Allied Properties turns its attention to Vancouver

IMAGE: Allied Properties REIT president and CEO Michael Emory. (Courtesy Allied)

Allied Properties REIT president and CEO Michael Emory. (Courtesy Allied)

Allied Properties REIT’s purchase of Vancouver’s iconic building The Landing is the acquisition the company needed to establish solid footing in Vancouver’s distinctive urban office market, its CEO says.

The Toronto-based REIT (AP-UN-T) has already been a major player in Toronto and Montreal markets, and Vancouver was next on the list, president and chief executive officer Michael Emory told RENX. 

The Landing at 375 Water St. is a stand-alone mid-rise in historic Gastown, built at the turn of the 20th century as a warehouse, and it fits perfectly into the portfolio of industrial heritage office spaces Allied has acquired.

Less than three years ago, the company made it a mission to tap into Vancouver’s emerging knowledge-based sector, happening in large part because of the city’s West Coast connections to Seattle and the Bay Area.

Tech companies including Amazon, Microsoft and Shopify have made notable moves into the market. Amazon has plans to lease the former Canada Post headquarters on Georgia Street once it’s redeveloped as a 1.13-million-square-foot, two-tower building named The Post.

And the arrival of small to mid-size tech companies has added to the tech ecosystem set to transform much of the downtown core, with new commercial developments underway.

Office and retail in The Landing

The brick-clad Landing, which faces onto a cobblestone street, is set apart by an abundance of old-world character.

It’s also near all the action, adjacent to the central Waterfront station, and in the heart of the normally vibrant restaurant scene, perfectly poised for a youth-driven tech sector.

“I can’t overstate the importance of the acquisition to us in terms of our aspiration in becoming a leading provider of distinctive workspace in Vancouver,” said Emory.

“Growing our portfolio there is a very important objective of ours because we believe Vancouver is transitioning from a secondary urban office market into a primary urban office market in Canada and we want to put ourselves in the position of being one of the leading providers of distinctive urban workspace in Vancouver,” he said.

“Having acquired The Landing is a great step forward for us in that regard.”

The Landing is well-tenanted, with about 99.3 per cent of the building leased, according to Emory.

Its 27,115 square feet of retail space includes small shops and Steamworks, a large brewpub restaurant popular with tourists and office workers. The surrounding amenities, said Emory, are a key part of its urban acquisitions.

The deal was made just prior to the pandemic and the economic downturn, but Emory has no regrets.

“We haven’t had anything remotely approaching a second thought about that, primarily because we bought this building for the long term, and I don’t believe the pandemic or the economic disruption it has caused will change the nature of what we do in any way, or the value of what we own in any way.”

Allied Properties’ Vancouver portfolio

IMAGE: The Landing in Vancouver, now owned by Allied Properties REIT. (Courtesy Allied Properties REIT)

The Landing in Vancouver, now owned by Allied Properties REIT. (Courtesy Allied Properties REIT)

Once the deal completes by the middle of June, it will bring Allied’s Vancouver portfolio to 12 properties and 643,000 square feet of space.

The company is also working with developer Westbank on a mixed-use building at 400 W. Georgia, which is already mostly leased and includes tenants Deloitte and Apple. It completes in 2021.

Allied’s 50 per cent interest in that building will bring the tally of properties to 820,000 square feet, which is nearing the level it wants to be at in Vancouver.

The Landing is an unusual purchase because the company sold the non-managing half of its interest in two Montreal office buildings to finance it.

Allied is not in the practice of selling off its assets.

“What we effectively did was transfer capital in Montreal that has no growth potential over the next 10 years to an asset that we believe has tremendous growth potential over the next 10 years,” said Emory. 

“Most of what we own is part of a coherent whole and we feel that by selling any part of the coherent whole is leaving the portfolio somehow weaker.

“So we are not a seller, and we are known not to be a seller,” he adding, noting however “there are exceptions that prove every rule.”

Emory said he couldn’t identify the two Montreal commercial properties until the deal completes.

“Once their commitment to buy is firm and binding we will identify the properties. It’s really in the pension fund’s interest, and our own, not to identify them ’til that time.”

Montreal sale raises capital for acquisition

The deal allowed Allied to free up capital but also to maintain ownership over a highly valued, extremely stable Montreal asset.

The income stream generated from the asset is “very predictable, very stable, very established,” said Emory, “but there is no way to make it grow in the next 10 years or so.

“There is no growth potential in the investment.”

That makes it an ideal asset for a pension fund, whose pensioner investors are looking for minimal risk and stable revenue streams.

“We thought in this case it made sense to sell a non-managing half interest to the pension fund so we would retain half the property that we have great affinity for, and we would continue to manage it fully, but really sell half the building off to a pension fund who can benefit from a stable income stream.

“This is one way to raise capital to make additional acquisitions — so in a way we kind of get our cake and eat it, too.”

The Landing also boosts Allied’s position as owner of premier industrial heritage properties which have been converted to office and retail spaces, called class-I buildings.

“We probably now own the vast bulk of — if not all of — the premiere class-I buildings in the country,” said Emory.

Improvements planned at The Landing

Allied owns another building in Vancouver’s historic downtown warehouse district, trendy Yaletown, where it has the potential to add two or three storeys.

The Landing doesn’t have potential for added floor space, but Emory said the plan is to open up the partitioned floors to improve working conditions.

The partitioned offices cut off the natural light which is an advantage of class-I buildings. As well, The Landing has extra-height ceilings and large floor plates.

Over time, the plan is to remove the partitions and corridors and open up the floors to accommodate interactive knowledge-based businesses.

“It’s not that we will be kicking anyone out,” said Emory.

“In fact, what we would very much like to do is relocate the smaller users in the building to other buildings we own, or will own, in Vancouver and make these big floor plates available to knowledge-based organizations that have real demand for large plates that can be open, and where the heritage surfaces have been re-exposed.”

Allied Properties and the post-COVID world

In the post-COVID world, he also expects Allied will need to respond to a heightened sensitivity and new demands around wellness, such as air delivery, light delivery and physical security.

Because Allied’s focus is on commercial buildings with retail at grade, a number of its tenants have been exposed to the economic downturn.

The company has not been greatly impacted so far, said Emory. It had collected 90 per cent of its rent for April, and had granted deferrals to tenants representing eight per cent of revenues.

Allied expected to collect the remaining two per cent.

“The impact on our earnings is not expected to be material at all. And we are prepared to work with those tenants to whom we have granted deferral because they are in genuine financial need through no fault of their own, and they have viable businesses.”

For those who will likely need more help, such as restaurants, Emory said Allied would work with the government assistance programs.

“I’m pretty confident that a number of our users will be able to take advantage of that assistance. And even if that isn’t the case, we will find ways to help those businesses that are viable to survive.”

RELATED ARTICLES:

* Allied Properties REIT to buy Vancouver’s The Landing

* Allied a ‘big believer’ in Montreal CRE: Emory

* Allied to buy World Trade Centre Montreal for $276M

* Vancouver, Toronto share N. America’s lowest office vacancy



Kerry Gold has spent more than a decade as a full-time freelancer, writing a weekly real estate and housing column for the Globe and Mail. She also writes investigative pieces…

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Kerry Gold has spent more than a decade as a full-time freelancer, writing a weekly real estate and housing column for the Globe and Mail. She also writes investigative pieces…

Read more




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