RioCan Real Estate Investment Trust is expanding both its growth strategy and its residential real estate portfolio with the acquisition of a 50 per cent interest in The Underwood residential and mixed-use high-rise in Calgary.

The REIT (REI-UN-T) acquired the stake in the purpose-built downtown rental tower from Calgary-based Western Securities Ltd. Financial details of the deal were not disclosed.

The Underwood opened in 2019 with 225 units over 30 storeys and is situated in the Beltline neighbourhood just outside of the city core.

The building is almost fully leased and includes approximately 17,000 square feet of commercial space, including the First Street Market food hall and bar at the base of the building. Western Securities’ sister company Canadian Rocky Mountain Resorts has its head office on the second floor.

Mike Brescia, chief operating officer and partner with Western Securities, said the property wasn’t listed for sale but CBRE and RioCan approached his company to become involved.

Western Securities a family-owned company

“We’ve got a big pipeline of this type of project in Calgary and we want to build more of them, and we felt that RioCan was a great fit for a partner with us, where we still manage and develop," Brescia told RENX.

"It’s quite exciting for us to have them as a partner: Institutional capital and us as a family business.

“We are certainly talking to them about other projects. They have a division called RioCan Living. They made it clear to us that they’re interested in the Calgary market and we hope to find other projects to partner (on) with them.”

Headquartered in Calgary, Western Securities is a private, fully integrated real estate holding, property management and development company. Incorporated in 1932 by the late John J. O’Connor, Western Securities remains family-owned and its operations span four generations.

Brescia said one of the attractions to The Underwood is its location off of Haultain Park.

“There is a lack of greenspace in the Beltline. It’s just an incredible location backing onto the park,” Brescia said. “We wanted to bring luxury, purpose-built rental to Calgary.

"We do a lot of that in the U.S. and we manage all of it. We wanted to make sure we brought that whole mentality. So we put our amenity floor on the top level so everyone who comes to the project gets to go up to the top.”

RioCan's multires growth strategy

Andrew Duncan, chief investment officer of RioCan, said the REIT has been looking to add newly constructed properties to its portfolio.

“Back in early 2022, we did an investor day and stated our goal of not only building some of these assets, but also supplementing our portfolio with some discreet acquisitions that kind of fit the same type as we’re building,” he told RENX.

“We wanted to grow the NOI. We said we were going to buy about $20 million worth of NOI to supplement what we’re building organically so that we’re somewhere between $55 and $60 million of NOI in 2025, 2026.

"So this acquisition is part of completing that strategy. This acquisition is one where we feel that the asset we’re buying is consistent with the type of assets we’re building; it’s new purpose-built rental. It’s in one of the markets we’re focused on in terms of Calgary. We own buildings now in Toronto, Ottawa, Calgary and Montreal. 

“In looking at acquisition opportunities in Calgary, we looked at a number of buildings, how they were operated, how they were designed, their locations. And this one kind of checked all our boxes.

"The current owner and their management team Western Securities, we thought they did a good job. They have a consistent operating ethos that we have in our buildings.”

RioCan's multiresidential partnerships

Duncan said residential rental properties RioCan is developing are on properties it owns. A good example in Calgary is the Brio rental tower, built with Boardwalk Real Estate Investment Trust, at the Brentwood Village Shopping Centre. 

“The ones we have in Toronto are ones we built with partners, generally all on our properties. We’ve got an asset at The Well that we finished and leasing with Woodbourne right now. We’ve got a couple of other properties in Toronto with Woodbourne," Duncan explained.

"Same thing in Ottawa. We’ve built a number of properties with partners on our own assets on our own land in Ottawa. So that’s consistent.

“The ones we’re acquiring to achieve that goal of $55 to $60 million . . . we’re acquiring assets that aren’t on our property because we’re acquiring assets that are under development or completed. But again it’s with a goal of growing that portfolio and growing in such a way that it’s consistent with the other stuff we’re building.

"We’re not buying old stock. We’re not buying stuff in secondary markets. We’re buying stuff in markets that we know we want to be in and we’re buying stuff that is consistent with the type of assets we’re building.”

First new-gen apartment tower to trade since 2019

Duncan said the rental market has strong fundamentals as Canada remains in a nationwide housing crisis. 

“We’re anxious to help be part of that solution. It’s also driving rental growth and it’s driving our ability to deliver growth in those assets. They’re generally fully occupied and they’re generally growing at a very attractive rate,” he said.

“They’re not easy to build. There’s not enough of them so we’re anxious to build more of them in the right economic times. I think it’s a good asset class.”

Richie Bhamra, executive vice-president at CBRE, who was involved in facilitating the transaction, said The Underwood is the first new generation, class-A multifamily high-rise to transact in the Calgary market since 2019.

Western Securities is also currently developing Uxborough, which is near the University of Calgary, Foothills Hospital and the Alberta Children’s Hospital.

Brescia said Western Securities takes possession of a medical office building at the end of March and a residential tower in May. The medical office building is eight storeys and 146,000 square feet with about 60 per cent leased.

The residential tower is 14 storeys with 203 rental units and about 15,000 square feet of commercial space.

Brescia said on completion the 6.53-acre project will be 830,000 square feet. Three more buildings remain to be constructed - an office tower, a hotel and a residential building with commercial space on the main floor.