World News
Strategic Group puts 50 Calgary properties, with $650M in mortgages, under creditor protection
Strategic Group has put 50 properties, with mortgages totalling nearly $651 million, under creditor protection.Strategic Group CEO Riaz Mamdani speaks at an opening ceremony for Cube, a former office building his company converted to residential use. The company has put 50 properties into creditor protection, citing Calgary’s high office vacancy rate. (Stéphanie Rousseau/Radio-Canada)Strategic Group has…
Strategic Group has put 50 properties, with mortgages totalling nearly $651 million, under creditor protection.
Strategic Group has put 50 Calgary properties, with mortgages totalling nearly $651 million, under creditor protection.
The property development and management company, which is one of Calgary's largest, cited the city's high office vacancy rate and prolonged economic downturn.
“Alberta's severely negative economy has seen our company try to battle the storm for the past five years. Despite my teams' innovative approach to an ever-changing landscape, we must immediately deal with the current market conditions and pessimistic outlook for the real estate office market,” said CEO Riaz Mamdani in a statement posted to Strategic's website on Wednesday.
The company said that between 2014 and 2019, Strategic had 78 tenants occupying more than 573,000 square feet that didn't survive or otherwise didn't remain in their leased spaces, despite being under lease agreements.
High office vacancy rate
Calgary's overall office market stands at 32 per cent vacant or available for sublease, Strategic said in its court affidavit, a number that only stands to increase with the recent completion of Brookfield Place and the soon-to-be completed Telus Sky.
This year, 21 tenants in Strategic's portfolio have shut their doors.
The situation, the company said, was compounded by increased property taxes on businesses outside the downtown core.
“High vacancy and default rates have reduced revenues and left the rental portfolio entities with no means of recovering the increased property tax burden placed on affected properties. Second, reduced rental revenue has led to a material reduction in the market value of many buildings and properties in the rental portfolio,” the company's affidavit reads.
The company said it's taking actions to stabilize the business, including:
- Repurposing existing commercial buildings into residential rental apartments, with two conversions already complete and two more buildings set to be repurposed in 2020.
- Reducing staff by 19 employees.
- Repurposing office space to storage and retail.
But despite those actions, the company said, it currently has more than 586,000 square feet of vacant property, which could peak at more than 700,000 square feet.
The initial filing grants the company a stay until Dec. 20 but the company is seeking an extension until March 31, 2020. The company's next court date is scheduled for Dec. 19.
CBC News has reached out to the company for comment.
The Companies' Creditors Arrangement Act allows companies to restructure while continuing operations, similar to a Chapter 11 proceeding in the United States.
The stay means Strategic Group will continue to manage the properties, but gives it time to restructure — by selling without creditors taking action.
The Alberta Court of Queen's Bench has appointed Hardie & Kelly Inc. as monitor of proceedings under the CCAA for the Calgary properties, as well as six in Edmonton.
In its third-quarter office market report, realtor Avison Young said the overall Calgary vacancy rate was 22.3 per cent but the downtown rate was 24.6 per cent.
A full list of the affected properties is below:
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