GWL Realty Advisors (GWLRA) is acquiring a portfolio of seven medium-bay industrial properties in the emerging Montreal node of Varennes as it continues to seek high-quality properties and development land in the sector.
GWLRA’s Steven Marino, the executive vice-president, portfolio management, told RENX the buildings were all constructed during the past decade and have been acquired on behalf of its Canadian Real Estate Investment Fund No. 1 (CREIF).
Six of the buildings have been acquired, while the closing of the seventh has been postponed to Q4.
“What’s quite interesting to us are the physical characteristics of the assets,” Marino said in an exclusive interview. “Medium-bay assets, with a combination of single- and multi-tenant assets. The overall quality improvement was a key highlight that drew our attention.
“As important, I would say, is the location in the emerging node of Varennes and its locational advantages, mainly its location to Hwy. 30, access to a deep labour pool and its ability to service the City of Montreal, the U.S. market and also broader access to the Ontario market.”
Marino said he was not able to disclose financial details, due to confidentiality clauses in the acquisition agreement.
The buildings, previously held by Varennes-based Innoval Real Estate Fund, are located on Jean Coutu, Lionel-Boulet and Samuel-Hatt streets in the Varennes and Chambly industrial parks and comprise over 416,000 square feet of leasable space.
Buildings sizes range from 15,530 square feet to 123,789 square feet.
“Growing portfolio” in Greater Montreal
“We’ve got a growing portfolio in the Montreal marketplace and I’d say for this particular client (CRIEF) . . . with the addition of this portfolio it now holds a 10 per cent allocation to the Quebec marketplace, which is principally allocated to Montreal,” Marino explained. “This acquisition is strategic in continuing to realize our allocation target to the City of Montreal.
“We made a decision a few years ago, as we looked at our portfolio strategy, to really continue to lean into Montreal based on some of the attractive infrastructure spending going on in Montreal in particular both by municipal and provincial governments, and to continue to participate in some of the economic repositioning of the municipality itself.”
The buildings offer a variety of unit sizes and options, with clear heights in the 24-foot-and-higher range. Marino said they are “well-tenanted,” but did not disclose the occupancy rate.
The timing of the acquisition, he said, has already been favourable for GWLRA, which is based in Toronto. The close has taken some time following the marketed bidding process (conducted by CBRE). During that time, Montreal’s industrial market has seen heightened demand and an accompanying acceleration in leasing rates.
“We think over the past six months in particular Montreal has really seen a strong acceleration in rental growth which continues to position well for this particular opportunity,” he observed. “This is a transaction that has taken a bit of time to come to a close and so over the course of that time we’ve seen a very positive trend in terms of rental rates shifting, which in our estimation provides some upside on rents.
“I think at the same time fundamentals that attach to the City of Montreal and other major metropolitans across Canada, we are seeing very strong demand quotients with limited new supply creating very favourable fundamentals for investors who can really continue to lean into those strong fundamentals and really grow the income profiles of these assets.”
Significant leasing rate increases
Montreal’s average industrial leasing rate has soared 63 per cent during the past year, according to CBRE’s most recent data. Properties are now leasing for an average of $13.40 per square foot and vacancy remains very tight at 1.3 per cent.
It’s a reflection of a trend across the country, as e-commerce has rapidly grown, we are seeing on-shoring of some manufacturing and just-in-case is replacing just-in-time supply chain management in many sectors.
GWLRA has expanded its presence in both the industrial acquisition and development sectors in recent weeks, making several other purchases for various clients.
– GTA North: a 44.7-acre industrial land purchase in Richmond Hill, which will be developed into a multi-building industrial site.
– Stony North Logistics Centre: a 128-acre industrial land parcel in the Calgary market area, which is in pre-development. Upon buildout, the site will accommodate approximately 2.2 million square feet of leasable space.
– 261 Abbotside Way: a 138,000 square foot, state-of-the art class-A warehouse development under construction in Caledon, just north of Toronto. The target completion date is 2023.
– Plains68: a joint-venture development involving two small/mid-bay industrial buildings totalling 205,075 square feet on a 10.1-acre site within the Great Plains Business Park in Calgary, which is fully leased.
The transactions have increased the value of GWLRA’s industrial portfolio to $5 billion, representing close to 18 million square feet of single- and multi-tenant assets.
Reallocation from office to industrial, multifamily
“In terms of asset class, we have been tactically rotating our allocations to increase the allocation to multifamily residential and industrial. It’s a decision we made about five years ago,” Marino said. “I think our timing has been pretty good.
“We’ve been able to execute on a number of meaningful office dispositions and that heightened allocation to industrial and multifamily has certainly been beneficial to our clients.”
The recent acquisitions are primarily light industrial properties that can be configured or reconfigured for warehousing, light manufacturing, distribution centres or other needs. The land also offers GWLRA some flexibility in what to build, for different types of tenants.
Buying both satisfies the different needs of its various investors.
“For some of our clients, development is an attractive way to gain scale in markets that we think might otherwise be very difficult to penetrate,” Marino said. “For other clients, they appreciate the income profile that buying an income-producing asset generates out of the gate.”
Platforms with both options can be lucrative for its clients.
“We certainly think about these investments from a long-term perspective, trying to look through short-term market cycles or market conditions and try to build strategies that should have enduring elements to them, that really allows clients to succeed over time.”
About GWL Realty Advisors
GWL Realty Advisors Inc. is a North American real estate investment advisor providing comprehensive asset management, property management, development and specialized real estate advisory services to pension funds and institutional clients.
GWL Realty Advisors Inc. manages a diverse portfolio of office, industrial, retail and multiresidential assets as well as an active pipeline of new development projects.