There have been many distractions in recent months as Dream Office REIT (D-UN-T) deals with pandemic-related issues, but one of its core downtown Toronto projects continues to move ahead at almost full speed.
The Dream Collection is comprised of 11 boutique luxury office buildings on Bay, Richmond and Temperance Streets totaling about 500,000 square feet. They’re getting a variety of upgrades, including new facades, lobbies, bathrooms, elevators, and heating, ventilation and air-conditioning systems.
“There’s not a class of buildings like that in Toronto,” said Dream Office REIT COO Gord Wadley in an interview with RENX. “We’re on track to get everything complete by around Q2 of next year.”
Some of the Dream Collection buildings back on to a “h”-shaped alley which Wadley said the REIT will animate into a “kind of European outdoor setting” that will feature stores, licensed restaurants and seating.
Wadley believes the Dream Collection will play an integral part in the REIT’s post-COVID-19 recovery and provide a strong return on capital investments.
The appeal of Toronto’s Bay Street
“We’ve had really good demand in terms of the vacancies we have had. Our rates have been really strong. We’ve been doing some really good deals that rival some of the AAA towers in the market,” he explained. “We’re seeing a lot of people who find the appeal of having a Bay Street address, but (they prefer to have) a full floor at 3,000 to 5,000 square feet, which a lot of these floor plates are.
“They’re not typically sharing a massive floor plate. They’ve got their own autonomy on one floor.”
One of the Dream Collection buildings Wadley is most excited about is the completely leased, 62,932-square-foot 357 Bay Street, where tenants should be in place in the second half of 2021.
“We’re actively working with WeWork right now on their fit-up of the building,” said Wadley. “It was a total re-gut. We took all of the floors out, repoured the slabs and put in all-new base building systems.
“It’s a beautiful historic building, but on the inside it’s been fully modernized.”
Dream Office dealing with COVID-19
While the Dream Collection project progresses, the REIT has been active on many fronts dealing with COVID-19 fallout, but so far it has not had to worry about rent collections.
Dream Office REIT collected 95 per cent of its April rents and 92 per cent in May while working with tenants to help them through the crisis.
The REIT owns 29 properties encompassing 5.3 million square feet of gross leaseable area. The average building height is 14 storeys and the portfolio is 89.9 per cent occupied.
“When we started working from home, we started reallocating people that traditionally did other jobs to be part of a client services team so that they could take concerns, listen, be an empathetic voice on the other end of the line and help facilitate,” Wadley told RENX.
As part of that process, it agreed to defer gross rents for certain tenants for one to three months based on their individual needs.
CECRA and other government programs
The REIT has been educating tenants on government-led relief initiatives and assisting with back-to-work planning for their employees.
It’s working with smaller tenants who qualify for the Canada Emergency Commercial Rent Assistance program (those paying less than $50,000 in gross rent per month, generating less than $20 million in revenues at a corporate level and experiencing a revenue decline of at least 70 per cent during April, May and June).
The REIT is reviewing approximately 50 CECRA applications from tenants and is lending a hand with other government relief programs.
“A number of our tenants are using the wage subsidy and small business loans,” said Wadley. “The student jobs rebate program is popular as well, and our client services team sends out a weekly update with links to all programs, new and existing, to help provide important information as it becomes available.”
Dream Office REIT developed a comprehensive back-to-work plan for tenants and is making a number of health- and safety-related changes to its buildings as employees start to return to their offices.
To promote physical distancing, building lobbies will have separate entry and exit points and unidirectional traffic flows.
Hand sanitizers have been placed at entrances, signage helps direct movement, and designated courier drop-off points have been introduced to minimize outside visitor traffic. Enhanced cleaning is taking place in high-touchpoint areas.
“We want to over-communicate what we’re doing so there’s no ambiguity when people go in regarding way-finding, cleaning stations, UV technology in the elevators, some cleaning technologies for all of our escalators and common areas, hospital-grade cleaning, new filters in all of our HVAC systems, and some UV filtration in some specific systems,” said Wadley.
“We’re really trying to go over and above in terms of hopefully making people feel safe. I think it’s incumbent on all landlords to do that.”
The goal is to have all of these new technologies, systems and upgrades in place by August.
Dream Office REIT leasing activity
Despite COVID-19’s disruption to the leasing market, Dream Office REIT is managing an active pipeline of renewals and new leases with existing and prospective tenants. It’s working on approximately 370,000 square feet of leasing deals across the portfolio.
“We’re getting more creative with deals in terms of maybe offering some additional landlord’s work to the space to try and welcome tenants in,” said Wadley.
While government restrictions have precluded in-person property showings to prospective tenants, Dream Office REIT has developed models for virtual tours of vacant units and to provide examples of finished spaces.
Portfolio’s strengths should help stock price
The stock prices of most REITs fell sharply in late March and have made gradual upward climbs since then.
Dream Office REIT has been no different. Its price was $20.22 as of morning trading on July 7, down significantly from its 52-week high of $36.80 but up from its 52-week low of $15.21.
“I think the fundamentals of our buildings are strong,” said Wadley. “We’re predominantly a downtown Toronto core REIT, which is the best market in the country in terms of commercial real estate.”
Retail represents just six per cent of Dream Office REIT’s income, according to Wadley, which is another strength at a time when that asset class is struggling.