Sold: Former Encana Place tower in downtown Calgary to be redeveloped
Feb 19, 2015
Calgary-based Aspen Properties has purchased the downtown office tower formerly known as Encana Place for an undisclosed amount and plans to redevelop the site, turning it into a Class A building from its current B class level.
Scott Hutcheson, chairman and president of Aspen, confirmed to the Herald that the company has bought the property located at 150 9th Ave. S.W., directly across the street from the Fairmont Palliser Hotel and the Calgary Tower.
Hutcheson said an institutional partner, which is not being disclosed, has bought the property with Aspen. RBC Capital Markets Real Estate Group, which advised the vendor, confirmed the vendor of Encana Place was 1731325 Alberta Ltd., on behalf of Encana and CP Rail.
“We went under contract in late November to purchase this building. The world has adjusted since late November,”said Hutcheson in reference to the precipitous decline in oil prices. “But what Aspen typically does is value add. We find assets that need to be positioned differently. We find assets that we see something that maybe some people in the market either don’t like or don’t see or can’t execute on.
“This building will go vacant in a few years. It has a lease in place with Encana for a couple of years. What we like is the opportunity to re-position the asset and take it from an older asset to something that will be shiny and new in its presence on the street and up a couple of levels and upgrade some of the mechanical. And re-position it for the market.”
The tower, which is 30 floors with 446,297 square feet, was built in 1981. It is currently one-third occupied by Brion Energy, on a sublease, but the entire building is still leased for just over two years by Encana, said Hutcheson. Brion will also be vacating the building in a few years for another new office tower being built in the downtown.
Prior to the move into The Bow tower, Encana had 1,200 staff working out of Encana Place. The final moves of staff from Encana Place into The Bow took place in March 2013.
Hutcheson said redevelopment on the property will start almost immediately. That will include work in the lobby and the street level, which could include a restaurant.
Gavin Young/Calgary Herald - February 19, 2015Scott Hutcheson, chairman and chief executive, left, and Greg Guatto, president and chief operating officer, with Aspen Properties outside the new office tower the company has purchased at 150 9th Ave. S.W. formerly known as Encana Place.
“We hope that in the next two years we’ll have this building re-positioned so that we can pre-lease with a start date when Encana leaves,” he said.
“We think we’re buying at a time when others are not necessarily excited to buy. That’s typically what we’ve done as an organization. We’ve bought counter-cyclical to many of our competitors and we buy assets that may be under-valued by its look or its feel or its economics for the risk.”
Tom Dixon, manager of real estate, transportation and logistics with Calgary Economic Development, said the history of the site goes back to CP Rail, Marathon Real Estate and Pan Canadian Petroleum, who were the original tenants.
“At that time, the location would have been considered cutting edge. Today, it’s bang, smack in the middle of the office core,” he said. “I guess the proof of that would be when you have a luxury boutique hotel (Le Germain) immediately adjacent. That kind of says it all.”
“Great buy. Great strategic move by Aspen who have an excellent reputation as a value-add acquirer of property.”
Dixon said when a property owner has high-quality product and open floor plates that’s when the big leasing deals are completed.
“The fact that it’s very strategic with the tenant presently in the building moving to a new development that illustrates that Aspen will have very little trouble in filling the building,” said Dixon.
Aspen owned 2.2 million square feet of office space in Calgary and Edmonton in eight buildings, including the Calgary Tower, prior to the acquisition of the former Encana Place tower. The company also has about $1.2 billion in total assets.
Aspen also has a refreshed development permit to eventually build two 30-storey towers on each side of the Calgary Tower with about 628,000 square feet in each of them.
“We are in the market. We’re patient. We realize that this isn’t the best part of the cycle to be in the market to lease up but we’re patient. We don’t have to build it. We’ll build it at the right opportunity or the right time,”said Hutcheson, adding that most developers start to build with 50 to 55 per cent of pre-leasing in place.
A recent report by commercial real estate firm Newmark Knight Frank Devencore indicated that vacancy rates in the downtown office market have risen significantly amid declining oil prices.
The report said the city’s downtown office market recorded negative absorption — the change in occupied space — of 561,700 square feet in the fourth quarter of 2014, the worst negative demand quarter in more than five years.
As a result, the vacancy rate increased by 1.4 per cent quarterly and 1.8 per cent annually to 8.3 per cent in the fourth quarter.