Crown Realty Partners has scored a major leasing deal for one of its recently acquired suburban Ottawa assets, signing PCL Construction to a 40,000-square-foot lease at its two-building 3755 Riverside Dr. property.

Crown has become a major player in the Ottawa office market in recent years.

It entered the market with a 289,000-square-foot acquisition in 2019 and has since expanded its portfolio under management in Canada’s capital to more than 2.5 million square feet.

“When we acquire our assets on behalf of our value-add fund, these are often assets that require some amount of repositioning and frequently have high vacancy rates,” Crown managing partner of investments Emily Hanna told RENX.   

“Our (Ottawa) portfolio, which is at varying stages of repositioning, is just shy of 85 per cent occupancy, notably higher than at the time we acquired the assets.”

3755 Riverside Dr. is easily accessible by public transit and Highways 416, 401 and 417. It features a four-storey above-grade parking garage and is a 15-minute drive from downtown and five minutes from Ottawa International Airport.

IBM sold 3755 Riverside to Crown

The Crown Realty IV Limited Partnership Fund acquired the 30-year-old, 283,926-square-foot office complex on a six-acre site in December 2021 for $49 million from IBM.

The technology corporation sold the property as part of its strategy to move away from owning and managing its own real estate portfolio in Canada.

“The sale (partial-leaseback) formula is one that Crown is quite familiar with, working with large corporate owners to downsize them and ultimately convert their single-tenant sites to multi-tenant campuses,” Hanna said.

“We have completed successful repositioning with assets formerly owned and occupied by AstraZeneca, Sharp Electronics and GE.”

While IBM continues to occupy all of the 10-storey building on the site, Crown sought out new tenants for the adjacent six-storey building on the property.

In a fortuitous twist, CBRE associate vice-president Brandon Yuke had already presented the off-market leasing opportunity to PCL Construction, even before Crown’s acquisition of the property closed.

PCL toured the building and, following extensive negotiations throughout 2022, a deal was agreed to in February.

This included accommodating a reduction in IBM’s leased space to make room for shared amenities on site.

“The stars aligned,” Yuke told RENX. “We were able to get a really good deal done and create a really good story for the suburban Ottawa office market.” 

Improvements being made to property

PCL was awarded the tender to modernize the main lobby of the Riverside Drive complex and is working with Crown on other amenity upgrades to the campus, its conference facilities and fitness centre.

Crown is also adding electric vehicle charging stations and making other improvements with sustainability and tenant experience in mind.

“Crown’s repositioning plans have included a model suite program to make the move much easier for tenants,” Hanna said.

“Amenity upgrades and cap ex that focus on accessibility improvements, together with improvements to the indoor air quality, are central to our program, as are improvements to HVAC systems that contribute to energy efficiency and decarbonization planning.   

“These are the kinds of upgrades that improve the quality of the tenant experience and support the businesses in our buildings as they strive toward their own ESG goals.”

PCL will relocate from about 24,000 square feet at its owner-occupied headquarters in suburban Rideau Heights to occupy 40,000 square feet over three floors of the smaller building at 3755 Riverside next summer.

In the meantime, it will conduct its own tenant fit-out of the space.

Ottawa office market overview

Ottawa had a 13.2 per cent downtown office vacancy rate and an 11.6 per cent suburban office vacancy rate in Q1, according to CBRE. Net absorption was negative 537,000 square feet and sublet space increased by 397,000 square feet during the quarter.

Elsewhere in the market, H&R REIT closed on the sale of its 27-storey downtown ONE60 Elgin office property to Groupe MACH and Sarees Investments for $247 million in April, showing there’s still sales activity in a market that has slowed due to higher interest and vacancy rates.

“The office asset class and investment have taken a hit, and certainly valuations have taken a hit, and there's probably not as much belief in it right now,” Yuke said. 

“But there are still those out there, like the purchaser of ONE60 Elgin, who are double downing on office, who are long-term believers and who are bullish on the asset class.

"And they believe that they're buying in at the right time, for the right price, and that their yields and their returns will improve in the long term.” 

Yuke said he’s never been busier representing Ottawa clients with office needs and, while there’s plenty of space available, there’s not much quality space. 

“Quality space is still leasing, mid-quality space is getting more interest and low-quality space in class-C-minus buildings will basically just burn out right now by virtue of current market conditions,” Yuke said.

“We are laser-focused on executing the leasing and repositioning plans for the assets that we currently own and manage,” Hanna said of Crown’s portfolio.

“We do have a fund with committed capital and are always actively underwriting opportunities to acquire assets that fit with the criteria of our value-add fund.

“At this time, however, there isn’t anything imminent in the pipeline in either of our core markets affording us the opportunity to really focus on executing our repositioning plans.”