Blackstone Keeps Focus On Canada: To Open Toronto Office

As Blackstone continues to increase its investments in Canada, the world’s largest real estate owner and operator has announced it will open an office in Toronto and appointed Janice Lin to head its real estate operations in the country.

The New York-based global investor says its current portfolio in Canada comprises about $14 billion in assets (all figures Cdn), or 429 properties, with about 75 per cent of that value in the logistics sector.

Blackstone has been diversifying its Canadian holdings during the past couple of years, acquiring several major office properties in the country’s three largest urban centres, and entering partnerships in both the multifamily and seniors living sectors.

“We are excited to officially open a real estate office in Canada and welcome Janice to lead our real estate business in the country,” said Nadeem Meghji, Blackstone’s head of real estate, Americas, in the announcement Monday morning.

“We are long-term believers in the strength of the Canadian economy, and we look forward to leveraging her expertise and on-the-ground views to help us expand our presence in the Canadian real estate market.”

Janice Lin’s background

In Lin, the company brings onboard an executive with experience in several Canadian commercial real estate sectors. Most recently, she was chief investment officer at Revera, an international retirement living operator with residences throughout Canada, the U.S. and U.K.

“Blackstone’s long-term investment approach has enabled it to build a growing logistics, office and residential footprint across Toronto, Montreal and Vancouver. Canada’s population growth is the highest among G7 nations and is nearly double that of the U.S.,” Lin said in the announcement. “I believe that will continue to create exciting opportunities in the market.

“I look forward to strengthening Blackstone’s strong presence in Canada and supporting businesses across a number of different sectors.”

Previously, she held senior investment roles at CPP Investments, another of the country’s largest real estate investors. CPP Investments, an arms-length entity which is charged with stewarding the real estate holdings of Canada’s government-operated pension plan, is a global investor across multiple CRE sectors.

Lin holds a bachelor of science in economics from the Wharton School at the University of Pennsylvania and an MBA from Harvard Business School.

A spokesperson for Blackstone told RENX in an email exchange the company has not announced any other details of the office, or how many people it will be hiring, at this point. The firm’s operations across Canada currently employ about 3,550.

Blackstone’s Canadian investments

One of Blackstone’s largest investment in the country came when it partnered with Ivanhoé Cambridge (Blackstone owns a 62 per cent interest) to acquire the then-Pure Industrial REIT for $3.8 billion in 2018.

Pure has been steadily growing its portfolio ever since, participating in the huge takeover of Cominar REIT last year which netted it an additional 190 industrial properties comprising 15.3 million square feet. At the time, it raised Pure’s portfolio to a total of over 41 million square feet.

Toronto-based Pure also created offices in Montreal and Quebec City as part of that transaction.

On the office front, Blackstone and Hudson Pacific Properties acquired the billion-dollar Bentall Centre complex in Vancouver in 2019, and are now developing an additional 450,000-square-foot mass timber tower at the property.

Blackstone partnered with Kevric to acquire the three-building, 260,000-square-foot Atlantic Complex in Toronto’s Liberty Village for $240-million in late 2021, and it has agreed to acquire the Air Canada Tower and 1100 Atwater class-A office buildings in Montreal for $231 million. Together, they comprise 413,000 square feet of space.

In a joint venture with Quebec-based seniors housing provider Group Selection, Blackstone acquire 13 seniors living properties across the province.

It has also invested in Toronto-based Tricon Residential Inc., which owns and manages over 30,000 single-family rental homes and multifamily units in the U.S. and Canada. They have 11 multifamily rental projects under development in Canada.

About Blackstone

Blackstone’s real estate business was founded in 1991. Globally, it has $385 billion of investor capital under management.

Its opportunistic funds seek to acquire under-managed, well-located assets across the world. Blackstone’s Core+ business invests in substantially stabilized real estate assets globally, through both institutional strategies and strategies tailored for income-focused individual investors including Blackstone Real Estate Income Trust, Inc., a U.S. non-listed REIT, and Blackstone’s European yield-oriented strategy.

Blackstone Real Estate also operates a global real estate debt business, providing comprehensive financing solutions across the capital structure and risk spectrum, including management of Blackstone Mortgage Trust.

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

Brookfield Looks to Coordinate Hudson’s Bay Centre Renos with Bloor-Yonge Station Improvements

Brookfield Property Partners has submitted a Site Plan Approval application to the City of Toronto for the proposed renovation and redesign of the retail podium of the Hudson’s Bay Centre complex at 2 Bloor Street East. The renovation of the retail podium would convert the current department store into integrated office and retail space in the Brookfield-owned podium portion of the block. (The eastern half of the building is owned by Larco Investments, and was recently marked by the renovations to the W Hotel, soon to open.)

The Brookfield-owned part of the complex includes the 2 Bloor Street East 36-storey office building, and the west half of the Hudson’s Bay store and retail complex. Larco owns the new 9-storey W Hotel, the 35-storey Bloor-Yonge Residences above it, and the base of the 28-storey The Residences of 8 Park Road (the condo is under separate ownership), and a 6-storey above-grade parking structure.

According to planners at Urban Strategies Inc., since the block is essentially constructed as one building, planning restrictions have been administered for the block as a whole.

The retail podium of Brookfield’s portion of the complex currently features a portion of the larger Hudson’s Bay store (which will be shuttering in the coming weeks) along with a collection of smaller retail stores on the concourse level that connects to the Bloor-Yonge Station entrance of the TTC.

Designed by KPMB Architects, Brookfield’s proposed redevelopment will be a renovation and redesign of the existing podium for an integrated office and retail development. Updated flagship retail space is proposed at-grade and on the concourse level, along with new office space above the retail. 

The proposed renovation is located above and beside Bloor-Yonge subway station, which the TTC has plans for. According to the TTC, Bloor-Yonge Station will be, “undergoing a design retrofit and significant expansion to meet both current and future ridership demand.” Proposed to the City in 2020, which we covered at the time, the Bloor-Yonge Station project includes the construction of a new, second platform to enhance capacity for eastbound passengers on Line 2, as well as the reconfiguration of the original westbound platform to enhance the capacity for westbound passengers. 

