Life Sciences Emerges As Investment Sweet Spot In Softening Office Market

Record-breaking years of growth in Canada’s life-sciences sector has turbocharged the demand for laboratory real estate in an acutely undersupplied market.

These market fundamentals have attracted the attention of investors, who, prior to 2020, had no real presence in a class of real estate traditionally owned by universities and hospitals.

“It’s definitely the hot asset to be chasing right now,” says Robin Buntain, a principal at Avison Young’s Vancouver office, specializing in sales and leasing.

“The investor community wants to diversify away from the softening office market,” he says. Lab and medical manufacturing real estate – national vacancy for which “is basically zero” – is the new “sweet spot for investors. It’s fascinating how quickly this has happened.”

Now, nearly 5.4 million square feet of purpose-built lab space is proposed or expected to be delivered across three Canadian cities by 2027, according to a new report by commercial real estate firm JLL.

While Toronto dominates the life-sciences market in Canada in terms of existing building inventory, “Vancouver leads in future supply – with more than double the amount of new space in the works compared to Toronto,” says Scott Figler, JLL’s national research manager for capital markets in Canada.

Driven by technological leaps in areas such as personalized health care, regenerative medicine, genomics and synthetic biology, not to mention a global pandemic that ushered in historic levels of funding for some companies, “Vancouver has seen the most life-sciences job growth in Canada,” says Mr. Figler. “The city has seen more than 7,000 new jobs in the past 10 years, compared to Toronto, which has added around 3,000.”

Vancouver’s planned 2.9 million square feet of lab space nearly equals its entire existing market.

About 80 per cent of this development – spearheaded by some of the most prominent names in the industry, including Beedie, PC Urban and Westbank – will be located in the burgeoning Innovation District, just south of the downtown core.

Mr. Figler says optimism about the wave of new supply in Vancouver as well as across the country comes with caveats.

It is currently “far more expensive” for developers to lock in financing and build than it was a year ago, owing to rising interest rates and lofty construction costs, he says.

Lab space, he adds, can be the most costly of all real estate classes to construct because buildings typically require at least double the structural frame strength, compared to offices, in order to support lab equipment weight and to eliminate vibrations which could ruin sensitive experiments.

Ceilings must be at least 14.6 feet high (compared with the office industry standard of 10 feet) to accommodate large equipment, such as autoclaves and cold storage, and its ventilation – and more power is required to run it. (Standard research facilities can draw triple the watts per square foot compared to computer-filled office space, according to Stanford University’s Laboratory Standards and Design Guidelines.) In addition, backup generators are essential in case of power outage.

“A lot of times you can tell by looking at satellite images and the HVAC [heating, ventilation and air conditioning] system on top of a building – if it looks really souped up, that’s a good indication that it’s a lab building,” says Mr. Figler.

Elevated development costs and a tenant pool comprised in part by unproven biotech startups, can make investment risky, he says.

To thrive, investors and developers “have to think like scientists,” he adds.

“Developers who are successful aren’t just projecting costs and revenues,” he explains. “They have in-house scientific understanding; they understand what the tenants are working on and are able to assess the probability of, say, a certain gene therapy getting clinical trial approval or another round of venture capital funding.”

In the centre of Montreal’s university and life sciences ecosystem, Jadco Corporation’s upcoming Inspire Bio Innovations aims to accommodate pharmaceutical and biotech companies.JADCO CORPORATION

For Montreal developer Jadco Corporation’s first life-sciences complex in the city’s downtown core, called Inspire Bio Innovations, the 35-year-old company partnered with anchor tenant, global clinical research firm CellCarta, for phase one of the project. Then it hired CellCarta’s senior vice-president to manage the next two phases of the $350-million, 450,000-square-foot state-of-the-art laboratory.

“At CellCarta, I became an expert in facility systems,” while supervising lab development in many countries, says Normand Rivard, managing partner of life sciences and innovation at Jadco.

“There’s nothing more precious than a blood sample from a patient with a rare disease,” he says. The building and the mechanicals to protect it are crucial and “Jadco takes that very seriously.

“We want to build the best facility with everything that a biotech or pharma company needs to perform their delicate and critical operations.”

With completion for the centre set for late 2027, no tenants have yet signed on.

“But there’s already very high level of interest,” says Mr. Rivard. “We’re confident we’re going to fill the building in a flash.”

In Vancouver, Low Tide Properties, which already operates five life-sciences buildings, calls itself the city’s largest landlord in the life-sciences space. The company, which also owns multifamily properties, is set to add another eight-storey, 218,000-square-foot life-sciences building, Lab 29, in the Innovation District.

Vancouver’s Low Tide Properties bills Lab 29 as a “cutting-edge laboratory and office building” that will add to its collection of bio sciences facilities.LOW TIDE PROPERTIES

Low Tide views itself as “a partner” for tenants, says Adam Mitchell, vice-president of asset management and development.

It’s critical that the infrastructure at those buildings is working flawlessly so tenants don’t have an interruption during a major experiment, says Mr. Mitchell.

“Our building operators have specialty training in running a life sciences building,” he says. “We’ve also had good staff continuity, so they’ve been able to hone those skills and make sure that they’re adding a value to the property.”

