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  #21  
Old Posted Nov 20, 2012, 9:33 PM
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How is it a success? They had an economic failure of a project. By what metric is that a success?
     
     
  #22  
Old Posted Nov 20, 2012, 9:36 PM
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When Calgary is involved all bets are off. There is the norm for markets and then there is Calgary... where the last 30 years has been building boom, and then a glut, another building boom, and another glut, and so on and so on.
Some day you'd expect it to come to an end, but right now I don't think anyone knows when that will be, so it wouldn't be too surprising to see developers go ahead with projects to try to get that advantage.

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Originally Posted by LeftCoaster View Post

As well in most markets (Calgary seems to inexplicably defy this) there is a finite demand for space, so if you are the first to market, you can snap up the majority of the good tenants while the later to market buildings are left with the scraps. This is less pronounced in Calgary due to the near insatiable demand, but there are still better tenants than others and they will often get scooped up first.
     
     
  #23  
Old Posted Nov 20, 2012, 9:38 PM
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How is it a success? They had an economic failure of a project. By what metric is that a success?
What do you mean they had an economic failure? By what metric is a failure? The building is only a year old!

They have it rented, it's just going to take longer than expected to get the money back. Is Syncrude an economic failure?
     
     
  #24  
Old Posted Nov 20, 2012, 10:07 PM
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Quote:
Originally Posted by Surrealplaces View Post
What do you mean they had an economic failure? By what metric is a failure? The building is only a year old!

They have it rented, it's just going to take longer than expected to get the money back. Is Syncrude an economic failure?
By the metric that if they spend 700 million dollars on a building that is now worth 600 million dollars it is a failure.

Those numbers are example only but office buildings are valued on their cashflow, and since the cashflow of EAP is based off below market rents it will therefore be valued lower, therefore it was not economically successful.

Waiting longer to get the money back doesn't work either for two main reasons:
1. typical office lease terms are 10 years, these rates are locked in for the foreseeable future, not allowing for erasing the mistakes.
2. The time value of money means that waiting to get your money back means that the money is worth less to you in the future. Waiting to get the money back is futile as the longer you wait the less that money is worth, making a rent bump in 10 years up to the market rate an insufficient increase to "make the money back".

Ultimately firms have what is called a hurdle rate which is essentially the acceptable return given the firms cost of capital and its ability to invest in risk equivalent projects with a given return. Since SITQ could go out and spend their hypothetical $600 million on an existing office and get a return of say 7%, building their own building, at a higher risk than buying an existing building, and getting only a 5% return is an economically poor decision. Certainly a failure if you ask me.

Sorry if my tone was at all condescending, I certainly didn't intend it to be, but I dont know the financial knowledge levels of people on this forum so I tried to explain/simplify the terms for those who do not have the required background.
     
     
  #25  
Old Posted Nov 20, 2012, 10:43 PM
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^Fair enough. I guess it all depends on what people consider a failure. If investors are looking for a certain amount of return on their money in a given time then there is a metric to say whether something is a failure or not, so that make sense.
I'm just looking at it long term in the sense that it will make money over time, just a matter of how much time. I see where you're coming from.

One also would have to consider that there was a large upfront cost in building the entire parking and podium structure, which now may be paying dividends as they build the second tower.. Another factor is the changing lease rates....going forward, lease rates could go up, and depending on the length of leases the tenants have could change the ROI.

BTW, I didn't find your tone condescending, now worries!
     
     
  #26  
Old Posted Nov 21, 2012, 6:04 AM
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I wish we (Calgary) would have a glut of office space! Really. Companies can negotiate more favorable lease deals with higher vacancy rates than when they're at 1/2%! I find it hard to believe EAP is a failure..... Check the numbers (lease revenues) in 5-10 years.
     
     
  #27  
Old Posted Nov 21, 2012, 7:27 PM
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How is it a success? They had an economic failure of a project. By what metric is that a success?
I'm not an office market genius, but seeing as the second phase is now going, how bad a failure could it have been?
     
     
  #28  
Old Posted Nov 21, 2012, 7:33 PM
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Getting back to the building this thread is for, I hope we see it go ahead soon. Even if it remains a box as long as the materials and ground level treatment are excellent I will be happy with it.

As it stands this building would give Calgary 4 buildings over 200m, not too bad for a little prairie city with 1.2M people.
     
