Industrial condominiums don’t yet have the same prominence in the Greater Toronto Area as they do in Metro Vancouver, but that may be starting to change.
“A partnership relationship between two entities always starts with the profitability of carrying out a project,” Fiera fund manager and senior vice-president of opportunity and development Pierre Pelletier told RENX.
Berkshire Axis has completed more than 30 industrial projects in the GTA over the last 10 years, while Fiera is a global real estate investment management platform serving investors in Canada and the United Kingdom. It globally manages more than $5.9 billion of commercial real estate through its investment funds and accounts.
While the two companies may vary in size, they’ve found an alignment in interests.
Benefits of industrial condos
The industrial real estate sector has shown strong resilience through this year’s COVID-19 crisis, and Pelletier noted the GTA’s availability rate of two per cent is 150 basis points below the national average.
Rents have risen substantially over the past two years and good industrial space is now leasing for more than $10 per square foot in the GTA.
Industrial buildings constructed in the 1960s through the 1980s aren’t likely to be as in good condition, or offer as much, as a newly built industrial condo. Maintenance costs for those older properties are also rising on top of increasing rents.
“You’re either living with a building that has deficiencies, or a broken-up parking lot, or poor power and an old roof, or you’re fortunate enough to be in a situation where everything is in good shape but the landlord is amortizing all of the costs back to you,” Berkshire Axis vice-president Craig Wagner told RENX.
Business owners want to control their real estate, build liquidity and keep costs in check, he added. “Industrial condos really provide that, particularly for small business owners.”
Wagner said condos account for less than five per cent of industrial space in the GTA, so there’s plenty of room for growth in the sector. He believes developments between 100,000 and 250,000 square feet are “a pretty sweet spot for condos.”
Pelletier said industrial condos don’t require a lot of capital to build and have relatively short construction times, so banks like them.
“It’s a product that’s here to stay and to take even more space in the GTA market,” said Pelletier.
Fiera was launching a new development strategy for the GTA and Berkshire Axis was looking for a financial partner for an industrial condo project at 225 Gibraltar Rd. in Vaughan which it planned to sell on a speculative basis.
Their partnership resulted in the project moving through land acquisition, site plan approval process, construction and selling of all 10 of its units in under 28 months.
The 104,000-square-foot, class-A light industrial building located in the Vaughan and Brampton municipal boundary was recognized as the industrial development of the year at the 2020 NAIOP Greater Toronto Chapter’s Real Estate Excellence (REX) Awards.
REX Awards recognize excellence and innovation in office, industrial and mixed-use real estate in Toronto and the surrounding region.
The focus of the seven development or transaction award categories is on results (quality and performance), skills (teamwork, collaboration, innovation and creativity) and values (community and environmental awareness).
The building offering a 28-foot clear height, an ample power supply, drive-in and truck-level loading, and a large truck court is fully occupied.
It’s located near both Hwy. 427 and Hwy. 407.
Wagner said some purchasers were able to occupy their 10,000-square-foot units one to three months after closing, because they could start the permitting process for their build-outs in advance.
Others had extensive work to do and didn’t occupy until six or seven months after closing.
Wagner said sale prices averaged about $280 per square foot in late 2018 and through 2019.
Berkshire Axis and Fiera closed the sales of all 35 units in their 154,400-square-foot, small-bay Lightbeam industrial condo at the end of August. It realized higher-than-forecasted returns for the Fiera Properties GTA Opportunity Fund LP and its investors.
Lightbeam is comprised of two industrial condos with 24-foot clear heights, steel frames and metal roof decks. Units range in size from 2,700 to 10,000 square feet, of which 25 per cent are larger than 6,000 square feet.
The facilities are supported by service areas, 183 car parking spaces and a saw-tooth loading area.
Lightbeam launched a year later than 225 Gibraltar, but the project had a very similar timeline from start to finish. It was another project built on spec and Wagner said 20 per cent of the units sold before a shovel went into the ground.
“By the time we got to putting up the pre-cast, which was the big catalyst at Gibraltar, we were approximately 65 per cent sold. The velocity we had there was tremendous.”
Wagner said sale prices averaged about $320 per square foot toward the end of the sales cycle.
The bulk of Lightbeam’s units are now occupied.
New Markham project
The partners recently purchased 34 acres at 11050 Woodbine Ave. in Markham which will be used for two different industrial developments: two for-lease buildings of 330,000 and 300,000 square feet on 28 acres; and a 100,000-square-foot industrial condo project comprised of two buildings and a shared truck court on six acres.
“We continued the relationship with Berkshire with two new funds,” said Pelletier. “I think it’s a good answer to Berkshire’s needs for having a financial partner for development in the Greater Toronto Area, but also for our investors.”
The property purchase closed in early September. The goal is to have site plan approval by the end of the year, begin speculative construction in spring 2021, then deliver a substantial portion of occupancy in the spring of 2022.
Wagner expects prices to be in the mid-$300s per square foot.
Units can be as small as 28,000 square feet or as large as 300,000 square feet in the larger development, which will have a 36-foot clear height.
Wagner said it will be one of the few class-A mid-bay options in the market and he hasn’t seen anything else that can deliver the same solutions for medium-sized businesses.
The condo buildings will have 24-foot clear heights. Units will range from 3,000 to 4,500 square feet and can be combined to increase space. All will have drive-in doors, which Wagner said was rare in Markham and Richmond Hill.