An expansion of Line 1 northbound and southbound platforms is also in the plans, followed by enhancements to the station as a whole. Specifically, some of these enhancements would include a new barrier-free entrance to the station, a new exit to Bloor Street, new escalators, elevators, and stairs, new public art and station finishes, and new fan plants to improve ventilation.

Brookfield’s submission to the City indicates, however, some frustration with attempts to coordinate the redevelopment. A document written by Brookfield’s lawyers states that Brookfield has spent a significant amount of time and effort to work with the TTC and CreateTO to ensure that the objectives of all players at the site are met, as an important part of the station’s redevelopment is hinged on the need to remove a chiller plant — which cools the air of the complex— from its present location on Brookfield’s property, and to reconstruct it elsewhere to make way for the TTC Subway platform expansion.

Engineers have since advised both parties that the reconstructed chiller plant would be best situated on Brookfield’s property at the northeast corner of Yonge and Bloor – which would eliminate the possibility of the property being redeveloped. In response to this, in July of 2021, Brookfield offered to accommodate the chiller plant on its property, if the City and the TTC can agree on the redevelopment that the company is currently proposing. CreateTO and the TTC have not responded to the offer yet, according to Brookfield.

Brookfield’s lawyers detail that they provided the TTC and the City with a proposal that they believe accomplishes the TTC’s platform expansion objectives, while respecting Brookfield’s long term interests and re-development objectives. With concern over TTC’s timelines, Brookfield called a meeting with representatives of the City in December, 2021 to outline the details of the proposal in an attempt to get a response, and to try to obtain clarity on TTC’s land requirements.

Brookfield was promised a quick answer at the end of December 2021, but has still heard nothing from either the City or the TTC. Brookfield says its plans for its renovation of the Hudson’s Bay Podium must be informed by comprehensive knowledge of all of TTC’s project requirements and the construction schedule, and that has become an issue here. Now a potential expropriation looms.

Brookfield’s lawyers write, “We ask that the proposed expropriation not be approved at this time, and that staff be directed to actively engage Brookfield with a view to reaching a fair and reasonable strategy for the project that respects the needs of the City and TTC, but also those of Brookfield, other stakeholders of the property and their tenants.”

In order to achieve this, the lawyers are requesting that staff hold weekly meetings with Brookfield, to make sure that the issue is sorted out in a way that best suits all parties. 

More information on the development will come soon, but in the meantime, you can learn more from our Database file for the project, linked below. If you’d like, you can join in on the conversation in the associated Project Forum thread, or leave a comment in the space provided on this page.

Source Urban Toronto. Click here to read a full story

The City Of Toronto Has Received A Site Plan Approval (SPA) Application for Richview Square

The submission has been a long time coming, as often happens in the development world. Back in April of 2018, a rezoning application was filed by Trinity Development and CreateTO to permit the redevelopment of the site located at the northwest corner of Wincott Drive and Eglinton Avenue West, between Kipling Avenue and Islington Avenue in Etobicoke. The redevelopment was proposed to include three new mixed-use buildings in addition to the partial retention and renovation of an existing one-storey commercial plaza.

Following the initial submission, resubmissions of revised materials in support of the rezoning application were filed a total of five separate times, changes based on comments received from various municipal departments, outside agencies, and the community. The Zoning By-law Amendment was finally adopted in July of last year. Designed by B+H Architects, the three new towers were originally proposed at heights of 22, 22, and 18 storeys. Now, they have been approved at reduced heights of 13, 13 and 12 storeys tall.

The existing plaza building will be partially retained and renovated, with its southwesterly wing being removed, an 8.6 metre-wide addition to be made to the east side of the building, and enhancements planned to the building’s facade.

Overall, the buildings will offer a total gross floor area of 65,237m², consisting of 53,723m² of residential space, 11,038m² of non-residential space, and 465m² of community agency space. The development will have 587 residential units, 54 of which are to be purpose-built affordable rentals.

In addition, the development is to be accompanied by a new 1,700m² public park at the southwest corner of the site fronting Eglinton Avenue West, as well as a 659m² POPS (Privately-Owned Publicly accessible Space) between two of the new towers.

Trinity is proposing to redevelop the site in three phases. The recently submitted SPA asks the City to facilitate the development of Phase One and Phase Two.

Phase One consists of the 12-storey tower at the southeast corner of the site, fronting both Wincott and Eglinton. Phase Two would then include the partial demolition and renovation of the existing plaza building. 

The Phase One Building will offer 281 residential units. The building will have a total height of 42.5 metres to the top of the roof, and a total gross floor area of approximately 24,697m², including 22,519m² of residential GFA and 2,179m² of at-grade retail GFA.

Of the units, 144 (51%) will consist of larger units of two bedrooms or greater, including 97 (35%) two-bedroom units and 47 (17%) three-bedroom units. The building will also have approximately 677m² of indoor amenity space, located on Level 2 and the mechanical level, in addition to 1,179m² of outdoor amenity space comprised of rooftop amenity terraces accessible on Level 2 and the mechanical level.

The building will have a total of 369 parking spaces primarily located below grade, consisting of 267 resident spaces, 46 visitor spaces, and 56 commercial spaces. Spaces for 271 bicycles will also be provided.

Phase Two consists of the retained portion of the existing commercial strip plaza which will continue to be used for retail commercial purposes. As a result of the alterations to the building, its gross floor area will decrease from the current 6,255m² to approximately 3,577m², while the front facade is to be enhanced with a series of brick, metal, and glass materials in order to modernize its look and match the general aesthetic of the neighbouring tower of Phase One.

An application for Site Plan Approval is to be filed at a later date to accommodate Phase Three, which will consist of the two 13-storey towers as well as the proposed public park and POPS along the Eglinton Avenue frontage.

