The LaSalle Canada Property Fund (LCPF) has acquired a newly constructed, three-building class-A logistics portfolio comprising more than 600,000 square feet in the Greater Toronto Area (GTA) from Carttera.
“Carttera is a best-in-class merchant builder,” LaSalle Investment Management Canada chief executive officer John McKinlay told RENX. “I’ve known the principals for some time and they’ve really built exceptional industrial.”
The three fully occupied, single-tenant buildings were completed in 2020 and 2021. The portfolio’s weighted average lease term is 8.8 years and its leases include annual rent escalations of at least 2.5 per cent.
“Most would argue that the rents are already slightly below market, given the acceleration of rent growth in the country, particularly in these locations in Toronto,” said McKinlay.
Financial details of the transaction have not been disclosed.
LaSalle’s new GTA portfolio
The largest building in the new portfolio, at 236,690 square feet, is on an 11-acre site at 2300 North Park Dr. in Brampton. That’s in the popular GTA West industrial sub-market, which had 13 per cent net rent growth last year. The property offers excellent connectivity, with five major highways, a CN intermodal terminal and Toronto Pearson Airport within a 20-minute or shorter drive.
The site includes a 40-foot clear height, 42 trailer parking positions, a secured yard, LEED design and best-in-class building systems.
The two remaining properties are in Whitby: 185,429 square feet at 1652 Tricont Ave. and 185,905 square feet at 1672 Tricont Ave. They’re on a 17-acre infill site that provides immediate access to the GTA’s 400 series highway system.
The properties include 32-foot clear heights, LEED Silver design criteria, ample shipping doors, LED lighting and early suppression fast response sprinkler systems.
“Consistent with what we see around the globe from our research group and our colleagues, for this type of quality in a market like Toronto — which is one of the top industrial markets in North America — it was pretty much a perfect offering given the moment in time,” said McKinlay. “I’d be surprised if it wasn’t hotly contested.”
Brantford distribution centre
The LCPF was also used in March to acquire 99 Savannah Oaks Dr. from GWL Realty Advisors. It’s a 2006-built 527,568-square-foot, 30-foot clear height, fully leased distribution centre in Brantford (just west of the GTA). It has 31 dock shipping doors, one drive-in shipping door and has Procter & Gamble as its head tenant.
“The real estate was high-quality and, to be honest with you, we would like to do deals like this over and over again,” said McKinlay. “But, you can’t fill your industrial quota by only doing singles, hence the follow-on industrial deal.
“We bought it at lower-than-replacement cost, which is a rarity today. It has four tenants in it and they’re all at below-market rents with short-term lease expiries.”
The goal is to renew the tenants or find new ones and roll the rents up.
Brantford is in a growing industrial market with proximity and highway access to several key destinations, including the Fort Erie-Buffalo border crossing, the GTA West logistics hub, the Cargo Centre at John C. Munro Hamilton International Airport, and the Cambridge, Kitchener, Waterloo and Guelph markets.
LaSalle wants more industrial
McKinlay said the industrial asset class is “very much on fire” in Canada and around the world, driven in large part by the growing importance of e-commerce and last mile distribution.
“For many years people were hoping the rents were going to pop and clearly they have now,” said McKinlay. “As we’re building out this portfolio, we’re trying to outperform the index. And we’re always balancing that with defensive allocations, so this fits within our balance in terms of trying to achieve attractive returns and also build a defensive strategy.”
The GTA portfolio acquisition increases LCPF’s industrial allocation to 18.6 per cent. McKinlay would like to increase that to the 25 to 30 per cent range while lowering LaSalle’s office allocation percentage from the low-40s to the low-30s. The company’s multifamily allocation is about the same as industrial at the moment, while its mixed-use portfolio represents about 12 per cent of the total.
“We’re also actively trying to diversify beyond the four major food groups and looking for niche assets like cold storage, data centres and self-storage,” said McKinlay.
He estimates LaSalle Canada will have made about $700 million in 2021 acquisitions by the end of August.
“Our pipeline is very strong. We didn’t sit on our hands through all of COVID. We did a number of off-market deals that are strategic deals for our fund and our initiative, and we’re getting to the point of executing on those.”
LaSalle and the LCPF
LaSalle Investment Management managed approximately $71 billion of assets in private and public real estate property and debt investments as of Q4 2020. Its clients around the globe include public and private pension funds, insurance companies, governments, corporations, endowments and private individuals.
LaSalle Canada has executed more than $6.6 billion in real estate transactions since 2000. It had approximately 9.2 million square feet, valued at around $2.1 billion, under management at the end of 2020.
The 2017 formation of the LCPF expanded the company’s Canadian real estate product suite and investment vehicles, which include a series of closed-end commingled funds and separate accounts.
The LCPF is an open-ended fund targeting core properties in major Canadian markets with commitments from domestic and international institutional investors. The fund has deployed just over $400 million so far this year.
LaSalle has a couple of other fund initiatives it’s working on that McKinlay hopes will come to life in the fall.
“In 2020 we played a lot of defence,” he said. “Now it feels like the market is opening up and we’re clearly starting to play offence.”
McKinlay is hopeful that most LaSalle employees will be back in the office full-time this fall and he expects 2022 to be a better year than 2021 for the company.
“Generally we’re pretty optimistic at this stage of the summer with our business model and our plans,” McKinlay concluded.