Calgary : Global credit crunch could affect 'The Bow'

[ErickMontreal]

H&R REIT hits a roadblock with The Bow

 

LORI MCLEOD

November 14, 2008

 

When H&R Real Estate Investment Trust signed on as the owner and developer of EnCana Corp.'s new head office in Calgary last year, the deal marked a milestone.

 

At the peak of the real estate boom in February, 2007, the handshake between the natural gas producer and the real estate developer set in motion the creation of a unique, crescent-shaped skyscraper which is set to become the tallest office tower west of Toronto.

 

At the time it was announced the project known as The Bow, became a symbol of Calgary's coming of age as a Canadian financial powerhouse in the midst of the commodities boom.

 

Almost two years later, times have changed and the development that was to become H&R's crown jewel has hit a funding wall.

 

"At present there are no financing arrangements in place on any of the REIT's development projects, and the current difficult economic conditions have impacted H&R's financing strategy," the trust said late yesterday in a release of its third-quarter financial results.

 

The trust said it is considering selling assets, including The Bow, to address its funding challenges.

 

So far, attempts to find an investor for the project have failed and are unlikely to succeed until H&R moves further along with its financing and construction efforts, said Neil Downey, analyst at RBC Dominion Securities Inc.

 

H&R's biggest problem has been the seizure of the credit markets, which happened swiftly, unexpectedly, and before it secured a construction loan for The Bow, said Dennis Mitchell, portfolio manager at Sentry Select Capital.

 

Labour and materials costs are rising, and the cost of the project has risen from $1.1-billion to $1.4-billion.

 

Adding to the pain is the downturn in the financial and commodities markets, which is sending office vacancy rates up and real estate values down.

 

While the large scale of The Bow was a bit concerning, in "heady" times it was an exciting project, Mr. Mitchell said.

 

"In February of 2007 you were essentially in the peak of the market. You were talking about [real estate firm] Equity Office Properties being purchased in a bidding war. You had people talking about a wall of capital coming into the markets. It was a pretty heady time," said Mr. Mitchell, whose firm recently sold nearly all of the 55 million H&R shares it owned.

 

His view in February, 2007, was that H&R would be able to sell a 50-per-cent stake in the project at a gain in about six months.

 

As the project proceeds, over budget and in need of $1.1-billion in funding, H&R is facing some tough choices, Mr. Downey said.

 

While it was not mentioned as an option by H&R, Mr. Downey has raised the possibility of a distribution cut of up to 50 per cent, starting in 2009 and continuing until the project is completed in 2011, he said. "This would be a Draconian move by REIT standards," he added.

 

However, it would provide H&R with an additional $300-million in capital, which should be enough to make up the financial shortfall if it can secure a $500-million construction loan, he said.

[francely57]

^ Je sais pas si c'est possible, mais s'ils font un redesign plus petit, ce serait mauvais pour la région de Montréal... l'acier vient d'une usine de Terrebonne.

 

 

 

the creation of a unique, crescent-shaped skyscraper which is set to become the tallest office tower west of Toronto.

...there are office towers taller than 238 m east of Toronto?

why don't they simply say "tallest canadian building outside Toronto" ?

[Gbx]

^ Je sais pas si c'est possible, mais s'ils font un redesign plus petit, ce serait mauvais pour la région de Montréal... l'acier vient d'une usine de Terrebonne.

 

Tu parles d'ADF j'imagine? Je sais qu'ils vont aussi fournir la freedom tower à NYC.

[francely57]

^ oui, je suis allé visiter leur usine en février 2008.

Ils sont sérieusement très productifs, ça m'a impressionné de voir la quantité de travail et de métal qu'ils font.

[monctezuma]

Tu parles d'ADF j'imagine? Je sais qu'ils vont aussi fournir la freedom tower à NYC.

 

Wow ce sont des bons contrats pour ADF. Leur usine est aussi très belle.

Dire que il y a quelques temps (+ ou - 5,6 ans) leurs affaires allaient très mal.

Content de voir qu'ils ont bien remonté la pente !

[francely57]

Apparemment, le financement de la tour principale (The Bow, 236 m, 58 étages, 1,5 milliard $) est réglé, et c'est la 2e tour potentielle qui serait interrompue pour un bout de temps...

(http://www.theglobeandmail.com/servlet/story/RTGAM.20090401.wbowtower0401/BNStory/Business/)

 

photo de Jimby de SSP