PACKAGE OF KEY RETAIL PROPERTIES ON MARKET

Sites in Ottawa and Toronto may net $550M

TORONTO•A collection of 19 key urban assets painstakingly put together since 2011 with the backing of one of Canada’s largest retail landlords is now up for sale, the Financial Post has learned.

Exclusive listing documents show First Capital Realty Inc., the Torontobased company with a market capitalization of almost $5 billion and one of the dominant retail landlords in Canada, and its partners, have hired real estate firm CBRE to sell what it is being billed as “an exclusive urban retail and development” opportunity expected to be one of the larger prizes to hit the property market this year.

No firm details on potential pricing have been set, with the listing hitting the market this week. Officials with CBRE and First Capital did not comment. Sources indicate the price range of the entire Main and Main portfolio would be $450 million to $550 million.

As Canadian retail landlords look to diversify to compensate for slowing in- store traffic and troubled retail tenants, a key question for the industry is whether First Capital and its competitors will move away from mixeduse developments, or, like RioCan Real Estate Investment Trust, embrace non-traditional use of property to develop condominium high-rises.

“This was one of Dori ( Segal’s) favourite deals he ever did, to get ( Main and Main president) Rick ( Iafelice),” said Alex Avery, a former real estate analyst for CIBC World Markets Inc., referring to the move by real estate heavyweight Segal, the long- time chief executive of First Capital, to get a stake in a separate investment arm for his company.

Sources indicate Adam Paul, brought in as chief executive of First Capital in 2014, may not be as enthralled with the mixed-use projects.

“This was (Segal’s) covert way of getting access to these properties,” said Avery. “You know if you go in ( and buy) as First Capital, then the next guy who is next door finds out and wants a higher price. If you buy it through Main and Main and numbered companies you can probably get more cover and consolidate more land. That was the idea.”

The Main and Main portfolio is confined to Toronto and Ottawa, but consists of 13 development properties, apart from six income properties, comprising 2.1 million square feet of potential development in 10.7 acres of land. The brochure for the portfolio boasts that it includes 16 hard corners and 5,574 square foot of frontage.

In its Sedar filings, First Capital says it has an inter- est in a Toronto and Ottawa urban development partnership (known as M+M Urban Realty LP (“Main and Main Urban Realty”) between the company, Main and Main Developments (which is itself a joint venture between the company and a private developer) and a prominent Canadian institutional investor.

The company’s annual report for 2016 notes the partners of Main and Main Urban Realty have all together put $ 320 million of equity capital for current and future growth and the development of the Main and Main Urban Realty portfolio, of which First Capital Realty’s direct and indirect commitment is approximately $ 167 million. As of Dec. 31, 2016, $ 120.3 million of that had been invested.

“Main and Main Developments was retained to provide asset and property management services for the real estate portfolio,” the report notes.

Avery said the retail sector is at a crossroads with what to do next with its existing property holdings but most companies are going “more urban and more mixed use and not less.” He said Main and Main is the opposite of “greenfields in the middle of nowhere” turned into malls and power centres. A source who has seen the listing said the entire company is really just a tribute to Main and Main president Rick Iafelice’s vision.

“Not many people would have been able to aggregate something like he has done,” said the source. “The whole market is abuzz talking about this.”

The sale may not signal any change in strategy for First Capital because Main and Main was not the company’s core business, but only an investment.

“Really, it’s a sweet spot to sell right now,” said Ross Moore, a senior vice- president with real estate tenant advisers Cresa.

“But you know, we’ve said this before, that it was the top of the market, and then it got hotter.”

The portfolio could attract multiple players across the real estate spectrum from pension funds to real estate investment trusts, but the development nature of the listings probably means foreign players without expertise in the Canadian planning process would need local partners to get full value.

THE WHOLE MARKET IS ABUZZ TALKING ABOUT THIS.