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A family views the downtown core of Calgary from a distance in this 2003 file photo. The latest numbers show that, although Alberta’s economy is on the mend, the province is the site of some of the most financially problematic pieces of commercial real estate in the country.

Jeff McIntosh

During boom times, the Calgary office building known as 5/5 would have been a fine headquarters for a startup energy company, an accounting shop or investment firm, for which space a few blocks north in downtown proper would have been a trifle too expensive.

Views from the top floors of the 11-storey brown brick building in the Beltline district show cityscapes backed by the Rocky Mountain foothills. Inside, an atrium runs the height of the building and the ground-floor exterior is covered with new, shiny white tiles.

Today, its distinction is that it is one of Canada’s most troubled commercial properties from a debt-service perspective, according to loan information from data firm Trepp LLC. It’s one of several Alberta properties that have the weakest debt-service numbers in Canada, even with the province emerging from a lengthy economic downturn driven by the oil-price collapse that started in 2014. The data show that office vacancy rates that ballooned as companies shed thousands of workers will take much longer to recover.

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The building’s debt-service coverage ratio, a key metric that shows the financial health of a property, is 0.58, according to Trepp. That means the property is only generating 58 cents of cash flow for every dollar needed to service its debt.

The average debt-service coverage ratio, or DSCR, was 1.65 across all types of commercial real estate in Canada last year, according to Trepp, meaning the average borrower had well over the minimum amount of cash flow to make debt repayments.

This does not necessarily mean that 5/5, which is owned by Alberta realtor Strategic Group, is in financial trouble. Indeed, the company, led by Calgary real estate mogul Riaz Mamdani, was able to make its loan repayments on time and managed to renegotiate its loan terms with a one-year extension, even as its occupancy rates have fallen. Strategic Group did not respond to a request for comment.

The Trepp data provide a tiny window into the health of a property with disclosures of confidential borrower information that are normally private. Since Trepp only tracks commercial mortgage-backed securities, this is only a slice of Canada’s commercial real estate market. However, the data offer a glimpse into how poorly some of these buildings are performing.

The latest numbers show that, although Alberta’s economy is on the mend, the province is the site of some of the most financially problematic pieces of commercial real estate in the country.

Tie that to a slew of new office buildings opening their doors in Calgary, and things will likely get worse before they get better. The office vacancy rate is already at a record high.

The 5/5 building is just one example of a property with a low DSCR. The report shows its occupancy declined over the downturn − it was fully occupied in 2011 and then, by 2015, it was three-quarters full. Occupancy dropped even further to 43 per cent, where it has remained for the past two years.

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“Borrower is giving concessions for the new tenants,” according to comments in the loan report.

Those documents highlight that renters paid $10.07 for every square foot in 2016 compared with $13.46 in 2014.

On a recent visit, 5/5 was quiet and some of the empty floors smelled of fresh paint. Some blocks along the 11th Ave. strip where the building is located have been particularly barren lately, as numerous one- and two-storey retail properties that used to be filled with upscale home-design shops are up for grabs.

The office vacancy rate in Calgary’s business district reached 24 per cent in the first three months of the year, according to realtor Cushman & Wakefield, surpassing levels reached during previous oil crashes and Toronto’s office property bust in the early 1990s.

The situation is even worse for the less desirable offices or “Class B” or “Class C” category of buildings. The vacancy rate for Class B and C offices is 29.4 per cent, according to Cushman & Wakefield. That is higher than the aftermath of the 1980s oil crash, when vacancy rates for Calgary offices jumped to 28.4 per cent.

“One difference was there was little new supply in the pipeline. That is the big difference right now,” said Stuart Barron, Cushman & Wakefield’s national research director. “Not only is there a high vacancy, there is a lot of space that exists that has not yet come to market.”

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The city has been searching for ways to take up the slack, including using the high vacancy rate in its unsuccessful sales pitch to become Amazon.com Inc.’s second headquarters. At least one owner is turning a 1950s downtown office building into residential units.

Office buildings are not alone. Other properties with low debt-service coverage ratios in Alberta range from an apartment in Calgary to lodgings in the oil-sands hub of Fort McMurray, which has also been hit hard by the energy slump and devastating wildfires.

That Calgary apartment is only generating 62 cents of cash flow for every dollar needed to service its debt, according to Trepp data.

In Fort McMurray, Clearwater Suites has a debt-service coverage ratio of 0.30. An apartment building called Nelson Ridge has a ratio of 0.48. In Airdrie, a city between Calgary and Edmonton, the Comfort Inn & Suites has a debt service ratio of 0.64.

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