‘Perfect Storm’ – A Good One – Achieved in Transforming Old Canadian Industrial Facility

Transforming this 30-year-old manufacturing facility in Toronto into a modern warehouse has meant a cash-on-cash profit of over 35 percent for Panattoni Development Company.

[ By Michael Serio ]

With luck, in the life of every developer there occurs at least one “perfect storm.” By this I mean a project where all of the variables that can spell either success or failure come together in perfect alignment. In this case, all of the major elements needed to ensure the successful revitalization of an older industrial facility came together last year. Those elements were: product availability, timing, entitlements, concept, design, innovative construction and marketing.

Two years ago, Panattoni Development Company, a major development firm with more than 26 offices throughout the United States, Canada and Europe, studied the Greater Toronto metropolitan area and came to the conclusion that it offered above-average potential. The company decided to open a new office with a staff of locals who thoroughly understood the market, selecting top industrial real estate brokers Wade Dobbin and Andy Smele for the new Canadian venture.

Panattoni typically acquires a parcel of land and then develops it either on a build-to-suit basis, or for a speculative building. In this case, after consulting with Cushman & Wakefield, Panattoni felt that the market was ready for a large industrial building that could be made available in a relatively short period of time -- in essence a revitalization of an existing facility. Studies indicated that there was a need for a building with a large number of loading doors and trailer storage. In addition, there was also an evident need in the market for crane-served space.

Transforming an Ugly, Dilapidated Building
Dobbin and Smele discovered a 30-year-old manufacturing facility, with extra land, that had been vacant for several months. Calling the building ugly and dilapidated is an understatement, but it was in a strategic location relative to major roadways spanning the metropolitan area. The site offered quick access to what is called the “400 Series” of major throughways in Ontario: Highways 401, 407 and 410. The location was also within seven miles of a Canadian National Rail Intermodal yard. The decision was made to buy the building in the fall of 2004; Panattoni acquired it in March of 2005.

Working closely with government agencies, Panattoni immediately set out to satisfy their stringent standards and at the same time move quickly to take advantage of what they perceived to be a hot market. Even though the building was “grandfathered” for what they saw as its usage, a number of requirements had to be met to obtain the necessary approvals.

For example, this site occupied a corner location, with two entrances on only one street. Panattoni was required to close off one of the entrances and widen the other considerably. Another entrance allowing “right-in, right-out” movements was constructed on the other street exposure. The new entrance arrangements actually became more beneficial to the tenants, with easier egress and ingress.

Another request quickly fulfilled was the addition of storm water management devices. An extensive landscaping program was designed and received enthusiastic approval from the municipality.

In all, by coordinating nine different building permits before gaining final site plan approval, the company was able to save approximately six to nine months’ time.

Marketed and Designed for Three Tenants
Panattoni was convinced from the outset that the facility should be designed to accommodate twin usage, and as many as three tenants. The first of these uses was ideal for a transportation firm, which could take advantage of the large number of truck doors and trailer parking stalls. The newly designed facility had more than 30 doors and could accommodate 126 trailer parking stalls.

The second basic use would be general warehousing and usages requiring crane service and indoor shipping. Fortunately, this concept worked perfectly and resulted in an extremely rapid lease-up of the entire building. Within 60 days of the acquisition of the building, the brokerage firm Cushman & Wakefield found an ideal candidate for tenancy in Apps Transport Group. Apps had been looking for a large facility for over a year that would meet its shipping door and trailer requirements. Another part of the perfect storm had now fallen in place. Panattoni quickly agreed to terms and the tenant made plans to move its entire operation into the building. Now, Panattoni had to fulfill the tenant’s specific requirement in a very short time frame. Apps took occupancy of 80,000 square feet in December 2005 in the area with many truck doors and trailer parking stalls. At the same time, the original concept of laying the building out for three tenants was maintained.

Shortly after acquisition, Trulite, a glass manufacturer, occupied a portion of the warehouse section, leasing 40,000 square feet. Construction activities were carried out around Trulite’s ongoing operation, as the company wanted immediate occupancy. Within 60 days of purchase, 78 percent of the facility was leased. Several months after occupying its initial space, Apps came back and leased the remaining 35,000 square feet. The building became fully occupied nine months after the acquisition. In summary, Panattoni’s inaugural venture into Canada was successful, returning a cash-on-cash profit of over 35 percent. The City of Brampton is pleased with the project’s performance, reclaiming an obsolete manufacturing facility and replacing an eyesore with a multi-use, high quality building. Finally, the Toronto Chapter of NAIOP was kind enough to recognize Panattoni’s efforts, presenting the company with their annual award for Industrial Development Real Estate Excellence.

What Remained, What Changed
The entire building had been filthy and functionally obsolete. Not only did the structure have to be improved to achieve competitive status with other buildings on the market, but also, since Panattoni typically sells 50 percent of its developments to the investment community, it had to be brought up to investment-grade quality. These were the major steps taken to achieve that objective:

All exterior walls were replaced. Most importantly, insulation was increased, a major advantage -- especially in Canada. This significantly increased energy efficiency. The siding dramatically changed the appearance of the structure for the better. All of this work was performed with one tenant in occupancy, and without interfering with its operation. This was largely possible by introducing new demising walls and installing temporary fencing to keep the tenant safe and functional during renovation. From a structural perspective, extensive underpinning was required at the new shipping doors’ existing foundations.

The existing elements that were of high quality were kept in place. Those included the structure itself, flooring, power and office space.

These features were either replaced or upgraded: ESFR sprinkler system, storm water management for the entire site, paving, paint finishes, new electrical service to each of the three areas, new heating system in the warehouse and new or renovated heating and cooling units for offices.