Exempt Dealer honour illustrates Arlington Street’s winning strategy

This month’s win by Arlington Street Investments of Commercial Real Estate Deal of the Year for a financing on a downtown Calgary building revamp illustrates the success of Arlington’s model.
The Calgary-based company received the honour from the Exempt Market Dealers Association of Canada for its successful 8th Avenue Limited Partnership, set up to renovate, reposition and construct a new building located at 718 – 8th Avenue S.W. (image below).
Arlington Street raised $2.5 million in equity and $6.5 million in debt to transform a rundown, Seventies’ era 18,000-square-foot building into a four-storey, 34,000-sq.-ft. building that will house a fitness centre client on the first floor and basement, business tenants on the second and third floors and, on the top floor, Arlington Street’s new headquarters.
“The debt has already been paid out and the $2.5 million (of investments) participates on the equity side which is why we essentially won that award,” says Frank Lonardelli, Arlington Street’s president and chief executive officer.
Beltline Strategy
The Calgary firm’s business strategy is simple: concentrate on the so-called “beltline” that surrounds the city’s business core and renovate properties that suit the smaller service companies which prefer to locate there.
“We serve the owner-managed business market place, companies that have between 15 and 30 employees,” he said. “Those companies are looking for boutique-y buildings and those are what we generally create, or in this case re-create.”
During the “Re and Re” or renovation and reposition of the Calgary building, which was the home of defunct bars and nightclubs, the company added two floors to the structure and installed new mechanical, electrical and plumbing systems.
“In essence, it is a newly constructed building right in the downtown core of Calgary and now sits on 34,000 square feet of what I would say is A space in an A location for small, owner-managed business tenants.”
The Arlington model of redeveloping and reconstructing tired old buildings rests upon creating ground-floor retail space which generates more in rent per square foot and also by capturing more for office space after renovating existing office space (and building new space) above the retail.
“Because we are an integrated real estate company, we not only buy and reposition the existing base building, we also do all the tenant improvements and we do all the design work. So that helps in efficiencies in turning over the building.”
Classic Cowtown building
Lonardelli and his group had its eyes on the long-vacant building for years, waiting until the economics made sense. “The property is kind of a classic play in Calgary when people chase the market.”
Empty since 2005, it was sold to a syndicate of investors at the height of the market in 2007 for about $4 million, or approximately double the $2 million Arlington Street offered for the property in a losing bid.
In 2009-10, after downtown office vacancies soared from 0% to 16% in the downtown, the company acquired the now-distressed asset for $2 million.
“We are value investors,” said Lonardelli. “My friends in Toronto and Vancouver are always very skeptical about the Calgary marketplace and you ought to be if you are chasing the cycle. We don’t chase the cycle.
“It doesn’t matter to us if the market is trading at a $35 barrel (of oil) or is trading at a $140 barrel. We look at the market at any given time on a stabilized basis. So a healthy market is always at about 7 or 8%, and we say ‘Great, on a replacement cost at 7 or 8% vacancies here is what the rental rate will be, here is what the building will be worth in terms of a price per square foot.’ ”
Based on that vacancy rate and price per square foot calculation, “if we can buy below those two metrics, at any given point in the market we are buyers,” he added. “If not, we just walk.”
Winning track record
To date, the Calgary company has completed 13 projects and “we have never lost a dollar of our or our valued investment partners' invested equity,” said its president and CEO.
“So far 13 and we have four pretty prolific developments that are underway, two in the southwest corner of the famed Red Mile on 17th Avenue and one at a really sought-after intersection at the corner of Elbow and 50th which will be a 130,000-square-foot mixed-use development which we are very excited about.”
It has another 8,000 sq. ft. development that it wants to redevelop to 30,000 sq. ft. of rentable space that it cannot disclose currently because it has not cleared land use hurdles.
Of the 13 finished projects, Arlington Street has sold seven at a hefty profit, said Lonardelli.
“In the case of the seven different buildings, we received (between) four and four and a half times more than our original equity” from the purchasers.



Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more




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