In The Age Of The Hybrid Workplace, Flexible Amenities Attract Employees Back To Office

Architecture and design firm BDP Quadrangle committed to move to a new office in downtown Toronto in 2019, just a few months before the pandemic lockdown introduced everyone to the alternative universe of working remotely.

The timing could have been better, but it proved to be an opportunity.

Before the firm moved in last fall, it was already clear that, with many employees working remotely, the company could get by with less space than planned and has since subleased half of one of its two 20,000-square-foot floors in the Well at Front and Spadina.

Caroline Robbie, principal at BDP Quadrangle, says the upheaval provided an opportunity to experiment with strategies aimed at managing the company’s 232 employees toward what is likely to be a hybrid future.

Furnishings and technology were designed to be moveable to adapt to changing needs; employees are free to work in any area that suits their preferences. On a typical day, between 75 per cent and 80 per cent of the office is fully occupied.

Even pre-pandemic what we’ve always said is don’t let a crisis go to waste. The pandemic provided an opportunity to re-examine everything we took for granted about workplace design.

— Andrea McCann, associate and lead interior designer at BDP Quadrangle

That attendance is significantly higher than in many offices across Canada, and after a year of wait-and-see in the aftermath of the pandemic, companies are experimenting with what is being called “micro-architecture,” adding furnishings and amenities that make coming into the office worth the commute, says Lisa Fulford-Roy, senior vice-president of client strategy for CBRE in Toronto.

“Without changing anything in the work environment, it will be very difficult for employers to signal that the purpose of office has shifted to engagement and is not necessarily for activities that employees could do at home,” she says.

It’s also the landlords who need to be concerned that if a building doesn’t offer amenities companies are going to need going forward, tenants will be looking to move.

CBRE’s Canada Real Estate Market Outlook 2023 highlighted re-evaluations of space requirements in the tech industry and financial sectors that have seen sublet space rise nationally for three consecutive quarters, to equal 3.4 per cent of existing office inventory.

According to the report, the overall national office vacancy rate increased to 17.7 per cent in Q1 of 2023, with vacancies rising in both downtown and suburban segments.

“Even prepandemic, what we’ve always said is don’t let a crisis go to waste,” says Andrea McCann, associate and lead interior designer at BDP Quadrangle. “The pandemic provided an opportunity to re-examine everything we took for granted about workplace design.”

The company is continually consulting with its teams to understand their needs and the evolving ways they use office space, she says. “We want to learn where people tend to congregate and whether we need more meeting spaces, casual spaces or something entirely different that we haven’t figured out yet.”

Flexibility has become a key feature. While there are traditional work areas with unassigned desks, many of the work areas are flexible to do double or triple duty.

Video monitors are on stands with wheels to allow for easy relocation. Workspaces that have good city views and natural light can be enclosed with curtains for soundproofing and privacy during meetings. Even a podcast room is set up with broadcast-quality sound and lighting for presentations.

Tech additions include a booking system to reserve and track workstation and meeting-room use. BDP Quadrangle went a step further and created a calendar of every event that is happening in the days ahead.

An area dubbed the Back Alley has become one of the more popular spaces in the office for impromptu discussions. “In a traditional office design, this would have been the big boardroom area that everybody would dread going into because it’s in the centre of the floor and doesn’t have windows, but people now use it for group meetings and critiques and break-room sessions and celebrations,” Ms. McCann says.

For concentration and focused discussion, another interior space, the Black Box, is devoid of colour or any distraction. “We intentionally designed this space to be simple,” Ms. McCann explains. “And while other parts of the office are full of natural light, with windows and views, we kept the Black Box as a visually quiet space to allow high-profile meetings to feel focused and purposeful.”

The Oasis, a quiet zone designed to inspire and reinvigorate, has lounge furnishings, abundant plant life and some of the best views of city, while a break room and kitchen area – the Community Hub – was deliberately left unfinished with mobile tables and chairs that can be easily rearranged.

The plant life that extends from the Oasis throughout the office is proving to be an incentive for attendance. About 20 employees who may not have the space at home to grow plants have volunteered to tend them and it has become one of the reasons they like to come in regularly, Ms. Robbie says.

“The amount of press around what the workplace of the future will look like was so overwhelming that we’ve seen business leaders just frozen with fear because these can be huge investments,” Ms. Robbie says.

“It’s going to be a couple of years before we really see how this cycle that started in 2020 is resolved,” she adds, “so, I think everybody needs to calm down and not expect to have all the right answers but continue to test and try new things. The experiment needs to continue.”

Source Real Estate News Exchange. Click here to read a full story

Allied Properties Selling Toronto Urban Data Centre Portfolio For Over $1.3B

Allied Properties is selling its urban data centre portfolio in downtown Toronto to a Japanese telecommunications company for more than $1B.

Allied Properties Real Estate Investment Trust announced on Wednesday that it has entered into an agreement to sell its network-dense, carrier-neutral urban data centre portfolio to KDDI Corporation for $1.35B, $118M above International Financial Reporting Standards (IFRS) net asset value.

