Whiterock REIT has made acquisitions in Toronto that are clustered along the 427 highway corridor which connects the Lake Ontario-hugging Queen Elizabeth Expressway to the 401 and Toronto Pearson Airport to the north.
“We bought about three million square feet of office buildings and concentrated on the 427 corridor all the way up to the airport,” said Jason Underwood, Whiterock’s chief executive officer.
The 427 purchases were opportunistic and strategic, all taking place after the economic crisis of 2008. “When we started the platform, I knew that there would be a downturn, so we bought long-term credit leased assets and we did that in markets like Regina, Quebec City, provincial capitals. The reason we bought the long-term credit is we knew the rents would be good in a downturn and our financing would be solid,” he said.
”So our house was in order in late 2008 when we went into the downturn and therefore when we started to have confidence that the market was bottoming out and on the way to a recovery, we were able to move quicker than some other people and that is when we bought our first asset on the 427.”
Whiterock in fact won “Deal of the Year” from the REX awards for its 2009 acquisition of the Commerce West two-building facility.
Whiterock’s 427 cluster of properties has attracted a tenant roster of national and multinational companies such as Diageo and Burger King that want a Toronto address (rather than Mississauga for example) but don’t want the costs or congestion associated with a downtown address.
“We are just at about at the western edge of the Toronto address and then you hit Mississauga, a lot of companies like that Toronto address,” he said. “Our total rents, our gross rents are $32 to $34, if you went downtown, in the financial core, just the operating and taxes are $34 and then you throw on top of it anywhere from $20 to $50 in net rent.”
With the end of the recession, competition for properties is heating up, but the REIT continues to add to its portfolio. “Deals are more expensive … cap rates have come down, but we continue to do deals.” Whiterock has purchased 75 buildings in its history, and all but one of them was purchased “off market,” said its CEO. “We would work with brokers, don’t get me wrong, but (the acquisitions were) not just a product of auctions.”
Underwood, born and raised in a Florida real estate industry family and a graduate of the hotel school at Cornell, worked in the U.S. real estate industry before moving to Canada in 2005. His firm’s first purchase, a Staples store location in Charlottetown, PEI acquired for $3 million, is still in the portfolio. “It is not the cornerstone, but it is where it all began.”
Jason Underwood, Whiterock’s chief executive officer credits growth from purchase of these properties as playing a key role in attracting new top management talent. (Read Property Biz Canada article Whiterock’s growth swells its management suite.)