Montreal-based Capital Nobel Inc. (NEL.P-X) aims to create Quebec’s third REIT this month and embark on an ambitious plan to grow to $150 million in assets within the next 12 to 15 months.
The real estate venture, which plans to operate under the name Nobel Real Estate Investment Trust with the completion of the REIT offering, intends to take a Quebec-first approach to growing its property portfolio.
Nobel’s business plan calls for the acquisition of a mix of commercial, retail and industrial properties in suburbs around Montreal and smaller cities such as Sherbrooke, Drummondville and Trois-Rivières.
“I won’t say they are underpriced, but certainly there is more opportunity than buying in Montreal itself,” said Jean Teasdale, Nobel’s President and Chief Executive Officer. “I would say those suburb markets are good markets, not necessarily cheap, but nothing to compare with what you would see in Toronto, Vancouver or Calgary. Still you can find some product with cap rates between 7 ¾ and 8 1/2%.”
Nobel wants to initially stick with properties close to its Montreal home base. “The goal is to work within two and a half hours of Montreal in order to reach the properties in that time driving if we have to,” said Jean Teasdale, Nobel’s President and Chief Executive Officer, a 30-year real estate industry veteran.
Looking to Provide Some TLC
The Nobel CEO can see a niche in the market in which the REIT can purchase some properties that could benefit from a little love and attention. “We are in a position to address markets where some properties may need care or may need some attention,” he said. “Because of our non-exclusive but certainly preferential relationship with Intercom which is an interesting broker here in Montreal mainly involved in the retail business, we can put together this network of connections and play with that.”
Nobel’s ties with brokerage firm Intercom Real Estate Services stem from the involvement of its founder and Senior Partner, Jean-Guy Parent, who is also a Nobel director. The company has a number of well-connected and high-powered Quebec business figures on its board, and Parent is no exception. A former Mayor of Boucherville and a member of the Quebec National Assembly, sits on a number of boards, including of private real estate investment trusts.
Teasdale sees Nobel acquiring properties from vendors and paying them either all cash or mixed with paper in the form of equity in the REIT. “Payment with paper will certainly benefit you in having better planning of your tax arrangements,” he explained. “Often we will realize that these properties are owned by families and at a point in time selling within an acceptable price and selling within a capacity of structuring your fiscal impact could present some interest.”
Expects to Tap Public Markets
The Nobel CEO envisions that it will raise the capital it needs to fund its capital through mortgaging financing and raising funds through the public markets. “We could afford to go with mortgages up to 65% of the purchase price but we realized that it is probably much more comfortable to play within 58% to 61% of mortgage financing and the rest is equity.”
Nobel’s proposed qualifying transaction involves the purchase of two income-producing commercial properties that will be assigned to Nobel REIT.
The first property in Longueuil will be acquired for a purchase price of approximately $11.10 million. It is a mixed-used property built in 2007 and comprising two buildings in Longueuil’s commercial area. The 2-storey buildings feature 53,126 square feet of rentable area and are situated on approximately 172,000 sq. ft. of land, with 219 outdoor parking spaces.
The second property, in, Boucherville, Québec, will be acquired for a purchase price of approximately $3.55 million. The three-storey building, built in 2003, boasts geothermal technology. With 18,976 sq. ft. of rentable area and 61 outdoor parking spaces, it has a principal tenant leasing more than half the space for the next decade, Intercom Real Estate Services.
By the end of the year, the REIT expects to raise gross proceeds of $5.5 million from initial unitholders and trade on the TSX Venture exchange.
“We would be the third one from Quebec coming into this arena,” said Teasdale. “There is room if you work properly and you respect people and delivery your returns on a monthly basis, there will be room for sure.”
Nobel REIT anticipates paying unitholders 8% based on 85% of net cash flow. “We are fortunate that the mortgage rates are low so that gives us an edge to proceed.”