The portfolio consists of freehold buildings at 151 Front Street West and 905 King Street West, as well as a leasehold at 250 Front Street West. The properties are connected thorough high-count, diverse fibre, which, according to Allied, enables them to “support more telecommunication, cloud, and content networks than any other data centre portfolio in Canada.”

The sale, which is subject to Competition Act approval, is expected to close before Q4 2023. Allied plans to use roughly $1B of the proceeds to retire debt, while the remaining funds will be directed towards upgrade and development activity through early 2024.

“The sale proceeds will enable us to fund near-term growth, primarily in the form of upgrade and development completions, while maintaining unprecedented levels of liquidity and targeted debt-metrics,” said Michael Emory, Allied’s Founder and Executive Chair.

“In the longer-term, we plan to take advantage of a broader range of funding opportunities than we have in the past. Regardless of how we fund growth going forward, we’ll remain fully committed to our distribution program.”

After exploring a “variety of monetization alternatives” for the urban data centre portfolio in the second half of 2022, Allied determined the best course of action, both financially and operationally, was to sell it in its entirety.

A comprehensive sale process began in January 2023, with Scotiabank and CBRE as exclusive agents. The companies contacted 97 potential buyers across the world, which culminated in final bids on June 2.

KDDI is a Fortune 500 company that owns and operates data centres in more than 60 cities across the United States, Europe, and Asia through its subsidiary, Telehouse. The data centre company hosts more than 1,000 connectivity partners, including major mobile and content providers.

The company’s global data centre operating capabilities make KDDI “an ideal successor owner-operator” for Allied’s urban data centre portfolio, noted Emory.

“[This is] an exciting investment which will enhance connectivity capabilities for Canadian businesses,” said Yasuaki Kuwahara, Member of the Board, Senior Managing Executive Officer, and Head of Business Solution at KDDI.

“With many North American organizations accelerating their digital transformation and innovation initiatives, we’re delighted to be able to play a part in their success, offering reliable, scalable, flexible, and secure services to modernize and future-proof IT environments.”

Source Real Estate News Exchange. Click here to read a full story

Commercial Real Estate To See “Upswing In Demand” As Industrial, Retail Grow

Despite ongoing struggles in the office market, Canada’s commercial real estate sector is poised to see an “upswing in demand” as strong industrial and retail markets drive growth.

RE/MAX Canada’s 2023 Commercial Property Report, released on Thursday, details the “positive indicators” that emerged in the sector in Q1, even as investment activity remained cautious.

Northcrest’s New CEO To Head Up Downsview Airport Lands Project

20-year industry veteran Derek Goring to oversee 370-acre development in northwest Toronto

As the new CEO of Northcrest Developments, Derek Goring has stepped into a once-in-a-lifetime opportunity: heading up the transformation of the 370-acre Downsview Airport Lands site in northwest Toronto.

Goring assumed the new position on May 30 after serving as Northcrest’s executive vice-president of development since October 2019.

“It feels good and the response has been good and I’m really enjoying the responsibility and the privilege of having this job,” Goring told RENX. “It’s really fun and I love doing it.”

Goring’s previous private and public sector experience as senior VP of development for First Gulf, senior VP of land development for Infrastructure Ontario and development director for Waterfront Toronto will serve him well for the Downsview project, which is expected to take 30 years to complete.

“It does feel like all the work that I’ve done for the last 20 years led to and prepared me for this,” Goring said. “It just came along right at the perfect time for me.”

Northcrest and Canada Lands collaboration

PSP Investments acquired the 370-acre Downsview property from Bombardier for $825 million in 2018 and created Northcrest as a wholly owned subsidiary to oversee the development.

Bombardier will start moving from the site in August, setting the stage for the first phase of the multi-decade project.

Canada Lands Company owns an adjacent 150 acres and has been working closely with Northcrest for the past few years.

While that collaboration will continue, the nature of the relationship will change once the Downsview Area Secondary Plan is approved by City of Toronto officials.

The plan will set out the long-term vision for a complete community centred on transit investment, job creation, parks, open spaces, community services and facilities to meet the needs of existing and future residents and workers.

The Downsview Area Secondary Plan area is generally bounded by Keele Street to the west, Wilson Heights Boulevard to the east, Sheppard Avenue to the north and Wilson Avenue and Highway 401 to the south.

“It only made sense to plan it as one parcel, which is what the Secondary Plan will do,” Goring said, “but the phasing that we’re proposing means that we’re starting at the far edges.

“So, effectively, once the Secondary Plan is finished, we’ll become neighbours, but also to a certain extent competitors. They’re developing their site and we’re developing our site and the neighbourhoods we’re starting with are not next to each other.

“Because the site is so big, it’s almost like they’re in different submarkets.

“So we’ll continue to talk to them and I’m sure that relationship will continue to be good, but I don’t expect that we’ll be spending as much time with them in the future as we have been over the last couple of years. And that’s not because we don’t want to; it’s just the natural evolution of how the site is going to build-out.”

The adjacent 291-acre, Canada Lands-owned Downsview Park, which was created in 2012 and is separate from the Downsview Airport Lands, will remain at the heart of the community and won’t be reduced in size.

