Canadian Real Estate Investment Trust (CREIT) is expanding its holdings in Alberta, acquiring a 50% managing interest in the downtown office complex Calgary Place.
“We really like the long-term prospects for economic growth in Alberta,” says Adam Paul, CREIT’s Executive Vice-President of Investments and Leasing.
“As a result, we have proactively increased our investment in high-quality property in the major markets in Alberta, which for us is Edmonton and Calgary.”
CREIT is paying $156-million for its stake in Calgary Centre – a 50/50 deal with KingSett Capital – and will provide property management, leasing, accounting and project management services.
KingSett Capital and CREIT partnered on another downtown Calgary property just last month, buying the Altius Centre for $179.8-million.
“We’ve known KingSett for a long time and we have a lot of respect for them as a real estate owner,” says Paul. “We are very compatible from a partnership perspective.”
An Oldie but a Goodie
Built in 1968, Calgary Centre offers 575,000 sq. ft. of leasable space in two Class A office towers.
“This property is located on an irreplaceable piece of land in a central location in downtown Calgary,” says Paul. “These opportunities come up very infrequently in all of Canada.”
Paul says virtually all of the major building systems have been recently upgraded by previous owners Oxford/AIMco. Cosmetic upgrades have also been completed on the retail area and grade-level building facade.
” Oxford deserves a lot of credit for maintaining the property to a very high standard,” he says.
Twin towers are connected by a two-level retail podium. Below ground are 276 parking stalls on two levels – a parking ratio of one stall per 1,800 sq. ft. of office, which CREIT labels a “significant parking amenity” in downtown Calgary.
East Likes West
Canadian Real Estate Investment Trust was listed on the Toronto Stock Exchange in September, 1993, making it the oldest REIT in the Canadian marketplace.
CREIT owns more than 190 properties in three asset classes across Canada, with more than 22-million square feet of leasable space – generally prime locations in major metropolitan centres.
“We own assets that we believe unit holders will be delighted to own in 10 years and in 20 years from now,” says Paul.
With its latest acquisition, CREIT will own and manage 1.9-million square feet of office space within the downtown Calgary footprint – Calgary Place, Altius Centre and Sun Life Plaza in which CREIT purchased a 50% interest in 2004.
Paul estimates CREIT is now one of the larger owner/managers in downtown Calgary after Brookfield, Oxford and Great West Life.
“Calgary is a core market for us,” he says. “We’ve been actively pursuing opportunities for years, but until recently we haven’t had the opportunity to add downtown office.”
Since January 2011, CREIT has acquired eight properties for more than $483-million, including five in Alberta with two of those in Calgary.
According to Paul, the Toronto-based CREIT has 35% of its earnings coming from Alberta holdings compared to 30% from Ontario.
In the latest quarterly market survey, Avison Young reports that office vacancy in Calgary has been in steady decline for two years driven by energy companies’ expansion thanks to significant oil sands projects – ten consecutive quarters of positive absorption.
“Unequivocally, it is the tightest, most robust office market in the country right now,” says Paul, noting that the vacancy rate for Class A or better office space in downtown Calgary is 1%.
Paul says occupancy in Calgary Centre is 99.7%, with anchor tenants Shell Canada, Harvest Operations Corp., AltaGas and AESO taking 75% of leasable space.
Near-term leases and strong demand for space should serve CREIT well in the short term.
Average market rental rates have been steadily increasing over the past year and Avison Young does not expect the new 1.7-million sq. ft. Bow office building to have much, if any, impact on vacancy rates.
Paul agrees, saying, “It should be an interesting couple of years coming up in downtown Calgary.”
Steady As She Goes
CREIT will finance the Calgary Place deal with a new $95-million mortgage at 3.9% for a 7-year term, plus cash on hand.
Paul says the $156-million investment is a comfortable fit with CREIT’s recent acquisitions and long range strategy. “We continue to apply a disciplined and focussed approach to our business in the way we have added assets.”
CREIT reports that typical due diligence conditions have been satisfied and expects to close the Calgary Place deal in May.
“This reconfirms our commitment to Alberta and Calgary specifically,” says Paul. “It’s a large investment for us, on top of a large investment that we already had in downtown Calgary. It stresses that we will be patient and wait for the right opportunities and assets that meet our quality test.”