Michael Emory, JD 1982

Allied REIT’s founder and CEO loves to talk—about technology, strategy and more, in this conversation with Nexus editor, Lucianna Ciccocioppo

Interview by Lucianna Ciccocioppo / Photography by Nick Wong

From the Spring/Summer 2018 issue of Nexus

Lucianna: How would you describe your role in your own words, and what is your favorite part?

Michael Emory: That's a good question. As the CEO of this company, I spend a great deal of my time thinking strategically about what we're doing, the people we're serving, their needs and how to meet those needs. I spend a great deal of time coordinating the execution of that strategy and then interestingly, and perhaps somewhat unusually, I spend perhaps 25 to 33 per cent of my time communicating with the outside world about the business. We're a public entity so our unit holders are very numerous and spread across the globe. They're very sophisticated investors who need to be kept informed on a constant basis about our business—how it's performing, the risks associated with the business and the opportunities inherent in it. And to the extent you're good at it, you can actually improve the business' ability to raise capital and we're a capital-intensive business. Building the team is one of the most enjoyable parts of the business. I used to think it was all about real estate, all about property but without the people, there's no way you can execute. It's not possible. I really like that part too.

Lucianna: How is technology impacting your strategy?

Michael Emory: Technology is impacting the real estate business at five different levels, at least. First of all, users in the technology sector are actually driving demand, probably the biggest source of demand for office space today in the urban environment. Secondly, what constitutes acceptable workspace today is defined in a big way by the tech users—what they value. And what they value can be summarized as natural light, good air, an open-office plan for their employees to interact with one another collaboratively, collision space, the whole thing.

The other thing people really want are amenity-rich environments. In other words, Queen Street West and King Street West rather than King and Bay. King and Bay is the old epicentre of the financial district, but there are not a lot of visible amenities there accessible from the street.

The third impact is actual building technology. It has had an enormous impact in the last decade because we can build more sustainably than ever before. The glazing filters out more harmful UV rays than ever before. The air delivery systems are better than ever before, so the building technology has progressed dramatically and is being incorporated into new buildings.  The new buildings are decidedly better than the old towers.

The fourth element is what some people call prop tech. It's really technologies that help people use their space better. A good example is what Deloitte and others have done—a hoteling concept. They recognize that a lot of their people are not in their office for significant periods of time. An intelligent hoteling system allows them to book their desk three to four days of the five days in the week that they’re  going to be in the office. So you accommodate the same number of people in much smaller amounts of space and with many more amenities around for meetings and impromptu gatherings, and all the other things that reflect how people work.

Finally, we have the so-called Internet of Things, and the buildings have the ability to become part of the Internet of Things. It involves very sophisticated measurement of the performance of the building, for example being able to measure the air quality in the space on a real-time basis. That's incredibly valuable so the user can know that in fact the air quality that's conducive to human wellness is being sustained during office hours. It also involves controlling the operation of the building on an automated basis.

Lucianna: You were interviewed on BNN Bloomberg about a plan to partner on affordable housing. Tell us more about this project please.

Michael Emory: There's a private developer based in Vancouver called Westbank. They did the Shangri-La Hotel in Toronto, and they're doing the Honest Ed's development at Bloor and Bathurst Streets.  They're partners with us on several developments here in the city. [Westbank owner Ian Gillespie] recognizes he is creating very expensive housing accommodation and that in order for the inner cities to continue to thrive, we need to have affordable housing for the very important men and women who are providing essential services but can't necessarily afford housing at the price levels to which it's risen. We want to try to be part of the solution. As an office operator, it's very important to us that the inner city remain a healthy place to live because it's the ability to live and work in the same area that underpins our business.

Ian said: ‘We need to do something about this. We need to do it on a large scale with the private sector and the public sectors and we should probably focus on Vancouver and Toronto where the problem is the most acute. Would you be prepared to help put something together?’ I agree. We're working with Jennifer Keesmaat, the former chief planner of the city of Toronto, in an effort to get the federal, provincial and the municipal governments aligned with the private sector to create meaningful amounts of affordable housing. It's a difficult undertaking because it can't happen without the private sector. It also can't happen without the really all three levels of government participating and getting all of those interests together is a lot work.

We are trying to create a not-for-profit entity on creative housing that will then attract institutional capital for the creation of a meaningful amount of affordable housing in the inner cities of Toronto and Vancouver.

I have to give Ian Gillespie the lion's share of the credit for the initiative but we're happy to be a part of it. My constituents, the people to whom I'm answerable, were very supportive and they understood completely that we weren't getting to the affordable housing business but rather trying to address a long term need that will help sustain our business over a longer period of time. I was really very pleasantly surprised with the response and encouraged by it. I went on BNN Bloomberg primarily to make sure nobody misinterpreted what we were doing.