Work being done with variety of stakeholders

Northcrest has also been working with Indigenous rights holders and other stakeholders, and Goring said that will continue.

“The tools and formats will evolve over time, I’m sure, but it’s really about how we continue to ensure that the input and feedback of those groups are embedded in the decision-making process of how the site is going to evolve.

“With the plan that we have, and as much as I think it’s a really good plan, to suggest that it’s not going to change over the course of 30 years is just not realistic.

“There will be opportunities, market changes and technology changes. Social conditions and political considerations will evolve. We’re going to need to evolve as well.”

A framework is being established that will tie all of the site’s neighbourhoods together, while also ensuring they retain their own distinct character. The existing airport runway will be repurposed into a public space to connect the neighbourhoods, according to Goring.

The Hangar District

The first neighbourhood to be created will be the 102-acre The Hangar District, which is proposed to include:

•    2.2 million square feet of residential gross floor area (GFA) for 2,850 new homes;
•    2.9 million square feet of non-residential GFA, including approximately 1.5 million square feet of retrofitted airplane hangars;
•    more than six acres of parks and open spaces as well as a direct connection to Downsview Park;
•    access to three subway stations and one regional GO Transit station;
•    a new elevated pedestrian and cycling bridge, as well as cycling infrastructure throughout the district;
•    active programming, including new public art and community and recreation facilities; and
•    a focus on low-carbon, innovative energy and mobility solutions, as well as blue-green infrastructure.

“It will be very different than any of the other neighbourhoods, with lower density and much more employment-oriented than the other districts,” Goring said of The Hangar District.

“We’re spending a lot of time thinking about the public realm and the retail and other uses that will ensure that it has a sense of place from the minute that it’s opened, and part of that is doing a pretty significant amount of development in that first neighbourhood up front.

“It’s going to be a very large first phase so that it doesn’t feel like the first people moving in are going to feel like they have to wait 10 or 15 years to get the full experience of the neighbourhood.”

Film and television production studio

PSP Investments and Los Angeles-based Hackman Capital Partners, a privately held real estate investment operating company and owner of studio-based equipment and production vendor The MBS Group, signed a memorandum of understanding two years ago for a long-term ground lease and the construction of a film and television production studio campus.

The deal will see an investment of approximately $200 million and is expected to create thousands of new direct and indirect jobs. The long-term plan envisions more than one million square feet of production and support space, with sound stages ranging from 20,000 to 80,000 square feet.

Goring is hoping to get the Secondary Plan approved in the first half of 2024, followed by approval for The Hangar District. The goal is to start construction in 2025.

Taking advantage of the site’s scale

“It’s really important that we are looking at this not just as a series of buildings, and we’re doing residential, office, retail and industrial,” Goring said. “What’s as important, or more important, are the spaces between the buildings and the way we’re doing it.

“There’s a big focus on things like community benefits, affordable housing, parks and public spaces, and ensuring those places are really done at a high quality and with involvement from the community.

“I think the process that we’re following is pretty unique and different than the way typical development happens, and that’s partly because of the scale that we have, and we’re really trying to leverage that scale to do things differently. ”

Among these are “proactive” attempts to include schools, community facilities, parks and public spaces as well as considerations for affordable housing, he said. The project is also considering arts, culture and employment opportunities.

“There are a lot of things that we’re doing that either aren’t typically required or aren’t (normally) possible, because of the scale that we’re working on, and that’s something that is both challenging but also really exciting and rewarding.”

Source Real Estate News Exchange. Click here to read a full story

Allied To Sell $1.35B Toronto Data Centre Portfolio To KDDI

Allied Properties REIT has announced an all-cash agreement to sell its Toronto-based Canadian data centre portfolio to Japanese telecom firm KDDI Corporation for $1.35 billion.

The portfolio includes freehold interests in 151 Front St. W. and 905 King St. W. and a leasehold interest in 250 Front St. W.

The agreement comes five months after Allied  (AP-UN-T) announced its intention to sell the properties, which comprise a major hub for Canadian internet operability.

KDDI is a Fortune Global 500 company which owns and operates data centres in Asia, Europe and the United States through its subsidiary Telehouse.

As a carrier-neutral data-centre provider, Telehouse hosts more than 1,000 connectivity partners, including leading internet exchanges, Tier 1 carriers, major mobile, cloud and content providers, enterprise and financial services companies.

“With global data-centre operating capability, KDDI is an ideal successor owner-operator for our UDC portfolio,” Michael Emory, Allied’s founder and executive chair, said in the announcement Wednesday morning.

“We’ll work closely with KDDI over the next 18 months to transition local expertise in relation to the portfolio.

“We’ll also work collaboratively with KDDI as the site for Union Centre continues to evolve toward the large-scale development of urban workspace in the coming decade.”

Emory was also Allied’s CEO when the sale process was initiated in January. He has now stepped back from that role and Cecilia Williams has taken over as president and CEO.

Allied to use $1B to retire debt

The sale price, Allied reports, is $118 million above its IFRS net value. The REIT intends to use $1 billion of the proceeds to pay down debt and the balance to help fund its upgrade and development plans over the next two years.

