Originally posted on CBRE's website
October 9, 2024 - Smart money is moving into the office investment market and Edmonton trades are leading the way forward. But it’s a healthy tenant roster and long-term perspective that are getting deals across the finish line.
CBRE’s National Investment Team-Edmonton brokered the sale of Sun Life Place, a 289,000 sq. ft. and 83%-occupied downtown office building, with Thomas Chibri as the primary deal lead.
CBRE represented vendor Slate Asset Management in the deal, which Chibri notes is the first post-COVID large-scale downtown Edmonton office transaction to use a traditional income valuation approach.
Office product during the pandemic was primarily sold on a per square foot basis, given that most opportunities did not have a strong occupancy base. In the case of Sun Life Place, the value was based on the going-in yield, owing to the building’s strong occupancy and near-term income stability.
“It’s a more traditional analysis,” Chibri says. “Groups could focus their attention on value creation through incremental leasing, versus worrying about maintaining the existing income stream.”
The deal required “relentless perseverance,” he adds, and credits CBRE Edmonton colleague Mark Anderson and his team for providing office leasing expertise and guidance throughout the process. “This deal likely does not happen without their proactive approach in ensuring the rent roll was in the best position possible.”
The building had been owned by Sun Life Financial since it was built in 1978, and between 2010 and 2020, through the proactive management of BentallGreenOak, $13.5 million was invested in a full renovation and retrofit of the building and a refurbishment of the structure.
“They ensured asset longevity by creating the table stakes required by tenants looking in the market,” says Chibri.
Sale to Slate
CBRE brokered the tower’s first sale to Slate in June 2020, with COVID in full flow.
Anderson’s team were the listing agents for Sun Life / BentallGreenOak, and Chibri says they gave Slate comfort on the path forward from a leasing perspective.
Sun Life Place is close to Edmonton’s law courts, which allows it to separate itself from the competition for tenants that require proximity to this facility.
Anderson caught wind that Legal Aid Alberta was in the market for space, and he cold-called the group and suggested Sun Life Place. Legal Aid Alberta ended up taking nearly 35,000 sq. ft. over multiple floors in the building.
“It was a proactive approach that allowed the building to secure such a significant lease in a negative absorption market,” Chibri says. With the Legal Aid lease secured, Slate decided the time had come to consider a potential sale of Sun Life Place.
Belief in Office
The purchaser, who Chibri says has been around for decades and seen numerous downcycles before, believes that office buildings will be a primary driver of outsized value and returns over the next decade.
“But you have to know how to manage and lease office space, and have the wherewithal to weather the next couple of years,” he says, noting that right now yields in office significantly outweigh other asset classes.
“The difference is you have to be prepared to hold the office for the longer term. The traditional in-out approach is tough to triangulate given the current market dynamics.
“Sun Life Place will see a big uptick in a stabilized market.”
Core Confidence
The sale of Sun Life Place is a strong vote of confidence in the Edmonton core, according to Chibiri.
It’s been a good run for his team, which has sold three downtown office buildings – or more than 800,000 sq. ft. of well-maintained office space – so far in 2024, and another office deal is in the works.
“Once a group sees one trade, then two, it has a snowball effect,” says Chibiri. “And more and more people are wanting to look at office.”
Private capital groups understand what’s going on in Edmonton, and that they are “operating in a vacuum with not much competition,” he adds “They’ve got conviction and capital and they recognize that now is the best time to buy Edmonton office.”
Edmonton is known for its ICE District, but relatively speaking, its office investment market is on fire.
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