Toronto-based Slate Asset Management is increasing its presence in Germany with a deal to buy 45 retail properties as it further shifts its investment focus to essential properties such as grocery stores.

Slate said the properties are near major populations and are fully leased under long-term agreements to some of Germany’s largest grocery and everyday goods distributors including REWE Group, Schwarz Group, Edeka Group, and Aldi. Slate did not provide details about the individual properties it’s acquiring but said the assets were held in four individual portfolios.

“In a muted transaction environment, our European team has successfully executed nearly half a billion euros of essential real estate transactions in the first three months of the year,” said Sven Vollenbruch, the Slate managing director who leads its European investments, in a statement. “These portfolios of high-quality, stabilized grocery properties are underpinned by Germany’s leading food and essential goods distributors.”

The Toronto-based global investor and asset manager has turned its focus on essential real estate and infrastructure assets as part of its growth plan. The company has $10 billion in assets under management in North America and Europe and 10 global offices.

“Slate has firmly established itself as a leading owner and operator of essential real estate in Germany, and we believe the strong pipeline of opportunities we have cultivated in this sector will drive our continued growth in Germany and across broader Europe,” said Vollenbruch.

Slate’s European essential real estate strategy is focused on acquiring, owning, and operating cash-yielding essential real estate assets, such as grocery and affiliated warehouses and logistics assets. The company operates a portfolio of over 500 essential real estate assets across Europe that Slate and its capital partners own.

Subject to standard closing conditions, the transactions are expected to close in the first quarter of this year.

Source CoStar. Click here for the full story.

Canada’s various real estate markets are facing myriad crises. Office landlords are reckoning with the erosion of net operating incomes, condo developers are sitting on landbanks unable to get development financing, ringing alarm bells for future unemployment in the construction industry, and the country faces the lurking threat of a tariff war with its biggest trading partner.

Each issue threatens the economy independently, but a more collaborative approach to addressing them may offer a mutually beneficial opportunity. To understand the potential opportunity, let’s examine each challenge individually.

As office vacancy increases, so do the landlord’s expenses, as costs that would have been covered by a tenant, such as insurance and maintenance, become the building owner’s responsibility. A well-capitalized investor, such as an institutional pension fund, may be able to weather the storm. Still, the financial reality of this situation is coming into sharper focus as office occupancy appears to be plateauing well below pre-pandemic levels.

Meanwhile, notwithstanding the supply and demand mismatch in residential markets, which should bolster increased development, the current economic environment renders new residential development relatively unattractive.

Speaking at a recent event at the University of Toronto’s Rotman School, Brad Lamb, a prominent condo developer in Toronto, noted that a sale price of about $1,600 per square foot is required to get shovels in the ground for new developments in the Greater Toronto Area. At the same time, existing stock is selling for about $500 per square foot less than the construction-feasible price. This means that construction starts are grinding to a halt even as demand for units continues to grow.

The slowdown in housing construction is likely to exacerbate affordability and availability concerns and will also increase unemployment in the construction trades as projects are completed and no new ones commence construction.

Simply put, large-scale office landlords need an off-ramp for some of their assets while the government needs to ramp up housing production and underpin construction employment.

If approached proactively, these current weaknesses can offset each other. Converting office spaces to residential units, though often seen as not financially viable, offers a faster and less expensive solution than building new residential structures from scratch.

Residential developers in Toronto lament the cost of development levies, suggesting they can account for up to 30% of the building cost or $70,000 per door. However, these levies have already been paid for existing office buildings. By aligning the needs of these three issues, housing can be produced quickly and with financial efficiency.

Furthermore, office conversion opens the door to a new type of residential development. Over the last decade, many residential units were designed for investors instead of occupants. Modern office floor plates have larger ‘core to window depth’ than conventional residential high rises, limiting fenestration. This creates an opportunity to create larger units, which may include considerable storage, separate workspaces and utility rooms—luxuries currently reserved for homeowners with a picket fence around their yard.

Municipalities could collaborate with large-scale office landlords to make these conversions financially viable, fast-tracking the release of much-needed housing. Moreover, the current tariff environment may result in a surplus of building materials, which are too expensive to export to American markets. These materials could be redirected to support conversion projects in Canada.