The REIT will also make a special distribution to its unitholders as of Dec. 31 due to the significant tax implications of the sale. Details on the distribution will be determined at a later date.

Allied describes the data centres as “network-dense and carrier-neutral.”

“Allied has connected the properties through high-count, diverse fibre, enabling the portfolio to support more telecommunication, cloud and content networks than any other data-centre portfolio in Canada,” the announcement states.

The portfolio is unencumbered and the sale does not include 20 York S. or Skywalk, a 2.5-acre site for its Union Centre development that is zoned for just over 1.3 million square feet of urban workspace.

“As a public real estate entity committed to distributing a large portion of free cash flow regularly, we’ve funded growth primarily through equity issuance,” Emory said in the announcement.

“The sale proceeds will enable us to fund near-term growth, primarily in the form of upgrade and development completions, while maintaining unprecedented levels of liquidity and targeted debt-metrics.

“In the longer-term, we plan to take advantage of a broader range of funding opportunities than we have in the past. Regardless of how we fund growth going forward, we’ll remain fully committed to our distribution program.”

The data centre sale process

Allied acquired 151 Front in 2009 and has subsequently added 905 King and 250 Front to the portfolio.

It undertook a review of monetization alternatives for the portfolio through Scotiabank in the second half of 2022 before determining the best course of action financially and operationally was to sell the portfolio in its entirety.

Scotiabank and CBRE Limited led the sale process, contacting 97 potential buyers worldwide and conducting a multi-round process which culminated in final bids on June 2.

The sale is expected to close before the end of Q3 2023, subject to Competition Act approval and customary closing conditions.

Pending completion of the sale, Allied expects its total indebtedness ratio to drop to 32.7 per cent, its net debt as a multiple of annualized adjusted EBITDA to be 8.0x and its interest-coverage ratio to be approximately 3.0x.

Allied also expects its net debt as a multiple of EBITDA will decline steadily over the next three years as elements of its large-scale development activities are completed and the assets begin providing revenue.

“Our debt-metrics will be back within targeted ranges and will continue to improve as our upgrade and development activity drives EBITDA growth,” Williams said in the announcement.

“The transaction will also be accretive to FFO and AFFO per unit, as the interest savings will more than offset the decline in NOI resulting from the sale of the portfolio.”

Scotiabank, CBRE and Aird & Berlis LLP are acting as advisors to Allied in connection with the transaction.

BofA Securities, Borden Ladner Gervais LLP and Nishimura & Asahi are acting as advisors to KDDI in connection with the transaction.

Source Real Estate News Exchange. Click here to read a full story

Smartstop Makes $300M GTA Self-Storage Acquisition

Buys eight facilities across Greater Toronto Area, Burlington and Hamilton

SmartStop Self Storage REIT says it has become the fifth-largest self-storage operator in Canada with the $300-million acquisition of eight properties in the Greater Toronto and Hamilton areas.

The properties comprise 7,400 units and 758,000 square feet of rentable space.

They were acquired by SmartStop’s affiliates Strategic Storage Trust VI, Inc. and Strategic Growth Trust III, Inc., REITs which are managed by SmartStop.

SmartStop and its affiliates now own or manage 33 operating self-storage properties in Canada, consisting of approximately 28,600 units and three million square feet of space.

Several of those facilities are held in a joint venture with Toronto-based SmartCentres REIT, though this transaction is outside of that JV.

14 Canadian properties acquired in past year

The Ladera Ranch, Calif.-based company has been aggressively adding properties in Canada over the past 12 months.

This acquisitions brings it to 14 operating facilities added to the portfolio during the past year, with a value of approximately $450 million.

“I firmly believe that our recent expansion in Canada is a pivotal move that perfectly demonstrates our vision for strategic growth,” said H. Michael Schwartz, CEO of SmartStop, in the announcement.

“With these class-A facilities, we are bolstering our commitment to serving the Canadian market while addressing a significant demand for purpose-built self storage in the thriving Greater Toronto Area.”

Tuesday’s announcement does not identify the individual properties which were acquired, but it does note the areas they service.

The facilities are in Burlington, Hamilton, North York, Woodbridge (Vaughan), Toronto and Mississauga.

While some will increase SmartStop’s presence in communities it already serves, several of the locations open up new neighbourhoods for the firm.

“Each of these class-A assets represents a unique opportunity for growth and innovation, enabling us to strengthen our presence in this dynamic landscape,” said Bliss Edwards, executive vice-president of Canada for SmartStop, in the announcement.

“We are extremely excited to bring SmartStop’s operational excellence and our best-in-class customer service to both new and existing communities that our properties serve.”

About SmartStop and the trusts

SmartStop Self Storage REIT, Inc. is a self-managed REIT with a fully integrated operations team of approximately 500 employees.

Through its indirect subsidiary SmartStop REIT Advisors, LLC, the firm also sponsors other self-storage programs.

As of June 20, 2023, SmartStop has an owned or managed portfolio of 192 operating properties in 22 states and Canada, comprising approximately 135,000 units and 15.2 million rentable square feet.