More information on the development will come soon, but in the meantime, you can learn more from our Database file for the project, linked below. If you’d like, you can join in on the conversation in the associated Project Forum thread, or leave a comment in the space provided on this page.

Source Urban Toronto. Click here to read a full story

Q1 2022: Investor Demand Continues To Be Strong With Heightened Investor Scrutiny

The latest results from Altus Group’s Canadian Investment Trends Survey (ITS) for the four benchmark asset classes show that the Overall Capitalization Rates (OCR) dropped to 4.91% in Q1 2022 compared to the previous quarter which was at 4.94%, and from 5.08% in Q1 2021, with cap rates remaining mostly steady. With the Omicron Variant and a lockdown in the second part of Q4 2021 slowing activity, the first quarter of 2022 has seen boosted activity levels.

Employment in February climbed by 337,000, more than compensating the losses seen driven by the tighter public health measures in the fourth quarter of 2021. This addition in jobs has dropped the unemployment rate to 5.5%, beating pre-pandemic levels for the first time since February 2020. With new jobs being created, the number of vacancies can also be seen dropping. According to Statistics Canada, job vacancies were down 5.4% from the beginning of December 2021, but up 62% as compared to the first quarter of 2020, prior to the onset of the pandemic. The sectors hardest hit in terms of job vacancy declines were the food and accommodation services sector and the arts, entertainment, and recreation sectors. Meanwhile, the construction sector and professional, scientific, and technical services sectors noted increases in employment. With vacancies dropping in the construction sector, investment in non-residential building construction continues to rise, up by 1.5% in January 2022 from the previous month reaching the $5 billion dollar mark for the first time since June 2020. The drop in vacancies along with the increase in non-residential building investment is reflective of the increase in activity in the commercial sector. After a tough year riddled with volatility, lockdown measures, and labor shortages, 2022 has begun with recovery on the horizon, and expected to continue the momentum throughout the year.

The Bank of Canada bond rate as of March 2022 was reported to be 2.43%, continuing its upwards trend from the 147-bps recorded in the fourth quarter of 2021. As the Bank of Canada continues to focus on inflationary control measures, the average internal rates of return were seen increasing the most in the Downtown Class “AA” Office asset class and dropping the most in the Suburban Multiple Unit Residential asset class. Overall, the Internal Rate of Return was 616-bps, rising from the 478-bps seen in the fourth quarter of 2021.

The Canadian commercial real estate space has faced many challenges as the pandemic has highlighted vulnerabilities and catalysed shifts in demand for typically high yielding assets such as office and retail. Compared to the previous quarters, the location barometer for available products in the third quarter showed an increase in all markets except for Calgary, which reported a downturn. According to Altus Group’s Investment Trends Survey for Q1 2022, the top three markets preferred by investors, Toronto, Vancouver, and Montreal, respectively (Figure 2), were also the most active in investment volume as of the 2021-year end. Still, many other regions have remained resilient and managed to grow in the first quarter of 2022, primarily due to pent up demand and lack of investment product amongst other macroeconomic challenges.

The top assets preferred by investors this quarter were Food Anchored Retail Strip, Suburban Multiple Unit Residential, and Industrial Land, with Suburban Multiple Unit Residential assets reporting the largest upswing in momentum ratio (Figure 3). These products have generated great investor interest due to their essential nature, and flexibility for redevelopment. These characteristics are increasingly vital to investors due to the rapid shift in consumer preferences as we weather the loosening of restrictions and sixth wave. While activity in the first quarter of 2022 reported an uptick with some deals from the previous year going through, and renewed optimism catalyzed by loosening restrictions, a note of cautiousness is retained in the market with persistent inflation and the Bank of Canada raising interest rates within the quarter with highly likely more increases throughout the year.

The assets with an increase in investor momentum were also some of the less preferred products, with the least preferred product this quarter being Tier II Regional Malls. When looking at the Product/Market Barometer, the bottom three least preferred assets were all retail. Enclosed Community Mall in Edmonton, Tier II Regional Mall in Quebec City, and Tier II Regional Mall in Montreal were the least preferred, with Montreal Food Anchored Retail Strip and Industrial Land ranking first and second as most preferred by investors (Figure 4). Retail has continued to struggle, especially owing to the changes in public health measures, and with investors trying to figure out and meet consumer needs, assets in secondary markets with prime locations are likely to be those positioned for potential redevelopment.

While 2022 is poised for growth and recovery as the commercial real estate space stays resilient, market impacts of the current geopolitical climate, the sixth wave, and economic challenges will become slowly apparent as the year progresses.

Market highlights for the quarter include:

• The office sector has continued to face volatility as employers continue to redefine their return to office plans and better accommodate employee needs. Downtown Class “AA” Office cap rates decreased slightly from 5.69% in the previous quarter to 5.64% in the first quarter of 2021. Quarter-over-quarter, the Vancouver, Edmonton, Toronto, and Ottawa markets saw a compression in cap rates. Meanwhile, Quebec City and Halifax saw an increase, with the Calgary and Montreal markets remaining the same.
• The demand for industrial product remains strong with the cap rate for Single-Tenant Industrial product increasing slightly and going from 4.64% in the previous quarter to 4.71%. While a compression in cap rates was seen in the Vancouver and Calgary markets, they stayed the same in the Edmonton, Toronto, and Ottawa markets. Meanwhile, the Montreal, Quebec City, and Halifax markets saw an increase in cap rates.
• Tier I Regional Mall cap rates continued to compress dropping from 5.34% in Q4 of 2021 to 5.21% in Q1 of 2022. While cap rates rose stayed the same in the Toronto market, they trended downwards across all other major markets, further attesting to the recovery seen in the asset class. With malls and other retailers opening with restrictions easing has brought a fresh sense of renewed optimism to the retail sector.
• In the first quarter of 2022 cap rates for Suburban Multi-Unit Residential assets continued to compress, dropping slightly from the 4.13% seen in the previous quarter to 4.09% in Q1 2022. A compression in cap rates was seen across Edmonton, Calgary, Halifax and Quebec City, whereas an increase was seen in the Vancouver and Toronto markets. The Ottawa and Montreal markets continued to remain steady.

