Alcion sells stake in $358m Toronto tower to pension

The Boston-based private equity real estate firm has sold its stake in the Telus Tower to the Healthcare of Ontario Pension Plan, which now owns 90% of the 810,000 sq. ft property.

Alcion Ventures has sold its stake in one of Toronto’s first major office developments in more than a decade to the Healthcare of Ontario Pension Plan. Financial details were not disclosed but the deal values the property at C$373 million (€279.8 million; $358.4 million).

The Boston-based firm, founded by ex-AEW Capital Management principals Martin Zieff and Mark Potter, had developed the property with local firm Menkes Development and with the C$31 billion HOOPP pension as a majority investor.

The [Toronto] market had not delivered a new office building since the early 1990s and the average age of standing inventory was more than 30 years.

Alcion Ventures co-founder Martin Zieff

HOOPP senior portfolio manager Lisa Lafave told PERE the pension was buying out Alcion's stake in full. Alcion said in a statement the sale was the “consummation of a contract entered into in 2005 with a Canadian pension fund”, with Lafave adding that the deal took HOOPP's ownership interest in the building up to 90 percent. Menkes retains a 10 percent stake.

When the Telus Tower, located at 25 York Street, was officially opened in November 2009 it was the “first major new office development in the downtown core in over a decade”, according to HOOPP documents. The telecommunications company Telus is the lead tenant, occupying 60 percent of the 780,000-square-foot office space. As of the end of 2009, the property was 85 percent leased.

With a $3.3 billion (10.8 percent) allocation to real estate, the Telus Tower is one of HOOPP’s “largest real estate holdings and HOOPP's largest office development to date”, the pension said on its website.

Lafave added that the pension was predominantly invested in direct Canadian real estate but had recently increased its exposure internationally through five real estate funds, including two UK vehicles, two pan-European funds and one Mexican vehicle, totalling 1 percent of HOOPP’s entire pension plan.

She said the pension was also considering investing in US real estate through fund managers.

Zieff said in the statement that the property – which sold for C$480 per square foot – was speculative when Alcion, HOOPP and Menkes first acquired the site in 2005. “Dominated by large tenants and a few institutional landlords, the [Toronto] market had not delivered a new office building since the early 1990s and the average age of standing inventory was more than 30 years.”

Canadian pension plans have become increasingly large players in direct real estate deals in the past 10 years, with Ontario Municipal Employees Retirement System chief Philip Haggarty earlier this year saying pensions in the country had recorded annual returns of 5.3 percent over the decade, compared to 3.2 percent for similar-sized US pension plans.

In May, OMERS reportedly agreed to invest $475 million in a $15 billion, 26-acre development of Manhattan’s west side, taking over from Goldman Sachs’ Real Estate Principal Investment Area as lead partner with US developer Related Companies. The same month, the Canada Pension Plan Investment Board acquired a 45 percent interest in Manhattan’s McGraw Hill building alongside REIT SL Green for roughly $576 million.