Fresh entrants bring varied real estate strategies
It wasn’t so long ago that local firms owned most of Ottawa’s commercial real estate. That’s all changed now with the influx of out-of-town companies hoping to get in on the action.
The Chambers office complex on Elgin Street.
“It’s really taken a move towards some of the top markets globally, certainly in North America, where we have investors from all over the globe looking towards Ottawa,” said Nathan Smith, senior vice-president for the capital markets group of real estate firm Cushman & Wakefield.
Mr. Smith said the Ottawa market has two main features luring potential investors: stable returns, thanks to the federal government taking up so much office space, and high liquidity, meaning there are always opportunities for landlords to sell.
It’s also populous enough – around one million people – to mean that the city is now on a similar scale to other large cities around the world.
He estimated that companies from outside the city now own about 75 per cent of the commercial real estate in downtown Ottawa – a trend he predicted will only continue in the years to come, even as the federal government continues to move ahead with plans for reducing its workforce.
OBJ takes a look at the new mix of players in town:
Allied Properties Real Estate Investment Trust
Key local executives: Paulo Natividad, property manager
Key properties: 40-46 Elgin St. (The Chambers)
Local portfolio size: 214,586 square feet
National portfolio size: 9,871,320 square feet
Financing: Public markets
Portfolio focus: The only Ottawa holding the company has listed in its quarterly filings is The Chambers, a complex of three heritage buildings combined with a newer 14-storey office tower on Elgin Street. The firm has owned the building since 2012.
Target tenants: The main tenant in the Chambers is the National Capital Commission, a federal Crown corporation. It provided 3.4 per cent of the firm’s overall rental revenue during the first quarter of 2013, making it the largest single source of money in that category during that time period. However, that is currently up in the air, as the NCC announced last month plans to seek bids for new space. The Chambers also houses government relations firm Earnscliffe and has a few spaces that are currently vacant.
The plan: The company targets high-end downtown properties. It believes this gives it the best chance to capitalize on the urban intensification brought about by people moving from suburban areas into the city. The REIT is attracted to “class-I” office properties, a term coined to describe restored and renovated light industrial properties. Michael Emory, the firm’s president and CEO, declined to reveal his specific plans for the Ottawa market in an e-mail exchange with OBJ.
(Sources: Allied financial reports)
Key local executives: Hugh Gorman, partner and managing director; Pierre Hurteau, partner; Yawar Khan, partner
Key properties: 81 Metcalfe St. , 319 McRae Ave., 1600 Merivale Rd., 580 Terry Fox Dr.
Local / national portfolio size: 1 million square feet of commercial; 6,000 residential units under management
Financing: This depends on the property but BridgePort relies on a combination of equity and debt. It matches the values of properties up with either institutional or high net worth individuals, while also relying on mortgages with players in the lending community such as CIBC and Manulife.
Portfolio focus: BridgePort will look at any property as long as the company thinks it can add value, said Hugh Gorman, the firm’s partner and managing director. The company has holdings all across Ottawa and Gatineau and doesn’t rule out taking on any properties because of their size or quality.
Target tenants: The firm tries to diversify its risk by targeting a broad variety of tenants, but it generally prefers to have businesses that are more stable rather than high-growth. Mr. Gorman said they have everything from “traditional” tenants such as the Liberal Party of Canada at 81 Metcalfe St. to local entrepreneurs and contractors in more suburban locales. BridgePort would rather subdivide its buildings than have one major tenant for each, he said.
The plan: BridgePort will occasionally look at turning an asset over if it believes it can add value in the short term but, for the most part, prefers to employ a buy-and-hold strategy. “Our job is to be investors in real estate first and foremost ... I wouldn’t say we’re turners of capital for the sake of turning capital,” said Mr. Gorman. “We’re not trying to assemble a portfolio to take it public or sell to a pension fund.”
(Source: Hugh Gorman, partner and managing director, BridgePort Realty)
Dundee Real Estate Investment Trust
Key local executive: Gordon Wadley, leasing manager; Victor Briglio, property manager
Key properties: Gateway Business Park (Kanata), 1125 Innovation Dr., 150 Metcalfe St., 400 Cumberland St.
