This month’s sale of a downtown Calgary highrise is showing the benefits of converting office space to residential in the city’s core.
Westview Heights, a 343-unit apartment tower at 825 8th Avenue SW, sold August 1 for $83.4 million, or $243,149 a door. This works out to blended price of $370 per square foot, compared to the current range of $50 to $100 per square foot for straight office space.
“You’d probably get very little value for the commercial space,” said Samuel Dean, senior vice-president, capital markets, JLL Canada.
The property is not among the 10 projects participating in Calgary’s Downtown Development Incentive Program, which aims to remove 6 million square feet of office space from the market by 2031.
The former owner, Mayflower Ventures LP, acquired the property in September 2007 and began the conversion process prior to the city initiative, recognizing the value that could be gained through residential space. A total of five floors were converted, yielding an additional 55 residential units.
This means the office conversion alone added in excess of $13 million to the value of the property, on top of the natural increase in value since acquisition.
Mayflower decided to sell now as it refocuses on new development opportunities. With strong demand for housing from new arrivals, it saw an opportunity to present the building as rents march northwards. Close to a third of units were vacant at the time of the sale, meaning Westbow Capital has plenty of room to lease them up at market rates.
“The ability to go in there and take advantage of where the Calgary market currently is definitely played a big part in the transaction,” Dean said. “Historically, you wouldn’t really have someone looking to take on that much lease-up risk, whereas in this situation it was actually a positive to have that vacancy.”
According to Rentals.ca, the average one-bedroom rent in Calgary in July was $1,718 a month, up 17.2 per cent from a year ago.
Canada Mortgage and Housing Corp. statistics for purpose-built rental units peg vacancies in Calgary at 2.8 per cent as of October 2022.
Close to 80 per cent of units at Westview Heights are one-bedroom apartments fetching in the range of $1,600 a month. The high rates for the market are creating demand for smaller units within the property.
The deal is the largest multifamily sale in Calgary in the past 12 months, and the second largest in Alberta following the sale of a new 396-unit purpose-built rental building in Edmonton on August 8 for $91.6 million or $231,313 a door.
The new owner, Westbow Capital of Chilliwack, will rebrand the building as District. The property is its first acquisition in Calgary. It currently owns properties in Edmonton, Red Deer and Saskatoon as well as B.C., meaning Calgary fills a geographic gap in its portfolio.
Westbow claims to have $550 million in assets under management. Residential rental units are held through Westbow Real Estate Properties Trust, which targets annual returns in the range of 9 to 12 per cent.
Westbow’s purchase occupies the same block as 805 8th Avenue SW, where another B.C. company, Cressey Development Corp., is converting approximately 64,000 sq. ft. to 85 residential units under Calgary’s conversion incentive program.
Cressey plans to retain its project on completion, holding it as an income-producing asset.
