H&R Real Estate Investment Trust has won Calgary's prize development project, paying about $70-million to oil and gas giant EnCana Corp. to assume ownership of The Bow, an ambitious office, retail and cultural complex that will include Canada's tallest building west of Toronto.
In a news release, H&R said EnCana, which will use the 59-storey office tower as its new headquarters, has committed to leasing the all 1.84 million square feet of office space and all 700 parking stalls for 25 years.
Construction is slated to begin this summer and be completed by the fall of 2011. The project is budgeted at $1.1-billion.
EnCana announced plans for the project last fall, unveiling a visually alluring crescent-shaped glass-and-steel tower design from renowned international architects Foster + Partners of London. The design is also highly energy-efficient, with energy consumption expected to be about 30 per cent lower than conventional office towers.
At the time of the fall announcement, EnCana said it would look for a real estate developer to buy the project in exchange for a 25-year lease commitment. "Two years ago, we set out to bring all of our Calgary staff, who currently work in five downtown buildings, under one roof," said John Brannan, EnCana's executive leader of the building project.
"From the start, we sought to secure an attractive Calgary headquarters for our company at competitive, long-term office lease rates. Having reached a stage of the project where we have accomplished our long-term objectives, we are selling it to a leading office developer with extensive experience building and managing commercial real estate. We expect to realize significant benefits when we occupy the new building," he said.
"We are thrilled to be developing EnCana's world-class headquarters," said Tom Hofstedter, H&R's president and chief executive. "The Bow will be the largest single-tenant office complex in western Canada and will become, upon completion, the premier trophy property in H&R REIT's 41-million-square-foot portfolio."
EnCana's initial rental rate on the office space will be about $36 per square foot, and the lease includes annual contractual rent increases of 1.5 per cent. H&R said the rental payments in the first year represent a yield of about 6.25 per cent on the office tower's budgeted cost of about $582 per square foot.
The project will take up most of two city blocks in downtown Calgary, between 5th and 7th Avenues and Centre and 1st Streets S.E. The tower is on the north block of the complex, while the south block will contain a 200,000-square-foot mixed-use building containing office and retail space project as well as space set aside for cultural and arts facilities. There has been talk that the National Portrait Gallery could relocate to the building from Ottawa. The complex will be next to the Petro-Canada Centre to the west, which includes Calgary's current tallest building, the Telus Tower to the north, and the Hyatt Hotel to the south.
The project will more than double H&R's property holdings in the hot downtown Calgary real estate market. The company said that once The Bow is completed, it will have 3.3 million square feet of office space in Calgary's core, including three AAA-class office towers - the Telus Tower and the TransCanada Tower being the other two.
H&R said it expects to secure a fixed-price construction contract in early 2007 and long-term debt financing by the end of 2007.
The Ledcor Group of Companies, which is based in Vancouver, acted as adviser to H&R on the transaction. RBC Capital Markets Real Estate Group Inc. acted as EnCana's adviser.