TAKOL Real Estate Inc. has specialized in selling industrial condominiums in the Greater Toronto Area (GTA) since its inception in 2015 and is now moving on to its first ground-up development.
To this point the private Canadian boutique commercial real estate investment and asset management company has largely been buying small bay, multi-tenant industrial buildings constructed in the 1970s and ’80s, converting their titles to condo, then selling individual units within the properties.
The bulk of TAKOL’s investment has been in Brampton and Mississauga based on decisions revolving around demographics, immigration and population growth.
“The growth of the GTA has been phenomenal and no one’s built small-bay industrial in almost 40 years,” TAKOL principal of investments Daniel Kolber told RENX.
“The supply-and-demand equation has skewed and we’ve seen tremendous growth in industrial rents in the GTA in the last five to eight years — effectively a tripling of rent.
“I think that tremendous growth in rents has driven a desire for people to own their own real estate. Why keep paying higher rents to a third-party landlord when you can pay yourself and hedge yourself against further rent inflation?”
Off-market acquisition in Milton
TAKOL and partner CMCC Capital Funds have acquired 19 acres of land in the Derry Green Corporate Business Park, a bit further west in Milton, for $27.7 million from a private vendor in an off-market deal.
The TAKOL/CMCC plan is to build 67 small-bay industrial condo units in a 420,000-square-foot development called Milton Gates Business Park.
It’s the same area where Oxford Properties just announced it has started construction on its massive, 3.3-million-square-foot James Snow Business Park, but the first phase of that project is focused on larger bay product.
Kolber believes that, had the TAKOL property been widely marketed, it could have sold for close to double the price. While the majority of TAKOL’s acquisitions have been made off-market, they’ve all been brokered through an agent.
“We’re deep-value investors in terms of our strategy, we’re not cap-rate buyers,” said Kolber. “We’re delivering very strong double-digit internal rates of return to our investors deal after deal after deal.
“We may not always be the highest bidder on a widely marketed deal and we’re fine with that. I’d rather not beat out 20 other people and say, ‘I paid more than 20 other people and I won this project.’ We’re not Blackstone.”
CMCC focuses on residential and commercial developments in major Canadian centres. Since 2011, it has formed five private real estate funds totalling in excess of $400 million in committed capital in addition to more than $100 million in parallel investments.
The company has generated consistent annualized returns of 18 to 25 per cent across more than 50 investments.
TAKOL and CMCC have partnered on a half-dozen deals and both thought working together on the Milton Gates Business Park development would be a good fit.
Milton Gates Business Park plans
The proposed Milton Gates Business Park development is going through the approvals process.
The municipality wanted small-bay industrial at the gateway site at the corner of Derry Road and Sixth Line, so it was a good fit for TAKOL’s 10-person team.
All approvals and permits should be in place next year and it’s hoped the first industrial condo units will be delivered in 2024.
Units will range in size from approximately 3,000 to 12,000 square feet, including a small office component, and those looking for more space can buy multiple units.
Marketing and sales will begin soon and pricing will be in the $450-per-square-foot range.
“There will be a base building condition and then if people want some further work we can do some fit-up on a case-by-case basis,” said Kolber. “But I suspect most buyers will want to do their own fit-up.”
Kolber is also the president and broker of record at TAKOL’s affiliate, KOLT, Keller Williams Real Estate Associates, Brokerage, the real estate brokerage that handles all of the company’s sales and leasing.
He’s also president of KOLT Management Inc., TAKOL’s affiliate property and condo management company.
TAKOL co-founder Takashi Yamashita, the Toronto-based company’s principal of development, has a diverse background as an architect (Smith Carter Architects and Engineers Incorporated), a private equity developer (The Rose Corporation) and a commercial real estate lender (GE Capital Real Estate).
Kolber said TAKOL considered getting into the residential condo market but has, at least for now, backed off due to rising construction costs, increased interest rates and supply chain issues.
Kolber has a background in retail real estate as the former vice-president of asset management for OneREIT.
He would like to find a value-add shopping plaza in which to invest, but the returns from small-bay industrial have been so good it will remain TAKOL’s near-term focus.
Looking ahead at TAKOL
The company is working on another off-market acquisition, this one for 25 acres in the western GTA, and is trying to tie up another half-dozen condo conversion sites with funds from earlier industrial condo sales.
“Between September and March, we’ve got about $100 million worth of condos that we’ve pre-sold that are getting registered and that will be closing,” said Kolber.
TAKOL has partnered with family offices, public companies and high-net-worth individuals, using a special purpose vehicle for each investment.
The appetite for more deals is strong at the moment and Kolber said the company is always looking to work with new investment partners, agents and brokers.
“We’ll always give people a quick yes or no. We don’t like dragging people along if we’re not serious on something. If people want to show us something, I hope they’ll reach out and see if we can do some business.”