Lucianna: Some argue that asset prices are overvalued across the board. Is there a big correction coming?

Michael Emory: It's a great question. It's one that our investors ask themselves and us as well. Here's how you have to think about it. The urban centres in Canada are intensifying. If you go back to just after the Second World War, people moved out of the inner city to live and to work and there were very rational good reasons for that. The suburbs had more space. Cars could easily get you the distance and in the case of work environments, there was more parking and it was more affordable.

Then in about the mid '90s, that started reversing itself. Again, it doesn't mean the suburbs have died or are dying but the trends started to be back into the inner city, in large part because the millennials prefer to work and live there if they could and interestingly enough the parents of the millennials soon started following. So the desire to live and work in the inner city basically caused a reverse migration. In about the same time, principles of smart growth started emerging and the core principle of smart growth is it's much cheaper for society to build upward on existing infrastructure than it is to keep making new infrastructure on an ever widening perimeter.

Vertical development was encouraged. Urban sprawl was discouraged. The [Ontario] Greenbelt was probably the most spectacular example of discouraging further sprawl. I think even if they did the intensification as so well established, it will continue more or less at the same pace anyway. This intensification has created an environment where the demand for real estate in the inner city is huge, whether it's residential office, retail or any other kind of infrastructure space. The demand that you see for real estate and the upward pressure in prices that you see as a result isn't fueled by cheap money. It's fueled by demand and that's why I think it's less likely that you'll see a cyclical collapse. You'll always see corrections, so there will come a point in time where pricing will moderate. We may even be in a bit of a correction in the residential market. It's not a very big one but it's a bit of a correction. At some point we'll see a correction commercially, but I don't think we're going to see a collapse like we did in the '80s.

I started in the real estate business in the late '80s. I didn't realize at the time it was a tail end of a boom and the market literally collapsed in the early '90s, totally and the industry collapsed. The reason it collapsed was because demand having been very great, slowed down at about the same time as a lot of new supply entered the market so the combined impact of decline and demand increase in supply and prices came down.

The interest rates weren't that high. You know what the problem was? Everybody was over-levered. They had way too much debt in relation to the underlying asset values, and they had short-term debt, which can be deadly in a downturn.   Short-term debt means you have to roll it over regularly.  When things started to go down, the providers of capital said ‘We're not going to roll it this time. Please pay us back.’

Nobody could at the time, and literally just about everyone collapsed. O&Y was the most spectacular collapse, followed by Bramalea. Cadillac Fairview went into CCAA and emerged in time, ultimately to be bought and resurrected by Teachers Pension Fund. The collapse was huge. It was, if you will, an easy-money-driven collapse. What you're seeing now is not an easy-money-driven boom, but rather a demand-driven-boom where people are using huge amounts of equity and very prudent amounts of long-term debt. The boom is driven by the demand. The one thing that can certainly slow it down quickly is if we can create too much supply and the industry creates supply. Allied can have an impact on the supply, but it can't control the supply, so it has to remain very vigilant in terms of how much supply is being created in relation to the demand.

A long-winded way of saying I don't see a collapse in value as a high probability at all. I do think values will moderate at some point. When the amount of supplies starts to catch up with the demand and when there's equilibrium, there's not much upward pressure on prices.

 A correction, I think is inevitable, but I don't think it's imminent. I think it's two or three years before the demand is satisfied… I'm talking about the office sector primarily. The demand for urban office space is so deep and there's so much excess demand at the moment. It's going to take two or three years at least to fill it.

Lucianna: How long were you at the law firm Aird & Berlis?

Michael Emory: I was at Aird & Berlis as a summer student for two summers, and I articled there.  It would be from '84 to actually mid to late '88 then I left in '88 to start what has become Allied, although then it was a very small private company. I practiced for four-and-a-half years. I had a very long and strong relationship with Aird & Berlis. They were good to me. It was a great place to learn. It was a more entrepreneurial than institutional law firm. I knew even before I started that I didn't want to practice law for the balance of my career. I saw it more as a stepping stone into business or as a gateway into business and it actually turned out to be that. I remember telling Aird & Berlis right at the beginning: ‘I don't think I'm here for a career, but while I'm here, I'll give you everything I've got.’ And they said ‘Perfect.’

They had no trouble with that equation because they had many instances of lawyers going off into business and doing well and, frankly, I've become infinitely more valuable to Aird & Berlis as a client than I ever was as a lawyer.

That's not a bad thing. I was 33 years old and I remember feeling at the time, ‘Man, this is taking me a long time to get to the point where I can actually start something on my own.’ And now I look back and to me today, 33 is extraordinarily young, but then it seemed like I almost I missed the boat. That was youth and immaturity more than anything, I suppose.

