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The Bay Adelaide Centre in downtown Toronto on Feb. 22, 2021.

Fred Lum/The Globe and Mail

Brookfield Property Partners has sold a stake in one of its Bay Street office towers, according to two sources familiar with the matter, the most significant deal brokered in the downtown office market since the pandemic began.

The 50-per-cent passive interest in Bay Adelaide North was bought by Victor Dahdaleh, whose privately held investment firm Dadco Group spent $850-million for similar positions in the other two office buildings that make up Brookfield’s Bay Adelaide Centre. Brookfield will continue to manage the three buildings.

Mr. Dahdaleh, a Canadian-British businessman and philanthropist, is spending $850 to $950 per square foot on the Bay Adelaide North stake, according to one source familiar with the transaction. The Globe and Mail is not identifying the two sources who discussed the transaction because they were not authorized to speak about the deal.

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The north tower is under construction and will be 32 floors, while the west and east buildings are already operating and are 51 floors and 44 floors respectively. At the upper end of the price range, the deal would be worth about $390-million.

Mr. Dahdaleh was embroiled in an international bribery case nearly 10 years ago, but denied wrongdoing and was acquitted.

When Brookfield vetted Mr. Dahdaleh, the seven banks that provided Brookfield with construction financing had to approve the due diligence, according to one source. Four of the lenders are Canadian banks.

The price is well above the market average of about $500 per square foot in the financial core, which includes older buildings, according to commercial real estate researcher CoStar Group. That suggests values for top office buildings have remained strong despite the surge in office vacancies.

“People still want prime office space downtown,” said Carl Gomez, chief economist of CoStar.

The Bay Adelaide deal was brokered as office tenants in major cities around the world were giving up space, including penthouse suites in Toronto‘s prominent skyscrapers, because of stay-at-home requirements.

The city’s downtown office vacancy rate more than tripled from prepandemic days to 7.2 per cent at the end of last year, according to CBRE data. However, Bay Adelaide North is mostly preleased, with Bank of Nova Scotia set to take half after it opens next year.

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Since the pandemic started, downtown office purchases have dried up and publicly traded real estate companies have lost value. All types of businesses are rethinking their office space amid extended lockdowns and uncertainty over the trajectory of the health crisis.

Real estate landlords have so far not dropped the price of rent, but have offered incentives such as Peloton bikes for brokers who sign new leases, and more renovation allowances.

CoStar’s Mr. Gomez said the landlord’s market is shifting because of the increase in sublease space. “This doesn’t mean Armageddon, more of a return to equilibrium,” he said.

Office deals in the Toronto region dropped to $1.86-billion last year from $4.36-billion in 2019, according to CoStar, and even that included deals brokered in 2019.

Brookfield Property, whose parent company is trying to take it private after several quarters of losses, declined to comment. Mr. Dahdaleh did not respond to a request for comment.

The businessman was accused of participating in a 20-year bribery scheme that involved U.S. aluminum giant Alcoa Inc. and a state-controlled aluminum firm in Bahrain. He was acquitted of all charges when the criminal case against him in Britain collapsed in 2013. A unit of Alcoa eventually pleaded guilty in 2014 to violating U.S. anti-bribery laws and paid U.S. authorities a fine to resolve charges that it gave millions of dollars in bribes through a London-based middleman to Bahraini officials.

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Mr. Dahdaleh was never identified as the middleman in the U.S. case. But in 2016, the Toronto Star and the CBC identified Mr. Dahdaleh as the middleman after offshore accounts known as the Panama Papers were leaked to news organizations around the world.

With a report from Stephanie Chambers

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