Montreal-based Groupe Mach has continued its buying spree of Canadian office buildings with the purchase of the 27-storey office property at 160 Elgin St. in downtown Ottawa.
The deal comes after Ottawa’s downtown office vacancy rate reached an all-time high of 13.2% in the last quarter, according to a recent report from CBRE.
Mach bought the office tower, branded ONE60Elgin, from Toronto-based H&R Real Estate Investment Trust for $277 million. The deal is Mach's 16th asset in the Ottawa region and cements its role as one of Ottawa’s largest owners of office property.
The building, which was formerly known as Place Bell, has stood in downtown Ottawa since 1971 and was renovated extensively in 2017 with the addition of a curved glass facade near its entrance. It comes with 850 indoor parking spaces.
Major recent or current tenants include Bell Canada with 277,000 square feet, Gowling WLG, which occupies about half of that amount, as well as the Canadian Institute of Health Research, Department of Justice Canada and Telesat.
Mach issued a statement explaining that the move is part of its plan to increase its presence outside of its home province of Quebec.
"The acquisition of ONE60 Elgin is a perfect fit with our pan-Canadian expansion plan. Over the past two years, we have deployed a major acquisition strategy to strengthen Mach's presence in the Ontario market, both in Ottawa and the Greater Toronto Area. These markets offer exceptional acquisition opportunities, such as ONE60 Elgin, a strategically located high-value asset with quality tenants and long-term leases," said Vincent Chiara, president of Mach.
High Vacancy
Mach has been unfazed by high office vacancy rates, as it purchased an office tower in Halifax in January and four others in Montreal in February.
H&R REIT said in a separate statement that the deal will see Mach hand over $65 million upon closing and another $180 million within 90 days at a 6.5% interest rate. H&R will provide Mach with a second loan of $30 million at an interest rate of 4.5% to mature in April 2028. The single building represents 19% of H&R’s Canadian office portfolio.
The REIT said in a statement that it will use the initial cash infusion to pay back debt and buy back shares.
“Given the considerable headwinds in the public and private real estate markets, we are very pleased to have executed this transaction,” said Tom Hofstedter, executive chairman and CEO of H&R REIT. “This office sale furthers our strategic repositioning plan and moves H&R REIT closer to achieving our portfolio simplification strategy goals.”
The sale comes as a Toronto-based hedge fund is putting pressure on H&R REIT to speed up its strategic plan announced in October 2021, which calls for it to focus on becoming a multifamily and industrial REIT.
The K2 Principal Fund LP, which is represented by its manager K2 & Associates Investment Management Inc., has proposed its own slate of four board members for a unitholder meeting set for June 15.
The deal has been in the works since late last year, as H&R originally referenced it in its year-end report for 2022. H&R paid just over $211 million when it purchased the building in 2002, according to CoStar data.