Strong sales performance following significant reinvestment has driven the sale of Cottonwood Centre in Chilliwack to a private Vancouver-based investor.
An investment consortium led by PCI Group acquired Cottonwood Centre in 2019 for $73 million with significant vacancies left by Sears Canada and Target.
With financial partners Nicola Wealth Real Estate and Northland Properties Group, PCI undertook $30 million in renovations and successfully backfilled the vacancies with Save-On-Foods and other retailers, successfully repositioning the property for the future.
“PCI is a merchant builder. They don’t hold anything. They basically either build something new and they sell it, or they find something like this where there’s a value-add,” said Jim Szabo, vice-chair of the capital markets group at CBRE Ltd. and a partner in the National Investment Team that sold the mall in 2019 and again this spring. “When they finally repositioned it, it became the dominant centre in that market.”
PCI attracted destination tenants like cosmetics retailer Sephora, not typically the kind of retailer seen in a market like Chilliwack. But the strategy paid off in the rapidly growing community, one that’s attracted homebuyers drawn by the area’s lower housing costs.
“The household incomes are pretty high out in that area,” Szabo said. “Housing’s not expensive, so people have more to spend than they do in the city.”
This has driven strong performance at Cottonwood Centre, where the gross rent/occupancy cost (GROC) ratio (a proportion of sales) is exceptionally low.
“That’s a measure of how well the tenants are doing. If it’s under 10 per cent, which you don’t see very often – in fact, almost never – that’s usually a good sign that all the tenants are making money,” Szabo explained. “A lot of the shopping centres we see are 15 per cent GROCs. … This centre was sub-nine, something in the eights, which we just never see.”
This points not only to strong performance, but potential upside on rents for the new owner, Finix Holdings of Vancouver, a private investment firm with roots in Asia that Szabo said “is excited to continue adding value to the property.”
Cottonwood Centre, with 248,156 square feet on 21.74 acres, offers plenty of scope for future retail intensification and development.
Finix hasn’t not disclosed its plans publicly, but has quietly been developing a portfolio of retail and mixed-use properties and is taking a long-term approach.
“We’ve sold them other properties in Vancouver and Richmond, so they’ve got a fairly good portfolio here and they buy for long-term investments,” Szabo said.
The sale closed at the end of April. Szabo and Vincent Minichiello of CBRE represented the former owners while Cynthia Dong of CASM Global Real Estate Corp. represented the buyer.
A purchase price was not disclosed. While assessed at $96.3 million, the sale price was likely significantly higher.
Strawberry Hill Shopping Centre in Surrey sold at the end of 2023 for an average of $456 per square foot; a similar value for Cottonwood would put it in the range of $120 million.
Commercial brokerage Avison Young (Canada) Inc.’s annual review of B.C. investment sales over $5 million reported $1.2 billion in retail transactions in 2024, even with a year earlier.
During the recent Vancouver Real Estate Forum, the strong investor interest in retail assets for their steady cash flow and land value was noted.
However, opportunities to buy larger enclosed malls are rare. Woodgrove Mall in Nanaimo recently hit the market, but opportunities in the Lower Mainland are rare.
“If Cadillac [Fairview] decided they were going to sell any retail out here they would have a lot of interest, but I don’t see Cadillac doing that,” Bob Levine, a principal with Avison Young’s capital markets group in Vancouver, told the May issue of Western Investor.
Moreover, existing mall sites are virtually irreplaceable, given the scarcity of land.
“Shopping centres by their nature consist of a lot of land, and because they consist of a lot of land, particularly in places like British Columbia, there’s no new ones being built,” Levine said.
This means B.C. has traditionally been under-retailed versus other markets, and the malls that have plenty of upside both as malls as well as through redevelopment.
The makeovers Brentwood and Lougheed Town Centre have received at the hands of Shape Properties, as well as Cadillac Fairview’s redevelopment of Richmond Centre and QuadReal’s transformation of Oakridge in Vancouver are examples of retail-anchored mixed-use projects.
Whether Cottonwood Centre will be next, time will tell.
