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How one Vancouver organization is creating commercial real estate with a community mandate

Community Impact Real Estate Society reimagines the purpose of property management
steven-johnston-cires-rk
CIRES has been operating since 2017 and currently has a portfolio that is 100 per cent occupied, says executive director Steven Johnston

Thoughts of a commercial real estate portfolio may bring to mind images of shiny new retail fronts or vast mixed-use warehouses – but for one local enterprise, it represents a chance to promote equitable communities in Vancouver.

The COVID-19 pandemic – along with a lack of affordable housing, the opioid crisis, gentrification and rising real estate prices – have pushed many not-for-profits and social enterprises out of the neighbourhoods they serve.

This has made it increasing difficulty for residents in Vancouver’s inner-city neighbourhoods to access the resources they need.

Community Impact Real Estate Society (CIRES) aims to fix this by making affordable commercial spaces available to other not-for-profits and social enterprises.

“You think about an area like the Downtown Eastside, which is experiencing lots of pressures, from homelessness, to the opioid poisoning crisis, to gentrification – which is driving up the cost of real estate in the neighbourhood. It’s making it increasingly more difficult for residents who live here to access those goods and services that are so essential to helping them live full and rewarding lives, whether it’s affordable food or job opportunities,” said Steven Johnston, executive director of CIRES.

The organization’s property portfolio consists of 115,000 square feet of commercial real estate space, predominantly in Vancouver’s downtown core. Exactly 45 per cent of the portfolio is leased to for-profit businesses such as The Lamplighter Public House and LifeLabs Medical Laboratory Services.

“When operating commercial real estate, you’re looking for the best qualified tenant who can afford to pay the most in order to return shareholder value and that’s essentially how we’re a very different commercial real estate operator. Our concern is on social value, not on economic value,” Johnston said.

By having roughly half of businesses pay market rent, CIRES can offer zero-dollar base rent to not-for-profit organizations that provide valuable services to the local community.

Roughly 90 per cent of the portfolio consists of mixed-use buildings with retail on the ground level and housing above. CIRES, which was founded in 2017, does not manage the residential portions of these buildings.

“It really is ground-breaking and it’s a way of thinking about real estate in a very different manner,” Johnston said.

“We make our leasing decisions based on how a tenant helps build community, how they contribute to economic development and leverage that real estate to those goals.… I think that’s what makes us so unique – within the North American landscape anyways.”

Vancouver’s office vacancy rate was 7.4 per cent in the second quarter of this year, with average net rent at $34.79 per square foot, according to real estate company Colliers.

In the retail sector, the “urban retail Collier’s index vacancy rate” is estimated to be 3.9 per cent. In the Gastown area of downtown Vancouver, average net rent was in the range of $70 to $90 per square foot at the end of June 2023.

“With a relatively low urban street front vacancy rate in downtown Vancouver, there is not enough space to meet the demand for high-quality locations. Occupiers are willing to be selective about their site selection – searching for locations with strong foot traffic and high concentrations of potential customers in the immediate area – to provide the best potential income returns, and they are willing to pay a premium for those locations when they come available,” said Susan Thompson, associate director of research at Colliers.

Since many of the organizations that CIRES serves are not-for-profits, there are even greater limitations on the spaces they can afford. Perhaps unsurprisingly, CIRES’ portfolio is currently 100 per cent occupied.

When determining rent, CIRES utilizes a unique method of calculation based on the social value of a prospective tenant organization.

“When we have a vacant space, we’ll take expressions of interest. We’ll look at what the prospective tenant wants to do in that space and then we’ll consult with community and say, ‘What is missing on this block for your constituents? Is there a gap in affordable goods and services?’ We then overlay it against what the prospective tenant is offering and really use that community-informed model to decide how to tenant that space,” said Johnston.

If the potential tenant is a social enterprise that is generating revenue, a below-market base rent may be applied.

“Having said that, we have a women’s legal clinic with zero-dollar base rent, because that free women’s legal service is so essential in this community that we want to make sure that they have every opportunity to thrive,” he said.

Johnston said the funds generated through their portfolio cover all of their operating costs and provide extra funds that can be reinvested with tenants.

“We call it non-market tenant investments, where we can support tenants in acquiring assets that they need to be more effective in their service delivery. It’s a very long-winded way of saying we help them buy things that make them better businesses,” he said.

The corner of Carrall Street and East Cordova Street is a perfect example of CIRES’s mix of tenants.

Here, one can find Di Beppe Restaurant, a for-profit business, next to the Portland Hotel Society’s Community Thrift and Vintage social enterprise. This store pays a lower base rent because hire individuals who face barriers to employment.

In addition, Nelson the Seagull Café, a for-profit business, is located on the block next to East Van Roasters, which similarly extends jobs to women facing employment barriers.

“You can look at that corner and see in a snapshot the exact mix of how we tap and curate our spaces,” said Johnston.

Johnston said CIRES hopes to help private developers and real estate investment trusts (REITs) to grow their environmental, social and governance (ESG) goals.

The not-for-profit currently has a memorandum of understanding (MOU) with Vancouver-based developer Onni Group to explore using 12,000 square feet of light industrial space “in a way that brings added value to community.” Onni is the first developer to “step up” to the plate, Johnston said.

His team has also met with City of Seattle staff and the City of Toronto. The latter is in “serious conversation” with CIRES, he said.

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