Groupe Mach and Sarees Investments have acquired the 922,000-square-foot Atria Complex in North York, at a purchase price that is a fraction of its replacement value, says Mach president Vincent Chiara.
“It’s a great asset and great location in North York,” he told RENX, of the buildings at 2225, 2235 and 2255 Sheppard Ave. E. in North York. The property has “long- and medium- term leases with strong credit tenants.”
Citing confidentiality agreements, Chiara would not divulge the purchase price, but he noted that Atria’s replacement cost would be about $700 to $800 per square foot “and I can assure you we paid less than 25 per cent of that. It’s a huge comfort level for us to pay a fraction of the replacement value.”
Atria's key tenants, and Mach's strategy
Major tenants Rogers, American Express, Sun Life, Sony, Belair Insurance and GoodLife Fitness represent almost 50 per cent of the space in the three buildings that comprise Atria.
Atria has a vacancy rate of around 15 per cent, which is “relatively strong” for the area, Chiara said. Average lease terms are five to six years and leases run as long as until 2032.
Chiara says Mach continues to believe in its acquisition strategy: that office work from home is not going to have a long life.
The consequences of working from home are being seen with a decline in the quality of work, he said. “We’re starting to see that employers are trying to get employees back to the office. We definitely believe that office is not disappearing.”
However, Chiara noted “we’re not investing on hope. Hope is not a strategy.”
Despite being bullish on office, Chiara says Mach’s strategy is to also have a Plan B, in which the land value of the assets is greater than the purchase price. “If we can’t check that box on potential land value, then we won’t do the acquisition.”
Residential zoning is permitted on part of the Atria site. If the office market collapsed, the strategy would be to eliminate one of the three Atria buildings in phases, move the tenants to one of the remaining buildings and redevelop the initial site, he told RENX.
“Our investment strategy is based on the fact that our Plan B is as good or better than our Plan A,” he said. “This is not a contrarian play. Ours is basically a land-bank play.”
Atria "best in class" in North York area
However, Chiara believes the status quo of Plan A will work for Atria. He noted there were many renewals and new leases signed during the several months of due diligence on the property.
“It’s probably best in class in that neighbourhood of North York. I think it will get a lot of traction. Part of what’s going on in the office world is a flight to quality, so people in that neighbourhood will move from their C buildings and D buildings and come into the class-A buildings.”
Groupe Mach touts Atria as one of the largest office complexes on the outskirts of downtown Toronto.
It comprises: the four-storey Atria I at 2255 Sheppard Ave. with 250,292 square feet of space; the 18-storey Atria II at 2235 Sheppard Ave. E., with 342,781 square feet of space; and the 18-storey Atria lll at 2225 Sheppard Ave. E. with 328,761 square feet of space.
Certified as LEED Gold, the complex includes 45,000 square feet of retail space and 2,050 parking spaces.
“The guts of the building is first-class,” Chiara said. The site has a campus feel but “the landscaping deserves some upgrading. We intend to give that a facelift.”
Atria will be managed by Mach’s Toronto office. It was previously managed by Epic Investment Services.
Mach and Sarees Investments have partnered 50-50 to acquire Atria. Based originally in the Middle East but with an office in Montreal, family-run Sarees has partnered with Mach in several transactions over the last 10 years, Chiara said.
“They’re real estate investors globally. We’re proud to be alongside them.”
Groupe Mach still seeking Toronto acquisitions
In addition to Atria, Mach owns three other properties in the GTA: the 577,214-square-foot Allstate Corporate Centre in Markham, the 113,274-square-foot 175 Commerce Valley in Markham and the 52,000-square-foot 5875 Explorer Drive in Mississauga.
“We’d like to increase our footprint in Toronto,” he said, noting the company is looking at several other potential transactions in the city.
Toronto “previously had a barrier to entry because of pricing,” but the real estate ownership landscape has shifted. Institutional owners, such as REITs and pension funds, have decided to move away from office and retail ownership to multi-res and industrial, he said.
They “have exited office in a big way,” Chiara said, and “when you eliminate the institutional investors, it doesn’t leave many players.”
Since the beginning of the year, Montreal-based Mach has concluded 12 major acquisitions totalling four million square feet, ranging from the Intercontinental Hotel in Old Montreal to 1801 Hollis Street in Halifax.