New Westminster is simultaneously trying to lease and sell the Merchant Square office tower.
Gary Holowatiuk, the city’s director of finance and information technology, said the city’s plan is to do the tenant improvements in the office tower atop Anvil Centre, unless it’s sold before that building is leased up.
“An office building’s sales value increases as it is leased up,” he explained. “A fully leased up building eliminates any leasing risk to the potential buyer and provides a guaranteed income stream.”
The City of New Westminster has retained Cushman & Wakefield to lease-up and sell the office tower.
“If a purchaser is identified before the office tower is leased, the city may sell and forego the leasing risks and additional costs to put in tenant fit-outs,” Holowatiuk said in an email to The Record. “Alternatively, if a buyer is identified later on, the office tower selling price will be higher to recover the tenant fit-out costs and to reflect a premium for the fact that the building is leased and providing a guaranteed revenue stream.”
Holowatiuk couldn’t provide details about the sale price of the Merchant Square office tower.
“I cannot comment on this except to say that the sale price will be a function of how much of the building is leased up at the time of sale,” he said.
Colleen Ponzini, the city’s manager of financial services, said this year’s draft financial plan budgets $40 million for the sale of the office tower and $40 million for expenses related to Merchant Square construction. If the tower sells, she said the money from the sale would be used to repay debt incurred to build the tower.
Andrew Laurie, a senior associate in office leasing with Cushman and Wakefield Ltd., said the company is currently engaged by the city in the marketing and leasing of office space in the Merchant Square project.
“The leasing is still in its initial stages, as is normal with a project of this type,” he wrote in an email to The Record. “We have every confidence that prospective tenants will see the benefits of this building – its environmental design to a LEED Gold standard, the nearby amenities (including the Anvil Centre), easy access by foot, bike, car and close proximity to SkyTrain...not to mention the remarkable views.”
Laurie said it’s important to note that New Westminster has a strong landlord market at present. He said there is a 5.9 per cent vacancy rate for Class A space in the city, which this building will be.
Construction of Anvil Centre is expected to be completed by June and fully operational by September. It will include convention facilities, a theatre, an art gallery, the city's museum and archives, the Canadian Lacrosse Hall of Fame, multiuse rooms and more.
When the city embarked on plans to build a new civic centre on Columbia Street, it put out expressions of interest to see if any developers were interested in partnering with the city on the development. The Uptown Property Group was the only submission for an office tower, with others proposing a residential tower atop the civic centre.
When the Uptown Property Group withdrew from the project, city officials debated whether or not to proceed with the office tower, ultimately deciding to carry on with the entire $94 million civic centre and office tower project: $41.5 million for the civic centre, $12.5 million for the three-level underground parking structure and $40 million for the office tower.
Holowatiuk said the office tower’s price tag of $40 million includes $30.4 million for construction and $9.6 million for tenant fit-out and lease-up costs.
When the city agreed to proceed with construction of the office tower, it took steps that would allow it to borrow up to $59 million to complete the project.
“We have borrowed approximately $21.6 million – $8.5 million for various municipal capital projects; $1.6 million for the Anvil Centre and parking and $11.5 million to front end development assistance compensation (DAC) amounts receivable from the province,” Holowatiuk said.
The civic centre is one of five projects the city identified as priorities for development assistance compensation, which is money the city negotiated years ago as part of accepting a destination casino in New Westminster. The city had originally allocated $35 million toward the civic centre, but later received permission to reallocate an additional $8 million in development assistance compensation funding from other projects to Anvil Centre.
To date, the City of New Westminster has claimed $34.6 million in development assistance compensation funds, and received $21 million, Holowatiuk said.
“The balance will be paid to the city over the next few years,” he said. “If you recall, DAC accrues to the city based on casino operations through to 2019. That is why the debt bylaw contemplates the city having to provide front end financing of up to $15 million related to DAC projects.”
According to Holowatiuk, once the office tower is fully “tenanted up” – and depending on B.C. Assessment Authority's assessment of the property – it has the potential of generating approximately $50 million (plus or minus) over 50 years. About 62 per cent of this would relate to municipal taxes and 38 per cent would be for school and regional property taxes.
