LaSalle, TAS in $120M Toronto JV: ‘Core real estate with a soul’

A new forward-thinking joint venture between LaSalle Investment Management Canada’s LaSalle Canada Property Fund and TAS has purchased its first three properties in Toronto for an undisclosed price.

The acquisitions represent the first phase of the 50/50 partnership that’s initially targeting the deployment of $120 million focused on adaptive re-use, lease-up and stabilization of properties in up-and-coming neighbourhoods throughout Toronto.

“These are assets that are largely under-leased or vacant older industrial buildings that are in great gentrifying areas with good demographics and good transit fundamentals,” LaSalle Canada chief executive officer John McKinlay told RENX.

The investment thesis for the joint venture is underpinned by environmental and social best practices, he said, while still delivering attractive overall investment returns.

The goals are to:

– improve the acquired properties’ energy efficiency and reduce carbon footprints through adaptive re-use instead of demolition and new construction;

– and promote social initiatives anchored by the transformation of former industrial buildings into lively community hubs in partnership with small businesses and charitable and not-for-profit organizations, some of which will pay below-market rents.

“It’s core real estate with a soul,” said McKinlay.

Genesis of the LaSalle, TAS joint venture

While McKinlay and TAS president and CEO Mazyar Mortazavi were previously acquainted with each other, in an interview with RENX both men named LaSalle Canada senior vice-president of acquisitions Mike Cornelissen and TAS chief investment officer Khan Tran as the driving forces behind creating the partnership.

“We can see gentrification as an opportunity to leverage the character and quality of a neighbourhood and ensure that, as things change, the community is respected and empowered,” said Mortazavi.

“Through this partnership, we are pursuing and identifying opportunities in neighbourhoods for commercial properties that can have a dual role of creating value from an investment strategy but, more importantly, leveraging the assets to drive impact within the neighbourhoods and communities that live in them.

“This is core to TAS’ philosophy of being an impact company first and using real estate to drive social impact.

“It’s that alignment between ourselves and LaSalle that has catalyzed this partnership to identify neighbourhood-based assets to reposition and repurpose and create value through both capital and purpose to drive impact for the partnership.”

The first three properties

A two-storey, 19,000-square-foot light industrial property at 142 Vine Ave. in Toronto’s Junction area will be repositioned to an energy-efficient, in-fill flex office asset for commercial, community and arts uses.

Mortazavi said artists and technology startups are already in the building, which offers an opportunity to add density as part of its repositioning. TAS has been active in the Junction for 15 years and is a fan of the neighbourhood.

A 130,000-square-foot light industrial building on 7.5 acres at 55 Milne Ave. in Scarborough that was previously a single-tenant manufacturing facility will be repositioned into an energy-efficient, community-serving property.

“While the easiest thing would have been to find a single large tenant and do a distribution hub, we’re re-imagining this as a multi-tenanted, multi-use building and positioning it to be one of the greenest industrial buildings in the country,” said Mortazavi.

He believes the diversity of uses will add to the socio-economic diversity of tenants while making a sustainable environmental impact that will help reanimate the surrounding neighbourhood through its programming.

An 84,000-square-foot property at 772 Warden Ave. in Scarborough’s Golden Mile neighbourhood, with access to public transit, will retain its light industrial character and include community-serving uses through a range of programs with a food focus.

“Scarborough has been up-and-coming for a very long time and we now see it at the precipice where it’s about to turn the corner,” said Mortazavi. “The socio-economic diversity of Scarborough is something that we’re both excited about and cognizant of.”

Attributes of the three properties

All three buildings are already zoned for the uses LaSalle and TAS are planning. They can also still be occupied and generate rental cash flow while being repurposed.

“The great thing with these assets is that they have short-, medium- and long-term optionality around them,” said Mortazavi. “We’re already in discussions with tenants and we’ve already started advancing the strategy on them.

“We’re looking at the assets having a 12- to 18-month turnaround to stabilization and being fully repositioned, but they’re already live and active projects.”

“Each project is kind of nimble and has a number of value levers over the time horizon we’ve identified,” McKinlay added.

Both partners are confident they can generate healthy financial returns while creating social value capital and community impact.

Good fit for the LCPF

McKinlay said these initial acquisitions embody the application of LaSalle’s key environmental, social and governance (ESG) initiatives while simultaneously positioning the LCPF for attractive value-add investment returns based on underwriting.

“We’re happy to leverage off the expertise there (TAS) since they’ve been in this space for a while and it’s a great initiative for our fund and reinforces our own active ESG investing program.”

The acquisitions increases the LCPF’s value-add allocation to 5.5 per cent, which is within its 20 per cent value-add cap. They’ll increase its portfolio on a pro-forma basis to approximately $1.8 billion.

McKinlay credits TAS with identifying appropriate assets for the joint venture and said they’re looking at other properties to add to the portfolio. He said they could surpass the initial $120 million target if things continue to go well and the right assets and opportunities present themselves.

LaSalle and TAS

LaSalle Investment Management managed approximately $73 billion US worth of assets in private and public real estate property and debt investments at the end of 2020. Its clients include public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from around the world.

LaSalle Canada has executed more than $7 billion in real estate transactions since 2000. The LCPF launched in 2017 as an open-ended fund targeting commitments from Canadian and global institutional investors to acquire core properties in major Canadian markets.

TAS is an industry leader in impact development with an active pipeline and a portfolio totalling six million square feet across 18 properties throughout the Greater Toronto and Hamilton Area.

It partners with investors to focus on tackling climate change, expanding affordability and equity, and building social capital to create neighbourhoods and cities where people can thrive and belong.

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