“Those opportunities are fairly rare in the (Greater Toronto Area) marketplace and certainly help us to scale the industrial portfolio in quick fashion,” GWL Realty Advisors’ Steve Marino said of their acquisition of the new, state-of-the-art distribution centre.
The $180-million transaction closed in December.
Marino, the firm’s senior vice-president of portfolio management, said the acquisition on behalf of Canada Life is part of the company’s strategy to increase its real estate holdings.
“Certainly, this transaction aligns with the strategy to increase allocation to real estate, first and foremost, on behalf of this client (Canada Life). This client has been continuing to increase its allocation to real estate as a way to continue to enhance its yield profile.
“What we also like about this is the opportunity to deploy a fairly significant volume of capital into an attractive asset class in a best-in-class new generation investment.”
The DSV facility
The facility at 2200 Yukon Court in Milton, just west of Toronto, is a build-to-suit development designed as the flagship facility for DSV. The firm is one of the world’s largest providers of logistics and supply chain solutions, with operations in more than 80 countries.
The purchase price represents about $164 per square foot, which Marino said “would be representative of replacement cost.”
The facility incorporates the most up-to-date features and logistics capabilities, including a 40-foot ceiling height and more than 100 loading docks.
Its location provides excellent accessibility to ports, rail services and the GTA’s 400-series highway system.
It also includes an attached, three-level, 35,000-square-foot office which will serve as the company’s headquarters. The warehouse itself is the largest in the DSV network and its fifth facility in the Toronto area.
“DSV took possession of it in late December and is currently doing some of the fixturing work as we speak,” Marino said.
DSV expects about 800 employees to work at the site once it is fully up and running.
Leeswood Construction was the lead builder for the project.
GWL Realty Advisors’ path to purchase
The process began about a year ago when JLL was enlisted to sell the warehouse, then under construction.
“It was broadly marketed to what I would call their institutional-buyer profile,” said Marino. That meant an extended, highly competitive process for the purchase. “It obviously had a very extended due-diligence period and construction phase attached to it.”
Although DSV does lease another GTA facility from GWL Realty Advisors, Marino said that did not give his firm an inside track on the acquisition.
“No, I wish I could say it did,” he told RENX. “It certainly helped make us a known quantity to them as a prospective partner moving forward.”
The company itself is considered a blue-chip tenant.
“DSV is an investment-grade covenant with a BBB+ Standard and Poors credit rating, so certainly that is another element of this deal that is fairly unique,” Marino said.
“The lease has a very attractive structure, with an attractive in-place rent which I would describe as below-market, with attractive CPI escalations going forward which will certainly continue to provide contractual growth.”
Toronto’s industrial sector
Purchasing prime assets of any decent size in the Toronto region is a difficult process these days.
Vacancy rates remain at historic lows (generally between one and two per cent depending on the sub-market), very little product is on the market and there are always a number of bidders for quality properties.
Marino called the acquisition “certainly an expensive transaction in terms of pricing, but ultimately by virtue of having an investment-grade covenant, coupled with the best-in-class generation of the asset, allowed us to move forward with the opportunity.”
He said the site is fully built-out, with no room for expansion.
Marino said GWL Realty Advisors continues to like the Western GTA submarket and he doesn’t see any near-team easing in the tight industrial vacancy.
“We don’t see much relief coming in the near term, just given what continues to be very strong demand and, for the most part, limited availability of supply,” he observed. “So we think conditions remain fairly prominent for continued growth in rents in the near term and we think that bodes well for an asset of this quality.”
The sale was the second-largest industrial transaction in the Greater Toronto Area during 2019, bested only by the sale of a data centre in Richmond Hill by AIMCo (valued at $215 million).