By: Stéphanie Lincourt, CPA, CA, Senior Manager, Audit, Richter
Business Matter contributor: Harvey Sands, CPA, CA, Consultant, Richter
Social entrepreneurship is often thought of as a nonprofit undertaking but more and more entrepreneurs in Montréal are becoming interested in profitable development and business ventures which are inclusive of the environment and the community. These entrepreneurs extend their philanthropic activities by way of this new form of investment where important socio-economic and cultural benefits are core elements of a real estate investment.
Positive social and environmental impacts can be integrated in real estate ventures with great benefits for the community. Indeed, a city’s real estate is its physical existence and represents its values and culture. Having developers and redevelopers with a vision of sustainability throughout the conception, construction, and operation of its buildings is vital to providing opportunity and foundation for socio-economic development of its communities, population, future entrepreneurs, and the provision of incentives to these constituents.
The recent launch and inauguration of Le Salon 1861 illustrates how real estate projects can be economically sustainable and have a strong social impact on the community. Le Salon 1861 consists of redeveloping and repositioning the historical downtown St. Joseph’s Church. It is led by a group of private developers who married vision, business acumen, and notable social commitment and responsibility in the acquisition and purposed redevelopment of this unique historical property which was at risk of being demolished in favor of a mundane condo development project. This would have resulted in the loss of a community asset which now serves as a catalyst for local socio-economic change.
This redevelopment project transformed St. Joseph’s Church into a commercially viable living laboratory for institutional research in the areas of sustainable green building practices implementation and business incubation and development facilities. Its mission is to provide a collective space where universities, social entrepreneurs, citizens, not-for-profit organizations and private companies can meet and work side-by-side. The wide range of stakeholders mobilized allows for a unique exchange of ideas and resources between communities, businesses and institutions. Moreover, this type of development and property repositioning can provide new and enhanced facilities to its community, such as urban gardens, enhanced green space, an event hall open to both businesses and local residents, and developmental accommodations.
In this case study, we look at the factors underlying Le Salon 1861’s success. This includes the active engagement of the community, non-traditional financing, sustainable construction, breaking down silos between stakeholders, and social impact for the community.
Engaging the community
New development or redevelopment of existing buildings can often be disruptive to the community. Local citizens will voice their disagreement or concerns at many levels of government and throughout the permitting and rezoning processes. Citizens’ opposition often stalls important and worthwhile commercial projects for months, and even years.
Social impact investment requires converting community and individual project opponents into project proponents. Sincere collaboration with the local community is critical in order to overcome initial distrust and misunderstanding of the developer’s vision, mission, and investment requirements. The community’s concerns must be addressed and respected, especially when the property intended for redevelopment is a cornerstone to the community’s social fabric. Impacting an intergenerational community-centric property often results in distrust and skepticism, which must be converted into support and optimism.
This challenge was recognized and fully addressed by the developers of Le Salon 1861. The project involved an extraordinary and complex web of stakeholder interests that had to be respected and addressed in order to receive local support for this unique repositioning and vocation-changing real estate project. By conducting extensive public consultations, the developers were able to ensure the collaboration of all parties involved.
Financing a social impact real estate project
Financing a real estate project with a social vocation the traditional way used to be challenging. Donations and subsidies made the project viable, conventional financing came in later. Traditional banks did not have any comparatives to corroborate the projected rent for such an atypical building. Today, banks are more receptive and have greater risk tolerance than before but they do not compromise their return.
In a social impact real estate project, commercial viability and an appropriate return on investment from the property can be achieved in a number of ways. Examples for this would include a commercial component such as rental revenue shared workspace as well as a conference or event centre which could provide a variety of revenues and business opportunities to the owners and commercial tenants. Restaurant and event centre facilities can be rented and leased to tenants conventionally and thus provide baseline net operating income for real estate financing and yield realization purposes.
