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Oxford Ready to Build On Spec

Blake Hutcheson, Soon to be President of OMERS, Talks to CoStar News About Latest Project, Amazon and State of Toronto Market
March 5, 2018
Pictured: Blake Hutcheson, president and CEO of Oxford Properties Group.

His company has 1.4 million square feet of office space to fill, but the chief executive of Oxford Properties, which just announced plans to proceed with a 60-storey tower in downtown Toronto, doesn't seem too concerned about leasing the property.

"We are prepared too, but we don't think it will come to that," said Blake Hutcheson, about the possibility of building the property to be known as The HUB on speculation.

Oxford, a subsidiary of the Ontario Municipal Employees Retirement System, said last week it had hired UK-based architects Rogers Strik Harbour + Partners to design the building, which is named for its proximity to the harbour, Union Station and Bay St.

"We are optimistic that we build it soon and we are optimistic we will be able to announce a significant tenancy as part of it in the foreseeable future. We are ambitious to proceed," said Hutcheson, a real estate veteran who published reports Monday that suggest he will become the president of OMERS on April 1.

Hutcheson told CoStar News he’s not ruling out the possibility that Amazon Inc, which has listed Toronto among 20 cities for its so-called HQ2 or second headquarters, might have some significant space needs in the downtown core as part of its selection process, which could include The HUB.

"If they come to Toronto, I think anything is possible, they will need a lot of new product,” he said. "Failing which, who knows? Toronto has many compelling features, primarily a diverse and highly educated workforce. It really provides a unique non-American, North American option. We are not surprised to be one of the finalists. It may be that (Toronto) gets a portion; maybe they don't go with all their chips in one city. In which case, Toronto could benefit without being the sole winner."

Part of Hutcheon's optimism is tied to the tight office rental market in Toronto's downtown core. Cushman & Wakefield said in a recent report that the arrival of 2.2 million square feet has done little to meet demand with availability in the fourth quarter reaching a new low of 2.7 percent, while absorption reached 950,000 square feet, which is the highest level on record since the third quarter of 1995.

"The fundamentals are strong, our relationships are deep, and we believe for that product there will be a ready-made market in the city," said Hutcheson, adding Oxford can bring tenants from other buildings, but it looks at its portfolio as a growing organism and trades out older assets for new ones.

This latest deal came together in May 2017 when PortsToronto announced it had sold 30 Bay and 60 Harbour Streets to Oxford and the Canada Pension Plan Investment Board in a $96 million deal. Each pension fund has a 50 percent stake.

"We believe this is the premier development site in the downtown core," said Hutcheson. ‘We think our choice of architect is world class."

Oxford is using the same firm that designed the Leadenhall Building in London, the property it developed with British Land, which is known locally as the Cheesegrater. The building was the tallest in London and sold about a year ago for 1.15 billion pounds.

"It is arguably the finest piece of architecture contributed to the London skyline in a century," said Hutcheson. "The combination of that architect and the site makes it a compelling story to proceed."

Oxford, which owns and manages 50 million square feet of real estate, is still heavily committed to its play in the London market, even post-Brexit. "We are seeing lots of opportunity in London. It’s different than a few years ago, but we are active in London, Paris. We just bought the Sony Centre in Berlin, which is one of the largest acquisition deals in the history of (Germany)."

Hutcheson notes Oxford is still a significant believer in the Canadian market with 50 percent of the business domestic. The company's latest development will be in Toronto's South Core, which is gradually challenging the intersection of Bay and King streets for "Centre Ice" in the financial district, but Hutcheson said there are growth opportunities in all directions for anything with close proximately to a renovated Union Station.

"We are betting on a number of development sites in downtown Toronto and not just South Core, though we are believers in that as well,” he said.

There is a strong market for new buildings, but the chief executive says there is a market for older buildings. "A lot of those fit for tenants who do not want to pay premium rents,” he said.

Hutcheson says finding a development site "is equally difficult" as acquiring the type of "trophy assets" many investors want. "There is an awful lot of money in the system in this country for great real estate, income-producing as well. You have to be on your toes, you have to be nimble, and you have to be aggressive when something fits your portfolio," he said.

Garry Marr, Toronto Market Reporter  CoStar Group   

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