Investors put almost $100 million into The Idea Quarter
October 6, 2017
WATERLOO — A Toronto investment company has bought three former BlackBerry buildings along Phillip Street for close to $100 million.
CanFirst Capital Management, a private equity real estate company that invests in commercial real estate properties, bought 440 Phillip St. for $18 million, 451 Phillip St. for $51.2 million and 455 Phillip St. for $27.1 million.
"I am so pleased they were able to make such a large investment in our community," said Waterloo Mayor Dave Jaworsky.
Last year the City of Waterloo branded that area The Idea Quarter as startups and tech companies started leasing space in the former BlackBerry buildings.
"The Idea Quarter is where inventions take flight, and we are seeing the former BlackBerry buildings being filled," said Jaworsky. "CanFirst Capital says they have new ideas for bringing more jobs to Phillip Street that I am very excited about."
Several companies submitted bids for the properties, but CanFirst was the winner. The deal closed Sept. 19. This real estate deal was brokered by Colliers International, and at $100 million it will be the region's biggest transaction of 2017.
"If we are selling a billion dollars worth of investment real estate a year, that is 10 per cent of the market in one transaction — so a very big and significant transaction," said Karl Innanen, Colliers International managing director.
When BlackBerry listed all of its Waterloo Region real estate for sale in 2014, CBRE was the broker of record. The 19 properties with 3 million square feet of space were sold to Spear Street Capital in San Francisco for $309 million.
Then, Colliers International went to work for Spear Street, reselling, redeveloping and leasing the huge portfolio of commercial properties. Now, it is working with CanFirst Capital to lease up the remaining space in the Phillip Street buildings.
BlackBerry immediately leased back 1.2 million square feet of space in four buildings on University Avenue East for its headquarters. All of the other 15 buildings have now been sold. In took a little more than three years.
"There is no question there were some twists and turns along the way, but the result has been as good or better than anyone could imagine," said Innanen
The one at 451 Phillip St., a former manufacturing site for BlackBerry, was transformed into a showcase of new economy chic called Factory Square. It features a 15,000-square-foot courtyard cut into the centre of the building, ceilings that are 5.5 metres to 7.5 metres high, big windows and 24 skylights.
With 217,000 square feet of space, Factory Square can be easily divided into eight separate workplaces, and already has a coffee bar and a juice bar. It is located directly across the tracks from the LRT station in the David Johnston Research and Technology Park.
Factory Square fetched the highest price among the three buildings at $51.2 million.
"It is a good one to prove out that those BlackBerry buildings can be fixed up, changed, improved, leased up and then sold to long-term investors," said Innanen.
The American missile maker Raytheon Canada Ltd. has downsized in recent years and leased 26,000 square feet in 440 Phillip St. An announcement is expected next week on who is buying the Raytheon building at 400 Phillip St. that sits on 24 acres of land — the largest empty parcel of land in the city.
GHD, the engineering, architecture and environmental consultants, leased 100,000 square feet of space in 455 Phillip St. That lease was brokered by Peter Benninger of Coldwell Banker. GHC's employees are scattered among three different buildings now, and the company wanted everyone in a single workplace beginning next January. There is a lot of interest in the buildings GHC is leaving, said Benninger.
"Basically Spear did their value creation, leasing the buildings up to tenants like GHD, and then have sold it off as an investment," said Benninger. "I understand there is strong leasing activity going on."
The CanFirst deal puts to rest fears the region would experience a glut of commercial real estate that would drive down lease rates for 10 years or longer.
"The concern was once BlackBerry contracted we were going to have a bit of a challenged market up there," said Innanen.
"But it has been the exact opposite, people have flooded into that market," said Innanen. "It is amazing to think it has been only three years."
Many commercial real estate brokers thought it would take 10 years to see the former BlackBerry properties absorbed into the market. But these days they are talking about possible shortages of space, said John Whitney, of Whitney Commercial Real Estate Services.
"We are starting to see a shortage of development land, we are starting to see a shortage of industrial space, really good office-technology space," said Whitney.
A lot of credit has to go to Spear Street Capital, which came into the market in a big way as BlackBerry imploded. That vote of confidence, and Phillip Street's proximity to the University of Waterloo, ensured the area would continue to prosper, he said.
"It's incredible," said Whitney. "A lot of the Toronto investors and a lot of the Toronto developers figured this was the death knell for Kitchener-Waterloo, and they stayed away in droves."
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