Canderel Close to Buying Constitution Square

A group led by Montreal developer Canderel is close to purchasing one of Ottawa’s marquee class-A office complexes, OBJ has learned – marking what would be among the biggest local real estate transactions in recent history.

Several sources have confirmed that the consortium, which also includes Toronto-based Forgestone Capital and Regina’s Greystone Managed Investments, is in the final stages of due diligence on a blockbuster deal to buy Constitution Square from current owner Oxford Properties.

The three-tower office complex, which contains more than one million square feet of space at 340, 350 and 360 Albert St., was put on the market in the second quarter of 2017. Sources say the property attracted interest from several other potential buyers, including Morguard.

Oxford Properties is the real estate arm of the Ontario Municipal Employees Retirement System pension fund, better known as OMERS. The company owns and manages a wide range of office, retail, hotel, industrial and residential properties in North America and Europe, but Constitution Square is its only Ottawa holding.

Tenants in the three buildings began receiving Estoppel Certificates last week. The documents – which are used to verify lease terms and determine if there are any outstanding issues between landlords and tenants such as unpaid rent – are generally considered a sign that a sale is on the path to completion.

“This only happens near the end of the process, so they’re pretty darn close (to a deal),” Bruce Wolfgram, a broker with Proveras Commercial Realty, told OBJ last week.

According to a recent report from Colliers International, the sale of Constitution Square would be the city’s “largest single transaction of recent record.”

The largest deal in Ottawa so far this year was Investors Group’s $188-million purchase of a 50 per cent interest in the three office towers at Minto Place from Minto Capital Management. That’s also the most lucrative transaction in the city since the federal government bought the former Nortel campus on Carling Avenue in 2010 for $208 million (see fact box below).

The first tower at Constitution Square, an 18-storey building, was completed in 1986. A 21-storey highrise was added to the complex in 1992, and the third tower, which is 19 storeys tall, opened in 2007. The complex is a block from the future Lyon LRT station and includes amenities such as a conference centre, fitness centre and a daycare facility.

The complex’s retail podium includes a restaurant, while the towers contain a mix of private and government tenants, including Public Services and Procurement Canada, TD Wealth, Scotia Capital and Rogers. According to Oxford’s website, a total of about 84,000 square feet of space is currently vacant in the three towers.

Sources say some tenants are paying net rent of less than $10 per square foot after inducements are taken into account, a rate the new owners will likely expect to improve upon. Another source told OBJ the deal features “an aggressive cap rate.”

Officials from Canderel and Cushman & Wakefield, the brokerage representing the buyers, did not respond to emails from OBJ. Brokerage firm CBRE is representing the seller and did not return a request for comment. Oxford Properties spokeswoman Claire McIntyre said the company had no comment at this time.

“Oxford may have thought now is the time to sell, and it is a good time to sell, that’s for sure,” one veteran broker said. “There’s all sorts of reasons why people sell, and there’s certainly a ton of money sitting out there looking to buy. There’s all sorts of investors looking to put their money somewhere other than in a bank account.”

Canderel develops and manages residential and commercial properties in several Canadian cities. The company has maintained a relatively low profile in Ottawa since selling its stake in Export Development Canada’s headquarters at 150 Slater St. six years ago, although it was part of a bid to redevelop LeBreton Flats that ultimately lost to a group led by Senators owner Eugene Melnyk in 2016.

The developer is also building an eight-storey retirement residence across from Lansdowne Park in the Glebe and was part of a joint venture with Minto to construct UpperWest, a 25-storey, 175-unit condo project in Westboro that opened last year.

“Clearly, this is going to be a major comeback (for Canderel in Ottawa) if and when this goes ahead,” one broker said of the Constitution Square purchase.

Forgestone Capital is currently working with Trinity Development Group on another project in the capital, a 680,000-square-foot mixed-use project at the corner of Rideau and Chapel streets that is expected to be completed in the spring of 2019.

If it goes through, the sale of Constitution Square would come at a time when Ottawa’s downtown commercial real estate market appears to be heating up.

Colliers International’s most recent office market report said the citywide office vacancy rate was 11.7 per cent at the mid-year mark, down from 12.2 per cent at the end of the first quarter.

One of the big drivers of the decline was the high end of the downtown submarket, Colliers said.

“Class-A assets continue to dominate the interest of tenants looking in the market, a trend that is starting to spill into upper class-B offerings,” the real estate services firm said in a report released last month.

“Millennial businesses find downtown spaces to be the most attractive in terms of amenities and transportation. Smaller companies in Kanata are starting to see this appeal and have begun to pursue downtown options as well.”