Ch. du Grand-Bernier, Saint-Jean-sur-Richelieu

Industrial Property (374,000 square foot), soon-to-be LEED certified built-to-suit distribution facility

The Advisory Team

The Advisory Team for this industrial real estate project consisted of some of the most experienced advisors in the industry. The Team was comprised of Norman Laff, Arnold Fox, Jean-Marc Dube SIOR, Victor Cotic and Gord Cook SIOR. Combined, this advisory team has over 100 years of industrial real estate experience and are market makers with over $250,000,000 worth of transactions in 2013. More than just successful transactional brokers, the advisory team members are recognized as some of the most ethical advisors in the industry. The project in St-Jean-Sur-Richelieu described below is an excellent example of SIOR collaboration with SIORs from the Eastern Canadian Chapter and Central Canadian Chapter participating its successful completion. Full bios available on page 10

Overview and Impact of the Deal

This was a very significant transaction for the Quebec market for an approximate total value of $65 million dollars. The total size of the building, at approximately 374,000 sq ft, is one of the largest new constructions in the Quebec industrial market in 2013. The property is located in a tertiary market of the GMA (St-JeanSur-Richelieu) that is in full expansion and offers an excellent shipping destination to connect eastern Canada and the United States. Through DHL/Exel (“DHL”), this soon-to-be LEED certified facility is now the distribution hub for BRP, (formally known as Bombardier Recreational Products), allowing BRP to ship its recreational sport products globally from this location. The property was part of a major expansion for BRP and a consolidation of several facilities into the highly efficient distribution center in St-Jean-Sur-Richelieu. BRP’s IPO offering was the most successful IPO in Canada in 2013. Their ability to now better service the global market through their new state-of-the–art distribution center facility played an important role in their success. As this was a new building, the transaction created employment for the region and furthermore created new construction contracts, desperately needed in a stagnant industrial construction market. As new construction in the Greater Montreal Area totaled just over one million square feet in 2013, this project was almost thirty five percent of the new inventory.

The Process

Once BRP had determined that they required a more efficient distribution center, they launched a bid process for their logistics business in North America. Several contenders were eventually narrowed to two finalists: DHL, being one of them. 3 In the Fall of 2012, DHL mandated the Advisory Team to locate options for them to present to BRP for their new distribution center. Having performed and extensive market survey/research for DHL for all available options, it was determined that no existing facility could satisfy their prospective client’s needs, which included a desire to remain on the South Shore in close proximity to the Greater Montreal Area. The only viable option would be a built-to-suit with a land requirement between 800,000 to 1,000,000 sq ft. After extensive investigation, the Advisory Team sourced a land opportunity in Saint-Jean-Sur-Richelieu that would form the basis of DHLs final, winning, presentation to BRP in April 2012. Ultimately, DHL did not want to be owners of real estate for this project as it did not fit their long term business plans. The Advisory Team presented a strategic real estate plan that would involve DHL acquiring a piece of land, negotiating a new construction and ultimately divesting themselves of the real estate in a sale-leaseback thus monetizing the value they created through winning the BRP business. The chosen site had the advantage of allowing BRP to consolidate its Quebec distribution centers, service the North eastern United States via highway 35 which connects directly to Interstate 89 and also becoming the master distribution center that would feed all of BRP’s distribution centers worldwide.

The Challenge

With the Advisory Team’s in-depth research, DHL was able to successfully present their business plan to BRP and, in August of 2012, BRP ultimately chose DHL as the winning contender. DHL requested that the Advisory Team identify prominent local builders that had extensive experience in construction in the immediate region, experience with this size of project and expertise in dealing with the city of St-Jean-Sur-Richelieu. The Advisory Team presented several contractor profiles to DHL. DHL determined that Groupe Montoni (“Montoni”) would best service them in this region; Montoni is well known by city officials, having built extensively in the community. The project team, including DHL, Montoni and the Advisory Team then undertook negotiations with the city of Saint-Jean-sur-Richelieu to acquire the land. In January 2013, Montoni, while undergoing soil tests on the site, discovered devastating results: the entire site was found to be liquefaction (quick sand), which rendered the site unbuildable. DHL’s winning bid was now at risk (and possibly all of the BRP logistics business, worldwide). This was to be the jewel in the crown and now all could have been jeopardized. An action plan, with all hands on deck, was quickly put together to salvage the deal. Fortunately the project team and the city came up with an alternate site as the city dearly wished to have this facility built in their community. 4 This new site proved to be a better choice than the original site submitted during the bid process and thus construction began to be able to deliver the property by the end of 2013. Knowing DHL’s ultimate goal of a sale-leaseback, the Advisory Team began the process of offering this investment opportunity to the capital markets and searching for sources of liquidity. The biggest challenges lied ahead; not only did DHL require that a deal be completed by December 31, 2013, finding an investor who understood this tertiary market and the risks of a very large single tenant property in the GMA would prove very difficult. Furthermore, the Advisory Team would be offering a property that was still in the design phase and would need to leverage DHL’s strong covenant to get a deal done. Realizing that the ultimate investment buyer would likely come from outside of Quebec, a multi-market advisory team was created including SIOR members from the Eastern Canadian Chapter and Central Canadian Chapter.

The Result

Throughout February and March of 2013 DHL and BRP acted very quickly to approve the site, while the other parties worked on the zoning derogation necessary to build the distribution center and acquire the land from the city. By the end of March 2013, the contractor was able to begin preparing the land (pouring the foundation) so that in April, once the final permits were issued by the city, building could commence. The contractor was able to fast-track the construction by ordering material and supplies while the zoning derogation was being considered by the city (notwithstanding that we suffered a construction strike in late spring/early summer 2013, which affected the site). During the construction phase, after two failed bids, the Advisory Team was able to successfully secure and identify a public investment firm that had created a new fund and needed to buy industrial property for the fund. After several months of negotiation, a deal was finalized during the holidays, in the eleventh hour, right before the end of 2013, meeting all deadlines. With the final leg of the project completed, Colliers was able to deliver what they promised: on-schedule delivery and sale with significant value and profit for DHL. DHL is now operational and already distributing some of the most exciting recreational vehicles in the market to users world-wide. The end result is 40-foot clear, approximately three hundred and seventy four thousand (374,000) square foot, soon-to-be LEED certified built-to-suit facility that has set the standard for distribution centers across North America. 5 The project team was able to create a significant value for DHL by advising on the acquisition of the land site, the construction contract and successfully bringing the property to market as a sale-leaseback opportunity with a deal done right before the end of 2013, a huge priority of the client!

 

TOTAL BUILDING SIZE: approximately 374,000 SF

TOTAL LAND SIZE: 870,000 SF

TOTAL Deal Value: $65,000,000

 

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