Calgary-based real estate company Enright Capital Ltd. has purchased a 271,000-square-foot, 25-storey class-B office building in downtown Calgary – its fifth office purchase in the city during the past 15 months.
Its latest acquisition is the building at 635-8th Avenue SW, which is connected by the downtown’s indoor Plus-15 pedestrian network to Eighth Avenue Place, Bankers Hall and the CORE shopping centre. Planned upgrades to this building will include a new gym, conference centre and tenant lounge.
The building was bought from Cadillac Fairview. No financial details were disclosed.
Patrick McFetridge, principal at Enright, said the company was founded in 2009 and has two business lines – the development of core industrial buildings, mostly in Calgary where it does joint ventures with institutional capital – and an opportunistic line which seeks assets with “dislocated pricing and what we view as opportunities.”
The company, with a current total portfolio of about 2.1 million square feet, has been very active in the Calgary office market in the past year or so.
“Very strong risk-adjusted opportunity”
“That’s what we’ve been doing with office in the last year or so. We’ve bought various things in various markets,” he explained in an interview with RENX. “We went into Phoenix when it was really beat up – 2010, 2012, bought there. Got out of our last asset last year there.
“And now we’ve been buying office in Calgary because we feel that we’re making a call on the bottom. We feel that there’s a very strong risk-adjusted opportunity here. The prices have come down to a point where you find them to be very cheap, and we can do well operating them, and then if the market improves, we would do better on top of that, operating upside.”
In the past 15 months, Enright has purchased five buildings comprising just under one million square feet of leasable space.
“We’ve taken a decent swing at this opportunity, and we’re quite excited about it. And the buildings we bought last year we’ve taken from 65 to 90 per cent occupancy. So we’re finding that we can get these buildings leased up,” McFetridge added. “We are just a small entrepreneurial organization and we apply a lot of attention and focus, and we’re very reactive. We have deep relationships with the brokerage community, and think that’s translated into success for us.”
Other recent Calgary office acquisitions
Among its other purchases, Enright bought 1122 Fourth, a 13-storey, 125,000-square-foot office building in downtown Calgary. About 15 months ago it purchased Vintage Park, a 78,000-plus-square-foot, campus-style office project.
The 1122 Fourth office building was purchased from Manulife.
“We bought that and it was about 65 per cent occupied, and it’s a little over 90 per cent today,” he said.
McFetridge said the 635-8th Avenue SW building is about 50 per cent occupied.
“We like the location and we like the bones of the real estate. We think it’s highly functional. It’s a small-plate building, lends itself to tenants that are under 10,000 feet and that’s a market we’re finding has been pretty good, actually, despite the statistics.”
At the recent Calgary Real Estate Forum, one panel discussion mentioned there has been plenty of activity in the office market in the west end of Calgary despite a high vacancy rate. According to Q3 statistics from CBRE, Calgary’s Mid-West Core has a vacancy rate of 46.5 per cent while the West End is at 26.9 per cent, compared to the Central Core at 24.6 per cent.
Conversions create opportunity for Enright
“There’s been a lot of acquisitions of these office buildings by converters, who are buying them to convert them to residential rental product. And that’s been benefiting us because they’re kicking out these tenants, so they need a new home and we’re able to offer them that new home,” he said.
“We’re always looking for opportunities. We have, for us, a big office portfolio. So I think our focus in the near term will be executing, and leasing-up these acquisitions . . . We like a minimum occupancy level of probably 50 per cent and we like buildings that we view as to be well located, well looked after by their current owner, and properly designed.
“The vacancy in the office market is super high. High 20s per cent, which is a dysfunctional market by that statistic. But the good buildings are doing fine. It’s the buildings located in the far west end and/or were designed potentially with some flaws that struggle, or they’re just old and they need capital and attention. Most of those buildings aren’t doing well.
“The better buildings you can lease up and operate at a decent occupancy level.”
McFetridge said there’s no question the institutional owners have moved out of Calgary. They wanted out, and have sold out.
“All the buyers are private guys who have seen the opportunity in the same manner as we do,” he said. “A lot of the office markets around the world are at the beginning of a downturn or maybe the middle of the downturn. Calgary turned down 10 years ago. And so we view it at the very end of a long down cycle.
“The prices now in Calgary are deeply discounted as a result of that long downward cycle. We can just get better real estate at a better price in Calgary right now.”
