Ottawa

Ottawa real estate insiders weigh in on fed’s ‘disposal list’ of properties

May 19, 2023

Local real estate leaders are not surprised by the federal government’s choice of properties on its recent “disposal list,” but many are still not sure what direction redevelopment will take.

On Thursday, Public Services and Procurement Canada released a list of properties it plans to dispose of in the National Capital Region, including L’Esplanade Laurier downtown, the Sir Charles Tupper Building on Riverside Drive, and the 1500 Bronson Building and Annex.

PSPC said the move was part of its “long-term real estate portfolio plan to optimize the office space under our responsibility, lower operating costs and reduce greenhouse gas emissions.”

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Real estate leaders have been anticipating a move like this for some months, as federal office buildings continue to sit empty despite federal civil servants returning to a mix of in-office and remote work.

Neil Malhotra, who is vice-president of Claridge Homes as well as a member of the city’s downtown revitalization task force, said he isn’t surprised by anything in yesterday’s announcement.

“I think, inside the industry, the majority of the properties listed, people have been aware they were coming up for disposal,” he said. “We’ve been aware that some of this stuff was coming. It’s obviously needed. That said, these are complicated disposals for the government. They have a process to go through of things they need to check off.”

Malhotra said while it’s too early to estimate the value of the properties, many present interesting opportunities for developers.

“In healthy markets, there are mostly good opportunities, especially in well-established neighbourhoods and developing areas,” he said.

Converting some of the properties for new uses is one option, said Kevin McHale, executive director of the Sparks Street BIA.

“I think it could have a pretty dramatic effect,” he said. “It (could be) more residential, more commercial, more hotel projects or entertainment space. I think the biggest thing regardless is whether the plot of land is any good to be used for something like that.”

McHale is curious to see how the divestment process plays out.

“(The government) has to figure out how to expedite the process,” he said. “This can’t be a multi-year removal from the list. If you’re not using these buildings, get rid of them as quickly as possible and ensure that you’re selling them to groups that have the resources and the plan to move right away.”

He added that the majority of the properties on the list are older and will need extensive work before they can be used for a new purpose.

“It comes down to what group ends up with them and how deep their pockets are,” McHale said. “Many of these buildings are kind of at the end of their life. We’re talking about large investment buildings, probably billions of dollars. The cost of converting commercial to residential, for example, is very expensive.”

In fact, the expense associated with this kind of project could keep some developers away, said Nico Zentil, senior vice-president of CBRE Limited.

“At the end of the day, if we’re asking the private sector to make sense of a real estate opportunity, it has to be economic,” he said. “Unfortunately, for firms like these, they have to turn a profit. It has to have a return.”

For that reason, Zentil and McHale both see an opportunity for the city to introduce incentives for developers to consider these types of properties, especially as they anticipate more vacant office buildings to hit the market going forward.

“They can help boost the economic growth profile of these opportunities,” said Zentil. “That’s where I think the conversation needs to go: some form of incentive to make these properties attractive enough for the private sector to step in and use those buildings in an efficient way, whether it’s a community space, an amenity space or all of the above.”

In some cases, Malhotra said, it may be easier to start from scratch.

“Office building conversions to residential are very complicated,” he said. “The bigger the building is, the harder it is to get light in. Realistically, probably the most logical way to get anything done effectively on some of these properties is to look at demolishing them to be able to maximize the potential density and opportunity.”

Jason Shinder, CEO of District Realty, said in an email that a move like the federal government’s “disposal list” aligns with the issues facing the current office market downtown, which include low demand and oversupply.

“The government selling off these assets in general will allow for the private sector to assist in a reduction of the supply via repurposing the properties to another use, dramatically upgrading the properties, or demolishing the properties for new development,” he said. “Any of these choices by the private-sector buyers will help to improve the balance and ensure the viability of the commercial office market.”

He added that disposing of the properties, rather than continuing to play wait-and-see, is the right move.

“The worst thing for the commercial office market is to think that leaving the buildings empty will be temporary and eventually everything will fill up and get better,” he said.

The NCR properties on the disposal list are: