Rain Tax to Soak Ontario REITs?

Many of us have read of the infrastructure funding deficits that plague municipalities.  Their services are often  underground, out of sight and out of mind .. until there is a problem.  A recent tragedy related to unsafe water supply (Walkerton, Ontario) prompted legislation to require sustainable funding over the lifecycle of municipal services.  In the case of water supply, these costs are covered in rising water bills.  For bridge maintenance, these costs are often collected through property taxes.

Some services, like stormwater management, are the "poor cousin" of other well-funded municipal services.  In Ontario,  the Water Opportunities Act point to provincial targets to sustainable funding of stormwater management which can include flood control, runoff quality treatment, and watercourse erosion restoration/habitat restoration.  Several Ontario municipalities have already embarked on stormwater utility fees for property owners.  These fees are often related to the runoff characteristics of the property, such as size and amount of impermeable, hardened surface coverage (i.e., parking, driveways and rooftops).

A rain tax, as it was called in Hamilton media, could impact the bottom line of  retail and commercial REITs more than residential REITs, by virtue of the wide "runoff footprint" of properties with extensive parking areas.

On the positive side, municipalities can offer incentives to reduce stormwater fees when the property owner incorporates sustainable, low-impact development features on-site.  This puts stormwater control measures in the same stead as other green initiatives a REIT could invest in to receive some type of pay-back (think energy efficiency, or water conservation measures that reduce utility bills).

Progressive real estate companies have adopted green strategies for their properties.  First Capital Realty builds new projects to LEED (Leadership in Energy and Environmental Design) certification standards, which include credits for stormwater quantity and quality management.  Skyline Apartment REIT adopts many environmental measures in their 40-year old plus portfolio of buildings.  One highlight in their award-winning program is the installation of  71 rooftop solar systems by the end of 2012 - generating 12,500 kWh per year, and contributing to the profitability of the REIT over many years to come.

First Capital Realty ... goes green ... goes up !