Tuesday, August 7, 2012 - Property Biz Canada by Paul Brent -
Skyline Commercial REIT has launched a $100-million confidential offering to fund the equity portion of the $242.75-million purchase of a commercial property portfolio from a private seller.
The portfolio, which adds up to more than 2.35 million square feet of commercial space in the Greater Toronto Area and Ottawa regions, will close in two parts – September/October of this year and March/April of 2013.
The deal is enormous for Guelph, Ont.-based Skyline Commercial, effectively growing its portfolio by about 10 times to a total of 2.6 million square feet. Put another way, the value of the Skyline Commercial real estate portfolio will soar from the current $25-million to $28-million range to about $270-million worth of real estate.
The transaction is not so outsized when compared against its older sister REIT, the Skyline Apartment REIT that was launched in 2006 and is one of the largest owners and managers of multi-residential property in the country. Currently Skyline Apartment REIT also manages $120-million worth of commercial property within its structure, which holds a total of about $700-million in real estate.
“It is still a huge deal by any institutional standard and any Canadian standard, but it is something that relative holdings and real estate holdings is digestible,” said Jason Castellan Chief Executive and Co-Founder of the Skyline Group of Companies.
He doesn’t expect Skyline Commercial to take too long to recover from its gorging. “Obviously it will take a little bit to digest this but it is not going to take us a year or anything like that. It is going to be six months of hard work bringing it in and getting comfortable with it."
Skyline is keeping an eye out for the next big acquisition. “We are always going to be looking and good deals will attract good money,” he said. “If there is another deal coming down, it is all about getting capital. So investor capital is the key to be able to go out and hunt down more deals now.”
Securing that $100 million from its offering should go a long way to cementing Skyline Commercial’s new buyer status.
The massive commercial portfolio from the unnamed seller – a private fund - has been on Skyline’s radar screen for some time now, said Castellan. “Even though they are private they are a large group and we know of them. Our business gets very small when you get to know everybody.”
The two sides met through an agent and took over from there, said the Skyline CEO. "Once the introduction was made, we worked directly with the vendor on the sale."
The portfolio brings almost 400 new tenants to Skyline Commercial and puts it in nine new communities across Ontario.
The assets are mainly light industrial and office buildings with a small amount of retail space.
Castellan said there are no immediate plans to sell properties in the portfolio although he did foresee the possibility of some eventual pruning. “We are going to test drive everything that is in the portfolio. That is a strategy that any prudent owner should look at: pick it all up because that is the way it was sold, as a portfolio, and then prune off assets that are either worth a lot more than what we paid or get rid of the assets that just don’t fit.”
The Skyline chief likes where the real estate is situated, mostly along the highway stretching from Windsor to Ottawa. “With commercial we want to be 400 series corridors, so up the 400 (highway), 401 right through the corridor from Windsor to Ottawa because you want to be where businesses want to be,” he said. “There is just high volume, high traffic, high density.
"So having these kinds of assets where they are fits precisely in our mandate."
Castellan said Skyline may eventually shift the $120-million worth of commercial property from its apartment REIT over to the commercial trust given its black sheep status in the portfolio. “The commercial real estate in there has given us some challenges regarding financing with institutions and financing with some of our lenders,” he admitted. “So there are two ways to work through that which is to buy more apartment real estate to dilute sort of the commercial holdings in there or sell them across to the commercial [REIT].”
After a decade in the real estate business, the principals behind Skyline have a well-worn strategy that can be described as glitz and glamour-free. “Coming from the apartment real estate side of things, we are not looking for trophy assets, we are not looking for high profile assets,” he said.
“We want nice, tidy little cash flow entities that we can fill in here, build mass, build diversity. We feel the more tenants we have, the more diversified we are, the less volatile our income stream will be.
“If you are tied to the bigger tenants, bigger trophy assets, you can have great up times but you can have low, low times too.”
Skyline is a real estate investment, development and property management company based in Guelph, Ontario. The Skyline Group of companies is made up of Skyline Management Inc. the Property Manager for the REITs, Skyline Asset Management Inc. the Asset Manager for the REITs and Skyline Wealth Management Inc. the Wealth Manager for the REITs. Each of the entities is owned by Skyline and exists to service Skyline Apartment REIT and Skyline Commercial REIT.
Skyline Apartment REIT was launched in June of 2006 and is currently made up of 105 properties in 40 communities across four Canadian provinces. Its portfolio valued at approximately $690-million. Skyline Commercial REIT was successfully launched in April 2012.