Spendmonton Chapter III: Buy High, Sell Low

We can’t make this stuff up.

In 2014, the City of Edmonton approved a plan to build a new transit garage on the corner of Yellowhead Trail and Fort Road.  According to the City, the new garage would handle the similar capacity as the existing transit garage located at 11840-106a Street.

When presenting the business case to replace the older facility, the City reported that “a new facility with the same bus capabilities would cost approximately $128 million”.   As the project progressed, the City estimated the cost would spike to $181.6M.  That budget then jumped to $186M, then $196M, then $200.4M, then $210.5M.

This warehouse, which has increased in price over $80M since it was first presented as an option, is also home to the largest municipally-funded art project in the city.

It’s not difficult to see how these funds are being spent.  For example, included in the budget is $4.56M for “contemporary workplace enhancements“, which is predominantly used towards a dedicated day care within the building.  The design of the building itself also won the architect and prime consultants an Award of Excellence by Canadian Architect.  They described this building as follows:

“The modern design will feature interior spaces covered in natural light controlled by light diffusing glazed panels. When employees enter the building – primarily from underground parking – they will be greeted by light wells and enter through a sky lit concourse.”

This award-winning building with $1M of exterior art is replacing an old industrial building, the same building the City of Edmonton just sold to NAIT for $3M.  The Network reports there was an appraisal at $10.7M, but the price reflected consideration for building demolition, hazmat removal and remediation of hydrocarbon contamination.

The old building is 283,039 SF on 11.89 acres, which means the sale price was $10 / sq ft, or if it’s believed there was zero economic value remaining in the building, the price reflects roughly $250,000 / acre.

There aren’t any industrial land parcels currently available for sale in the immediate area, but there is a 2.42 acre site available on 136 avenue and 142 street for $1.1M / acre.  The City of Edmonton is marketing another parcel of land on 141 street and 162 avenue for $761,000 / acre.

So with that all in mind, here are some thoughts & observations we have on this project:

– Government spending on real estate truly defies conventional thinking.  In what universe would a private company move from a $3M building to a $210M building?

– The cost of the daycare in the new building cost more than the previous building just sold for;

– A warehouse for buses was designed to such a high standard that it won an architectural award;

– The most expensive art project ever commissioned by the City of Edmonton sits atop a warehouse in Northeast Edmonton;

– With the City of Edmonton already offering a number of perks and benefits to their employees, do they really need to offer underground parking and on-site day care services to attract and retain employees?  How does the private sector – which has to compete for these same jobs – stand in comparison?

– The argument that this development is helping spur activity in the area is unconvincing.  For example, Station Pointe (a 112 unit “urban village” down the road) was just put under court-appointed trusteeship.

We’re critical about City Council spending specifically because of examples like this.  How much further can the City of Edmonton continue increasing property taxes before people have had enough?

“Drove my Chevy to the levee but the levee was dry”.

– Don McLean

 

 

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Our Team

Chad Griffiths

Chad Griffiths

Partner, SIOR, CCIM

Chad is a partner with NAI Commercial Real Estate and focuses on the Greater Edmonton area. Chad entered the industry in 2004 and has completed over 400 commercial transactions with clients ranging from small, local companies to large institutional owners. Chad has been a top 15 producer with NAI Canada-wide since 2013.

Ryan Brown

Ryan Brown

Partner, BCom, SIOR

Ryan is a partner with NAI Commercial Real Estate in Edmonton and is currently ranked nationally as one of NAI's top advisors. Having executed in excess of $100 Million worth of sales transactions and over 2 Million square feet of lease transactions, Ryan has developed a firm understanding of asset evaluation and an aptitude for building design, functionality, and long-term practicality.

Darcie Bouteiller

Darcie Bouteiller

Associate

Darcie is a licensed Commercial Real Estate Agent in the Province of Alberta with a focus on the Edmonton market and its surrounding areas. Darcie accomplishes custom solutions for her clients through her personable nature and results driven attitude. Darcie can help if you are looking to invest in commercial real estate or are looking for representation for a sale or lease transactions.

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2 thoughts on “Spendmonton Chapter III: Buy High, Sell Low

  • Spendmonton – I own a small construction company and the hoops we have to go through with the city are ridiculous! From first hand knowledge, underground parking space costs approximately $50,000/stall. Also from first hand knowledge the original concrete pad poured for the building was designed to carry the weight of diesel busses. The city is moving to electric/hybrid buses that weigh considerably more and the concrete was torn out and had to be reinforced to allow for the new busses. Why would you replace one building of the same size fur another of equal size? I specialize in renovations and repurposing the old building would have been much more cost effective. I see the city specializes in spending money (yours and mine) while never coming in either on budget or on time. Thanks for the article. Thought I’d share sone insights too

    • Thanks for the comments and the insight, Jeff.

      There is growing frustration with city council spending, particularly wasteful spending. I still don’t see why city employees need underground parking, and that $50,000 / stall number hurts my head.

      Hopefully city council is paying attention on this and starts reining in spending.

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