Lucianna: How do you think your law degree helped you to where you are today?

Michael Emory: More than anything else by helping me think effectively and well. To me, the discipline you learn at law school is much more than just vocational knowledge. It's really how to think, how to analyze, how to prove, what to accept as an appropriate level of proof and what isn't an appropriate level of proof. It's incredibly useful.  It's really the thought process that it teaches you, that I have found invaluable and I continue to believe to this day that underpinning Allied’s success as a public real estate entity is really systematic and careful thought more than anything else.

Lucianna: Do you have a jewel in the crown among the Allied properties?

Michael Emory: One of our board members once said to me: ‘Michael, you can't fall in love with the buildings. You have to be dispassionate about this.’ I remember saying, ‘Oh, I would never do that.’ The truth is I fall in love with each and every one of them. There are buildings that have a special emotional resonance, and it's usually because of the role they played in the evolution of the business. We own an asset in Montreal called Cité Multimedia that we bought in 2007 and it really catapulted us in the city of Montreal and has performed extraordinarily well.

In Toronto, there's a property we bought in 2009, 151 Front Street. It's actually an internet hub and it could not be better positioned, in terms of what's happening in the tech world today. Again, it played a pivotal role in our evolution as a company. This building that we're in [134 Peter St.] is certainly among the favorites because it's the first time we executed a large scale intensification around the heritage building. It's received numerous awards and I think is seen as a very distinctive building in the context of Toronto as a whole. In Calgary, the first building we bought interestingly enough is called the Lougheed Building. It's a fully designated heritage structure that was built I think by Peter Lougheed's grandfather and has wonderful attributes. We're completely repositioning that building now so I have to call it one of my favorites. We’re working on a building in Vancouver right now that’s sure to become a favourite.

There's not much we own that we would want to sell. Very, very little. In fact, we were in the Winnipeg market for a while. We were into the Victoria market for a while and we were in the Quebec City market for a while and I like the buildings and cities there but they weren't big enough for us to grow. The business had become so large that we couldn't drive growth in those smaller cities, either growth in assets or growth and earnings. We really have sold most of what I call the non-core assets of the portfolio today. Now as the business gets bigger and as things change, there could be other assets that migrate from being core to none core but right now there is nothing that's even on the margin.

Lucianna: What is your global strategy?

Michael Emory: We have so much opportunity in Canada that there's no need for us to go outside of Canada to sustain our growth rates. That won't last forever. At some point in time if we want to sustain those growth rates, we’ll have to go to the US, the major cities in the US, and maybe London in the UK, but that's nowhere near imminent. It’s something might happen during my tenure as chief executive officer. It may not.

It will happen I think eventually but we're fortunate for a variety of reasons to have so much opportunity in Toronto, Montreal, Calgary and Vancouver that we don't need to look elsewhere.

Lucianna: That's pretty amazing that you can say that. That's a lot of growth potential.

Michael Emory: It is and we're really fortunate. What underpins that is an interesting reality. We consolidated older buildings that were close to the core and distinctive. What they also are is they underutilized the land on which they sit. You take a four- storey building sitting on a piece of land where the zoning permits you to build a 20-storey building. The difference is opportunity. We have an enormous amount of that kind of opportunity and we can only create it or realize it or execute on it so rapidly, so that's why we're in a somewhat unique position although you end up growing at a rate faster than you think.

When we started, we had $120 million in assets and today we have well over $6 billion in assets. It took us maybe eight years to get to the first billion and it took us another year-and-a-half to get to $2 billion and so on.

Lucianna: Top three words your colleagues would use to describe you?

Michael Emory: That's a hard one. I can make an educated guess. There's no question enthusiastic would be a word many people would use about me, and I think rightly so. I just love what I'm doing. I think energetic would probably be another one. Someone once said: ‘Michael has unlimited energy, and he keeps putting it out there.’ Maybe a third would be talkative but mostly in a positive way. I remember my wife started coming to our annual general meetings, where I give a fairly involved presentation and answer a wide array of questions after that. She said: ‘You really do speak well.’ She was almost surprised, but she’s been a strong supporter from day-one. I don't think many people would use a negative as a defining element of my character. I hope not.

LuciannaWhat's your proudest career achievement to date?

Michael Emory: Without question, it would be the founding and creation of this public entity. Of course, I didn't do it by myself, but to the extent I'm the founder and driving force behind Allied Properties as a major public entity, it is for sure my proudest career achievement.

Lucianna: And Canadian.

Michael Emory: Yes, and Canadian. Absolutely. That would have to be it.