The co-founder of apartment-hotel company Sonder says his firm is being approached by a growing number of landlords in Canada’s three biggest cities seeking to lease out vacant office and multiresidential spaces.
“I can see a lot more of those deals happening in the next few years,” Martin Picard, Sonder’s co-founder and vice-president of real estate, told RENX. “A lot more office landlords are reaching out to us to know whether or not we would have interest in taking over an office building and making it into a Sonder property.”
On the multiresidential front in Montreal, where the vacancy rate is about six per cent, “you can see developers are getting concerned about the lease-up of these properties,” he added.
Picard says Sonder is not trying to be opportunistic about the situation faced by some landlords. “We’re trying to see if we can be part of a solution right now,” he said, “but we are definitely seeing a lot more inbound interest, especially in the office front.”
Sonder’s model and its history
Aside from Montreal where Sonder has 230 units, Sonder has a Canadian presence in Toronto (with 122 units) and Vancouver (66 units). The company expects to add 500 to 700 units in Canada over the next year.
Worldwide, Sonder has 4,500 units and an additional 6,500 units that should come onto the market in the next 12 to 18 months.
The company is active in about 30 cities, 25 in North America. It also has facilities in London, Dublin, Madrid, Rome and Dubai and plans to open another four European markets this year.
Sonder got its start in Montreal in 2012, but moved its headquarters to San Francisco two years later. In December, Sonder agreed to establish a hub office in Montreal that will result in the creation of as many as 700 jobs by 2025, many in engineering, data science and AI. It currently has 120 employees in the city.
The decision came after the Quebec government agreed to provide the company with a $30 million loan through Investissement Québec.
Picard returned from San Francisco to lead the Montreal office.
How Sonder differs from Airbnb
Unlike Airbnb, Sonder is not a home-sharing platform. Sonder leases and manages all of its spaces, which Picard said allows the company to provide “a consistent experience throughout all of our properties.”
Most of Sonder’s portfolio consists of apartment units with a kitchen, living room and one or more bedrooms.
About 18 months ago, the company started adding hotels to its offerings. Today, about 10 to 15 per cent of its properties are hotels. “The objective is to have a more comprehensive offering for the guests.”
Most Sonder spaces have self check-in, 24/7 digital concierge services and no front desk, providing a contact-free experience Picard said is popular during the pandemic.
The Sonder app “guides the entire experience,” from check-in to accessing the unit to interacting with staff, he said. “It’s much more of a tech-enabled hospitality experience.”
Picard said commercial real estate may be the only real estate sector that will perform worse this year than last. Some office leases up for renewal will not be renewed, while others will be renewed with less space.
As tenants leave or downsize, the Sonder model of transforming spaces into apartments that can be licensed as hotels “becomes quite compelling for a landlord.”
Prefers to lease entire buildings
Sonder prefers to lease entire buildings, so it can control lobbies and other areas. As a result, smaller class-B office buildings are of greatest interest to the company, Picard said.
“There’s been a lot of outreach, both (from) large institutional groups and more local landlords,” he added.
For zoning purposes, in a city like Montreal it’s easier to transform office to hospitality than it is to go from residential to hospitality, he noted.
Sonder now has four buildings in Montreal, including the 53-unit Guerin Lofts on Drolet Street in the Plateau Mont-Royal area which opened in October. The five-storey building once housed a textbook publishing company.
Plans are to open another four properties in Montreal during 2021, including 150-unit properties downtown and in the Old Port in which it will operate the entire buildings.
Other Canadian cities
The company opened its first building in Vancouver last October, the 66-unit Sonder at Revival on Comox Street in the West End. Properties in Toronto included the refurbished Beverley Hotel on Queen Street West.
There are no current plans to expand to other Canadian cities: “We’re really just focused on making sure that we have more units in our top three cities right now. But nothing’s off the table.”
Picard says during the early days of COVID-19, Sonder’s occupancy fell to about 45 per cent compared to its traditional rate in the low 80s. Occupancy rates have since rebounded.
“We’ve probably done slightly better than a lot of the hotels out there,” in large part because of the contactless experience. “You don’t really need to interact with other people and that’s something that resonates with people right now.”
Sonder guests are booking average stays of 10 days, compared to the previous four-day average, making its spaces with kitchens and living rooms more attractive.
Picard says Sonder is operating on a timeline that may see it go public at the end of 2022. However, “we’re still navigating a very volatile environment for our industry.”
Podcast: Raising capital for commercial and industrial real estate | RENX – Real Estate News EXchange
The Industrial Real Estate Show with Chad Griffiths.
Can you raise outside capital to purchase commercial real estate? What if you don’t come from a business-minded family or have a circle of affluent friends?
In this episode Griffiths is joined by Whitney Sewell, founder and CEO of Life Bridge Capital, a private firm with over $125M in assets under management.
