Merchant House Capital has expanded its Victoria land holdings with a swath of downtown real estate.
Through a series of transactions, Merchant has acquired the west side of the 1100 block of Blanshard Street, though the company has no immediate plans to change a thing on the block.
Fundamentally, they are just really good assets in strong locations with good cash flow,” said Merchant chief executive David Fullbrook. “We really like the buildings the way they are and we like the cash flow. We are not necessarily positioning to get into the race to develop in this current cycle.”
The acquisition includes the Montrose building, which occupies half of the block, at the corner of Blanshard and View streets, the Monk Office supply building at the southern corner of the block and one building on Fort Street. It represents about 18,000 square feet of commercial space, all of which has tenants.
Fullbrook said some of the buildings are beyond what he called their economic lives and at some point they will be ideal candidates for redevelopment.
The Montrose building, which is more than 100 years old, was built by the Andrew Sheret plumbing company for its head office in 1912.
Any redevelopment of the block is a long way off due to the uncertainty in the commercial real estate market. “My view of things in general is not good. I think we may be in for a rough road ahead,” Fullbrook said. “So our position is we are not going to move very quickly.”
Commercial real estate expert Randy Holt said the market is likely in flux. “We may be at a bit of an inflection point, though time will tell,” said Holt, partner at Devencore Victoria.
Holt said the market over the last two or three years has been “fantastic” for owners and developers of downtown land.
“There’s been a tremendous run up in value of sites downtown that could be developed,” he said, noting that was reflected in the asking price of new condominiums. “We’ve seen the value of new condos go from $500 per square foot to trading between $600 and $1,000 per square foot depending on the floor and outlook of the unit.”
But that has changed.
Holt said the increase in interest rates, more difficult qualifying standards for would-be buyers, a foreign buyer’s tax, higher property transfer tax and vacancy tax have all subdued the market.
The City of Victoria has created a huge amount of uncertainty among developers with councillors talking about requirements for affordable housing in new developments, he said. That kind of requirement sends chills through the development community, and depending on what the policy eventually is, it could have the “perverse effect of reducing supply” instead of creating the affordable units they want. “Last I checked when you reduce supply, prices tend to go up,” he said.
Fullbrook agrees, noting “the residential and multi-family sector is just cloaked in mystery.”
Merchant House’s plans for the Times Colonist building are still moving ahead with a 300,000 square foot mixed-use development on the site, said Fullbrook.
The company acquired the building in September 2017 with the newspaper entering a long-term deal to be the anchor tenant.
There will be an extensive renovation at the site, with the creation of street-level retail and 120,000 square feet of office space.
A development rezoning permit has been submitted for the print building — an extension of the Times Colonist building that was added a quarter-century ago. That space is expected to become commercial or entertainment space.
There are also plans for a residential component at the rear of the building.
The Times Colonist will move into temporary quarters during the renovation.