SmartStop and its affiliates own or manage 33 operating self-storage properties in Canada, which total approximately 28,600 units and 3.0 million rentable square feet.

Strategic Storage Trust VI, Inc. (SST VI) is a Maryland corporation investing in income-producing and growth self-storage facilities and related self-storage real estate investments in the United States and Canada.

As of June 20, 2023, SST VI has a portfolio of 13 operating properties in the United States comprising approximately 8,660 units and 1,005,000 rentable square feet (including parking); 11 properties with approximately 9,800 units and 1,050,000 rentable square feet (including parking) in Canada, joint venture interests in three development properties in Ontario and Quebec and one development property in Ontario.

Strategic Storage Growth Trust III, Inc. (SSGT III) is a Maryland corporation with a primary strategy of investment in growth-oriented self-storage facilities and related self-storage real estate investments in the U.S. and Canada.

As of June 20, 2023, SSGT III has a portfolio of five operating properties in the U.S., comprising approximately 4,400 units and 487,400 rentable square feet and one operating property in Canada, comprising approximately 750 units and 74,400 rentable square feet.

Source Real Estate News Exchange. Click here to read a full story

Primaris REIT To Acquire Ivanhoé’s Conestoga Mall for $270M

Primaris REIT has agreed to a “landmark” acquisition of the Conestoga Mall in Waterloo from Ivanhoé Cambridge for $270 million.

The 585,000-square-foot regional shopping centre sits on 49.8 acres of land and features a range of major retailers including HBC, Galaxy Cinema, Sport Chek, Indigo and H&M. It is shadow-anchored by a Zehrs food store with direct access to the mall.

One key feature of the centre is regionally unique retailers including Apple, Lululemon and Nespresso, with other notable tenants including Aritzia, Sephora, Aerie, Old Navy and RW & Co.

“This landmark transaction is the culmination of months of collaboration with Ivanhoé Cambridge, and further validates and demonstrates support for Primaris’ platform, strategy and value proposition,” said Alex Avery, Primaris’ CEO, in the announcement. “Since the inception of Primaris REIT, we have been very clear about the significant opportunity to acquire additional market-leading Canadian shopping centres.

“Primaris is uniquely positioned as a potential buyer, with institutional scale as the third largest owner-operator of enclosed shopping centres in Canada with pro forma assets of approximately $3.5 billion, a very well capitalized balance sheet, a differentiated financial model and a mandate for growth.”

Conestoga Mall features

Conestoga Mall is the leading enclosed shopping centre in the Kitchener-Waterloo region, which is located just west of the Greater Toronto Area.

The property is adjacent to Conestoga station on the 19-station ION light-rail mass rapid transit system.

It boasts an annual all-store sales volume of $180.8 million and has 94.4 per cent in-place occupancy.

Ivanhoé Cambridge also completed a major $46-million redevelopment of the property in 2018.

“Conestoga was identified early in the process of evaluating potential acquisition targets for a number of notable characteristics, including its leading market position, strong sales performance, mass rapid transit connection and its attractive location within a growing market,” said Patrick Sullivan, president and chief operating officer for Primaris, in the announcement.

Primaris management feels that, similar to its existing portfolio, Conestoga Mall offers the opportunity for significant NOI growth potential in coming years. The property is currently unencumbered.

Two areas it identifies in the announcement are to lease up 58,000 square feet of vacant of “temporary tenanted” space, as well as converting tenants on preferred leasing deals to standard leases.

“Our team is very excited to add Conestoga Mall to our property portfolio, with significant income growth potential consistent with the growth we see ahead for our existing assets. With new and exciting retailers unique in the market including Apple, Lululemon and Nespresso, Conestoga Mall is amongst the top-15 most productive malls in Canada and will be highly accretive to Primaris’ overall portfolio quality.”

Rags Davloor, chief financial officer of Primaris, said in the announcement. “Our differentiated financial model, including very low leverage, a low payout ratio and significant retained free cash flow is a major strategic advantage for Primaris.

“We are very pleased to be able to execute a transaction of this quality while preserving our industry leading financial metrics within target ranges.”

Financing the acquisition

Ivanhoé Cambridge embarked on a strategy to divest some of its retail properties several years ago as it moved to further diversify its holdings and reduce exposure in the sector.

“We are very pleased to have executed this transaction with Primaris REIT, given their commitment to continue to unlock the full potential of this established shopping mall in the Kitchener-Waterloo area,” Annie Houle, head of Canada at Ivanhoé Cambridge, said in the announcement. “Primaris REIT’s defined business strategy, experienced management platform and prudent capital management supports this new investment.”

The acquisition is to be financed via $165 million in cash; $25 million of series A units of the trust at a price of either (the lower of) $21.49 per unit, or the NAV per REIT Unit disclosed in the trust’s most recently published financials; and $80 million of exchangeable preferred units in a new limited partnership.

The transaction is expected to close in July, pending a series of conditions including the approvals of the Toronto Stock Exchange and under the Competition Act (Canada).

CBRE acted as real estate advisors and TD Securities acted as financial advisors to Ivanhoé Cambridge. Real Asset Strategies Inc. is acting as investor relations advisor to Primaris REIT.

