not what contemporary families want.”

Westman insists that Calgary’s restrictive land use poli-cies are limiting choice and making home buying in Calgary virtually unaffordable. He cites recent stats that show the price of Calgary resale homes inflating at double-digit rates with bidding wars and many listings getting multiple offers.

He mentions a 29-foot-wide Inglewood lot costing $384,000. A 40-foot-wide West Hillhurst lot at $675,000. And cringes about several Calgary communities closing in on $1 million, just for the lot!

“It all traces back to the availability and the price of land. It’s a documented fact. Over the last 10 years, the cost of Calgary lots has more than doubled.”

Other Calgary business insiders underscore the situation being not so much about the fate of builders and developers, as much as about the growth and economic future of Calgary.

Recent stats show that only about 30 per cent of working people in Calgary work “downtown.” For the 70 per cent who don’t, high-density Calgary may not be the dream.

The burbs continue as extremely popular Calgary alter-natives. With limited and unaffordable Calgary choices, newcomer families and businesses will opt for other neighbourhoods offering choice and affordability, and the business of living in Calgary will invariably suffer.

“It’s time to enact a balanced growth policy that supports both intensification and suburban development,” Westman pleads. “Hey! This is a made-in-Calgary problem that needs a made-in-Calgary solution.”

Focused and upbeat Donna Moore agrees. “The only solu-tion is to collaboratively work together. We must identify and deal with the issues that are interfering with Calgary choices and affordability. And how can we make it work – for everybody?” BiC

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