In a country struggling with record-high office vacancy rates and what has been called a housing crisis, a deal in the nation's capital addressing both issues has been selected as the winner of the 2024 CoStar Impact Award for sale/acquisition of the year in the national capital region, as judged by a local team of real estate professionals familiar with the market.
Gatinuea-based Katasa Group was the purchaser behind two office buildings in downtown Ottawa, paying $57 million for 66 Slater St. and $15.5 million for 130 Slater St. KingSett Capital was the vendor of the deal that closed on Aug. 31.
66 Slater St. is a 22-storey, 262,000-square-foot office high-rise that was 85% leased to a roster of long-term tenants, while 130 Slater St. is a 13-storey, 123,000-square-foot office building that was just 35% occupied.
In a fourth-quarter report for 2023, Avison Young noted that the availability rate in the Greater Ottawa office market climbed 390 basis points from a year earlier to 14.3%, the real estate company said in that report.
At the same time, the country is struggling with housing demand, which Canada Mortgage and Housing Corp. says will require an additional 3.5 million homes beyond the current pace of construction by 2030.
Katasa Group was well-poised to create housing-converted office buildings, having done so previously in Ottawa and Montreal.
The company saw the potential for residential conversion at 130 Slater St. but could also envision value in 66 Slater as an office building where it could offer leases to existing tenants of 130 Slater St.
The deal is part of Katasa's continued expansion in Ottawa. The company has successfully converted a 12-storey office building into an off-campus student residence near the University of Ottawa.
Katasa felt the condition of the property slated for conversion made it suitable for residential. The preliminary stages of this conversion are now underway.
The preliminary plan for the project includes 203 rental apartments, a mixture of one, two, and three bedrooms, as well as ground-floor retail units.
Like many deals, debt financing was one challenge the group had to overcome as the assets were not fully leased, and many lenders were reticent to loan on office assets in the landscape of return-to-office uncertainty and high-interest rates.
To facilitate the transaction, a vendor take-back mortgage was arranged. It took months of negotiations to arrive at terms that were satisfactory to all parties.
About the Project: This landmark transaction of 2023 in Ottawa is expected to be watched closely because it was one of the first of its kind to provide solutions to the lack of residential housing, the ongoing debate on downtown revitalization, and the return to office for both the public and private sectors.
What the judges said: "The purchaser saw an opportunity to make real change in Ottawa's central business district, and despite many hurdles around the acquisition, the owner is following through with an appropriate residential conversion," said Brent Arseneau, vice president of leasing at Colonnade BridgePort.
They Made it Happen: Graeme Webster, a principal in the capital markets division of Avison Young Canada, brought the opportunity to KTS Properties, the Ontario arm of Katasa Group. David Tweedie, Pat Luca and Colm of RBC Capital Markets Realty Inc. represented the seller.