Western Canadian Place in Calgary, one of three major office properties in Canada acquired by Oak Street during 2021. (Courtesy CBRE)
Private equity firm Oak Street Capital Real Estate looks for very specific types of real estate in which to invest. It found three such opportunities in Canada during 2021, spending about $2.1 billion on major office properties.
The Chicago-based company has been an active investor in Canada market since 2018. The acquisitions of the Bow Tower and Western Canadian Place in Calgary, as well as the Bell Canada Campus in Mississauga, pushed its total investments in Canada to about $3.5 billion and 110 properties.
“We started investing in Canada a number of years ago in 2018, when we really started to get traction. The first sizeable transaction we did as a tenant was Magna International. That was closed in 2018,” said Sean Sullivan, a managing director with Oak Street. “Following that we did two transactions where the tenant was Sobeys.
“Then we did a transaction shortly after that where the tenant was Loblaws . . . a big deal across all 10 provinces of Canada.
“We didn’t do much in Canada in 2020 just because of the disruption in the market with COVID. And then in 2021 (we did) the two transactions in Calgary for The Bow, Western Canadian Place and the Bell Canada Campus in Mississauga.”
The three Canadian acquisitions in 2021
The iconic Bow Tower in the heart of downtown Calgary was purchased, along with partner Deutsche Bank, from H&R Real Estate Investment Trust for $1.216 billion. The main tenant in the building is energy giant Ovintiv.
Western Canadian Place, a major downtown Calgary office complex comprising two towers, was purchased for $475 million from British Columbia Investment Management Corp. and its real estate arm QuadReal. The anchor tenant is another energy giant, Cenovus, which inherited the space when it acquired Husky energy.
The sale of the 1.1-million-square-foot Bell Canada office campus was for $439 million and was also acquired from vendor H&R REIT. It occurred at the same time as The Bow acquisition.
Gary Rozier, left, and Sean Sullivan are managing directors with Oak Street Capital Real Estate. (Courtesy Oak Street)
Gary Rozier, also an Oak Street managing director, said the 12-year-old firm manages real estate portfolios for primarily institutional investors – U.S. public and private pension plans, foundations and endowments. It has about $14.5 billion in assets.
“We manage both open- and closed-end structures. The strategy is really designed to buy single-tenant assets, cross-sector,” Rozier explained. “So we will own assets in industrial, office and retail. All of our lease types is what’s called triple-net.
“We work only with investment-grade-related tenants, so every tenant in our buildings (is) investment grade. We try to do that in a long-duration lease structure.”
Oak Street currently invests only in Canada and the United States.
Strategy behind Oak Street’s investments
Rozier said the company wants to make sure it has the right partner before investing in real estate assets. The vast majority of the transactions involve sale-leasebacks – Oak Street buys an asset from a tenant and then leases the building right back.
“You sort of start with the tenant, then the transaction, then you’re going to look at the real estate,” he said. “So for us, I wouldn’t say geography comes last, but we certainly want to get the right partner first, structure the transaction in the appropriate way and then you’re going to sort of fill in the blanks with the real estate.
“I think in Canada there’s been a more openness to doing sales-leaseback transactions. In the U.S. what you find is a lot of companies look at real estate, even if they’re not a real estate business, as having these trophy assets, where oftentimes companies in the Canadian market understand sometimes there’s a better use for capital and they’re quicker to monetize real estate in a sales leaseback.”
Sullivan said there are not as many single-tenant investors in Canada as in the U.S. – at least, not at the large scale Oak Street prefers.
“So we’re not chasing multi-tenant industrial properties and multifamily properties, which are two very hot asset classes, and we’re not chasing multi-tenant office buildings, which in core markets the pensions like to go after,” he explained.
“Where we’re deploying capital to, in various Canadian markets, the big capital flows from the Canadian pensions aren’t going to the same place. I think that’s led to us being successful in the number of the deals that we’ve closed.”
Two core Calgary properties
Sullivan said the two investments in The Bow and Western Canadian Place presented Oak Street with an opportunity to invest in its core specialty – single-tenant properties, with long-term leases in place, with investment-grade credit exposure.
“These properties and what we always underwrite, (the goal) is that we want to deliver long-term, stable income for our investors. So really, the two transactions that we closed on Western Canadian Place and The Bow, they check all those boxes for us.”
Sullivan said Oak Street has a significant amount of capital raised through its institutional investor base. The capital is discretionary and committed to the company – so it is ready to make more acquisitions if the right properties come to market.
“If we can find opportunities in Calgary, Alberta generally speaking, or other markets across Canada that meet our parameters, we’re actively looking to deploy capital in those opportunities,” he explained. “We’d be pleased if we find more opportunities that meet our criteria and fit our platform.
“We’ve had a great experience working with various tenants and counterparties all over Canada and we look forward to hopefully doing more in 2022 and beyond.”
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
