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Allied Properties REIT to lease part of CBC building

The CBC has had difficulty leasing empty space in its Toronto office because zoning rules restrict it to government employees. Having it serve as a data hub gets around those issues.

Charla Jones/The Globe and Mail

The Canadian Broadcasting Centre has found a novel way to help fill its Toronto headquarters, leasing empty space to a company that plans to use it to house servers and other telecommunications infrastructure.

Allied Properties Real Estate Investment Trust said it will invest $30-million in the downtown Toronto building, as it renovates some 168,000 square feet of space to make way for the telecommunications gear that help the city's downtown businesses access the Internet.

The 1.5 million square foot building has been sitting about a third empty for years, as cutbacks at the public broadcaster have reduced its need for space. It has had difficulty leasing the space because zoning rules restrict it to government employees – but having it serve as a data hub gets around those issues.

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Allied Properties REIT already owns buildings around the CBC, including a nearby property that is one of the largest Internet hubs in North America. Companies pay Allied money to have their servers housed in their facilities, and to have their networks hooked up to the high speed networks housed within the buildings.

"This transaction will enable us to expand our specialized facilities by nearly 50 per cent with a relatively modest capital outlay," said Michael Emory, Allied's chief executive officer. "On completion, the new facility will boost the profitability of our business by enabling us to continue to meet the specific and expanding space requirements of our telecom and IT tenants."

The real estate company plans to strengthen the floors in the leased space, and improve the freight elevators. It will also tap into Enwave's deep-water system, which pulls water from Lake Ontario into the cooling systems at downtown office buildings.

The work is expected to be done by next year. Terms of the 49-year deal were not disclosed, although the company said there was an "extensive rent-free period" at the start of the deal. Rents can only be raised every five years, the company added.

With recent budget cuts putting renewed pressure on the broadcaster to cut its costs and find alternate sources of revenue, the CBC is extending its search for tenants beyond the public sector and has applied to the city to rezone the building to allow for commercial tenants.

While the deal helps the CBC deal with its 500,000 square feet of excess space, there is still about 332,000 square feet left to lease. The space is in small chunks throughout the building, and the broadcaster has said it will need to move people around to create larger spaces for companies to lease.

It's part of a larger effort the broadcaster is undertaking across the country to turn its vast real estate holdings into cash. The CBC is also looking to cut hundreds of jobs and reduce services across the country to deal with reduced Federal government funding.

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In a speech to the Economic Club of Canada this week, president Hubert Lacroix said the broadcaster would look to its $1-billion real estate portfolio for revenue generating opportunities.

"We expect to be able to offset that $200 million hole with $50 million in new revenues – doubling our digital revenue, increasing television advertising inventory, introducing advertising to two music radio networks that were ad-free, and leasing excess real estate," he said.

The broadcaster will also cut about 475 positions this year, and another 175 in the following year. As the CBC considers which positions will go, the union who represents the bulk of the workers negotiated a 1.5 per cent wage increase for its employees this month that is retroactive to the beginning of April.

The Canadian Media Guild is in the midst of a five-year contract with the broadcaster, but wage increases were only set for the first two years of the contract and must be negotiated each year for the final three years of the contract. The first two increases of the contract were also 1.5 per cent.

"We think that was fair given the current climate," said union spokesperson Karen Wirsig.

Editor's note: The previous web version of this article misspelled the name of Allied Properties Real Estate Investment Trust.

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