401 Marie-Curie St., Vaudreuil-Dorion acquired by Dream Industrial REIT (Courtesy: CBRE)

Dream Industrial REIT has acquired a prime logistics property with expansion potential in the Montreal suburb of Vaudreuil-Dorion from Vista Properties and Groupe Quint for $114 million.

CBRE brokered the transaction. Executive vice-president and practice lead for Montreal’s national investment team Scott Speirs said there was “exceptional interest” in the property at 401 Marie-Curie St., with bids from several large Canadian institutions.

The class-A 525,922-square-foot distribution centre was built in 2005 and features: a ceiling with a 31-foot clear height; a five per cent office-to-warehouse ratio; 48 truck-level doors; 300 trailer parking stalls; and the ability to expand by approximately 222,000 square feet on the east and west sides.

The vendor started the development process on an expansion of 132,226 square feet.

“We are excited to add high-quality properties to the portfolio which we expect will allow us to surface value in a short span of time by adding density or driving rents higher on lease roll-over,” Dream Industrial REIT (DIR-UN-T) chief operating officer Alexander Sannikov said in a media release.

“Our latest acquisition in Montreal will further enhance our near-term development pipeline. We expect the intensification to occur over two phases, with the first phase forecast to commence in 2021. We expect to achieve a yield on construction costs of over 6.5%, which would result in meaningful accretion to our net asset value.”

Dream Industrial REIT owns and operates industrial properties across Canada, the United States and Europe. It waived all conditions in making the 401 Marie-Curie purchase, and its portfolio now comprises 263 properties totalling 26.3 million square feet.

401 Marie-Curie details

The 38.4-acre 401 Marie-Curie site’s 165 dedicated trailer parking stalls on the south side of the building are ideal for on-site fleet management, eliminating the need for off-site trailer parking solutions. The additional 135 trailer parking stalls provide the opportunity to increase net income through third-party parking lease agreements, with each stall commanding $200 per month.

The property is completely leased to three strong covenant tenants: Robert Transport, Lactalis Canada Inc. (formerly Parmalat Canada) and Delta Logistics Solutions Group Inc. (DLS). It has a seven-year weighted average lease term and an in-place weighted average net rent that’s about 15 per cent below market, providing significant upside potential.

Robert Transport has 218,753 square feet of space at the building and offers more than 70 years of expertise in logistics, transportation, storage and distribution services. It has more than 3.5 million square feet of warehousing space across North America and provides pallet racking, unit storage, bulk and product stacking warehouse services.

Dairy and food company Lactalis Canada occupies 162,363 square feet of refrigerated space in the building and employs 3,300 in 17 facilities across Canada. Through a series of strategic acquisitions, it has expanded its operations to include the production of fruit juices, cultured products and table spreads.

DLS is a Montreal-based logistics service provider that specializes in local and long-distance transportation, warehouse and distribution, and fleet services. It occupies 144,806 square feet of rentable area at 401 Marie-Curie.

The property is located in a premier logistics hub and benefits from exceptional access to Montréal’s three primary highways (40, 30 and 20), which provide direct connectivity to the Greater Montreal Area (GMA), U.S. and Ontario markets.

Vaudreuil-Dorion’s industrial market

Vaudreuil-Dorion’s industrial market totals more than three million square feet and is projected to grow considerably within the next few years. The area has recorded more than 735,000 square feet of positive net absorption since 2018.

Vaudreuil-Dorion’s net rental rates have risen significantly over the past two years and hit $7.50 per square foot in Q3 2020. Availability rates fell to 3.6 per cent in that quarter.

As a result of its strategic location and strong leasing momentum, Vaudreuil-Dorion has seen a large influx of institutional investors placing capital in industrial assets in the past five years.

Following the success of Broccolini and Triovest’s first phase of the Quarante30 Business Park, Vaudreuil-Dorion is expected to experience additional construction activity.

GMA industrial market keeps getting stronger

Vista Properties is one of Montreal’s largest property holders and manages more than eight million square feet of commercial and industrial space.

Groupe Quint is a fast-growing Montreal industrial, commercial and residential property developer that has acquired and developed more than eight million square feet of space in Canada and the U.S. since its foundation in 2015.

Speirs said the 401 Marie-Curie deal showed the strength of the GMA’s industrial market. The vacancy rate decreased from a record low 2.6 per cent to an even lower 2.1 per cent from the third to fourth quarters last year, and total industrial rental growth for the GMA was 16 per cent in 2020.

“It’s really the only asset class that’s providing meaningful growth at the moment,” Speirs told RENX.

“Foreign buyers have found it difficult to compete because Canada is a very expensive market for industrial logistics.”

The 401 Marie-Curie transaction carried a price per square foot of $216 and a capitalization rate of below four per cent.

Speirs said industrial cap rates in the GMA and Greater Toronto Area are now virtually the same.

“The price per square foot is still different because rents are higher in Ontario, but cap rates in Montreal and Toronto being more or less in line is a significant development.”