RENX EXCLUSIVE: Desjardins’ DGAM Canadian Private Real Estate Fund and the Desjardins Group Pension Fund have teamed up to spend $134.6 million to buy the 210,000-square-foot 70 York St. office tower in downtown Toronto from the KingSett Senior Mortgage Fund in an off-market deal.

“It is a trophy asset which, given its size, was impossible for us to acquire alone,” Richard Dansereau, vice-president and head of real estate investments at Desjardins Global Asset Management (DGAM), told RENX. 

The fund negotiated a 60:40 partnership with the pension fund for the 17-storey building, which was built in 1985.

Dansereau said the two Desjardins divisions saw “a great once-in-a-lifetime opportunity to acquire really prime office property in Canada’s best office market.”

The fully renovated building is well maintained, institutionally managed and has “an amazing location” on the PATH indoor pedestrian network a short walk from Union Station, he said.

“To be able to buy a prime location in the central business district of Toronto is very, very rare,” Dansereau said, noting the quadrant bound by University, Adelaide, Bay and Front streets “is characterized by huge properties that we otherwise would never be able to afford.”

He said the deal makes Desjardins “a prime top-quartile player in the market.”

KingSett and 70 York

70 York was foreclosed on by KingSett Senior Mortgage Fund after its borrower-client lost the building’s primary tenant, HSBC, about three years ago.

The building became 80 per cent vacant when HSBC decided not to renew its lease. “Notwithstanding all of the negative aspects of the market, over the last three years, KingSett was able to stabilize this asset and bring it up to north of 90 per cent occupancy.”

The building is 92.5 per cent occupied, to be exact, with tenants that include CMHC and a broad mix of financial and real estate development companies with weighted average lease terms of 6.8 years.

“That’s a testament to the quality of the location and the quality of the product,” said Dominic Poulin, head of real assets at Desjardins Group Pension Plan. A 12,500-square-foot floorplate is the largest space available for lease and “there seems to be some leasing traction” for it, Poulin said. 

The building has ground-floor retail and 70 to 80 underground parking spots.

6.5 per cent cap rate

Its purchase price translates to a 6.5 per cent cap rate and $639 per square foot which is below replacement cost, Dansereau said. 

BGO will be maintained as property manager and CBRE as leasing manager for the property. Both were involved in the building’s lease-up period. 

Desjardins Capital Markets acted as the advisor for the two Desjardins divisions on the transaction, while CBRE and TD Securities advised KingSett. 

Dansereau said the fund heard last July that KingSett was interviewing brokers for the sale of the renovated office building, which was targeted to launch on Sept. 15.

The fund contacted KingSett on Aug. 1 and was able to negotiate a deal for the property, “provided we could reconcile their asking price on or before Sept. 15.”  

The property was partially subject to a land lease with a prominent Toronto family with 55 years remaining in the residual term. However, during due diligence the Desjardins divisions were given the opportunity to buy out the land lease and now own a 100 per cent freehold interest in the property. 

Desjardins was seeking office acquisitions

Dansereau said the real estate fund and pension fund were both looking to fill a void in their portfolios - Canadian office space. The fund held no office space, and the pension fund was underweight in the asset class. 

While office has been frowned upon in recent years, “we noticed that there was positive momentum in certain pockets of the market, particularly in Toronto and particularly for A-class office,” especially in the area surrounding 70 York.

As a result of back-to-the-office protocols from major banks and the Ontario government, there has been “tremendous” leasing activity in Toronto “and the timing couldn’t be better from our perspective.” 

It is early in the recovery and prices will likely rise as the office market recovers and more people look at the asset class, he said.

The two Desjardins funds

The Desjardins Group Pension Fund is the fifth-largest private pension plan in Canada. Poulin said the pension fund now has about $19 billion in assets, with real estate assets of roughly $2 billion representing about 13 per cent of the fund.

The pension fund has a global mandate while the real estate fund is entirely focused on Canada. 

In Canada, the pension fund aims to focus on industrial properties, primarily in the GTA and Western Canada and some Quebec retail, Poulin said.

Earlier this month, Dansereau told RENX the Desjardins’ DGAM Canadian Private Real Estate Fund was ready to start making acquisitions after sitting on the sidelines since its formation in 2024. 

The open-ended core plus fund was created with an equity commitment of $250 million from which it acquired a seed portfolio of about 15 properties (purpose-built rentals, industrial and food-anchored strip retail) on a 50 per cent basis from Desjardins Financial Security Life Assurance Co.

Dansereau said the fund has other potential transactions in the pipeline. 

“We’re really focused right now on industrial and food-anchored strip centres in Western Canada,” he said. “That’s really where our next deal hopefully will come from.”