This would help strengthen our pension funds, benefitting all working Canadians, by mitigating financial losses that result from shifting asset allocations from office to multifamily. It would also fast-track housing production, nurture employment within the construction industry, and drive economic growth within national borders.

In strong, growing markets, it can be difficult to identify the point of financial compromise needed in deal-making. When all parties want to maximize their respective profits, division is common. Conversely, mutual attempts to limit losses can have a unifying impact.

As Charles Darwin once pointed out, “In the long history of humankind (and animalkind, too), those who learned to collaborate and improvise most effectively have prevailed.”

Source CoStar. Click here for the full story.

Canada’s federal government has purchased an office property in downtown Ottawa after vowing to sell off or repurpose up to half of the office properties it owns in the national capital area.

The Canadian federal government paid about $51 million for a two-building portfolio containing the Chambers, a 14-floor office tower at 40 Elgin St., and a four-floor office building from the late 1800s at 46 Elgin St. The Chambers, completed in 1994, contains just over 200,000 square feet of office space.

Toronto-based Allied REIT was the seller. Following the deal, it no longer owns properties in the Ottawa area.

Last May, the federal government stated it aimed to sell or repurpose up to half of its office properties in Ottawa and Gatineau, Quebec, over the next decade in the capital area as part of what it called “responsible government spending.”

The new acquisition does not jibe with that plan, said one watchdog group.

“Taxpayers have every right to scratch their heads at this news,” said Franco Terrazzano, federal director of the Canadian Taxpayers Federation, in an email to CoStar News. “The government said it was getting rid of offices but buying new offices sure sounds like a silly way to get rid of offices.

“Taxpayers need and deserve a clear explanation from the government outlining why bureaucrats need new office buildings when they’re supposed to be selling off buildings.”

The purchase of 40 and 46 Elgin will result in a $67 million savings for the federal government, a government media representative told CoStar News in an email. Now that it owns the properties, the government will not have to pay to rent space at 40 Elgin.

“Since 1998, PSPC (Public Services and Procurement Canada) has leased space in the Chambers building, located at 40 Elgin Street, to serve as long-term administrative office space for the Senate of Canada,” media relations representative Jeremy Link said in an email. “The building is currently being fit-up to provide swing space for the Block 2 redevelopment project and will be used to accommodate members of the Senate.”

The Canadian Senate is a body made of 105 senators appointed by the governor general on advice from the prime minister. Senate approval is required for bills to become law, although the body rarely invokes its power of rejection.

The office complex is located a short distance from the National War Memorial, Confederation Square, the Office of the Prime Minister and Parliament Hill.

The availability rate for office properties in downtown Ottawa rose from 14.9% to 15.7% in the fourth quarter, according to an Avison Young report that noted that the downtown area has 23,000 square feet of vacant Class A office space, more than all of the nearby suburbs combined. The average rate for a downtown Ottawa office property is just over $24 per square foot per year, while suburban equivalents are in the range of $13 to $14 per square foot in the Ottawa region.

Allied REIT did not immediately reply to telephone and email messages from CoStar News asking for comment.

Source CoStar. Click here for the full story.

Welltower, a publicly traded real estate investment trust based in the United States, agreed to buy the Amica Senior Lifestyles chain from the Ontario Teachers’ Pension Plan as demand rises across Canada for retirement homes.

The Toledo, Ohio-based seniors living company, said it will pay the pension fund $4.6 billion, or approximately 3.2 billion United States dollars, for the chain’s 31 ultra-luxury Amica-branded retirement complexes in Toronto, Vancouver and Victoria, British Columbia. Welltower said the negotiated price represents “a substantial discount to estimated replacement cost” for the properties.

Welltower also said the deal includes seven properties under construction that are valued $1.25 billion as well as nine projects in the permit process valued at $150 million. As part of the pending deal, Welltower said it will also acquire a minority interest in Amica’s management team.

The transaction is just the latest of its kind for Welltower and occurs at a time when occupancy rates have risen in Canadian retirement home operations after dipping significantly during the recent pandemic. Demand for retirement homes in Canada is expected to further rise as the seniors population grows and new retirement home construction projects has slowed.

CBRE said in its latest report on valuations in that sector that institutional investors are starting to return while private buyers are expanding their portfolios.

The deal requires regulatory approvals and is expected to close in the fourth quarter. Welltower said that as part of the deal it will take over $560 million of Canada Mortgage and Housing Corp.-insured debt with an average interest rate of 3.6%.

