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Brookfield Sells 50% Stake in Bay Adelaide

U.K. Buyer Emerges with $850 Million Deal for Half Share in 2.2 Million-SF Complex
March 13, 2018
A buyer from the United Kingdom has paid $850 million to acquire a 50 percent stake in the Bay Adelaide Centre in what is the largest commercial real estate deal year to date in 2018, CoStar News can confirm.

Property transfer documents indicate VPMA Bay Adelaide Property Ltd. acquired a 50 percent interest in the 2.2 million-square-foot complex, the paperwork on the deal being sent to Guernsey-based Dadco Investments Ltd.

The company's president, Victor Dahdaleh, has been linked to the so-called Panama Papers, a leaked stash of legal documents purportedly revealing how many wealthy individuals and private families hold money offshore to avoid taxes, in many cases legally.

"It's ultimately a U.K. buyer," said one source.

Dahdaleh lists himself as owner and chairman of Dadco and affiliated companies. "Dadco is a privately owned investment, manufacturing and trading group. Its founding company was established in 1915 with operations and investments in Europe, North America, the Middle East, Africa and Australia," the company website says.

Sources indicate the deal for the existing structures at Bay Adelaide was done at about a 4.3 percent cap rate that does not include development rights at the complex, amid indications that Brookfield may be poised to erect a north tower in what is still a tight downtown office market.

Transfer documents indicate VPMA purchased a 50 percent interest in 333 Bay St. from BPO Ontario Properties Ltd for $421,700,000, with another $26,181,500 paid to BAC West Below Grade Sub GP Inc. in the care of Brookfield Properties, for the underground retail that is part of Toronto's PATH system.

At 22 Adelaide St. W, VPMA is buying a 50 percent stake from Brookfield entity Bay Adelaide East Ltd. for $378,957,500, and then paying $23,161,000 for the PATH retail underground.

Brookfield and Dadco officials could not be reached for comment.

The 50 percent passive stake sold by Brookfield Properties closed on March 6 after reports initially put the property up for sale last October. RBC Capital Markets Realty Inc., Brookfield Financial Real Estate Group LP and TD Securities Inc. advised on the deal, but officials from all three firms declined to comment.

In a marketing brochure for the property, the trio had said, "Bay Adelaide Centre represents one of the most compelling investment offerings ever to come to market in Canada. The offering comprises 2.2 million square feet of Class AAA office space, consisting of Bay Adelaide West office tower, Bay Adelaide East office tower, a PATH connected retail concourse and a 1,000-stall parking facility, but excludes the Bay Adelaide North office development."

The deal for the passive stake values the existing complex at $1.7 billion. With the deal done, the focus will now shift to whether Brookfield will proceed with development of the north tower.

"They don't need the capital (from this deal) to fund the tower," said one source, in reference to Brookfield's strong balance sheet. "Brookfield is doing the required work underground to get up to the surface so they will be ready to go. They are speeding up the process (for the north tower) so they are ready to go when they have a tenant."

Stuart Barron, national director of research for Cushman & Wakefield in Canada, said that the Class A vacancy rate at 2.2 percent in the downtown core is the tightest in 40 years, and the market could absorb another tower easily, but it depends on how many projects go ahead. Oxford Properties Corp. has said it is ready to move forward on its 1.4 million-square-foot tower called the HUB near Union station, even without a tenant.

"There will be a point in time where there will be less certainty about the market's ability to absorb in the period between 2021 to 2023, but it depends on how many announcements we hear," said Barron, who has worked in real estate for 25 years. "These are the strongest incentives (to build) I have ever seen."

Please see CoStar Comp #4168877 for additional information on the sale.

Garry Marr, Toronto Market Reporter  CoStar Group   
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