The Hamilton City Centre has been sold as part of a $109-million deal swapping four retail centres in Ontario for equity in a real estate investment trust.

At 423,900 square feet, the 24-year-old Hamilton City Centre makes up almost two-thirds of the gross leasable area in the deal with Partners Real Estate Investment Trust, which also includes properties in London, North Bay and Kemptville.

The City Centre is attached to Lloyd D. Jackson Square but is a separate operation. It opened as the Eaton Centre in 1990 and went bankrupt 10 years later. It has been dogged by high vacancy rates, unpaid taxes and tenant turnover but was also filled with city staff and politicians while Hamilton City Hall was renovated.

It still houses some city staff, along with call centres, brokerages and financial service firms. The property is assessed at about $20 million and pays about $540,000 in property taxes. Taxes for 2013 are in arrears by about $377,000, according to a city tax official.

Officials from Partners did not respond to a request for comment from The Spectator. The press release announcing the deal quotes Joseph Feldman, chair of the board of trustees as saying the deal is the first step in a "transformational 2014" for the REIT.

"The REIT's portfolio will grow significantly as a result of this transaction, which increases our total gross leasable area by more than 25 per cent and reinforces our position within the healthy Ontario marketplace."

Glen Norton, the city's manager of downtown renewal, said he hasn't spoken to the new owners. But he said vacancies are falling in both Jackson Square and the City Centre.

"Until we know the intent of the new owner, we don't know much about its impact. Will there be a more aggressive management team to find tenants, we don't know. But it seems to be a vote of confidence in this market."

Ward 2 Councillor Jason Farr says the deal is more proof of an "ongoing renaissance" in the city.

"I am confident that this investment is the result of a Canadian company understanding and appreciating Hamilton as the best place to invest."

REITs acquire and manage real estate and pay out a minimum of 90 per cent of their taxable income to investors. Partners directly or indirectly owns 39 retail properties in British Columbia, Alberta, Manitoba, Ontario and Quebec, totalling about 2.7 million square feet of leasable space.

Michael Missaghie, a senior portfolio manager at Sentry Investments, says there are about 35 to 40 public REITs in Canada with a total market capitalization of $50 billion. They are stable, tax efficient investments for people wanting to invest in real estate who don't have access to large amounts of capital.

The deal, which is expected to close at the end of the month, is not a cash sale.

Instead, Partners will assume debt and will issue 6.45 million voting shares at $7.61 each under a limited partnership. The seller will then have about a 20 per cent share of Partners.

Missaghie says the assets for unit shares transaction by Partners is not typical but is used by smaller REITs looking to grow and property sellers looking for ownership positions in larger, more diversified organizations.

The vendor is named in Partners securities filings as Holyrood Holdings Limited. It is unclear how that company is related to Ron McCowan, who bought the City Centre in 2011 for about $25 million.

A numbered Ontario company that lists McCowan as its president is one of two companies behind a $110-million mortgage charged against the City Centre last June.

Loading... Loading... Loading... Loading... Loading... Loading...

McCowan bought $27 million worth of shares in Partners last November.

A previous management agreement with McCowan was terminated (with a termination fee of $1.5 million) in order to internalize management in the REIT. He was then named interim CEO.

Under that plan, Partners' head office will relocate from Victoria, B.C. to Barrie, Ont., where McCowan's business is located.

The name Holyrood Holdings Limited was reserved by an Ontario corporation on Jan. 27, according to OnCorp Direct Inc., which is contracted by the provincial government to provide electronic access to official business records.

But Holyrood has not been incorporated, so the directors are not known.

Efforts to reach McCowan Tuesday were unsuccessful. He is described in a Partners press release as "an entrepreneur who possesses more than 40 years of extensive experience in real estate development, construction, ownership and management."

Partners says Holyrood has guaranteed the four properties in the deal will provide more than $7.2 million a year in net operating income. A press release describes Hamilton City Centre as a "multi-tenant retail centre located at the heart of Hamilton's business district … The property has been well maintained and its more than 50 tenants include Hart Stores, a branch of Sun Life Financial, Worlds Gym, Thunder Alley Entertainment and the City of Hamilton."

The Spectator reported last week that Thunder Alley is a proposed $3.5-million development for 40,000 square feet on the lower level, including 10 lanes of bowling, two bars, a restaurant and a video arcade.

The City Centre

The site of the City Centre on James Street North was the home of Hamilton's original City Hall for 71 years before it was torn down for an Eaton's department store in 1960.

That was replaced by Cadillac-Fairview's $70 million Eaton Centre in 1990.

The mall was liquidated as part of the T. Eaton Company bankruptcy in 2000 and was purchased by Fercan Developments for $3.6 million.

In 2011, it was purchased by Ron McCowan for about $25 million. At the time, its vacancy rate was about 25 per cent.



- City Centre mall aiming to be a part of James North revival