“Construction starts remain at historic lows as a share existing inventory. While conditions appear ripe for new development in the sector, persistent high construction costs make the case for investment in existing projects that much stronger at this time,” said the real estate company in a report last month.

Bank of Montreal analysts initiated coverage on publicly-traded seniors housing companies this year in a report about baby boomers lifting the sector.

“With pandemic disruptions firmly in the rearview mirror and an aging population now upon us, we believe an attractive supply/demand picture will help drive a multi-year period of above-average organic growth,” said the analysts in a report. “The boomers are here—demographic tailwinds will support demand for year. As baby boomers age, growth in Canada’s seniors population is materially accelerating. Individuals aged 75+ are expected to reach circa 5.3 million people over the next 10 years.”

Shankh Mitra, Welltower’s CEO since 2020, said the Amica properties offer upside potential.

“Against a backdrop of rapidly growing demand and limited new supply, we expect the portfolio to drive outsized revenue and cash flow growth in the coming years,” he said in a statement.

“For the last 15 years, Ontario Teachers’ has acted as an extension of our internal team,” Amica’s Ezer said in a statement.
Welltower has been involved in other Canadian retirement home properties.

In October 2023, Welltower purchased 12 retirement homes in Quebec from Cogir for $885 million and soon after announced an agreement to divide a portfolio of seniors properties it held in partnership with Canadian retirement home firm Chartwell that left Welltower with 23 operations and Chartwell 16, along with a payment of $97.2 million to Chartwell.

The OTTP listed assets of $255.8 billion in its most recent tally made midway through 2024. Its real estate holdings, managed through its Cadillac Fairview subsidiary, were valued at just over 10% of the pension fund’s holdings, with 68 properties across Canada assessed at $28 billion. The OTTP’s largest recent transaction prior to the Amica sale took place last October when the pension fund purchased its partner TD’s 50% stake in the CF Carrefour Laval shopping centre in Laval, Quebec for $553 million.

Source CoStar. Click here for the full story.

As we approach the fifth anniversary of the COVID-19 shutdown, it is worth assessing how North American office markets have since evolved. While Canada and the U.S. saw an appreciable increase in office availability following the pandemic, the relative increases have been worse in this country.

Canadian office availability increased by over 60% compared to pre-pandemic levels, compared to about a 40% increase in the United States. Note that Canada’s current office availability rate of 12.2% is still lower than the U.S. at 16.1%, but Canada has moved further away from its long-term equilibrium, which has always been lower than the U.S. due to structural supply and demand differences between the two countries.

Part of the reason office availability has increased comparatively more in Canada might be due to higher work-from-home/hybrid work rates for office employees following the pandemic. A 2023 study in The Economist magazine found that Canada has the world’s highest work-from-home/hybrid work rate. The report noted the difference may reflect structural factors, including climate, housing affordability, comparatively long and congested commuting times, and ineffective transit in some of Canada’s major urban areas like Toronto. This combination of factors resulted in Canada experiencing a bigger erosion in office utilization rates than the U.S. over the past five years.

The supply side is another major factor explaining why office availability is higher in Canada. Over the past several years, Canada has been building more new office space than it typically has relative to the U.S. While tenants have been solid in leasing this new office space, backfilling the older space vacated by the tenants has been less successful, given their clear preference for newer buildings. This also contributes to a proportionately greater increase in total available office space in Canada.

Meanwhile, some cities in the U.S. are beginning to face a possible shortage of the type of first-generation new office space that is most in demand. This could kick off a new development cycle earlier than in Canada, where intentions to build more office space are virtually non-existent.

To be sure, Canada and the U.S. are now experiencing a similar recovery in office leasing volumes, perhaps reflecting return to the office (RTO) work strategies recently adopted by some firms. Although leasing volumes are well off their pandemic lows, neither country has returned to the office leasing levels typically achieved before the pandemic. This is especially true in Canada since the downturn in leasing activity relative to pre-pandemic levels was comparatively deeper than in the U.S.

Despite the pandemic having a slightly worse impact on Canada’s office market fundamentals over the past five years, the situation in the office investment market tells a different story. Over the past five years, office market capitalization rates increased more sharply in the U.S. compared to Canada. For example, U.S. office cap rates have historically been 100 basis points higher than Canada’s (a basis point is one-hundredth of one percent). However, by the end of 2024, the relative “discount” in U.S. cap rates to Canada widened to 130 basis points.

