Montreal’s expanding role as a hub for knowledge workers should allow Allied Properties REIT’s growing portfolio in the city to perform extremely well in the coming years, says Michael Emory, Allied’s president and CEO.
“Montreal is becoming a very, very successful and sought-after city for knowledge-based organizations,” Emory told RENX in an interview. “Fortunately for us, a lot of the buildings we own and operate (in Montreal) are the ones that these kinds of organizations want.”
Allied (AP-UN-T) has just come off a 2019 in which it made two major acquisitions in the Quartier International area of downtown Montreal, cementing the city’s position as the biggest in Allied’s portfolio in terms of square footage.
In the third quarter, Toronto-based Allied closed its $322.5-million acquisition of the almost million-square-foot 700 de la Gauchetière St. W. from Dream Office REIT. Completed in 1983 for Bell Canada, the 28-storey building is comprised of 935,866 square feet of GLA.
And in December, it spent $276 million to acquire 747 Square-Victoria St. (commonly known as the World Trade Centre Montreal), which has 519,574 square feet of office space and 43,015 square feet of retail space.
Completed in 1992, the “horizontal” skyscraper occupies a full city block, combines historic old and new buildings and even contains a portion of the Berlin Wall.
Montreal purchases key in 2019
While Allied acquired properties in Toronto, Vancouver and Calgary in 2019, those Montreal acquisitions were “easily the largest and most significant” during the year, Emory said.
Prior to the World Trade Centre purchase, Allied’s rental portfolio in Montreal was 5.6 million square feet divided among 20 properties, compared with 4.7 million square feet in Toronto.
But while the Montreal portfolio is Allied’s largest, Toronto “continues to produce considerably more earnings,” he said.
Allied has owned property in Montreal since 2005, after it concluded the city could help the REIT fulfill its mission of acquiring assets that were close to the core, distinctive and had lower rent costs than conventional office towers, Emory said.
After consolidating about two million square feet of assets in Toronto between 2003 – the year it went public – and 2005, “we were beginning to realize that Montreal had an even bigger concentration of heritage buildings than Toronto did and it was, in a way, more tightly compressed.”
Allied’s history in Montreal
Allied’s first acquisition in Montreal was 425 Viger Ave. W. in 2005, a building it still owns and is now expanding.
“We acquire only with a long-term investment horizon in mind,” Emory said. “We very rarely sell anything and if we do sell something, it’s because it either isn’t or has ceased to be a core asset for us. That doesn’t happen often.”
The REIT is now retrofitting 425 Viger and adding 100,000 square feet to its original 200,000 square feet of office space.
Work is scheduled for completion early next year and the building is close to 100 per cent leased to major knowledge-based organizations or TAMI (tech, advertising, media and information) tenants.
Aside from the Quartier International, Allied’s Montreal portfolio is centred in the Mile End, Mile Ex, Griffintown, St. Henri and Old Montreal neighbourhoods.
It has a team of about 80 in Montreal, something Emory says is a necessity: “You can’t run real estate from afar. You’ve got to have a really strong local team if you’re going to take on anything that’s management-intensive or redevelopment-intensive.”
Emory said because of Montreal’s large educational base – including the highest number of university students per capita among metropolitan areas in North America – a number of knowledge-based organizations are setting up shop.
“Google, Microsoft, Framestore, Ubisoft, GSoft and countless other organizations … are coming into Montreal to capture (its) talent pool.”
As a result, Allied is a “big believer” that Montreal’s “tremendous concentration of talent will be desirable on a long-term basis to knowledge-based organizations.”
Montreal is “a continentally significant city for knowledge-based organizations, not just Canadian. I think Montreal’s urban market is strengthening in every respect.”
Renovations for Gauchetière, World Trade Centre
To make 700 de la Gauchetière more appealing to knowledge workers, Allied plans to spend $50 to $70 million on renovations.
Work will involve creating large floor areas, removing existing ceilings and redoing the “very bland, very uninspiring” common areas. However, since it is 96 per cent occupied, “we won’t be transforming the building in one giant step, but rather as tenants rotate out of the building, or want their space to be updated.”
At the World Trade Centre, Allied may spend money in the short term to revamp the retail area. In the long term, there are “intensification opportunities” that include the possible creation of about 60,000 square feet of additional office space.
“It certainly isn’t the reason we made the acquisition, but it does give us the possibility of adding a bit of value” over the long term, Emory said.
Meanwhile, plans are afoot to add 300,000 square feet of office space at Le Nordelec, a former industrial property in Pointe Saint Charles with 877,376 square feet of GLA which Allied bought in 2016.
Work could begin next year but “we would want to do a bit of pre-leasing before we initiate construction.”
Emory said Allied’s ultimate goal is to be a very successful provider of workplaces in Montreal to knowledge-based workers. Growing companies want different options and “the more space we have, the more likely we can accommodate users as they grow.”