Developers can also turn to sponsors to help them finance the development and operating phases of the project. In this particular project, sponsorships were secured from local technology companies and professional firms. These sponsors are looking to support the next great idea and/or client that might come out of the entrepreneurship hub that is Le Salon 1861. In addition, sponsors are provided the opportunity to offer workshops and regular advisory services to coworking tenant entrepreneurs. These financial and operating sponsorships are for fixed agreement terms and can thus provide, on renewal, opportunity for revenue adjustments and updating for current needs and services to the property and its constituents.
Municipalities are also eager to encourage and sponsor redevelopment real estate projects, since these projects encourage the local economy. In this case, local authorities were all the more supportive of the project because its goal is to foster social entrepreneurship ventures which are beneficial both to the community and the city’s economic development.
An appropriate vision and understanding of required intricacies can result in a commercially viable project. Le Salon 1861 had the right business plan: a viable financial model and the involvement of sponsors allowed for greater support and collaboration. The project also received great media coverage, which certainly helped.
Integrating sustainability into construction
Legacy properties are often derelict and in disrepair as they fall into economic hardship and a lack of financial resources regardless of the original architectural components and grandeur that was part of their construction. This was certainly the case for St. Joseph’s Church, and yet the building was highly valued by the local users and community population.
A redevelopment projet must respect the original property. The use and recycling of the existing materials and decorations is an integral part of social impact redevelopment. In addition, such constructions minimize waste: it is not only a matter of lowering costs but also of reducing the carbon footprint of the project.
The objective of carrying business in a socially responsible manner is contagious. In Le Salon 1861, both tenants and the developer recycled and reused components of the original building. Wood, structural, decorative architectural finishing, and legacy components were repurposed and used in the development and furnishing. Being socially responsible also means properly selecting suppliers, ensuring they have similar values, and encouraging local economy.
Breaking down silos
The core concept of Le Salon 1861 is to bring people together and break down silos between community and business actors. Once construction was over, the use of the building and land were maximized through the inclusion of co-working space for incubator and early stage entrepreneurs and collaborative business projects. Workshops for small business start-ups and the self-employed can also be organized in this unique space.
Le Salon 1861 shows how social impact real estate can reconnect the community and bring people from different backgrounds together in a multi-purpose, co-working space and break down silos between private businesses, local schools and universities, entrepreneurs, local citizens, and community organizations.
Breaking down silos starts with the tenant mix. Having businesses and institutions renting office space creates a wide range of opportunities and encourages collaboration. Amongst the sponsors are legal and accounting firms which are committed to sharing their knowledge and expertise with the tenants and the community. Businesses and entrepreneurs sharing common values help build and cement relationships with targets and clients with similar values.
A real estate project for the community
As a sustainable real estate project, Le Salon 1861 focused on creating social impacts for the community. These are principally derived from offering incubator and co-working facilities (desks, reception area, Wi-Fi and library services, meeting room, communication facilities, etc.) as rental premises in one component of the overall building. The success of the project is largely due to this core mission: renting all-inclusive working spaces to entrepreneurs. It is this mission that gives the project its hybrid nature and vocation, a commercially viable real estate project with positive impacts for the community, both locally and on a larger scale.
Le Salon 1861 also integrates spaces dedicated to the community. A small library for local children was arranged and there will be storytelling times which will promote reading for less fortunate children. Landscaping around the property will embellish a neighbourhood which is mostly made up of bricks and mortar and hopefully a small community garden will be part of it. All of this will be done with the help of volunteers, most of whom are tenants and sponsors.
Le Salon 1861: where social impacts and return on investment meet
Le Salon 1861 gives us a concrete example of how a real estate project can have major social and cultural benefits for a community. Typically, the community would have lost a local facility and a heritage structure and seen undistinguished commercial or residential redevelopment in its place, even if architectural elements of the original structure would have been maintained by the developer.
Instead, the local community now has a new and vibrant location that will provide direct services to the neighbourhood, foster entrepreneurship and create new relationships between entrepreneurs, businesses, not-for-profit organizations, and universities. Le Salon 1861 makes a strong case that socially responsible real estate is not purely philanthropic but can lead to an extremely viable investment. The idea of a triple bottom line (people, planet, profit) is now fully aligned and no longer in conflict with required investor’s returns.
This article was originally published in Espace Montréal.
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