Canada’s weather may have grown more volatile, but the forecast for commercial real estate investment is increasingly moderate as the focus turns from wealth creation to wealth preservation.
That’s the trend at play for Nick Pantieras and Aik Aliferis. They are the founders of Primecorp Commercial Realty, Ottawa’s largest independent commercial real estate brokerage before it accepted an acquisition offer from California’s Marcus & Millichap (M&M) (MMI-N) in October.
As “Senior Managing Directors, Investments,” Pantieras and Aliferis are spearheading the Canadian expansion of M&M’s Institutional Property Advisors (IPA) brand in Eastern Canada.
They work in collaboration with another IPA team of three located in Western Canada, as well as 45 other IPA brokers across the U.S. Pantieras and Aliferis work with institutional and high-net-worth investors who typically pursue deals in excess of $15 million and look for opportunities in multiple markets.
“There is a lot of patient money in the market today,” said Aliferis. A growing number of investors across Canada are looking for solid fundamentals with time horizons of 15-20 years.
It’s a distinct turnaround from the market conditions of a generation ago, when investors sought double-digit returns to aggressively grow wealth.
Increasingly, this “patient money” is held by a category of investor that only recently has become a force in the Canadian market.
“The high-net-worth family office is more and more part of our business, where it wasn’t 20 years ago,” Pantieras said.
This comes as North America experiences the largest inter-generational transfer of wealth in history with the retirement of the boomer generation. Patient money bodes well for a market such as Pantieras’ and Aliferas’ hometown of Ottawa.
Answering the supply/demand crunch
The city has long been popular among conservative investors thanks to the moderating influence of the federal government as an anchor employer and tenant. This, plus a resurgent tech sector, has made Ottawa a darling for an expanding pool of investors.
However, this has created a new challenge – not enough supply to match demand.
This is accelerating the need to redevelop, refurbish or otherwise replace the National Capital Region’s aging infrastructure. Ottawa, and neighbouring Gatineau on the Quebec side of the Ottawa River, have millions of square feet of office space built to public-sector standards that are now 30, 40 and even 50 years out of date.
Case in point, 473 Albert St. This 11-storey office tower in Ottawa’s downtown core has undergone almost $6 million in capital improvements since 2009 to prep for conversion from office to multi-unit residential.
“Smart developers are looking at their assets and what is the biggest and best use,” said Aliferis. “These redevelopments are absolutely necessary.”
They have also heralded the return of multi-family rental as a desired investment class after years out of favour. Ottawa’s rental market has tightened significantly in recent years. Rental rates per square foot are now exceeding the once-unheard-of-rate of $3 a month.
“Many investment groups, private and public, have entered the purpose-built rental business in a big way,” Aliferis said.
So much so that some Ottawa developments originally planned as luxury condos will now be luxury rentals. Case in point – 1140 Wellington by Tamarack Homes with its 184 units.
The construction of Ottawa’s new LRT system is fanning the flames, as developers pursue opportunities around the new transit stations.
One example is Trinity Group’s Trinity Centre at Bayview Station at 900 Albert St., a mixed-used development with three towers climbing to 65 storeys. It will include 113,182 square feet of retail, 3.66 million square feet of office and 1,241 purpose-built rental units.
Couple all this with mega-developments Zibi (34 acres straddling the Ottawa River in downtown Ottawa and Gatineau), and LeBreton Flats (53 acres just west of downtown).
“Ottawa is definitely transforming itself into a leading world-class city,” said Aliferis. “Investors we have talked to from out of country who only wanted Vancouver or Toronto are now saying, ‘We are hearing this about Ottawa.’ ”
These factors have made Aliferis and Pantieras busier than ever since they sold Primecorp to Marcus & Millichap in October. They recently closed a $57-million deal for four multi-family high-rises with a total of 520 suites on Ottawa’s Cambridge and Bédard Streets.
Earlier this year, they closed a deal in which developer Brigil acquired Village Place Cartier – the first shopping centre in Gatineau, built in 1965. Everything is on the table when it comes to determining the best way to redevelop and revitalize the site, from residential condos and rental units, to a hotel or even social housing or seniors’ residences.
Why Marcus & Millichap?
Much more than just opportunities in Ottawa drew Marcus & Millichap to Canada and to Primecorp’s door. While Aliferis and Pantieras built Primecorp on the premise that “no deal is too small,” they soon came to realize that Ottawa alone couldn’t yield the deal flow they knew they could achieve.
That led them to open offices in Gatineau, Toronto and Montreal, and expand their focus nationally to cater to an increasingly elite class of clientele.
As a publicly traded company, a well-rounded North American focus is central to Marcus & Millichap’s growth strategy for its IPA brand. After spurning several other suitors, Aliferis and Pantieras decided to accept the acquisition offer from M&M because of how the philosophies and culture of the two companies aligned.
Considering that Primecorp had completed Cdn$7 billion in transactions over its 20-year existence, while M&M completed US$46.4 billion in fiscal 2018 alone, the casual observer can be forgiven for expecting Primecorp to quickly disappear.
But eight months later, Pantieras and Aliferis remain just as enthusiastic, if not more so, with the deal as they were in October. They can now tap into the broader Marcus & Millichap network and the resources of a large multi-national to deliver the services and opportunities their clients are looking for.
“(M&M) said, ‘We don’t want to change you, we want to help you . . . you are clearly leaders in your country,” Aliferas said. “Did their words come true? Absolutely.”
“We are like a giant football team, it’s incredible,” added Pantieras. “The proof is in the pudding.”