Ottawa-based Minto Apartment Real Estate Investment Trust (MI-UN-T) is employing a double-edged strategy to grow the REIT, purchasing two existing buildings in Calgary and financing a redevelopment in Ottawa – with an eye to purchasing the site in the future.
The REIT paid $63.8 million to acquire The Quarters, a two-building, 199-suite property in Quarry Park, located in southeast Calgary. The Quarters, originally built and owned by Calgary-based Remington Development Corporation, is located near Minto’s other Calgary property, The Laurier, a 144-unit building in the same community.
It also advanced Minto Properties Inc., up to $30 million in financing for the redevelopment of a downtown Ottawa commercial property. When completed and stabilized, the REIT has an exclusive option to purchase the mixed-use property upon for 95 per cent of fair market value.
Michael Waters, Minto Apartment REIT’s CEO, said the Calgary transaction will further diversify its holdings by increasing the presence in Alberta from eight per cent of the gross book value of its portfolio to 12 per cent. Because the properties are close to The Laurier, it will allow it to benefit from operating synergies.
The acquisition will also reduce the average age of the REIT’s portfolio, while continuing the expansion of its exclusively urban holdings, he said.
Waters is also upbeat about the Quarry Park neighbourhood.
Alberta has “resilient” economy
“There’s a lot in the news about commodity prices and commodity transportation infrastructure. It’s easy to find the negative,” Waters said. “I think what people forget is from the late ’60s when they first commercialized synthetic crude (oil), almost immediately Alberta faced its first oil crisis in the early ’70s and every six or eight years it’s seen some volatility in commodity prices.
“But, the Albertan economy is resilient and Albertans generally are not prone to panic. They see the long-term trajectory of the province.
“Calgary has been strongly upward. We’re long-term investors and real estate is a long-term investment. The Calgary rental market really bottomed in 2017 and we started to see it firm up in the latter part of that year. And certainly (in) 2018 we’ve seen occupancies improve. We’ve seen incentives burn off. . . . We’re getting in Calgary on this asset (The Quarters) at the beginning of an upswing. But you have to be patient.”
The Quarters, built in 2017, was 98 per cent occupied in the fall with an average monthly rent of $1,506. Quarry Park is a mixed-used development with various retail outlets, as well as 1.7 million square feet of office space housing companies such as Imperial Oil, Stantec, Jacobs Engineering, AECOM and Lafarge.
A future LRT Station is planned for the neighbourhood.
“The 1.7 million square feet of office space really centres Quarry Park with a pretty nice roster of corporate tenants in there and (Remington) has done a lot of the master development for the residential around it,” said Waters.
The REIT purchased The Laurier building from Remington in about 2013: “That formed part of the initial portfolio in the REIT IPO and it’s been a good performer for us.”
The Quarters are about 600 metres away from The Laurier.
Minto corners Quarry Park rental market
“It’s all of the purpose-built rental in Quarry Park and they’re immediately adjoining to the 1.7 million square feet. You’re literally across the street,” said Waters.
“So if you’re a young professional, or even a seasoned professional, and you want to rent and you want purpose-built rental and you work in that neighbourhood and you want to walk to work, you’re going to rent from Minto. And you’re going rent in one of these buildings.”
Waters said Remington has density for another potential million square feet of office space in Quarry Park.
“What they’ve done there is pretty remarkable. You don’t see that in Canada all that often. In some ways, it’s reminiscent of some of the master-plan developments you see in the U.S. southwest or Texas, for example. It’s well done – very well-executed,” he said.
Waters said the REIT will look at potential further acquisitions in Calgary on a selective basis.
“I suspect that we wouldn’t see our total portfolio allocation to Alberta, which right now is around 12 per cent, go north of about 15 per cent,” he said. “I think a lot of our focus outside of Calgary will be in places like Montreal where we don’t have a presence . . . (and) adding more bulk in the GTA.
“But we’ll continue to look at Calgary because we have a strong belief in its future.”
Minto Apartment REIT also owns three multi-residential buildings in Edmonton, totalling 251 suites.
Redevelopment of Ottawa property
The redevelopment, at Fifth Avenue and Bank Street in Ottawa, will reposition the property to a mixed-use, multi-residential and retail site. 99 Fifth Avenue is in the heart of Glebe, one of Ottawa’s most desirable neighbourhoods with the city’s lowest multi-residential vacancy rate of under one per cent.
The current site has a street-front retail presence and attached to it is a two-level medical office building with an atrium.
Waters said Minto has owned the property for 35 years.
“But, we always thought it had redevelopment potential,” Waters said. “This summer we were successful in getting it rezoned to retain that sort of heritage frontage for retail there and replace the medical office and below-grade parking garage with a new structure that would have plus-or-minus 160 residential suites in it.
“We’ll be demolishing the existing medical office structure. Roughly two-thirds of the site away from the Bank Street frontage will get completely demolished and we’ll excavate out the old parking garage and replace it with a new, modern foundation and new, modern parking garage and then the residential structure will fit up above it.”
Construction is scheduled to start in 2019 with occupancy expected to begin in the first half of 2021.
Glebe: “We love that urban village”
“We love that urban village (of the Glebe),” said Waters. “It’s one of the more desirable residential neighbourhoods in the city. . . . This particular site is really in the heart of the action. We’re a kilometre and a half south of downtown so it’s walkable to downtown. . . . That’s a really nice strip. It’s just two blocks north of the new Lansdowne Park which was completely redeveloped.
“All of Bank Street on that end has really benefited going north six or 10 blocks. And this site is just two blocks north of it and you can really feel that whole strip has really benefited from the traffic. So this is really in the heart of it. There is not really a heck of a lot competing purpose-built rental in that node.”
As of September 2018, the REIT held 22 properties across Canada consisting of 4,279 suites with occupancy at 98.96 per cent and average monthly rent of $1,388. Besides Calgary and Edmonton, it had 14 properties in Ottawa comprising 3,060 suites and four properties in Toronto of 824 suites.