Source Altus Group. Click here to read a full story

Developing Workplaces Close To Condos, Residential Areas Prevents ‘Warehousing’ People

Intensification is commonly associated with the building of housing at higher densities in neighbourhoods, but intensification of office, industrial and retail space is equally important to combat sprawl, developers say.

“The key to intensification is to move from the single use for a property [such as a mall] toward integrated community building,” says Ken Greenberg, principal at Greenberg Consultants Inc.

The reimagining of downtown Brampton, Ont. – Canada’s ninth-largest city – is just one example of the urban planning trend seen across the country, says Mr. Greenberg, who is a strategic adviser to the city.

Keeping growth within existing urban boundaries delivers [a] better fiscal outcome compared to business-as-usual sprawl— Pamela Blais, principal at Metropole Consultants

The redevelopment includes the replacement of its centrepiece – the 53-year-old Shoppers World Mall – with a mixed-use neighbourhood featuring about 800,000 square feet of commercial space.

“It’s happening in a lot of places – elsewhere in Toronto, Winnipeg, Edmonton and more,” says Benjamin Shinewald, president and chief executive officer of BOMA Canada, an umbrella group for builders, owners and maintenance operators. “There is no lack of ambition to promote [intensification] in Canada’s commercial real estate community.”

The Well, a project now under construction in Toronto that spreads over 7.7 acres in the city’s King Street West neighbourhood (including the site of the former headquarters of The Globe and Mail), is another example. While much attention is being paid to the site’s 1,700 residential units, it also includes more than one million square feet of office space and 420,000 square feet of retail and food services.

According to former Toronto mayor and federal cabinet minister David Crombie, cities are recognizing the importance of finding the right mix of non-residential space – workplaces, recreation and entertainment and parks – in addition to housing.

“If you don’t build the workplaces in the areas where people live, you end up just warehousing people,” he says.

Winnipeg’s True North Square is another massive project designed to breathe life into a downtown core through intensification. Scheduled to be completed next year, the approximately $500-million project is designed as a centrepiece of a downtown entertainment district that includes the home of the National Hockey League’s Winnipeg Jets.

True North will feature four towers, with a total of one million square feet of class A office, retail, hotel and public space as well as affordable housing. The first building, opened in 2017, was the first privately constructed office building built in Winnipeg since 1990.

Edmonton’s Ice District is another hockey team-centred intensification project, in this case a $2.5-billion, 25-acre mixed-use district that includes the home of the Edmonton Oilers. The mixed-use district will also have a 50,000-square-foot public plaza, a climate-controlled winter garden, a hotel, a casino and three new office buildings, with the third one scheduled to be completed in 2025.

Commercial intensification is not a particularly new idea, Mr. Shinewald says, but it’s gaining more positive attention as planners and the public question the economics, efficiency and the lifestyles that come from urban sprawl.

“Everything old is new again. Not long ago, people lived and worked nearby because of a lack of transportation. So, everything was cheek by jowl,” he explains.

“The automobile enabled distance between work and play, but many in the new generation want density – they want to walk or cycle to work or take an efficient train. They want to meet their friends for lunch or dinner and live a vibrant urban life, 24/7.”

It’s no easy task overcoming many decades of ingrained planning ideas that encouraged sprawling development, Mr. Greenberg says. Cities like Brampton are re-examining these ideas as their populations explode and their infrastructure struggles to keep up, he explains.

He notes how Brampton, for example, is using the reconstruction of its core mall site to promote a “2040 vision to reimagine a future Brampton that grows not only in population size.”

The vision, which Mr. Greenberg collaborated on with the city, is based on Brampton growing from its current population of 600,000 to a projected one million, with the creation of 185,000 jobs that won’t necessarily require commuting.

Stopping sprawl is becoming a hot political issue in places like Ontario, where a wide coalition of planners, environmentalists, residents groups and others has been urging the provincial government to favour intensification.

So far, Premier Doug Ford has instead proposed a $10-billion highway that will cut across wilderness, wetlands and farms and the Ontario Greenbelt around Toronto.

Yet, intensification is cost-effective, says planner Pamela Blais, principal at Metropole Consultants. In early April, she published an analysis of Edmonton that shows that “keeping growth within existing urban boundaries delivers [a] better fiscal outcome compared to business-as-usual sprawl, not to mention quality-of-life benefits too.”

The analysis shows that using Edmonton’s urban land more intensely for development (including commercial properties) would allow the city to keep its property taxes 10 per cent lower by 2065 than if new builds sprawl outside the city’s boundaries, where it can’t levy taxes.

It’s better for quality of life, too, Mr. Greenberg says. Brampton, for example, “will be a neighbourhood including office, residential, a main street with local shopping and a community hub,” he explains.

“It all works together.”

Source The Globe And Mail. Click here to read a full story

Innovation With a View: Inside Microsoft’s New Canadian Headquarters

Microsoft opened the doors to its brand new Canadian headquarters today, a gargantuan 132,000-sq. ft facility located on floors 41-44 of the CIBC SQUARE building at 81 Bay Street.

As one would expect from the home base of one of the globe’s largest tech leaders, this sparking office compound is outfitted with the latest in cutting-edge workplace technology and amenities. In addition to connectivity and communications systems throughout to ease employees’ work flows, the space has been selected to host Microsoft’s first Data Innovation Centre of Excellence (DICE), a dedicated hub with a focus on innovative data, AI, and mixed-reality technology solutions.  

The new headquarters will also be an innovation centre for technology startups, students, and community organizations from across the Greater Toronto Area and Canada.