Sewell shares how he started with small projects and now raises upwards of $10 million per project in a few hours. He also offers a number of actionable steps investors can take right now to raise capital, and why he is working so diligently toward accomplishing his goals.
The Daily Chase: Toronto real estate broker laughs at housing pledges; Fed decision day – BNN
Toronto real estate broker John Pasalis laughed at Greg when asked about campaign housing pledges and whether any of them make sense for addressing affordability. Check out that refreshingly candid reaction, and why Pasalis (like many other guests we’ve spoken with) fears the Liberals’ strategy will backfire and actually drive up prices. Mattamy Homes Founder Peter Gilgan was even more blunt, telling us “we need to declare that we’re at war with affordability.” We’ll have plenty more insight in the days ahead about what to expect in Justin Trudeau’s third mandate, including this afternoon when CAPREIT CEO Mark Kenney joins Greg to discuss the Liberals’ targeting of real estate investment trusts. We’ll note here that the Prime Minister’s Office released a readout yesterday evening from Trudeau’s call with U.S. President Joe Biden; the two “committed to getting together in person soon.”
Markets will find out this afternoon if the U.S. Federal Reserve is prepared to fine-tune its language about taper timing. Last we heard from Chair Jerome Powell in his Jackson Hole speech, he confirmed that the central bank thinks it will be in a position to scale back asset purchases before the end of this year, but signaled “considerable” progress was still needed to attain maximum employment. Since then, we saw August non-farm payrolls that fell way short of expectations. The policy statement and updated forecasts land at 2 p.m.; followed by Powell’s news conference a half hour later.
The debt-laden Chinese property developer that’s captured the financial world’s attention amid concern (seemingly misplaced, at least for now) that it could be heading toward a Lehman moment has managed to assuage some immediate fear, while simultaneously stirring confusion. China Evergrande Group said in a regulatory filing that it “resolved” an interest payment coming due tomorrow, without providing many details. Meanwhile, less than 24 hours ago, Bloomberg Intelligence Analyst Damian Sassower told us the big question surrounding Evergrande was what the People’s Bank of China was prepared to do about it. Overnight, it pumped additional liquidity into the financial system in a reverse repo operation. That all added up to a steady session in Asia, where the Shanghai Composite closed flat after a two-day holiday.
OTHER NOTABLE STORIES
- FedEx had a rough fiscal first quarter as profit fell year-over-year amid supply chain woes and a US$450-million jump in costs due to what the company calls a “constrained labour market.” The parcel shipper cut its full-year profit forecast as a result. Shares have been down more than five per cent in pre-market trading.
- The U.S. House of Representatives cleared the SAFE Banking Act last night, meaning the U.S. cannabis industry is one step closer to freer access to banking services.
- Celestica announced last night that it’s paying US$306 million to acquire Singapore-based electronics manufacturer PCI Limited. Celestica, which also raised its profit forecast, said the deal will add more than 20 “blue-chip” customers to its business. CEO Rob Mionis is on The Open at 10:10 a.m.
- Telus International announced a secondary offering of 12 million shares after yesterday’s closing bell. None of the proceeds are flowing to the company. TIXT shares have surged almost 22 per cent since their first day of trading in February.
- Walt Disney Co. shares have steadied in pre-market trading after an abrupt five per cent plunge yesterday afternoon on the heels of a management warning about Disney+ subscriber additions this quarter.
- Reminder that Ontario’s COVID vaccine passport program takes effect today, forcing venues including restaurants, bars, and movie theatres to screen patrons for full vaccination.
- Notable data: Canadian manufacturing sales flash estimate, U.S. existing home sales
- Notable earnings: BlackBerry, General Mills
- 8:30: Wheaton Precious Metals investor day
- 9:10: Suncor Energy East Coast Vice-President Josee Tremblay addresses Newfoundland and Labrador Oil and Gas Industries Association conference
- 10:00: Ontario Superior Court resumes hearing Cineworld-Cineplex case
- 11:00: U.S. President Joe Biden convenes virtual COVID summit on sidelines of United Nations General Assembly
- 14:00: U.S. Federal Reserve releases interest rate decision and updated forecasts (plus 14:30 news conference)
- Canadian Council for Aboriginal Business hosts virtual conference on rebuilding the Indigenous economy. Speakers include Suncor Energy CEO Mark Little (12:45)
Artis REIT puts Calgary office portfolio up for sale | RENX – Real Estate News EXchange
Artis Real Estate Investment Trust is selling the remainder of its Calgary office portfolio which includes six buildings comprising close to 700,000 square feet.
It is part of the REIT’s overall strategy of divesting Calgary office property, which began in late 2016, to concentrate on other real estate assets.
