Although the commercial condo market is well developed in the US and in other parts of the world, commercial tenants in Montreal are only slowly becoming aware of this market as a space alternative as velocity in this sector still lags far behind that of commercial leasing and investment. In fact, many financial institutions are still having trouble determining what appropriate levels of financing should be for this asset type.

Values for commercial condos, as with other classes of real estate, vary greatly depending on location, ground floor or upper floor, pedestrian and vehicular traffic, new construction or existing building. In some cases the residence’s values in the building could be more expensive than the commercial condos on a per square foot basis and in others they could be less. There is no ‘rule of thumb’ and therefore market rents and recent sale comparables should be analyzed closely before purchasing.

Below are some of the pros and cons to consider before making a commercial condo acquisition:

Pros

• Allows smaller space users to acquire real estate and therefore replace a rent expense with shareholder equity and a possible capital gain
• A typical break-even scenario could occur in under 10 years
• Units typically have some street visibility and signage -Upward trending prices for the asset class
• Could create additional tax benefits for ownership
• No loss created by leasehold improvement investment
• Some financial institutions provide financing up to 100% of total cost and leasehold improvements

Cons

• User may not get full benefit of residential condo fee pmt -May take some time to sell as market is not fully mature yet
• If company outgrows space may lose some flexibility in relocation
• Market currently priced for users not investors
• Majority of options in the market currently under 10,000 sq ft
• Condo by laws could prohibit certain uses

In conclusion, a lack of understanding in this market could represent an opportunity for many users. Corporate real estate tenants and their advisors should not ignore this market when evaluating alternatives. Click here for a complete list of Montrealofficespace.com’s available commercial condo units.

Calgary has recently surpassed Montreal in terms of office space inventory in the Central Business District and Toronto has virtually absorbed the 5 new towers that have been delivered over the last 4 years. For the first time in 20 years it appears that the economic rents and vacancy projections will support new private sector office development in Montreal’s financial core!

As a follow-up to our December 7th, 2011 blog post, and in light of the changing landscape of the downtown development market, below is an updated summary of the likely players.

 Kevric ’s mixed-use project is now under construction at Viger and Beaver Hall Hill. The project will deliver 239,000 sq. ft. to the market in 2014 and is poised to announce its anchor tenant momentarily.

Canderel, Montreal’s pre-eminent developer along with the FTQ can launch its office project in the Quartier des Spectacles, rumoured to be anchored by one of Quebec’s financial institutions.

 Cadillac Fairview, Canada’s leading and most experienced developer, with deep pension fund pockets has invested heavily with its purchase of the Windsor Station and the land south of the Bell Centre. CF is in discussions with a number of potential anchor tenants and is poised to announce a 500,000 square foot office tower. In fact, the project was presented to the city’s development committee for approval in mid-April. CF has a seasoned team who were involved in the development of 1250 Rene Levesque by Marathon Realty 20 years ago and are deeply committed to this development to anchor their site and kick -off a large-scale mixed-use development plan as they have done in Toronto with the ACC development. 

Broccolini Construction has just gained its first foothold in the downtown market by investing big on a prime land site immediately north of the Bell Centre. The plan thus far is to develop a mixed-use development to include an office building between 350,000 and 750,000 sq ft. Broccolini just raised money in an over -subscribed private placement, and are known to have excellent corporate relationships. Most importantly however, with their LEED-seasoned in-house construction team, Broccolini’s development cost advantages could differentiate them from their competition in landing a lead tenant, whom they are rumored to be in serious talks with. Given their development successes in Ottawa and Gatineau, Broccolini’s development could be the sleeper!

Westcliff – Canapen have been trying to launch a 2 tower complex facing the Caisse de Depot on Victoria Square since they built the ICAO building on University Street. The infrastructure is already in place so they can still be first to come out of the ground! They are rumored to be in discussion with a major tenant.

Montrealofficespace.com is of the opinion that the stars may be aligned to see all these projects get the green light in the next 12 months…Great news for the city, corporate tenants in the market for space and their brokers!

To learn more about Apple’s new headquarters, please click here:
http://www.bloomberg.com/news/2012-03-09/apple-drives-silicon-valley-s-biggest-leasing-boom-since-2000.html

Altoria

Kevric, the developer behind the Altoria condo project at the corner of Beaver Hall and Viger, is actually the first developer out of the gate with new office space being delivered to downtown Montreal. The building however, is not a pure-play office building as Kevric has decided that its project will be a first of its kind in Montreal, a mixed use project featuring 10 floors of office space and 22 floors of residential condominiums. Demolition of the former structure is complete and the residential units are selling quickly but an office tenant has yet to be announced.