“Microsoft has been deeply rooted in Canada for nearly 40 years and our commitment to help grow Canada’s innovation economy has never been stronger,” said Kevin Peesker, President of Microsoft Canada. “With the launch of our new headquarters, official opening of our Data Innovation Centre of Excellence and expansion of our regional presence, even more organizations of all sizes and sectors can leverage the power of cloud and data to accelerate their organization’s growth and drive new economic opportunity for Canada.”

Toronto Mayor John Tory was also on hand for the opening ceremony, acknowledging the investments the company has made over the past four years in Canada; the tech company accounts for more than 300,000 jobs, and contributes $37B to the nation’s GDP.

“The official opening of Microsoft’s new downtown headquarters is the next milestone in our city’s continued growth as one the leading technology hubs in North America. We’re so pleased to see this new Microsoft office opening. It will mean more innovation across Toronto’s world class network of universities, start-ups and incubators — all of which will help us continue our strong economic recovery from the pandemic,” Tory stated.

“Microsoft’s announcement of a brand new Canadian headquarters is another example of how the technology sector is fueling economic growth across the country. As the demand for digitization and new technology continues to grow across all industries, major companies like Microsoft continue to choose Canada for the ingenuity of our talent and the ambition of our innovation agenda,” stated the Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry.

A Sleek, Connected Space

As has been the recent trend in office space design, each floor features a variety of open-concept and hotdesking stations, punctuated by focus meeting rooms — all outfitted with the latest tech to enable communication and connectivity.

Employees can take a well-deserved mental health break in a number of private meditation and wellness rooms, or find inspiration in the Growth Mindset Library, a “quiet nook” located on the 44th floor that can be used for break time, or informal gatherings. Those seeking deep focus spaces can find it in a number of “zone rooms”, outfitted for individual, head-down work, or collaborate with team members in dedicated conversation and incubation spaces. The space is also outfitted to promote social connection, with “kitchenette”-style hubs peppered throughout. 

We have a feeling the most popular spot, though, will be the Cloud Bar on the 44th floor, where workers can grab a complimentary cup of joe, and take in the sweeping views of downtown Toronto.

A Clearly Canadian Aesthetic

You could also be forgiven for mistaking this office space for an art gallery, with a notable design aesthetic featured throughout featuring mixed media, acrylic, sculpture, and murals. The art shares the theme of Canadian geography, and includes works from renowned artists such as Shaheer Zazai, Janna Watson, Rande Cook, and Kristiina Lahde.

The space has also been outfitted with over 3,000 sensors tracking water use, energy consumption, and carbon emissions, as part of Microsoft’s commitment to become carbon negative by 2030, and to remove more carbon than they’ve emitted since their founding by 2050. The company also announced it will pursue purchasing green power and carbon offsets for 100% of the project’s energy for a minimum of five years.

“A big reason we chose CIBC SQUARE for our HQ is proximity to transit, amazing talent and also because this building leads Toronto in the largest reduction of greenhouse gas emissions city-wide,” states the company in a fact sheet.

The new headquarters is the latest addition to Microsoft’s considerable Canadian footprint, which also includes a research and development lab in Montreal, a Government Innovation Centre in Ottawa, three gaming studios, a development centre in Vancouver, and two data centre regions in Toronto and Quebec City

Source Storeys. Click here to read a full story

Vendor Terminates Purchase Agreement, Must Pay $11M In Lost Profits

When a seller refuses to complete a land purchase transaction, the consequences can be serious, especially if the buyer intends on developing the property.

In my previous column on WED Investments Limited v. Showcase Woodycrest Inc., the implications of this situation were explained – namely, a land purchase transaction fell through and the seller was held to be liable. In the result, the court awarded $3.2 million in damages to the buyer, representing the increase in value of the undeveloped land, as calculated between the time the purchase agreement was executed and the closing date.

In a more recent decision, however, a seller in similar circumstances was ordered to pay a buyer over $11 million in damages, representing the amount of profit the buyer may have reaped had it been able to purchase and develop the lands.

In The Rousseau Group v. 2528061 Ontario Inc. two parties entered into an agreement for a property sale in January 2017. The property was 45 acres with natural heritage features and was situated in a developing community that was expanding at the time.

The agreement, plans for the land

The buyer intended to undergo a large residential development on the land and the agreement specifically stated the land was being purchased for development.

The purchase price was $10.5 million and the value of the land was based on its development potential. The purchase price was therefore determined on the “net developable acreage” of the land, which was estimated to be 30 acres when the agreement was signed.

A $50,000 deposit was payable up-front and an additional $400,000 deposit was payable when the buyer waived all the conditions in the agreement.  The agreement was also conditional on the buyer satisfying itself as to whether the development was economically feasible, and it was given wide latitude to conduct its diligence and inspect the property.

During its inspection, the buyer determined much less of the land was developable than originally estimated. Based on this finding, the buyer and seller agreed that the purchase price would be reduced by about 40 per cent to $6,615,000. However, the buyer also agreed to assume an existing mortgage the seller had on the property as part of the deal.

After the parties agreed to the amendment, the buyer waived all conditions in the purchase agreement and started operations to develop the lands upon the completion of the transaction.

Impasse leads to termination of purchase agreement

However, both sides reached an impasse regarding the terms of the amended deal.

The buyer asserted that, by agreeing to assume the mortgage, the seller waived the requirement to provide the additional $400,000 deposit, and therefore did not pay it. The seller, in turn, insisted the deposit was still payable and the buyer’s refusal to provide it constituted a breach of the agreement. As a result, in July 2017, the seller returned the initial deposit and refused to close the transaction in August 2017, as scheduled.

The buyer commenced an action against the seller right away and sought an order to compel the seller to honour the agreement and complete the transaction.

However, the matter did not go to trial until April 2021; and, by that time, the buyer abandoned its claim to purchase the land. Instead, damages were sought for all the losses it incurred related to the aborted transaction, including the loss of profits it would have realized if it were able to develop the property.

