Woodbourne Capital Management and Epic Investment Services have acquired a 313,511-square-foot small-bay industrial portfolio in the Montreal borough of Saint-Laurent from KingSett Capital for $66.5 million.

The off-market deal for the multi-tenanted, 1970s-built properties was brokered by CBRE, which approached a small group of potential purchasers about the portfolio early this year.

“Epic’s pretty known in the Canadian marketplace for being a value-add industrial buyer, so this came our way and we were pretty quick to put pen to paper and underwrite,” Epic senior vice-president of investments Aaron Moore told RENX.

Scott Speirs, vice-chairman and practice lead for CBRE Montreal's national investment team, told RENX KingSett acquired the portfolio in the fourth quarter of 2020 in another CBRE-brokered deal.

“This is highly functional small-bay product that's in a prime location,” Speirs noted. “You’ve got strong income diversification and still have the ability to grow the rents, which are still below-market.”

Speirs said rents increased from the seven dollar per square foot range to about $12 per square foot during KingSett’s ownership tenure and “they achieved a very good increase in value from the initial amount they bought it for, versus what they’ve resold it for.”

The assets were still acquired for well below replacement cost, according to both Speirs and Moore.

The Saint-Laurent portfolio

The Saint-Laurent industrial node provides optimal accessibility and connectivity to major highways for transportation access across the Greater Montreal Area and beyond.

The Saint-Laurent portfolio is comprised of:

• 15,059 square feet at 1050-1070 Rue Beaulac;
• 47,374 square feet at 1100-1240 Rue Beaulac;
• 50,329 square feet at 1248-1360 Rue Beaulac;
• 55,582 square feet at 1420-1490 Rue Beaulac;
• 31,307 square feet at 3405-3479 Blvd. Cote Vertu Ouest;
• 48,887 square feet at 4000-4036 Blvd. Cote Vertu Ouest;
• and 64,973 square feet at 7451-7499 Trans-Canada Highway.

Rent growth for small-bay industrial properties

Speirs said rent growth for mid-bay industrial product in Montreal is flat while there’s been some softening in rents for spaces of more than 100,000 square feet. Small-bay assets, on the other hand, are still experiencing rent growth.

“We really think that's a well-insulated part of the market and we continue to see, on a relative basis, the strongest demand in that section,” Moore said.

Moore acknowledged the significant double-digit industrial rent increases of two years ago are no longer feasible and the market has entered a more moderate phase, but he’s confident Epic and Woodbourne can gradually lift leasing rates closer to average Montreal industrial rents in the $16- to $17-per-square-foot range.

The Saint-Laurent portfolio has a 95 per cent occupancy rate and a diverse mix of units generally ranging from 400 to 3,500 square feet. There are 84 tenants with a weighted average lease term of just over two years.

While there are no intensification or major renovation plans for the properties, capital expenditures will be made on the portfolio.

“My job is working with property management and working with leasing to come up with operating, leasing and capital programs to manage investments over time,” Epic senior VP of asset management Tony Maduri told RENX. “We're very careful about how we spend our money and our clients’ money as prescribed and targeted. It's timed as to when it's appropriate.

"That's generally our approach around operations and capital.”

Past and future investments for partnership

Woodbourne and Epic have acquired more than 1.5 million square feet of industrial assets in markets including London, Ottawa, Vaughan and Montreal through five deals over the past three years.

“This one was very much on program,” Moore said. “It's small-bay and it's a mark-to-market strategy.”

Woodbourne committed the majority of the capital to the acquisition and the two companies are working together to develop strategic priorities.

Moore said the partners are looking at similar opportunities in markets across Canada that have good fundamentals and where they have previous operating experience or a team nearby.

“We're being mindful about what we're underwriting going forward and where we think the deals will land,” Moore said.

Epic and its capital partners are also interested in grocery-anchored retail assets as medium- and long-term investments with stable cash flows, according to Moore.

“We also have a retail group here that has a lot of experience in enclosed retail properties and fixing broken enclosed retail malls,” Maduri added. “That's an area that we're focused on as well.” 

Epic and Woodbourne

Toronto-headquartered Epic is a fully integrated real estate management platform providing asset, investment and property management services to wealth managers, institutional and high-net-worth investors.

It has more than $13 billion in assets under management across Canada and the U.S. comprised of about 22 million square feet of office, retail, industrial and multifamily properties.

Epic has been operating in Quebec since 2007 and has seen significant growth in the region as well as across Canada.

Woodbourne is an investor, operator and developer of apartments, seniors’ housing, student housing, self-storage and other real estate assets located predominantly in urban areas across Canada.

The company has offices in Toronto and Boulder, Colo., and invests on behalf of a broad base of institutional investors.

Woodbourne has invested in more than 100 transactions representing more than 20,700 multiresidential units, 8,800 student housing beds, 4,700 seniors’ housing units and 9,200 self-storage and industrial units across nine Canadian provinces.