At its peak in mid to late 2016, just prior to its shift in its strategy, Artis (AX-UN-T) owned in excess of 2.5 million square feet of office property in Calgary across approximately 20 properties.
“Artis pursued a significant portfolio shift away from Calgary office to prioritize capital allocation to higher-growth strategies, particularly emphasizing the U.S.A. industrial development program,” said Corey Colville, head of strategy, real estate, at Artis.
The Calgary portfolio for sale includes:
– Canadian Centre, 156,772 square feet;
– 417 14th Street building, 17,517 square feet;
– Alex Building, 61,847 square feet;
– Campana Place, 49,123 square feet;
– Heritage Square, 315,152 square feet;
– and Hillhurst Building, 63,394 square feet.
Colville said the present occupancy of the Calgary office portfolio is about 70 per cent.
“Strategic decision” to exit Calgary office sector
“We still have a very robust portfolio of retail and industrial properties in Calgary, but we’ve made this strategic decision to market our remaining Calgary office buildings,” said Colville.
Artis has five retail properties in Calgary of over 343,000 square feet and six industrial properties with over 362,000 square feet.
“Over the past trailing few years, Artis has marketed and successfully transacted on much of their Calgary office portfolio. These remaining six assets, we’re of the view that there’s a terrific opportunity for the market to capitalize on a substantial discount (to) replacement cost and create significant value,” said Colville.
“We’ve had interest from owner/user investors, from repositioning and converter investors as well as office investors.
“With these properties, we think with the amount of potential there’s just fundamentally an opportunity in the market for local investors to capitalize on.”
Colville said Artis has held some of the Calgary office assets for more than a decade. On balance, they’ve been longer-tenured assets for Artis.
“At the peak, (Calgary office) was a really significant component of Artis’ total valuation. At this point of time, the remaining assets in relation to our gross book value is actually quite immaterial and the contributory cash flows from them,” he said.
“We’re looking to focus our efforts in a more strategic way. We think that we’ll be very dominant long-term and competitive landlords and we don’t feel that this is going to be the case now that we’ve reduced our position so much in the Calgary office market.”
Downtown vacancy about 30 per cent
Calgary’s office market has struggled for the past seven years since the collapse of oil prices in late 2014. That led to massive layoffs, particularly in the city core where many energy companies had their corporate head offices. Obviously, fewer people has meant less need for office space throughout the city.
The downtown Calgary office vacancy rate has hovered around the 30 per cent mark for some time.
“You know, we’re not quite as pessimistic as some of the news headlines would indicate. Naturally, and quite obviously, there’s been a struggle in the market, but we are confident that Calgary is one of the most important cities in Canada and that Canada is a phenomenal country to invest in,” said Colville.
“In time, we believe that Calgary will make a strong resurgence and comeback and we believe that Calgary will benefit from the wave of immigration to come and the rejuvenation to the energy markets over time.”
The Artis REIT property portfolio
In Q2 2016, Artis had 260 properties of about 26.6 million square feet overall; 191 properties in Canada with about 17.1 million square feet and 69 properties in the U.S.A. with about 9.5 million square feet.
At that time, it owned 73 properties in Alberta with about 6.7 million square feet. By the end of Q2 2021, that number had decreased to 40 properties with about 2.7 million square feet.
At the end of Q2 2021, Artis had 133 Canadian properties with about 10.4 million square feet and 70 U.S. properties with about 11.6 million square feet for an overall total of 203 properties and 22 million square feet.
The REIT’s portfolio at the end of the second quarter was 42.7 per cent office, 38.2 per cent industrial and 19.1 per cent retail.
Its overall occupancy was 92.3 per cent in Canada; 97.7 per cent for industrial, 83.3 per cent in office and 90.8 per cent in retail. In the U.S., its overall occupancy was 91.8 per cent comprising 94.3 per cent for industrial and 87.4 per cent for office.
Colville said the third quarter will feature a further and material shift of the portfolio following the sale of 27 of 28 of its Greater Toronto Area industrial properties. The 28th property is also for sale.
Other recent portfolio activity
– Acquired a parcel of industrial development land in Minnesota’s Twin Cities Area, for US$1.5 million.
– Disposed of an office property in Calgary, three retail properties in Regina and a portion of a retail property in Fort McMurray, Alta., for an aggregate price of $62 million.
– On June 30, Artis entered into an agreement to sell the GTA Industrial Portfolio, comprising 28 industrial properties located in the Greater Toronto Area. On July 15, the REIT closed on 26 of the 28 properties for $696.7 million. One of the remaining properties is expected to close in Q3 2021 and generate gross proceeds of $26.7 million. The remaining property will be actively marketed for sale.
– Subsequent to June 30, it also disposed of the King Edward industrial portfolio, comprised of two properties in Winnipeg, for $3.2 million.
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