Local portfolio size: 1.17 million square feet
National portfolio size: 27.3 million square feet
Financing: Public markets
Portfolio focus: Dundee’s primary focus, office space, consists of holdings in both downtown and suburban areas. However, the firm has noticed a lower occupancy rate – 95 per cent compared to 99 per cent downtown – at its properties in Kanata. It tends to focus on class-B buildings, according to Ana Radic, Dundee’s chief operating officer.
Target tenants: The firm looks for diversity in its tenant mix, said Ms. Radic. This means leasing out a significant amount of space to the federal government while also trying to attract institutions such as embassies and the European Union. Ms. Radic said that in a “perfect world” the firm would also be able to attract high-growth tenants that will always need more space. Dundee is currently meeting with the federal government on a regular basis to assess how plans to downsize the civil service will affect its holdings, she said.
The plan: Ms. Radic said she sees the company’s future closer to the city core.“Downtown, despite the potential downsizings of the federal government, (is) still one of the better markets in Canada,” she said. The firm’s strategy fits more into the buy-and-hold mould, she added. Dundee wants to continue to acquire assets in the city, she said, but only if they fit for the company. That means the right amount of risk and the right location, said Ms. Radic.
(Source: Ana Radic; Dundee financial statements)
Key local executives: Alan Whitten, president; Craig Whitten, leasing manager; Derek Noble, vice-president of development and construction; Brenda Kennedy, property manager
Key properties: 100 Gloucester St., 396 Cooper St., 1155 Lola St., 2400 St. Laurent Blvd.
Local portfolio size: 650,000 square feet
National portfolio size: 650,000 square feet
Financing: Third-party investors
Portfolio focus: Mainly office space, with some industrial and warehouse. Huntington is also looking at entering the retail market. It mostly focuses on properties that are close to the Queensway and about 50,000 square feet or smaller. It doesn’t limit itself to any particular class but tries to look at buildings it can purchase for a good price and fix up to add value.
Target tenants: Huntington tries to appeal to a broad variety of companies. Craig Whitten, the firm’s leasing manager, said the firm is even willing to renovate a property to make it fit for a potential tenant. The company spends most of its time marketing to real estate agents, rather than directly to potential tenants. This allows it to advertise to a number of different businesses. The firm prefers to lease entire buildings to a single tenant – Allen-Vanguard at 2400 St. Laurent Blvd. is an example – but Mr. Whitten said most of its buildings are subdivided among different companies.
The plan: The company looks for an immediate cash return from its income and then looks for added value over the term of a project. On some buildings, Huntington is able to get a cash return right away, while others take three years before they reach that level. It also tries to build up income from rent and then, in some cases, refinance the property.
(Source: Craig Whitten, Huntington’s leasing manager)
Skyline Commercial Real Estate Investment Trust
Key local executive: Bill Sioulas, regional director of Ottawa commercial, Skyline Commercial Management Inc.
Key properties: 2781 Lancaster Rd. and 800 Industrial Ave. (Skyline Industrial Park), 15 Grenfell Cres. (Skyline Commercial Centre)
Local portfolio size: 900,000 square feet
National portfolio size: 2.6 million square feet
Financing: Public markets
Portfolio focus: Light industrial and office space. The firm looks at any area of the city for new properties and will look at any size, including spaces that are as small as 6,000 square feet. The buildings in which it is interested range in age from 10 to 30 years old. This is because the company wants properties it can improve so it can add value for investors, said Jason Castellan, the firm’s CEO.
Target tenants: Skyline tries to focus on growing companies. This allows it to lease more of its portfolio to them as they get bigger. It looks at a variety of tenants – everything from light industrial firms such as NAPA Auto Parts to smaller mom and pop stores – but generally isn’t interested in glamorous multinational retail firms. Company officials also prefer to have a number of companies in each building rather than a single tenant. “Multiple tenants give you less volatility,” said Mr. Castellan. “If you have one tenant in one property, it’s great when you’re full but when you’re empty it sucks.”
The plan: Mr. Castellan said the company has two sets of customers: tenants and investors. His philosophy calls for increasing value for the latter by keeping the former happy, and he believes you don’t do that by making makeshift improvements to spaces that businesses will occupy. He said he views the company as fitting into more of a buy-and-hold strategy. “We’re very bullish on the Ottawa market,” he said.
(Source: Jason Castellan, CEO, Skyline)