While part of the increase in U.S. cap rates reflected eroding space market fundamentals, the widening discount to Canada was primarily due to capital market forces. Office ownership in the U.S. is more fragmented than in Canada, with merchant builders and small investors representing a larger market share. Since these investors typically employ significant debt in their capital structures, the relative rise in the cost of capital as interest rates increased during the post-pandemic period forced many U.S. office owners to take write-downs and even resulted in some distressed sales. In reaction to this distress, U.S. market cap rates rose accordingly.

In contrast, a comparatively higher percentage of well-capitalized institutions, such as pension funds, own office properties in Canada. Most are equity investors who use very little debt in their capital structure. As a result, many of these owners have felt little pressure from the capital markets to sell or even “mark-to-market” asset values despite a similar, if not worse, erosion in space market fundamentals than the U.S. over the past five years.

With the Bank of Canada cutting interest rates more aggressively than the U.S. Federal Reserve, some Canadian office owners may also be hoping that Canada’s relative cost of capital will sharply fall and ultimately preserve their property valuations.

Interestingly, these capital market dynamics may be a key reason why office investment transactions are beginning to evolve differently in Canada and the U.S.

While neither market has seen office investment transactions recover to pre-pandemic levels, a faster recovery appears to be taking hold in the U.S. In 2024, the U.S. office market recorded $42 billion in sales, a nearly 20% increase from the year before. Even more telling, sales quickened as the year unfolded, with fourth-quarter sales volume surging 63% over the same period in 2023. According to some investors, the reawakening in office transactions reflects the growing opportunity to buy properties with great long-term fundamentals at attractive pricing before a full recovery sets in.

In contrast, office sales remain near all-time lows in Canada, particularly for larger assets and portfolios. The vast majority of building sales, if any, have tended to be small suburban properties or transactions initiated by an end-user such as a school or local government. The main reason for the lack of trading appears to be a lack of liquidity in the market, as potential buyers and sellers in Canada still have widely different expectations about office property pricing in the private market.

This situation could devolve into a vicious circle. Fewer office trades mean fewer sales comps and continued uncertainty about pricing and valuations, leading to fewer sales.

Unfortunately, five years after the pandemic, investor uncertainty in Canada could become magnified further due to a potential trade war with the U.S. As a result, Canada’s elusive office investment recovery will likely continue diverging from its neighbor to the south for the foreseeable future.

Source CoStar. Click here for the full story.

Ontario Teachers’ Pension Plan says it achieved solid financial growth in 2024, but its real estate holdings played a role in one the country’s largest pension funds missing its benchmark return rate.

Ontario Teachers’ said its one-year total fund net return last year was 9.4% compared to 1.9% in 2023. It also said its net assets grew to $266.3 billion, up from $247.5 billion in 2023.

Despite the return, the results did not meet the benchmark, or target, return of 12.9% for 2024, Ontario Teachers’ said. The pension fund released its annual results on Thursday.

“The benchmark underperformance was primarily attributed to assets in private equity and real estate trailing their respective benchmarks,” the pension fund said.

Ontario Teachers’ did say that one of its 2024 property highlights was expanding its logistics real estate portfolio across Europe, where it acquired eight fully leased logistics assets in France and three warehouses in Germany.

The Toronto-based pension fund had assets of $266.3 billion as of Dec. 31 and 343,000 working members and pensioners. It owns 100% of Cadillac Fairview Corp., one of the country’s largest real estate companies.

“We had positive contributions from across the plan, with notable success in venture growth, credit, inflation-sensitive and public equity investments. The resilience of our portfolio, combined with our proactive approach to creating value, has positioned us strongly in an unpredictable economic climate,” said Jo Taylor, president and CEO of the pension fund, in a statement. “Our investment portfolio is well placed to deliver strong risk-adjusted returns for the plan in 2025 and meet our long-term obligations to the members we serve.”

Real estate had a negative 0.7% return, well below the 5% target rate for 2024. It was the second consecutive year of underperformance by the pension fund’s real estate holdings. In 2023, its real estate return was negative 5.9% versus a benchmark of a 2%.

Source CoStar. Click here for the full story.