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While there are hundreds of commercial office buildings in downtown Toronto, only a precious few rise to the status of prestige Class AAA trophy properties, and it is even rarer when one of these landmarks are sold. Such was the case in January when Oxford Properties and Canada Pension Plan Investment Board sold the 1.5 million square foot Royal Bank Plaza to Spanish real estate investment company Ponte Gadea for a price rumoured to be in excess of $1 billion – by far the largest single asset office transaction for the past several years.
RBC Plaza became a landmark Canadian skyscraper in the mid-1970s, not so much for its height, but for its two-tower, triangular design commanding its heavyweight corner at Bay and Front Street. Designed by WZMH Architects, RBC Plaza did not to join the vanity height contest which was common of the era amongst the big banks with the 56-storey TD Bank Tower being topped by the 57-storey Commerce Court West and both of which usurped by the 72-storey First Canadian Place for BMO.
Instead, RBC Plaza consists of a 26-storey North Tower completed in 1976 and a 41-storey South Tower completed in 1979. Most notably both towers contain more than 14,000 windows coloured using 71,000 grams of gold, valued at $70 per pane at the time of installation and giving the development its distinctive appearance at sunrise and sunset.
Obviously, the complexities of a transaction of this magnitude, one of the largest in Canadian history, does not happen overnight, and UrbanToronto reached out to Colliers Capital Markets group who conducted the many months of due diligence required on behalf of the purchaser Ponte Gadea to unveil the story behind the sale. Colliers is Ponte Gadea’s property manager for Royal Bank Plaza and 150 Bloor Street West in Toronto, and 777 Ste Catherine in Montreal.
“Colliers has had a relationship with Ponte Gadea for several years,” says Emeka Mayes, Partner and Head of Capital Markets with Colliers Canada. “Due to this relationship, they requested our Capital Markets group advise them on the acquisition of RBC Plaza. With our knowledge of the commercial real estate market, plus knowing very well the brokers who were marketing the property, Colliers was able to advise Ponte Gadea on pricing and strategy which lead to a successful bid.”
Colliers supplied buy-side advisory services to Ponte Gadea, which included providing office and retail market information, an office market walking tour with a market analysis of every property toured, first and second round bid strategy, the preparation and review of the Letter of Intent, and assisted in the review and negotiation of the purchase and sale agreement.
A key consideration for any purchaser of an office development in excess of forty years old is the condition of the property and its various systems. To that end, Colliers provided a capital expenditure review based upon a property condition report supplied by the vendors. “This included a detailed description of the building that included the age of the building systems and an estimate on their useful life,” says Mayes. “There was also a detailed ten-year cost table that provided an estimate of projected annual capital expenditures repairs. One of the Colliers people on this assignment had worked for Oxford in the past and actually managed the property, and as a result, she had a very good understanding of the cost of the future repairs to the building.”
As part of its due diligence and advisory services, Colliers also interviewed a variety of current tenants at RBC Plaza. The intent of these interviews was to determine if the tenant was happy in their space and with the landlord, building air quality systems and building amenities, to get a sense if they were going to stay in the building. They also asked if their local business was doing well, is the parent company doing well and why, if they want to expand or shrink their space, and if they can continue to pay the rent.
“This property is being acquired as an investment vehicle that will be generating a cash flow,” says Mayes. “In order to accurately build and create a future cash flow model, it’s important to ask the tenant key questions focusing on the probability to renew, future tenant improvement which may be required, future landlord work, future leasing commissions, and examine the cost implications of the potential loss of revenue due to a tenant vacating at expiration of the lease or going bankrupt.”
Big commercial real estate transactions, with huge numbers attached to them, make headlines, but behind those headlines is extensive due diligence to address all the factors to make these sales a reality, as evidenced by the work of Colliers Capital Markets group on behalf of Ponte Gadea.
The sale of RBC Plaza has been seen by many experts as a testament to the continuing strength of the global commercial real estate market, even in these turbulent times, and the continued resiliency of the Downtown Toronto office market.
“We believe Ponte Gadea’s big bet in the Canadian markets is proof of positive global sentiment towards investment in Canada,” says Mayes. “Canada is looking especially good in relation to what is happening with Russia and the economic uncertainty in that part of the world. More capital is going to look at Canada, across all asset classes.”
The workplace is currently going through a reset with the return of employees, but whatever the world of work becomes, there will always be a place for the office.
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