The court sided with the buyer and agreed the $400,000 deposit was not payable under the amended deal.  As such, by refusing to complete the sale by the closing date, the seller breached the agreement and repudiated the transaction, which entitled the buyer to damages.

In awarding damages, the court departed from the reasoning in Wed Investments, where damages were awarded based on the difference in value of the land from the time the purchase agreement was executed and the closing date. Rather, in this case, the buyer succeeded on its claim for lost profits, had it been able to develop the property as intended.

In deciding to award damages on this basis, the court paid special attention to the fact that both the wording of the purchase agreement, and the buyer’s actions, showed it was always its intention to purchase the land for development, and the seller understood this.

Buyer proved damages

In proving its damages, the buyer provided expert evidence of the costs and profits of comparable developments. In this case, the buyer’s expert estimated the development costs would have been about $11 million and roughly $21-$23 million in revenue would have been generated.  The projected profits were therefore in the range of $10-$12 million.

The seller challenged the buyer’s damages claim on the basis the projected profits were overstated and the buyer did not mitigate its damages by purchasing another property for a similar project. These arguments were not accepted for a number of reasons – most notably, there was no basis to challenge the expert evidence and the buyer established that no similar properties were available to purchase.

The court noted the fact the property was situated in an expanding community and therefore had strong development potential.

The court therefore accepted the damages claim and ordered the seller to pay $11.1 million, based on the projected lost profits the buyer would have collected from its intended development project.

This decision shows the far-reaching consequences a seller could face when terminating a property sale, especially if the buyer intends on developing the land. If a seller opts to end a deal, it should be certain the termination is lawful. If not, it could find itself on the hook for damages which far exceed the value of the land.

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Why Many of Canada’s Commercial Buildings are Set for a Green Retrofit

When it comes to energy efficiency, most commercial buildings in Canada’s largest cities are behind the curve. In fact, many of these structures in Vancouver and Toronto predate modern building codes. However, according to Mike Singleton, Executive Director of Sustainable Buildings Canada, gradual — and economic — retrofits can make a world of difference, as well as augment a building’s value.

“In terms of retrofits, you have an opportunity to really do it right, and if you do, you can realize a 40-50% reduction in energy use, and that really is dramatic. If you can half your energy bills, that has obvious advantages, especially today with the price of fuel going up,” he says.

“The modern building code is updated every four or five years and energy performance requirements have improved to have better energy performance. The modern code is still 50 years old, however, requirements around energy performance a the beginning weren’t very much, but now they’re more and more stringent. The current version of the code is quite advanced compared to the ‘70s.”

Decades-old buildings can be modernized to ameliorate their energy consumption and, by extension, reduce utility outlays — which are usually borne by tenants — by fortifying their envelopes. Singleton says envelopes in such older buildings are leaky but can be tightened with better insulation, especially on the edifice’s exterior through superior glazing. Windows, in particular, are the most obvious way address air leakage and other thermal bridging issues, he adds, and exterior insulation is a good solution because it can mitigate energy loss and minimize problems caused by moisture.

Decades ago, windows were single-pane, but using today’s triple-pane will very noticeably improve energy efficiency — although it remains a little more complicated than that, Singleton says.

“You have to think about elevation, like which way the window faces, because there are heat-gain considerations; windows facing north have different requirements than windows facing the south or west, and would require different glazing,” he says, adding it primarily has to do with comfortable temperature than efficiency, although those gains aren’t as dramatic.

While those retrofits are pricier, involving mechanical upgrades and brand new HVAC systems, the benefits in the long run speak for themselves, Singleton added.

Getting Ahead of Rising Carbon Costs

In 2030, Canada’s carbon tax will increase from $40 per metric ton (MT) today to $170/MT, which Singleton believes should elucidate to commercial landlords the necessity of energy efficiency retrofits.

“That’s going to have a big impact on space heating costs, so the more you can do, the more advantageous it is in terms of potential equity, because if you can demonstrate your building is operating at half the cost as a similar building next door — it will also have a big impact,” Singleton said, adding, “the upward price pressure on fuel is going to start playing out and that may be where some of the impetus for change is going to come from.”

Energy efficiency upgrades through retrofits can, indeed, boost a commercial building’s value, according to Alain Rivère, Vice President of Office Leasing and Sales at CBRE’s High Technology Facilities Group — but other factors would influence whether or not retrofits are worth undertaking at all.

Inhered in a commercial building’s value, perhaps more than anything else, is its rental income potential, and although an energy efficient building — and the cosmetic improvements that come with it — can attract tenants, location and accessibility remain the two most important criteria. Rivère says that, before committing to retrofits, a mechanical engineer would need to conduct an assessment and help calculate the cost-benefit analysis because, in certain cases, razing the edifice and building a newer, improved, and more economically viable commercial structure, might make more sense.

Nevertheless, certain buildings are attractive to tenant companies that are willing to pay rents commensurate with quality, Rivère added, and a comfortable office with large windows through which natural light flows and lower operational costs reign supreme.

“Every building is different; for some buildings, it makes a ton of sense. [The landlord] should retrofit a building with good bones, as people say, and that has large windows that are old, mechanical systems that are super old and need to be replaced anyway, but that’s in a great location,” Rivère said.

“If you can build a building three times bigger and retrofitting is too expensive to bring it up to today’s standards, it might make more sense to build brand new than to retrofit. Location is always critical, as is the bones of building and what you’re working with. Some older buildings with inefficient floor plates and small windows, which would be replaced by small windows anyway, and other things you can’t change, make less sense to retrofit.”

Bringing Heritage Up to Date

In Vancouver, 1110 Hamilton and 1132 Hamilton are notable for their efficiency retrofits, as are the Sun Tower, at 128 West Pender, and 609 Granville.

Allied Properties is known for owning ‘vintage’ buildings with exposed brick and beams, and its portfolio is replete with such examples in Toronto and Vancouver.

Efficiency retrofits make a lot of sense in heritage buildings, Rivère added, and Vancouver has a lot of them.

