Investment firm set to buy 1001 Farrar Rd. for around $32 million

Morguard Investments Ltd. is close to purchasing a Kanata office building constructed earlier this year to house Dell's new call centre for between $32 and $35 million from the Kanata Research Park (KRP), OBJ has learned.

The 146,515-square-foot vacant building, located at 1001 Farrar Rd., was scheduled to open as early as last April and hold up to 1,200 employees. It sits adjacent to Dell's main building at 2500 Solandt Rd. and was once to be the home for the computer giant's high-end-client call centre, namely purchasers of Dell's XPS gaming systems.

The first two storeys had been fully wired for the call centre operation and are ready for immediate occupancy, but the third floor is still in "base building condition," according to the property listing prepared by CB Richard Ellis, the company trying to sublease the property on behalf of Dell. The computer giant is currently tied to the property until 2017.

If the property is indeed about to change hands, the timing makes sense from a buyer's perspective because Dell's existing lease means a guaranteed revenue stream for the new owner, said DTZ Barnicke's Bruce Wolfgram.

"It is quite attractive for a buyer, presuming a buyer has confidence that Dell will be around for the majority, if not all, of the 10 years because Dell has a very good covenant," he said.

It also means a new owner can wait out any soft periods in the commercial real estate market when searching for a new tenant, said CB Richard Ellis vice-president Bob Perkins.

From the seller's perspective, KRP is unlikely to fetch a higher resale value for the property in the future as Dell's lease ticks down, he added.

"It would be a wise investment to sell because I am not sure if they can extract any more value out of the building by holding it long-term," said Mr. Perkins.

Nevertheless the move would be somewhat out of character for KRP, which has historically been more of a keeper of real estate than a seller.

One source, who asked not to be named, said the decision to sell may have arisen from conditions attached to KRP's financing of the building's construction. The source said that long-term financing would only be paid to KRP once the tenant occupied the building. Because Dell didn't move in, the source said KRP presumably funded it by itself and found it financially advantageous to sell.

For its part, Morguard already has several properties in the area and has been active in the real estate investment market for the last several years. Against the backdrop of the credit crisis in the United States, Ottawa is currently an attractive location for commercial real estate investment, said Mr. Perkins.

"Because of the depth of the Ottawa market and its stability, coupled with a new building with a long-term lease for a quality tenant, it makes (this property) the kind of thing people can run their risk profiles on and come out with an answer that is still positive," he said.

The biggest stabilizing factor in the Ottawa market, the federal government, is rumoured to be looking hard at subleasing one or both of the Dell properties. Public Works and Government Services Canada officials are said to have recently visited the properties at least twice.

Although Dell will not say what its plans are for its main property at 2500 Solandt Rd., which still houses slightly more than 150 employees, CB Richard Ellis vice-president Brian Seymour said there has been "substantial interest" expressed in subleasing 1001 Farrar Rd. by multiple parties, which potentially includes the federal government.

"We've made it known to Public Works that the space is available, but as of yet, we haven't signed anything with the feds," he said.

Calls to officials at KRP and Morguard last week were not returned.