CanFirst Capital Management closed out 2022 by bolstering its Eastern Canadian industrial portfolio along key distribution routes in the Greater Montreal and Toronto Areas, as well as in Southwestern Ontario.
The firm made acquisitions in Vaudreuil-Dorion and Cambridge, both of which closed in November, while it is also redeveloping a cluster of offices in Mississauga into a logistics centre.
Vaudreuil-Dorion, located just west of Montreal, sits between the Trans-Canada Highway and the Champlain Bridge, Canada’s busiest and an important commercial artery in Eastern Canada.
CanFirst purchased two buildings totalling around 268,000 square feet. The first, at 107,000 square feet, is a multi-tenant building with short-term leases in place. The second, a 161,000-square-foot facility, has a 13-year lease in place for its tenant.
CIPREF and the Montreal acquisition
“It’s just off the Island of Montreal, just to the west of Montreal. Vaudreuil is a logistical servicing node that services Montreal with a lot of strong tenants locating there,” Mark Braun, executive vice-president of CanFirst Capital Management, told RENX.
“We like the growth story. Montreal is just like Toronto and Kitchener-Waterloo-Cambridge in that it’s a very strong industrial market, with just over one per cent availability rate with strong demand.
"There are lots of strong tenants in Montreal.”
Using its CanFirst IncomePlus Real Estate Fund (CIPREF) — an open-ended core fund used to invest in commercial real estate across Canada — to purchase the Vaudreuil-Dorion property, the company is dipping heavily into the white-hot industrial sector.
“We are an industrial-focused firm," Braun said. "That is our core capability and where we will continue focusing.”
With its latest acquisitions, CIPREF has $150 million in assets under management.
“It’s an ideal node to service Montreal or to bypass Montreal, and that’s why there’s lots of interest to logistical users,” Braun said.
Three properties in Cambridge
Buoyed by favourable prices and a robust labour pool, Southwestern Ontario has emerged as a popular market for users in the industrial sector, paving the way for CanFirst to purchase the three properties in Cambridge.
600 Jamieson is a 46,700-square-foot office building that’s about three-quarters vacant; 650 Jamieson is a fully leased multi-tenanted industrial facility of 74,000 square feet; and 700 Jamieson is a 111,000-square-foot, single-storey office building spanning 12 acres, with French insurer Allianz as its tenant for another 11 years.
CanFirst utilized two funds to purchase these properties, CIPREF and the CanFirst Industrial Realty Fund 7 (CIRF 7).
“We like Kitchener-Waterloo and have had several assets out there over the last 10 years. It’s a great market,” Braun said. “It’s a strong industrial node and a strong tech node, so it has an interesting tenancy mix.
"On top of that, between Kitchener and Waterloo is a deep industrial base with lots of great companies producing lots of great products, so it supports itself.”
In fact, the Kitchener-Waterloo-Cambridge region is Canada’s sixth-largest industrial market after Toronto, Montreal, Vancouver, Calgary and Edmonton, Braun noted.
“There’s also a bit of overflowing logistics companies moving out of Toronto, but we like KWC because it’s a strong market itself and continues to be dominated by tech and deep industry.”
Redevelopment of Meadowvale property
In Mississauga’s Meadowvale neighbourhood, CanFirst is redeveloping an existing office campus into a 272,000-square-foot industrial facility with a 40-foot clear height.
CanFirst has not yet decided if it will be a single- or multi-tenanted warehouse facility, but it will cater to logistics companies.
Construction will begin some time in Q1 2023 and should conclude early in 2024, Braun said.
Running through Meadowvale is Hwy. 401, the busiest highway in North America and one of the most heavily travelled in the world. As a result, demand for industrial space is through the roof.
However, it’s exceedingly difficult to find land in the area upon which to build a new facility, impelling CanFirst to repurpose the existing property.
The Meadowvale facility is striving for LEED Gold certification and will also be zero carbon-ready.
CanFirst hasn’t yet decided if it will duplex the facility into 136,000-square-foot units or triplex it into 90,000-square-foot spaces.
“What we’re trying to do is build this into something that is sustainable and that is somewhat future-proofed,” Braun said.
“LEED Silver has become standard, but we’re trying to achieve LEED Gold, which would have some solar in the building, albeit not enough to meet the zero-carbon standard. The material difference with LEED Gold is it produces power on site.”
The economy and the industrial outlook
The overall outlook for the industrial market is still quite strong, despite economic headwinds that include the threat of a recession sometime in 2023.
That isn’t dissuading CanFirst from investing in the sector, Braun explained, because of a very salient market fundamental.
“Investment has somewhat cooled due to rising interest rates and the higher risk has nudged cap rates upwards,” he said. “Other groups are playing a wait-and-see approach.
"There’s uncertainty on the investment side right now and there has been a pullback of values of five to 20 per cent, depending on the asset type, but we’re still bullish on the space because, frankly, it’s still being led by tenant demand.”