“Older buildings that are attractive to retrofit are the heritage, brick and beam, character buildings, which are sought after, with their exposed beams and exposed ceilings,” he said. “Those are in strong demand, and older buildings like that, which are 60-plus years old, Vancouver has had great success in retrofitting.”

Those “character” buildings are commonplace in Vancouver’s Yaletown and Gastown neighbourhoods.

“It goes back to charm and character, which is what companies want, and they want it because these offices are interesting places to go to work that breed innovation, and they’re where people want to go,” he said. “The company’s office becomes a selling tool to attract talent.”

In addition to rising carbon tax rates, another reason companies will look into energy efficiency retrofits more in the coming years is the popular corporate neologism: environmental, social and Governance (ESG). Not only are companies increasingly conscious of their public image in today’s hyper-environmentally conscious world, so too are their employees, particularly younger ones, who will define the workforce for decades to come.

“[ESG] is more on decision makers’ radars when it comes to tenants looking for space, so a building that’s more environmentally friendly and energy efficient, and gives employees a better experience — with bigger windows and more natural light and better quality air, which is secondary to cost because it’s a better experience — that’s all part of ESG, and it’s on a lot of people’s radars these days,” Rivère said. “It’s another component of the reason for retrofitting.”

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Crestpoint Acquires Downtown Toronto 121 King W. Office Tower

Crestpoint Real Estate Investments Ltd. says it has topped the $2-billion mark in acquisitions over the past 12 months with the announcement it has bought the 25-storey 121 King St. W. office tower in Toronto’s financial district.

Toronto-based Crestpoint says it made the investment in the property on behalf of its open-ended Crestpoint Core Plus Real Estate Strategy Fund and an unnamed institutional partner. Together, they acquired a 100 per cent interest in the property.

Financial details were not released.

121 King St. W.  is a 540,000-square-foot, class-A building located a block from the Bay Street intersection. Recently renovated, the tower is LEED EB Gold, BOMA BEST Gold, Wired Score Platinum, Fitwel Viral Response and Rick Hansen certified.

“Over the past year, we have grown the portfolio significantly and added landmark, high-quality properties like 121 King Street and the Amazon distribution centre in Ottawa,” said Kevin Leon, president and CEO of Crestpoint, in the announcement Wednesday afternoon. “The ability to add a Toronto financial core building connected to the PATH system in such a strong location, with high-quality tenancies further elevates the profile of the Crestpoint Core Plus Real Estate Strategy portfolio.”

121 King offers great transit access

121 King St. W. provides direct access to Toronto’s underground PATH system and a variety of retail and entertainment amenities. It is also well served by transit, including direct access to the St. Andrew subway station, the King streetcar route and GO Train service from nearby Union Station.

Tenants include federal government agencies and the National Bank of Canada.

“With our active management approach, we look forward to creating a dynamic workplace for the tenants that call 121 King Street home and we are optimistic the long-term market for high-quality office buildings in downtown Toronto will flourish,” Leon said in the release.

“The Crestpoint Core Plus Real Estate Strategy continues to offer investors access to a well-diversified, high-quality portfolio which continues to perform extremely well.”

Colliers assisted with due diligence and acted as an advisor to Crestpoint on the deal. Property management services will be provided by JLL.

The closing of the 121 King St. W. acquisition brings Crestpoint’s total assets under management to over $8 billion and 30 million square feet. It also caps off a very active 12 months for the firm, with that $2 billion of acquisitions involving assets in the office, industrial, retail and multiresidential sectors.

This includes several major properties.

The Amazon acquisition involved the country’s largest fulfillment centre, a multi-level, 2.8-million-square-foot building which was just completed in the Ottawa community of Barrhaven. Crestpoint paid $494 million for a 90.1 per cent share of the facility, with developer Broccolini retaining the other interest in the property.

Crestpoint and several partners also acquired the Place de Ville office complex in downtown Ottawa in late 2021 for $350 million. The property spans two city blocks not far from Parliament Hill. Crestpoint took a 50 per cent interest in the acquisition.

The acquisitions have added over 5.6  million square feet to its portfolio.

About Crestpoint

Crestpoint Real Estate Investments Ltd. is a commercial real estate investment manager offering a diversified portfolio of commercial real estate assets.

Crestpoint is part of the Connor, Clark & Lunn Financial Group, a multi-boutique asset management company that provides investment management products and services to institutional and high net-worth clients.

With offices across Canada and in Chicago, London, and Gurugram, India, Connor, Clark & Lunn Financial Group and its affiliates collectively manage approximately $104 billion in assets.

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Toronto Data Centre Markets Grow, But Face Challenges

Data centres have become an increasingly important part of the Canadian commercial real estate market and the country’s economy, but the sector faces expansion challenges in the country’s largest markets.

Toronto and Montreal are Canada’s two largest data centre markets and Cushman & Wakefield recently published updates on the growth and the current environment in both cities.

“Our biggest challenge in both markets is finding available land sites,” Cushman & Wakefield Global Data Centre Advisory Group vice-chairman Randy Borron told RENX. “If you did a search for 20 acres in either market right now, you would find nothing available for sale.

“The ideal scenario for operators, builders and developers of data centres is to go into a market and find a site for an initial build with land for at least one, two or three more spaces of development going forward instead of buying extra land. They have it serviced, they have it zoned and it can be entitled very quickly so they can start building for their clients.

“But in the larger markets of North America, Europe and everywhere, the logistics industry has exploded and taken up a lot of that serviced land. It’s creating a lot of challenges for us and our industry.”

Toronto’s data centre market

Toronto has 228 megawatts of built data centre inventory and 44 megawatts in its development pipeline, making it the largest Canadian market by a significant margin. The city had 16 megawatts of absorption in the second half of 2021 and Q4 was the strongest since Q1 2020, tightening the overall vacancy rate to six per cent.

