The REIT Report: What’s Up With YK’s Big Landlords

An 11-storey white elephant? Downtown’s Bellanca Building

UPDATED August 11

Todd Cook must have been fairly bursting with the news Northern Property REIT announced yesterday when he presented the company’s results for the second quarter of this year at a conference call last Friday.

Despite strong second-quarter results, CEOs at Northern Property REIT and Dream REIT, the heavyweights in Yellowknife apartment and office rental markets, say these are challenging times in mining towns.

YK’s been good to NP

During a Friday lunch-hour conference call with investment analysts, Todd Cook, president and CEO of NPREIT, reported improved financial results in the face of 25 percent vacancy rates in Fort McMurray and Lloydminster.

Vacancy rates across the company’s rental universe improved to 10.1 percent from 10.6 percent in the first quarter, driven mostly by Yellowknife, where the vacancy rate dropped to 7 percent from 13 percent in the first quarter.

Cook attributed the sudden change in fortunes to an NPREIT program aimed at improving tenant satisfaction, but a sweet deal the company cut earlier this year with the territorial government couldn’t have hurt.

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NPREIT complained last year that two-thirds of its public assistance tenants in Yellowknife were behind in their rent. Those arrears, they claimed, cost the company $200,000.

Under the agreement negotiated earlier this year, the territorial government will pay $1.6 million this year to rent 75 apartments, most of them in Yellowknife, for families on the waiting list for public housing.

The deal halved NPREIT’s vacancy rate, dumped the arrears problem in the lap of the NWT Housing Corp., and bolstered the usurious rental regime that currently challenges any government efforts to attract new residents to the territories.

The blockbuster Cook sat on through the conference call was delivered Monday, when he announced a plan that will make Northern Property REIT manager of 25,000 rental suites scattered across eight provinces and two territories.

In the proposed $3 billion deal, NP REIT appeared to swallow whole True Apartment REIT of Toronto and Starlight Investments, a company controlled by True North chairman Daniel Drimmer.

Drimmer will be the largest investor, with 14.2 per cent of the new company that will be known as Northview Apartment REIT. It will be tbe third largest publicly-traded REIT in Canada, after Canadian Properties and Boardwalk.

Northview will have rental units in 60 markets in every province and territory except Yukon, Prince Edward Island and Manitoba  in the deal that will give True North shareholders .3908 of a NP REIT share.

Based on Friday’s closing stock price, the offer is worth $9 a share, or 16 per cent above True North’s closing price of $7.73 a share.

In addition, NP REIT will pay $535 million, including $316 million cash, $49 million of assumed debt and $170 million equity issued  by the new trust to acquire a portfolio of apartments from a joint venture between Starlight and Public Sector Pension Investment Board, which manages  funds for the RCMP, the Canadian Forces and the reserves.

Bellanca dreams

A week earlier, Dream REIT CEO Michael Cooper told a similar story. The company’s residential developments in Toronto, Ottawa, Saskatoon, Regina and Edmonton are doing well, “but there is a lot of uncertainty in Canada, right now.

“There is a consensus that Canada’s prospects are not favourable over the short term. We’re facing headwinds and focused on how to manage,” Cooper said.

Dream’s commercial division includes the Bellanca Building, an empty shell in downtown Yellowknife since the government tenants moved to another Dream building.

“Yellowknife is an incredible micro-economy with a lot of things affecting it: government, mining companies,” Cooper said, and confessed that the Bellanca Building has the company stumped for answers.

“In the scale of the city, there is just not that much growth in office demand,” Cooper said.

“We’d like to find a use for it. We’re looking at everything.”

Three years ago, when the Bellanca emptied, the board of Aurora College floated the idea of leasing space to fulfill its dream of a standalone campus in Yellowknife, but it did not respond to an overture from Dream.

Aurora president Jane Arychuk said in an email to EDGE last Friday that “the Board learned in a presentation on the GNWT capital planning process that until funds are identified for a capital project, there would be no funds to consider leasing and renovating a new or different space.”

For more real estate stories, the city’s best rental board and property listings, visit Property North

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