Place de la Cite Internationale Phase II

Located at the corner of Square-Victoria and Saint-Antoine, Westcliff’s proposed office tower could be the fastest out of the ground as the foundation for the tower is already in place, built when Westcliff constructed the ICAO headquarters building on University. This site can accomodate a tower of up to 500,000 square feet as well as a smaller, ‘boutique’ building immediately to the North of 140,000 square feet.

701 University

The land site at the corner of University and St-Jacques will benefit greatly from the redevelopment of the Bonaventure expressway currently underway. Once tenancies for 50% of the building area are signed, the office tower delivered could have an area of up to 750,000 square feet over 32 floors. The site is being conceived as a multiple tower site with a residential component on the east side of the site.

900 de Maisonneuve W.

Ivanhoe Cambridge, the real estate arm of the Caisse de Depot, owns the piece of land located at the corner of the de Maisonneuve Blvd W. and Mansfield. The future proposed office tower, planned at just under half a million square feet, will sit on an 11-storey above-ground parking structure thereby ensuring that the lower office floors will have views over the surrounding buildings.

(To be continued…)

Once a deal to sublease is concluded between the Sub-Landlord and Sub-Tenant, the building’s landlord needs to consent to the deal. Since Quebec law dictates that the landlord cannot refuse consent unreasonably, the landlord will simply ensure that the Sub-Landlord remains jointly and severally responsible for its obligations set out in the lease and that the quality of sub-tenancy will not adversely affect the image of the building.

The office broker’s role in subleasing is crucial as their marketing generally provides access to a pool of tenants and their brokers in the market. They also provide data and analysis on expected recovery rates and lease-up time. In the best case scenario, an office broker with strong relationships with the building’s landlord can even help have the lease cancelled altogether instead of putting it on the market for sublease.

In conclusion, subleases represent tremendous opportunities for both Sub-Landlords looking to recapture a sunk cost and Sub-Tenants looking to benefit from a great deal. However, both sides should be aware of the risks inherent in these arrangements and should mitigate them to the best of their abilities.

Tenants evaluating subleases are generally very attracted to them for two main reasons: First, subleases are frequently traded at a discount since most companies looking to sublease their premises view the cost as sunk and any recapture is viewed as a way to get it off their books, and second, improvements left behind by Sub-Landlords can result in significant cost savings for Sub-Tenants as they would have otherwise spent money on customizing a space to their needs. In some cases, the benefit to Sub-Tenants is even greater as they can afford a higher quality space they could not have leasing directly from the building’s landlord.

By the same token, tenants need to be aware of the risks associated with subleases, which account for their discounted prices. For example, the Sub-Landlord’s financial strength. Should the Sub-Landlord default on its rent obligation, the Sub-Tenant is then caught ‘holding the bag’ and will have the choice to either assume the Sub-Landlord’s original lease, its terms and conditions, or relocate.  Another negative associated with a sublease is that of a shorter term. Although Sub-Tenants may benefit from a great deal on the sublease, once the Sub-Landlord’s lease expires, the Sub-Tenant will have to negotiate with the building’s landlord at market rates, or relocate.

Over the last decade, a visible and obvious shift has taken place in Quebec industry.

Manufacturing and labour-intensive industries have gone offshore for cheaper production, leaving many skilled workers unemployed and many warehouses abandoned. Almost simultaneously, however, Quebec reinvented itself as a creative hub for industries ranging from fashion to multimedia, leveraging small creative successes into a larger rebranding of its workforce.

One of the areas where this has been most visible is that of gaming. Pioneered by Ubisoft and with the help of generous government incentives, the industry counts almost 80 companies and 8,000 employees in the province. Quebec has attracted such majors as Electronic Arts, A2M and, most recently, WB Games. Since 2003, the industry has experienced an astounding 600 per cent growth and has played a huge role in the city’s economy – especially in real estate.

The city’s largest studios combined occupy roughly one million square feet of office space and have accounted for some of the largest and most important transactions in real estate in recent years. They have each played an integral role in transforming the areas they have selected for their office space.

Ubisoft: The industry’s largest space occupier has its approximately 300,000-square-foot campus in Mile End, at St. Laurent Blvd. and St. Viateur St. Prior to making it their home, the area had largely been forgotten. The campus’ surroundings have been gentrified, including office buildings at 5605 and 5455 de Gaspe as well retail and residential projects along the Main.

Electronic Arts: The company occupying the most expensive office space in the industry has its home at 2 Place Ville Marie, where it originally set up shop on an inexpensive sublease from Via Rail. PVM’s central location and surrounding amenities meant the company renewed its 100,000-square-foot premises at market rates.

Gameloft: When Crofton Moore, the developers of 5800 St. Denis St. at the corner of Rosemont Blvd., were relaunching the garment building as a loft-office project with métro access directly across the street, Gameloft took notice and leased 25,000 square feet, which they recently expanded by 15,000 square feet.

