On Tuesday, Nortel Networks announced it had entered into an agreement to sell the 370-acre property, which contains 11 interconnected buildings, to the federal government in a deal expected to close by the end of the year.
Public Works will assume all the existing leases between the purchasers of Nortel’s business units, namely Ciena, Ericsson, Avaya and GENBAND.
Officials at Public Works did not immediately return calls.
In a statement released Tuesday, Nortel said it was directed by Public Works to exercise an early termination clause in its lease with Ciena, which finalized its purchase of Nortel’s optical networking and carrier Ethernet (MEN) business for $769 million last December.
That shortens the lease term to five years from 10 and triggers a US$33.5 million repayment to Ciena from the escrowed sale proceeds from the MEN sale.
Currently, private-sector tenants are estimated to occupy between 800,000 and 1.1 million square feet inside the 2.35-million-square-foot campus.
Those tenants will have to move and, presuming they want to stay in Ottawa, are likely headed to Kanata where many of the city’s high-tech firms are located.
“There is not enough capacity in the existing Kanata inventory to accommodate the 1.1 million square feet,” says Nathan Smith, a senior vice-president at Cushman & Wakefield Ottawa.
“More importantly, there are very few opportunities for occupancy of 100,000 square feet or more, which means that assuming those tenants find it in their best interest to stay in (Ottawa) that there will likely be some build-to-suit activity in the Kanata market to accommodate these tenants.”
If so, it could present lucrative business opportunities for those developers with significant land holdings in Kanata, such as Kanata Research Park, Broccolini, Minto, and Canderel.
Colonnade, Taggart and Urbandale also have land available.
Jim Shotton, a vice-president at CB Richard Ellis, agrees there will likely be some build-to-suit requests from the current tenants of the Nortel campus. However, he says some of their requirements can be accommodating in existing west-end buildings.
Large pockets of space will be available in the Mitel campus, the former HP building on Herzberg Road and the Swansea Building, formerly occupied by Newbridge Networks, on Terry Fox Drive, says Mr. Shotton.
However, it is questionable whether those buildings will still be available in three years. The Kanata market is currently a hotbed of activity as the decade-long leases signed at the height of the tech boom expire, prompting many companies to move or adjust their space requirements.
“There is going to be a lot of musical chairs going on over the next couple of months,” says Mr. Shotton.
The other major question is which buildings the federal government will vacate in order to move into the Nortel campus.
“The landlords that are at risk are those that have older C-class buildings that have not maintained them to meet the leasing standards of Public Works,” says Mr. Smith.
It’s been rumoured the Department of National Defence will consolidate its operations in the Nortel buildings. DND currently occupies a large number of buildings, stretching from Gatineau to suburban south Ottawa, that range in age from nearly new to aged and in need of renovations.
A DND tenancy comes with security considerations that increases the likelihood the government would continue to own the property, rather than enter into a sale-leaseback arrangement as Public Works has done in the past.
In 2003, the government purchased Nortel’s Skyline campus at Baseline and Merivale Roads for $91.2 million. After retrofitting it, the government sold it to Larco Investments for $203 million and agreed to lease it for 25 years.
Mr. Smith says another reason the Nortel campus is likely to remain government-owned is that it actually sits on Crown land.
Although lower sale prices had circulated in media reports last week, Mr. Smith calls the $208-million purchase price “a bargain.”
He says the property came to the market unpriced and that Public Works would have likely gone through two, if not three, rounds of bidding against institutional investors.
“For them to have paid $208 million, there must have been a handful of bidders over $200 million,” said Mr. Smith.
Both he and Mr. Shotton say the purchase is a wise move for Public Works, providing it with a property well-served by transportation linkages that will help the government address its current aged office portfolio.
