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Toronto : OMERS grabs rest of TD Tower

 

LORI MCLEOD

 

From Saturday's Globe and Mail

 

July 25, 2008 at 8:34 PM EDT

 

Brookfield Properties Corp. has sold its stake in one of the two Toronto skyscrapers that make up its flagship Brookfield Place, a surprise deal that set a new price record for Canadian office space.

 

Brookfield said Friday it sold its half-interest in the TD Canada Trust Tower to co-owner OMERS Realty Corp. for $721 a square foot.

 

OMERS, part of the Ontario Municipal Employees Retirement System, acquired full ownership after triggering the shotgun clause in its partnership agreement with Brookfield, a commercial property company based in New York.

 

The move led to rumblings that friction between the partners may have sparked the deal, but this wasn't the case, said Tom Farley, president and chief operating officer of Brookfield's Canadian commercial operations.

 

“Absolutely not. Brookfield and OMERS have a terrific relationship. The building was and is 100-per-cent leased, OMERS decided they wanted to own 100 per cent … and we found the price to be attractive,” Mr. Farley said.

 

If Brookfield had not wanted to sell its stake, it would have had the option of buying OMERS' stake under the partnership agreement, he added.

 

The record price paid for the 51-storey tower built in 1990 suggests demand for top quality buildings remains strong despite fears of a spreading real estate slump, said Michael Smith, analyst at National Bank Financial.

 

“This sets a new benchmark price for rare, trophy assets, which simply don't come on the market that often,” he said.

 

The next highest recorded price paid for a large office building was $625 a square foot for the Harry Hays Building in Calgary in 2007, according to data from CB Richard Ellis Ltd.

 

Friday's purchase comes at a time when Canada is experiencing its greatest shortage of office space in 10 years. However with 3.7 million square feet in development in Toronto alone, vacancy rates in the city are expected to pop to 10 to 12 per cent in the next two years from 4.4 per cent in the second quarter of 2008, according to CB Richard Ellis.

 

The market will still have strong fundamentals, and the deal confirms Brookfield Place's position as a premier asset in the downtown core, said Paul Morse, senior managing director of office leasing at Cushman & Wakefield LePage.

 

Brookfield still owns 100 per cent of Brookfield Place's larger Bay Wellington Tower, 50 per cent of the complex's shared retail space and 56 per cent of the parking, Mr. Farley said.

 

“If in fact we had sold out our entire interest in the property I would have had mixed feelings, but we still have a significant ownership interest in one of the best properties in Canada, if not North America,” he said.

 

Brookfield's gross proceeds from the sale of $425-million could be used for a variety of purposes, including acquisitions in North America, Mr. Farley said. The funds could also be used to buy back shares or pay down debt, he added.

 

Mr. Smith said the purchase makes sense strategically for OMERS, which has already been doing extensive renovations at the Royal Bank Plaza across the street from Brookfield Place.

 

Representatives from OMERS weren't available to comment on the deal.

 

http://www.reportonbusiness.com/servlet/story/RTGAM.20080725.wtdcentre0725/BNStory/Business/home

 

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