KingSett Capital has added a coveted commercial and industrial asset to its portfolio, acquiring a three-building, 170,000-square-foot small-bay property along Toronto's Finch Ave. West for $37 million.

Located at 1177, 1179 and 1181 Finch Ave. West, near Keele Street in northwest Toronto, the property likely represents a value-add opportunity for KingSett, according to Vanguard Realty Brokerage Corp. sales representative Kevin Franch, who brokered the deal.

Toronto-based developer and commercial real estate owner and operator Amexon Capital Corp. was the vendor.

“Throughout North America, but in Toronto (and) specifically the Greater Toronto Area, multi-tenanted industrial facilities are very, very rare to come by for any real estate investment trust company, any pension fund, any private equity fund," Franch told RENX. "Everyone is looking to purchase these types of assets.” 

In this case, the approximately 85 units in the buildings generally range 1,000 to 2,000 square feet and represent an excellent value, he said.

Small bay "very attractive" assets

“Multi-tenanted industrial, small-bay assets are very attractive because there’s not a lot of inventory out there," Franch said, noting the bid-ask gap on properties which do go onto the market can often be prohibitive for potential buyers if they will be required to invest into the assets after they've been acquired.

"It is becoming very difficult to secure transit-oriented, multi-tenanted industrial assets that are priced accordingly that allow REITS/private equity funds to reposition by investing capex, improving the quality of tenant mix, increase net annual income and having an upside exit strategy by selling on an improved cap rate . . . or bringing the assets through the condo process."

He credited KingSett's director, investments Michael Lee with playing a key role in structuring the transaction.

As an investment property, small-bay has been thriving.

“Industrial small bay has been the best-performing sector in all of real estate. It has shown resiliency, has really performed well throughout uncertain, unprecedented times," he said. "A lot of investors are bullish on industrial assets because they’ve been performing so well and the demand is so high that the net rents are performing strong.”

Near Finch transit hub

Adding to the lustre of this property is the proximity of a major transit hub, the Finch West TTC Station, which will eventually also include a light-rail station when the Finch West Light Rail Transit (LRT) stop is opened.

“This is also a transit-driven acquisition, where a lot of the success of this asset will depend on the large labour pool that’s in that area and the fact that it’s all along the transit line," Franch said. "A lot of the people that work out of these units rely on public transit to get to and from work."

Franch sees a bright future for small-bay properties.

“From a user standpoint, small-bay industrial, there’s a high demand for it, because you have the small, independent entrepreneurs that operate their business out of these smaller units, whether it’s a small contractor, a landscaper, any type of small entrepreneurial business thrives in a small-bay industrial unit,” he said. That is especially the case if a business also requires the flexibility of a small retail or office component.

For investors, Franch sees small-bay industrial as attractive because, he said, in many cases the tenants are often on triple-net leases. This helps limit the amount of hands-on management required.

The industrial sector as a whole has also provided very strong returns in recent years.

“Industrial has been increasing in value significantly over the last five to seven years, or even 10 years," he noted. "It’s really increased in price, and the rents have gone up quite a bit. I feel that it’s going to continue to perform strongly in years to come.”