The developer behind Calgary's The Bow, has secured the remaining financing needed to build the marquis tower, days after it announced plans to hold back part of its development plan for the landmark site.
A consortium of six Canadian financial institutions has provided the remaining $425-million in financing required for the $1.5-billion tower, H&R Real Estate Investment Trust said in a release late Wednesday.
"This means that we will have enough financing for completing the project," H&R chief financial officer Larry Froom said in an interview.
Terms of the financing will be released in several weeks, and closing of the financing is subject to customary conditions, the company said in the release.
The 58-storey Bow tower was designed to add new spark to the Calgary skyline and prominence to its contracted tenant, oil and gas giant EnCana Corp. But amid the credit crunch and wave of oil-induced misfortune washing over the city, H&R reported earlier this week that it has suspended work on a secondary building on the project.
That 200,000-square-foot building, on a block adjacent to the Bow site, was originally meant to house a mix of retail and cultural arts space.
The smaller building remained in a conceptual stage and "will now be on hold for at least the next two years," Mr. Froom said.
When it is completed, the Bow will be the largest office tower west of Toronto, H&R said, and analysts said the disappearance of the secondary building is not a material concern.
The financing comes as a huge relief to the company, which warned earlier this month that problems related to financing the main tower could force it to further reduce unit-holder distributions, unload other assets or sell part of its interest in the Bow tower.
In a separate document, it said it wants to auction off 50 per cent to a joint venture partner.
Mr. Froom said the company will still pursue that option, but only when construction has advanced and "people can actually see and touch it and feel what a magnificent building it is going to be."
The new financing eliminates any doubt about the company's viability, he said. H&R warned earlier this month that its ability to access the remaining Bow financing "is a material uncertainty which may cast significant doubt on the ability of the REIT to continue as a going concern."
H&R is one of Canada's biggest real estate trusts, with a sprawling portfolio of 42 million square feet of office, retail and industrial space worth more than $5-billion. In Calgary, it owns two other major buildings, the TransCanada Tower and the Telus tower.
The company signed on to the "trophy" Bow skyscraper in February, 2007. At the time, the company had neither financing nor a fixed-price construction contract in hand, signing the deal near the apex of a hot real estate market.
It managed to secure commitments of $200-million from Fairfax Financial Holdings Inc. and $250-million from RBC Dominion Securities and TD Securities Inc., jointly.
But those dollars were contingent upon H&R raising another $175-million in construction financing. It is that financing that the says it has now secured.
Based on its available credit and monthly burn rate, the company would have run out of money later this second quarter.
H&R started construction on the Bow tower in the spring of 2007, and expects to finish in 2012, "on time and on budget," according to securities filings. The building's steel structure currently reaches up six stories.
When complete, the Bow will contain two million square feet of office space, fully leased for 25 years.
It is the biggest project of its kind in the country, and the object of much attention in the development community, which was stunned by H&R's decision to take on the project with neither financing nor firm construction numbers in place.
"It was a very bold move and, as it turned out, way too bold," said Edward Sonshine, president and chief executive of RioCan, the largest REIT in the country.
In Calgary, developers said they were not surprised by the suspension of the second Bow building, as the city prepares for a glut of new property.
"We've got nine different buildings totalling 5.9 million square feet of space that is going to come to market between now and 2012," said Randy Fennessey, president of Colliers International Calgary.
"You could argue that the market is going to be overbuilt, but you never know what's around the corner in the Calgary real estate market because it's in large part dependent on what happens in the energy sector," he said.
With files from Dawn Walton