RioCan to Acquire Full Ownership of 1 MSF Toronto Mixed-Use Asset

The deal consolidates the company's ownership of Yonge Sheppard Centre while also giving the seller, KingSett Capital, a $75 million stake in the investment trust.
Yonge Sheppard Centre. Image courtesy of RioCan Real Estate Investment Trust

RioCan Real Estate Investment Trust has agreed to acquire from KingSett Capital’s Canadian Real Estate Income Fund the latter’s 50 percent interest in the nearly 1 million-square-foot Yonge Sheppard Centre in Toronto for an estimated $250 million (C$331 million). Subject to customary closing conditions, the transaction is expected to close by the end of August.

As part of the transaction, KingSett will take an equity position in RioCan through an investment of $75 million (C$100 million) in RioCan units, with a one-year lock-up agreement. The deal will bring RioCan’s ownership of this mixed-use, transit-oriented property to 100 percent. RioCan will also assume KingSett’s share, or about $97 million (C$128 million), of the existing property debt.

The property, located at Yonge Street and Sheppard Avenue in Toronto’s North York area, consists of 299,000 square feet of retail and 401,000 square feet of office, with 257,000 square feet of residential rental space under construction. The residential component, called Pivot, is a 361-unit, 36-story tower that was underway as of last summer and is scheduled for substantial completion in July 2020.

A modernization of the property’s retail and office space is near completion. This comprises replacing the facades of both the office tower and shopping center, as well as various interior improvements. The goal is to reposition Yonge Sheppard Centre as a 24-hour hub with such tenants as LA Fitness and various new food and beverage tenants, as well as a daycare, a Montessori school and a community center.

“The acquisition of the remaining 50 percent interest in Yonge Sheppard Centre is an important step forward in our continuous transformation to a major market, mixed-use focused REIT,” RioCan CEO Edward Sonshine said in a prepared statement. KingSett’s investment … in RioCan units positions them amongst RioCan’s larger institutional unitholders.”

The deal will result in RioCan owning 100 percent of major assets at two of the three intersections of the Yonge Street corridor with intersecting subway lines, that is, Yonge and Sheppard and Yonge and Eglinton. The latter property, Yonge Eglinton Centre, was acquired by RioCan in 2007.

Apartment demand outpaces supply

In Toronto’s Entertainment District, RioCan is underway on The Well, a seven-building project encompassing 500,000 square feet of retail and 1.1 million square feet of officeboth to be completed in 2021and 1,800 residential units, to be completed in 2023. In December, e-commerce platform Shopify signed a 15-year lease for 433,752 square feet there.

The multifamily market in Toronto is strong for a variety of reasons, according to a second-quarter report from Institutional Property Advisors. These include high costs of homeownership and a surging local job market, buoyed by an open immigration policy and a growing tech sector.

Toronto’s overall apartment vacancy has been steady for roughly a year at 1.1 percent and has been below 2.0 percent for eight years, also per IPA. As a result, developers have a substantial pipeline of new product, including about 3,500 rental units to deliver this year.