About Primaris and Ivanhoé Cambridge

Primaris is Canada’s only enclosed shopping centre focused REIT, with ownership interests primarily in enclosed shopping centres in growing markets.

Its portfolio totals 10.9 million square feet valued at approximately $3.1 billion at Primaris’ share.

Ivanhoé Cambridge develops and invests in real estate properties, projects and companies around the world.

Ivanhoé Cambridge holds interests in 1,500 buildings, primarily in the industrial and logistics, office, residential and retail sectors. Ivanhoé Cambridge held $77 billion in real estate assets as of Dec. 31, 2022 and is a real estate subsidiary of CDPQ, a global investment group.

Source Real Estate News Exchange. Click here to read a full story

HOPA Ports Re-creating Great Lakes Sites for Modern Industry

HOPA Ports and partners are reinventing legacy industrial spaces for modern users.

In Hamilton and Niagara, Ontario, two high-profile projects are transforming brownfield spaces and attracting modern industrial users.

As cities evolve and economies transform, the adaptive reuse of industrial spaces is a powerful strategy for revitalizing and repurposing outdated facilities. HOPA Ports and partners are taking this approach to strategic assets within the port authority’s 1400-plus acre portfolio of multimodal industrial lands on the Canadian Great Lakes.

“Adapting a space from one industrial use to another can be complex, because every potential user’s needs are unique,” said Jeremy Dunn, HOPA Ports’ Commercial Vice President. “We start by investing in key transportation infrastructure and upgrades, but we also have to stay flexible, so a new customer is getting exactly what they need from their facility and improving their supply chain.”

Investments underway in HOPA’s Hamilton rail logistics hub

At Pier 18 at the Port of Hamilton, HOPA is transforming a legacy industrial site into a new rail transload hub, providing much-needed rail capacity and space for modern industry. The Pier 18 hub sits within the footprint of former steel manufacturing lands on the Hamilton Bayfront. At the heart of the development is a 10-acre rail transload hub with capacity to handle rail car storage, rail transloading, container handling and more.

Work began recently on investments to rehabilitate and expand the rail infrastructure. Connected to the CN line, close to marine terminals at the Port of Hamilton, and with direct access to 400-series highways, Pier 18 is ideally located for a rail transload facility. “We’ve seen the number of rail cars transiting the port increase by 122% in the last decade,” said HOPA’s Jeremy Dunn. “Still, there’s a need for much more rail capacity in Southern Ontario.” CN Rail and Hamilton Container Terminals are partnering with HOPA to offer rail services, which bring extraordinary value to the adjacent development lands at Pier 18.

HOPA Ports
New rail infrastructure under construction at the Port of Hamilton (Image courtesy: HOPA Ports)

The rail hub is surrounded by 60 acres of industrial development land, and HOPA is welcoming inquiries from potential users who can benefit from the site’s specialized multimodal and heavy industrial services.  “We can offer industrial supports that just aren’t available at your typical greenfield site,” noted Dunn. “New users will have access to rail transloading, de-stuffing, dry and liquid bulk transloading, gantry cranes, and spaces for industrial processing, all within a secure site which is appropriately zoned for industry.”

Expanding Thorold Multimodal Hub welcoming new tenants

In the Niagara Region, HOPA Ports and partner BMI Group are delighted with the market response to the revitalized industrial space at the Thorold Multimodal Hub, a 600-acre reinvented industrial complex adjacent to the Welland Canal. The Hub includes a former paper mill and auto parts manufacturer property, both of which had been idle for many years, and combines them with other adjacent industrial lands.

To-date, close to $90 million has been invested in the Thorold Hub, including refurbished warehouses, road and rail infrastructure. The site has more than a million square feet of indoor space, in addition to outdoor storage and build-to-suit greenfield development land.

HOPA partner BMI Group has been instrumental in restructuring some of the Hub’s most challenging spaces. “The transformation has been amazing,” said Justus Veldman, Managing Partner with BMI Group. “We are ahead of schedule, able to put more space into action as productive employment land, and giving Ontario companies the space and transportation supports they need to thrive.”

Some of the Hub’s most valuable features are in-place thanks to the space’s industrial history. “We have Class A Power with 185MW of capacity and the lowest rates in Ontario,” said HOPA’s Niagara Property Manager Kurt Vos. “An on-site effluent treatment plant can treat 960 litres of wastewater per second from a wide variety of waste streams. We have such a variety of spaces, from 5,000 to 200,000 square feet, with exceptional features like 60-foot ceilings and 60-tonne cranes, already in-place.” The Hub also serves as a nexus between transportation modes, with direct marine access, rail service including indoor and outdoor transloading, and highway access 30 minutes from the Canada-US border.

Already, more than a dozen companies have taken up residence in the Thorold Hub, including Canadian Maritime Engineering, and clean-energy innovator CHAR Technologies.

“In order to ensure that manufacturing continues to grow in Ontario, we have to get creative about these legacy industrial sites,” said HOPA’s Jeremy Dunn. “Each one is different and offers unique opportunities, which we optimize by working closely with our customers.”