Toronto’s industrial vacancy rate is just 0.7 per cent and land prices are escalating sharply. When an available site comes to market, competition often forces successful bidders to close in 30 to 60 days with few or no conditions.

That doesn’t work well for data centre developers requiring at least 90 days to close. Entering the Toronto market, therefore, remains difficult.

“The good news is Equinix has capacity both downtown and in Brampton,” said Borron. “Digital Realty is expanding its Vaughan facility. STACK is completing its new four-megawatt, Phase 1 site just east of downtown and Phase 2 will be 48 megawatts.”

There have been several other recent moves that have impacted, or will impact, the Toronto data centre market.

– Google completed its new cloud region in Toronto last fall, listing clients including Deloitte and Accenture;

– Zayo launched its Shielded Internet Access product in Toronto, which will allow clients to bundle their Internet, security and direct access to the cloud. The fibre provider also announced another 140 kilometres of new routes coming to the Greater Toronto Area (GTA) by the end of this year;

– Hut 8 acquired the operations of the TeraGo data centre portfolio across Canada, with two locations in Toronto;

– Amazon Web Services (AWS) announced 32 new metro areas to receive Local Zones deployments through 2024, with Toronto among the sites. Local Zones are a type of infrastructure deployment that places AWS computer, storage, database and other select services closer to large population, industry and information technology centres where no AWS region exists;

– Compass Datacenters is building a 214,000-square-foot, 30-megawatt data centre in Etobicoke;

– And, Microsoft plans a 290,000-square-foot data centre and Cologix is planning a 50,000-square-foot, 10-megawatt centre.

Toronto’s absorption history

Borron said the majority of absorption over the past five years in Toronto has been pre-leasing of sites that are in the early stages of development or construction.

“We have been very successful over the last few years in acquiring large sites with 50-plus megawatts of power. The vast majority of this has been through the acquisition of off-market properties,” he explained. “We are seeing this in many other large global data centre markets.

“This is forcing data centre developers to plan much farther in advance for developments and also consider acquiring sites that may not be ready for development for years and have other buildings and tenants with mid- to long-term leases in place.”

Borron expects the data centre vacancy rate may increase in the short term due to new construction, but additional capacity will need to be added to the pipeline to prevent shortages if demand stays consistent.

The Ontario Global Adjustment Program allows operators to reduce kilowatt-hour costs through peak load shedding and enables data centres to reduce power costs for the year to the range of four cents per kilowatt-hour, according to Borron.

That’s similar to Montreal, which has leveraged low power costs as a major advantage in attracting data centres and other companies.

Montreal’s data centre market

Montreal has 126 megawatts of built data centre inventory and 51 megawatts in its development pipeline.

The city made continued progress in the second half of 2021, with eight megawatts of absorption to equal its first-half activity. Despite slower take-up than many larger markets, the total is the highest in several years and has tightened vacancy to a still relatively high 14 per cent.

“Some companies are reluctant to locate some or all of their data centre requirements to Montreal due to language, cultural or legal reasons,” said Borron.

“In addition, latency times to key Toronto trading engines, head offices, cloud onramps or clients and customers make Toronto more attractive despite higher energy costs.”

Montreal has less constricted land and industrial markets than Toronto, making it easier to enter, and its cheaper power from sustainable sources also makes it attractive.

Data centre operators in Quebec are largely sheltered from the recent increases in gas and oil prices due to the province’s large hydroelectric capacity.

Montreal’s cheap power conundrum

Increased interest in Montreal from hyperscale operators is expected, as many have carbon-neutral pledges to fulfill before 2030 and the local hydroelectric power assists in achieving that goal.

However, Quebec has seen significant demand from industries with large power requirements. This has resulted in power constraints or lengthy timelines in some areas for power to be delivered. New entrants to Quebec should be aware of this constraint and plan timelines accordingly.

“Montreal has done an excellent job getting the word out on their green, low-cost power,” said Borron, who pointed out this has caught the attention of crypto miners, battery plants, hydrogen cell producers and others.

“The demand outpaced what Hydro-Québec planned and they are now increasing investment in distribution and substations to meet the new demand levels. This unfortunately is creating a barrier to entry.”

There’s been some recent activity in the Montreal data centre market and more is expected.

Borron said Amazon is building a data centre on Montreal’s South Shore and Google owns a site which it will eventually develop.

Vantage is planning three sites totalling 580,000 square feet and 148 megawatts.

“Many sites have room for expansion and building of additional phases,” said Borron.

“Some providers have struggled to lease their space, which can be due to the location of the site relative to competition or even, in some cases, a provider refusing to do smaller deals and wanting to reserve space for a larger user.”

QScale has suggested a Montreal campus may be coming soon after an initial build in Quebec City, which is attracting interest partly due to available sites and power, natural cooling and inexpensive power costs.

“Montreal still has a strong pipeline for new data centre builds and expansion capacity, but the market continues to tighten,” said Borron.

“Demand for land and industrial buildings is consistently outpacing supply, which will likely make it more difficult and expensive for new entrants in the future.”

Investors seek data centre assets

BentallGreenOak closed on a 218,486-square-foot downtown office and data centre building for $74 million last August. Longtime owner IBM elected to stay on in a sale-leaseback scenario.

Financial institutions and telecom firms are most commonly involved in sale-leaseback transactions, according to Borron.

“Sale-leasebacks are common in the industry; however we have not seen a large number in the Canadian market. There is currently a significant amount of capital seeking out data centre assets to diversify or expand investment portfolios for either growth or diversification.

“The data centre asset class really distinguished itself as a stable and high-growth asset, particularly since the pandemic hit. It is expected that we will see additional sale-leasebacks come to market in 2022 and in the coming years.

“Enterprise companies who build data centres are looking to exit their data centres. Migration to the cloud has been disruptive in their ability to fully utilize these sites and future major refresh costs create challenges.

“We are working with several companies that are working on their exit strategies from these assets. They are looking to balance their declining utilization and get sale proceeds to fund other digital transformation initiatives.”

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