Less than 3 years after it was built, Edmonton Tower has been sold for $400 million. We mentioned earlier this year that Edmonton Tower, along with Stantec Tower, were both rumored to be for sale, and at the time we expected buyers to quickly come forward. Enter the Alberta Investment Management Corporation (AIMCo), a large institutional investor headquartered in Edmonton. Representing a number of public sector pensions and government funds, AIMCo currently has roughly $100 billion in assets under management.
According to the Network, Edmonton Tower is 27 stories, comprising 631,027 square feet on 1.67 acres. The sale price of $400 million represents $633.89 / square foot. It is reported that the net income on the building is $23,200,000, which would reflect a 5.80% cap rate.
While the price tag may appear steep, AIMCo has effectively added a government occupied class AAA office building to their portfolio.
What we find particularly noteworthy, however, is why the City of Edmonton elected to move into a brand new, class AAA office building in the first place. To be fair, the City started planning for new office space in 2012 and the office market was considerably different then it is now. The City (or anyone for that matter) could not have predicted that the office market would be so greatly affected by the collapse in oil prices and the worst provincial recession in decades.
There is also a good argument to be made that having all City employees under one roof makes for more efficiency between departments. The City also estimates that the new building means they require 25% less space.
Notwithstanding this upside, it shouldn’t be lost on anyone that the City of Edmonton is leasing 16 floors in a class AAA office building. In an economy where companies of all sizes have had to make dramatic cuts and sacrifices to stay in business, and in an environment where commercial property taxes have increased more than 124% over the past decade, the City of Edmonton is leasing one of the nicest and newest buildings in town.
It’s not just the decision to lease a brand new, class AAA office tower that we have an issue with, it’s what the decision represents. As Chad mentioned on the Ryan Jespersen show a couple weeks ago, the City seems to have developed a mentality where they can consistently increase spending and simply pass the costs on to tax payers. Leasing some of the most expensive real estate in the City is clearly a reflection of that.
This mentality needs to change or we’ll continue seeing property taxes increases greatly exceeding inflation.
Opinions expressed herein are the sole opinions of the authors and do not represent any company, group, industry or association. View our full disclaimer here.
Chad is a partner with NAI Commercial and has finished as a top 15 producer Canada-wide for the past three years. Chad owes his success largely to his commitment to uncompromising client representation, his active involvement in the real estate and business communities and a lifelong pursuit of continuous learning.
Ryan is a partner with NAI Commercial Real Estate in Edmonton. He is currently ranked nationally as one of NAI’s top advisors in Canada. Having completed his Bachelor of Commerce majoring in Finance, his eye for detail and great understanding of the numbers associated with any business decision makes him an asset to his clients while providing them the highest level of service.
Darcie began her career in Commercial Real Estate after completing her studies in Business Administration. Her personable nature coupled with a results-driven attitude is a perfect match for customers. Darcie understands the importance of delivering a custom, accountable solution for her clients.
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