THQ: In 2010, just as the economy was pulling itself out of the recession, THQ inked a deal for 82,000 square feet at 250 St. Jacques, in the Old Montreal/Quartier International quadrant where a looming vacancy had become a priority for the Westin Hotel developers.

WB Games: The most recent addition to the city’s gaming industry chose Place Dupuis as its home for its 70,000-square-foot mobile development studio. The drivers behind the decision were access to transport, surrounding amenities and the proximity to its workforce who mostly come from the Quartier Latin and the Plateau, so that their employees could “live, work, and play” in the same neighbourhood.

Gaming companies have played an enormous role in gentrifying new areas, repurposing others and generally keeping the city’s commercial vacancy rates at an all-time low.

“The challenge now is for Montreal to retain its occupancy cost advantage with the lower vacancies we are seeing.” says Lloyd Cooper, senior vice-president of commercial real estate firm Cushman & Wakefield.

Read more: http://www.montrealgazette.com/business/flip+side+Assassin+Creed+What+good+gamers+good+Montreal+real+estate/4739193/story.html#ixzz1M36aj4Op

John Voulieris, director of project management in Quebec, led the interview process and was selected to manage the project personally. Morgan Stanley required a team leader who could manage over 20 of their internal resources (who all in turn were responsible for various project disciplines within Morgan Stanley – including but not limited to IT, Relocation, Construction, AV, and more), as well as an external team of over a dozen professionals and suppliers (Design, Architect, Engineering, General Contractor, etc).

Morgan Stanley required that the project be delivered on a fast track schedule, and through a competitive bid process managed to get all the required equipment in early for a quick start on site. This allowed the construction team to deliver the new state of the art server room in a record breaking 6 weeks, which in turn allowed the offices to open as per the original fast track schedule and as per the budget set out by C&W, without compromising the rigorous Morgan Stanley quality control standards.

The project is pending a LEED CI Gold certification, and was recognized as the only North American Morgan Stanley project where all 400 employees were up and running the day following the move with zero IT deficiencies.

Morgan Stanley is already looking to expand their current operations by an additional 20,000 SF and due to the success of the first phase has engaged Cushman & Wakefield Inc. Project Management to continue to lead the process.

John Voulieris is the Director of Project Management for Cushman & Wakefield Inc. in Quebec. He is currently managing the Morgan Stanley expansion as well as the commercial interior fit up for Warner Bros. Games in Montreal. He can be reached at  john.voulieris@ca.cushwake.com for any commercial or industrial renovation or construction needs.

Vaudreuil-Dorion/Saint-Lazare

This small community of 30,000 to the west of Montreal is one of the fastest growing in Canada, having experienced 29.5% population growth from 2001 to 2006. The community shows no signs of slowing down as a recent announcement calls for a plan to have AMT train service to Vaudreuil every 12 minutes. Retail tenant demand has also driven large-scale construction by the Harden Group and Smart Centres.

Blainville/Boisbriand

From 1996 to 2006 Blainville experienced population growth of 57.1% driven by rising housing costs in Laval and Montreal. The primely located Faubourg Boisbriand has become a destination for national big box retailers looking to establish a presence on the north shore. This has also led to other developments along Autoroutes 15 and 640 such as Developpement Montoni’s build-to-suit buildings for Investor’s Group, Trevi, and Mazda.

Terrebonne/Lachenaie/Mascouche

Terrebonne is the 10th largest city in Quebec with a population of 94,000 having experienced population growth of 17.6% from 2001 to 2006. Most of the concentration in the area is centered around the AMT’s train station and the Pierre Le Gardeur Hospital. Smart Centres, Rio-Can, Brookline and many others have all capitalized on the area’s growth by developing shopping centers and a few office buildings at the early stages of the area’s growth.

Mile-End

Ubisoft’s headquarters at the corner of St-Laurent and St-Viateur has played an integral part in the revitalization of the office market in the Mile-End area. Buildings such as 5605 and 5455 de Gaspe, 400 Atlantic, 6300 Parc and 5800 St-Denis have all recently experienced a high velocity of leasing deals however, the building’s large areas make it difficult to lower overall vacancy rates and therefore cheap deals remain abundant.

Chabanel

The street that has forever been synonymous with the garment industry is experiencing a revival. Thanks to a $20 million investment by the City of Montreal, the planned addition of a new train station, it’s still comparatively low rents and the emergence of Groupe Dayan and Canada’s Public Sector Pension Fund as the area’s newest and largest landlords, the center of Montreal is getting the TLC it needs to reshape it’s image as a design and back-office hub and has thus far, been successful in attracting quality tenants.