Counsel returns to real estate roots

Counsel Corp. is once again reinventing itself. The Toronto-based public company is returning to its real estate roots after having lost tens of millions of dollars in ill-fated technology investments. The company has already acquired five shopping centres in small cities across Canada, spending $54.5-million to do so last July.

This year the new real estate division -- Counsel Real Estate Inc., headed by Joshua Silber, son of founder, chairman and chief executive officer Allan Silber -- will spend another $100-million on commercial income-producing properties, mainly shopping centres, the Silbers say. There will be no more forays into oppportunity-of-the-moment industries. Instead, Counsel will focus on just two businesses: commercial real estate in Canada and retail telecommunications services in the United States. "We have never lost the contacts or the expertise in real estate," Allan Silber says. "We believe the real estate business in Canada today lacks real entrepreneurs and that gives us a huge edge. This is a return to a field we know from the bottom up."

The restructuring of Counsel follows years of sizable losses. In the year ended Dec. 31, 2001, Counsel reported a loss of $62.2-million. The previous year the loss was $45.4-million. The loss for the nine months ended Sept. 30, 2002, was $13.2-million. Allan Silber says the company will report a profit for the first quarter of this year, however.

He is frank about Counsel's high-tech meltdown.

"We sort of blew our brains out," he says.

His hope is that the combination of Canadian real estate and U.S. telecommunications services will return Counsel to its high-flying days of the late 1980s when its shares traded in the $20 range. The stock closed at $2.08 on the Toronto Stock Exchange yesterday.

The return to real estate follows two decades of Counsel seeking to define itself. Allan Silber started the company in 1979 when he left his accounting practice to purchase a licence for a company originally called Exchequer Trust, renaming it Counsel Trust. In the late 1970s and early 1980s, trust companies were much prized by real estate developers because they had the ability to provide mortgage financing.

In the 1980s, Counsel had three clear-cut divisions. Through Counsel Trust and First Line Trust, it offered financial services; through Counsel Property Corp. it acquired and developed income-producing properties in Southwestern Ontario; a third unit operated retirement and extended care facilities. All shared a common real estate base.

In the early 1990s, Counsel sold the trust operations to Sun Life Financial Services of Canada Inc. Its real estate portfolio was liquidated. The focus shifted to high-tech, medical products and pharmaceuticals.

Allan Silber sums up the result this way in last year's annual report: "We failed to achieve many of the important business objectives we set for our portfolio companies and, in many instances, our recovery efforts led to bitter disappointments." The return to real estate, he says is a return to the company's roots.

"This is where our core abilities and history are," he explains.

The five shopping centres purchased last July include Suncoast Mall, a 161,00-square-foot enclosed mall in Goderich, Ont.; Portage Place, a 218,000-square-foot enclosed shopping centre in Peterborough, Ont.; Willowcreek Centre, a 64,000-square-foot strip mall in Peterborough, Ont.; Southland Mall, a 178,000-square-foot enclosed centre in Winkler, Man.; and Humboldt Mall, a 106,000-square-foot enclosed shopping centre in Humboldt, Sask. Industry sources report that the malls had been for sale for about two years with no buyers.

In December, according to Joshua Silber, Counsel paid $3.75-million for a 50,000-square-foot building on two acres of land on Steeles Avenue in north Toronto. The building had Business Depot as a tenant facing Steeles and an industrial tenant, paying less than competitive rates, at the rear. The property showed a 9.75-per-cent cap rate.

A key element in favour of the deal was the fact that the property was already subdivided into two lots. Counsel has taken one acre and is creating a pair of pads for fast food restaurants. The company has also renegotiated the lease with the industrial tenant.

When complete, the return on the property should be nearly 30 per cent a year, Joshua Silber says. Counsel will then likely sell the property. "We are now in the process of creating inventory," Allan Silber says.

Counsel is also in the process of building its own property management division. It sold its previous property management units to Olympia & York more than a decade ago. It is also beefing up staff. In the past year, the company has hired nine managers and executives, including vice-presidents of operations and leasing, and a chief financial officer.