Bank of Nova Scotia's landmark red tower in downtown Toronto has been sold for $1.27-billion, the highest price yet paid for a Canadian office building.
After several months on the market and rumours of international interest, Toronto's Dundee Real Estate Investment Trust partnered with H&R Real Estate Investment Trust to buy the 68-storey tower. The building will be two-thirds owned by Dundee, with H&R holding the remaining interest.
The sale is a sign of the continued strength of the Canadian office market, which has rebounded soundly since the recession. The value of high-quality downtown buildings across the country has been rising, as the same low interest rates that are driving home prices higher help property investors outbid competitors for marquee properties.
"This is the largest trade we've ever seen for a single asset in this country," said George Carras, president of real estate analysis firm RealNet Canada. "Investors are chasing the yield these properties offer."
It's the second big deal in less than a week, after Boston-based Bentall Kennedy bought the fully leased, 33-storey Bentall V tower in Vancouver for almost $400-million.
Scotiabank occupies 61 per cent of its namesake building in Toronto, with an average lease term of 13.5 years. The Scotia Plaza complex includes the main tower at King Street West and Bay Street, as well as a few smaller structures on the same block.
The complex consists of about two million square feet of space and is 99.5 per cent occupied. Neither purchasers could comment on the deal, since a portion of its financing is through a bought deal that hasn't closed.
Scotia Plaza's tower, completed in 1988, is a postmodern landmark in Toronto's core. The red granite spire stands beside the corner of King and Bay Streets, in the heart of the city's financial district, and is one of the most sought-after business addresses in the country.
Scotiabank put the Bay Street tower up for sale in January. Faced with having to drum up more capital to backstop its lending operations to comply with new global banking regulations, the sale of the building was a way for Scotiabank to raise money without having to sell off core banking assets.
Although it was common in decades past for banks to own their headquarters, a series of real estate sales over the years left Scotiabank as the only of Canada's Big Six lenders to own its headquarters.
It is the second major asset sale by the bank in the past year. In January, Scotiabank sold its remaining 50-per-cent stake in Calgary's Scotia Centre, a 42-storey tower, for $140-million.
Scotiabank sold $1.66-billion worth of shares in February in a bid to boost its capital levels. When that move happened, some analysts figured the bank wouldn't be under pressure to sell the building if a deal couldn't be found at an attractive price.
But the sale price exceeded the $1-billion to $1.2-billion most analysts thought the building would fetch.
"[The price]was at the upper end of what people were expecting," said National Bank Financial analyst Peter Routledge. "It was certainly higher than what we thought they would get."
The deal is expected to close by June 20, the bank said.