A joint venture involving KingSett Capital and Candev has acquired a portfolio of five industrial buildings at three properties in the Montreal borough of Saint-Leonard from Groupe Petra.

What makes this acquisition of particular interest is that the properties are all small-bay, multi-tenant facilities - a highly sought-after asset type these days due to the ongoing demand among smaller tenants and prohibitive costs to build new product.

The portfolio comprises a total of 369,464 square feet of leasable space on just under 978,000 square feet of land.

Financial details about the transaction have not been disclosed.

Toronto-based KingSett Capital, one of the country’s largest private commercial real estate investors, developers and equity firms, is the majority owner. Candev, a private investor, construction firm and property manager based in Montreal, will also manage the properties.

The properties in the transaction

The properties are:

• 9350-9450 Langelier, Centre Industrial Langelier. Constructed in 1982, the 82,060-square-foot building features 18-foot clear heights. It is 100 per cent occupied by two tenants.
• 6325-6475 des Grandes-Prairies, Centre Industriel Petra. This 188,188-square-foot complex of three buildings was constructed in 1989-90. Located on over 620,000-square-feet of land, it also includes a 54,000-square-foot parcel of developable land. Featuring 18-foot clear heights, it is 75 per cent leased.
• 4555 des Grandes-Prairies. This 99,216-square-foot property was constructed in 1987 and is fully leased. It also features 18-foot ceiling heights.

All the properties include significant ground-level parking.

Scott Speirs, vice chairman and practice lead for CBRE’s Montreal national investment team which brokered the deal, told RENX there was strong demand among potential buyers.

“That’s not a coincidence,” he said, noting that while some aspects of the industrial leasing market have slowed in recent months, that is not the case for these types of assets.  “The way the industrial market has softened, it is the large bay that has been most impacted.

"The smaller the bay size, generally speaking, the more resilient it has been. Small bay has held up the best in the past six to nine months.”

High cost to build, no new small-bay industrial

While there has been a steady stream of new large-bay buildings coming onto the market - in both Greater Montreal and across the country - to meet stiff demand during the past few years, there has been very little small bay. The reason is simple.

“The cost to build small-bay is a major challenge,” Speirs said in a followup email.  “There has been virtually no new inventory added to the GMA market in the small-bay space in several decades. The limited supply and discount to replacement cost is highly attractive to investors.” 

Another attractive feature of this portfolio is that rents are considerably below market. With many of the leases coming due in the next couple of years, that means the mark-to-market upside is strong.

“On the small bay stuff, if the rents are below market and the leases are short there is still good appetite from both institutionals and privates,” Speirs said.

That’s a different situation from the types of large-bay buildings currently in favour with investors. As supply has caught up with several years of prodigious demand, and many tenants seeking sizeable tenancies have been absorbed into newer facilities, leasing has slowed in that sector.

However, Speirs said there is still interest for the right types of properties - and absorption of the largest new deliveries does continue, albeit at a slower pace.

 “You’ve just come off the greatest bull run in industrial history in Canada so it’s all relative. Vacancy rates are still around five per cent, that’s still a healthy level,” he explained. “Because of the current situation on the leasing side . . . we’re seeing an increasing number of investors looking at long-term leased, well-located product with good covenant.

“It’s tough for an investor to buy something (large bay) that is market rented, if it is a short-term lease.”