Source Real Estate News Exchange. Click here to read a full story

Toronto’s Office Space Glut Could Persist for 20 Years

Altus Group study, commissioned by NAIOP, finds vacancy rates rising across the board

The Greater Toronto Area (GTA) is likely to experience an oversupply of office space for the next 20 years, according to an Altus Group Economic Consulting report titled Office Needs and Policy Direction in the GTA.

The study was commissioned by the NAIOP Greater Toronto Chapter.

“We thought it was a chance to start putting some facts behind a lot of anecdotal observations that the industry was having as it relates to our office stock,” NAIOP government relations chair and Dorsay Development Corp. senior vice-president of residential Leona Savoie told RENX.

“We wanted a good position piece so that we can start discussions with all levels of government . . . about building some more flexibility into our policy realities.”

NAIOP Greater Toronto is a commercial real estate industry association that undertakes policy work to assist governments.

It’s comprised of more than 1,200 members from 300 companies, including owners, developers, managers and related industry advisors.

Office availability rates are rising

Office absorption in the GTA averaged 2.8 million square feet per year from 2014 to 2019. Since the onset of the pandemic, there’s been a loss in leased space of 5.3 million square feet and availability rates have elevated in class-A, -B and -C buildings in all regions.

The availability rate rose from about 10 per cent to 17.5 per cent in Q1 2023 and some 35 million square feet of office space is available to lease — more than double the amount in Q1 2020.

There’s also now close to 40 million square feet of office space in the development pipeline, according to the report, and developers are getting nervous about new investments.

Lenders are reluctant to make new loans related to office assets and owners of existing buildings are considering options for conversion in cases where demand falls too low to make operating their buildings feasible, according to the report.

Employment space policies should be reviewed

Complicating the situation are City of Toronto policies encouraging or requiring inclusion, retention and/or replacement of all non-residential gross floor areas when a site is being considered for development or redevelopment.

These requirements are significantly impacting the feasibility of projects as developers may be reluctant to create office spaces that could go unused, according to the report.

“No developer wants to build 40,000 or 50,000 square feet of office replacement if it has no value and the residential portion of a mixed-use development has to subsidize it and then have it sit empty,” Savoie observed.

“At the same time, I don’t think any purchaser of a condominium would want to buy into a building where they’re sitting on top of an empty office structure.”

Forecasting for the future

The report looked at the current and potential new office supply in the development pipeline as well as three hybrid work scenarios — employees spending two, three or four days a week in the office. They are based on a projected 2041 office inventory of 217 million square feet — and don’t take into account the potential for demolitions or conversions, or that lack of financing or other factors results in some projects not being constructed.

It said there could be a surplus of approximately 49 million square feet of office space and a vacancy rate of 45.7 per cent by 2041 if employees are in the office only two days a week.

That surplus drops to 9.4 million square feet and a vacancy rate of 31.1 per cent if employees are in the office three days a week.

“We knew we had a problem, but we didn’t think it was of the magnitude that this forecasts,” Savoie said.

In the four-day-a-week scenario, the report forecasts a need for approximately 15 million square feet and a 16.5 per cent vacancy rate by 2041.

Functionally obsolete facilities

These scenarios are likely to result in a growing stock of buildings rendered functionally obsolete due to outdated design, features, technology or environmental and sustainability standards.

Owners of these spaces may need to invest in renovations or upgrades to modernize their properties and make them more appealing to potential tenants.

However, in a market with an availability rate close to 20 per cent and prospects of worsening conditions over the next 20 years, incentives to invest heavily in older buildings are reduced.

Owners may also choose to repurpose properties for alternative uses, such as converting them into mixed-use developments, co-working spaces or residential units. It’s incumbent on municipal planning policies to keep pace with these needs in order to preserve the role that office buildings play in cities, the report says.

“I think the City of Toronto could welcome some more residential into the financial district without compromising its function,” Savoie said. “What are we going to do with all this vacant space and what are we going to do with all of this surplus land that will not be developed for employment uses for the foreseeable future?

“We already see in municipalities like Markham, Mississauga and Vaughan where they’re holding on to employment land in hope that it will be built on one day. But there are a number of areas that we can point to in those jurisdictions where they’ve been holding on to it already for four decades and we still haven’t seen offices built.”

Need for better office conversion policies

Given the current oversupply, projects in the development pipeline and the weak projected demand for new office space, the report recommends governments enact policies to facilitate and incentivize conversions to residential.

It further states policies restricting the conversion or redevelopment of existing office space into other uses be dismantled.

“If there is an empty office building that you can’t convert to residential as it stands, I think there should be permission to allow the owner to demolish and replace it with what is feasible at the time,” Savoie noted.

“We have to tear down sometimes and create something new in order to keep a vibrant core or vibrant city. Having an empty building doesn’t serve anyone.”

The report also advises governments take a regional approach to planning for future office needs and re-evaluate the amount of lands designated for employment.

“All of those areas that are designated employment throughout the region should be approached more on a regional basis,” Savoie said.

“Every municipality assesses their needs individually as opposed to across jurisdictions.”

Source Real Estate News Exchange. Click here to read a full story