Second phase of MaRs tower nearly empty
Bookmark and Share
May 30, 2014  |  Vote 0    0

Second phase of MaRs tower nearly empty

Owners of the medical research facility finding it hard to find tenants to fill it


The 20-storey MaRS tower was at risk of becoming a white elephant from the beginning because it was simply too big and too expensive for Canada’s relatively small life sciences sector, Toronto-based commercial brokers say.

Construction forged ahead for several months until late 2008, defying basic Canadian real estate development conventions such as having at least 40 per cent of the space leased before concrete was poured.

The Toronto Star spoke to several commercial brokers who have knowledge of the project and who have been in the building, but didn’t want their names used because their companies have been involved in trying to woo tenants.

The brokers say it’s unclear who was actually driving the project, or to what extent — California-based Alexandria Real Estate Equities Inc. or MaRS innovation hub, which is an incorporated charity.

Thanks to a “perfect storm of many things,” in the words of one broker, the gleaming Phase II tower of the MaRS innovation hub now sits almost 70 per cent empty.

The brokers who spoke to the Star said this is because the rents are too high for the northerly downtown location and more in line with the high-demand, high-priced core within walking distance of Union Station.

They also say most of the space is more conducive to labs and medical research facilities than conventional offices.

Significantly, they add, the tower houses Public Health of Ontario’s largest infectious disease testing and research lab.

“That has been a deterrent to other (private-sector office) tenants moving in there,” said one broker.

“In real estate circles, this building has been quite the story. It’s kind of this big conundrum in the industry: How do you market it and secure tenants?”

Alexandria CEO Joel Marcus said via email that his company “restructured its interest in 2008 and has not been involved since. The assertions are libelous and slanderous.”

He refused to elaborate.

But, as disclosed in documents this week, the provincial government has been working on a proposal —now on hold because of the election — to purchase the building and land, owned by MaRS and Alexandria, for $317 million.

The added costs of renovations and “operating shortfalls” projected over the next two years could bring the total cost to at least $477 million over the next three years.

According to the documents, Alexandria still has a $65 million stake in the building.

MaRS said in a statement Friday that it has “a range of strategic tenants in the pipeline” for some of the empty space in the 780,000 square foot Phase II tower, which had just been built to the ground level in 2008 when the financial crisis hit and construction was halted.

By 2011, with some “key tenants” committed, “MaRS negotiated with the developer and the Province of Ontario to restart the project in late 2011,” with a repayable loan from Infrastructure Ontario.

“Phase 2 is a unique facility that requires significant upfront investment by specialized tenants. It will naturally take longer to lease a building of this kind and size.”

A separate statement, from MaRS’ board of directors, noted that Phase I of the project, some 700,000 square feet of space which opened in 2005, “is fully leased to 100+ innovation tenants.”

Phase II appears to have also been a victim of bad timing and location. Some 4.3 million square feet of office space had just come on stream in 2009, sopping up a lot of office tenants.

Some 5.5 million square feet more is now under construction, and tenants committed to that years ago — much of it in the high-demand Union Station/South Core area.

Plus, net rents in the tower were originally set at $30 per square foot, about the same as some core buildings, say brokers. They’ve since been discounted to $22.50 per square foot. But research and medical-type operations more typically like to pay just $16 to $20 per square foot.

“They missed the mark on who they were targeting,” said one broker. “We just don’t have the research tenants of the size and scale to fill that building. If they were in Boston, they would be fine.”

Which may make it inevitable that the Ontario government consolidate workers from other buildings it rents south of Bloor St. into the MaRS tower over time, as their leases come up for renewal.

Toronto Star

Bookmark and Share

(0) Comment

Join The Conversation Sign Up Login

Latest Local News

In Your Neighbourhood Today