     
  #29  
Old Posted Nov 21, 2012, 9:08 PM
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Quote:
Originally Posted by Surrealplaces View Post
One also would have to consider that there was a large upfront cost in building the entire parking and podium structure, which now may be paying dividends as they build the second tower.. Another factor is the changing lease rates....going forward, lease rates could go up, and depending on the length of leases the tenants have could change the ROI.
Definitely the parking being built was a large advantage to phase II, however common practice is to allocate costs to the associated project, so the parking required of the space for phase II would be costed to that tower. It did let them build the second tower much faster though which is a huge intangible benefit when it comes to cutting the time required to lease up the building.

Like I said these rates are locked in for 10 years. In 10 years they will go up, but only to market rates, so they will have forever forgone the income they could have had in the first 10 years. They cannot make it up.

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Originally Posted by TallBob View Post
I find it hard to believe EAP is a failure..... Check the numbers (lease revenues) in 5-10 years.
Read my previous post, even when the net rents retun to market rates in 10 years they will have still lost out on millions of dollars in the first 10 years. Office buildings are not so profitable that they can just take hits of millions of dollars of revenue and still be fine. If it still doesn't make sense i genuinely don't know how else to explain it. I will be the first to admit I'm not a very good teacher.

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I'm not an office market genius, but seeing as the second phase is now going, how bad a failure could it have been?
How are the two related?

They lost money on the first phase, but the market is very strong now so they have a chance to make some money on the second phase. Not building it would just mean they bought land and built parking for which they are not going to build office space on, meaning they would lose EVEN MORE money.
     
     
  #30  
Old Posted Nov 21, 2012, 9:10 PM
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Quote:
Originally Posted by Bigtime View Post
Getting back to the building this thread is for, I hope we see it go ahead soon. Even if it remains a box as long as the materials and ground level treatment are excellent I will be happy with it.

As it stands this building would give Calgary 4 buildings over 200m, not too bad for a little prairie city with 1.2M people.
Agreed, Calgary could even use a nice tall glass box or two.
     
     
  #31  
Old Posted Nov 26, 2012, 8:11 PM
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I didn't realize all the leases were for 10 years, so yeah....totally makes sense. Hopefully the second tower can help get them some of their money back.
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Originally Posted by LeftCoaster View Post

Like I said these rates are locked in for 10 years. In 10 years they will go up, but only to market rates, so they will have forever forgone the income they could have had in the first 10 years. They cannot make it up.
     
     
  #32  
Old Posted Nov 27, 2012, 12:10 AM
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This tower reminds me of Bay-Adelaide Tower in Toronto, it would look great in Calgary!
     
     
  #33  
Old Posted Nov 28, 2012, 4:34 AM
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This tower reminds me of Bay-Adelaide Tower in Toronto, it would look great in Calgary!
Apparently the design has been changed. There hasn't been a rendering out of the new design yet, but I have heard that it's going to be taller......taller then the Bow in fact.
     
     
  #34  
Old Posted Nov 28, 2012, 5:18 AM
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Surreal: We can only hope... With a couple of companies moving out of the core, this might be the last shot for a building taller than the Bow for many years.
     
     
  #35  
Old Posted Nov 28, 2012, 6:14 AM
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Surreal: We can only hope... With a couple of companies moving out of the core, this might be the last shot for a building taller than the Bow for many years.
I don't have heights or details, but I have heard through some connections to Brookfield that the new design will be a new tallest for Calgary.
     
     
  #36  
Old Posted Nov 28, 2012, 7:03 AM
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Depending on how much higher than The Bow they're planning to go, they'll also need a decent sized second tower to reach the aforementioned 2.4 million sq ft, unless I'm way off here.
     
     
  #37  
Old Posted Nov 28, 2012, 9:55 AM
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Acey: I believe the total of potential developement sq. footage for that parcel is 2.8 million.
     
     
  #38  
Old Posted Nov 28, 2012, 4:58 PM
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Even better news. Interested to see where this goes.
     
     
  #39  
Old Posted Nov 28, 2012, 5:35 PM
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So here's the deal with the new design....

Two towers
- East tower 56 floors 247M (811Ft) making it taller than the Bow.
- West tower is 40 Floors
The design is similar to the one we've seen, but less boxy and more curvy. A large central area of glass in between the two towers.

They are very close to submitting a DP, if they haven't done so already.
     
     
  #40  
Old Posted Nov 28, 2012, 6:02 PM
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Quote:
Originally Posted by Surrealplaces View Post
So here's the deal with the new design....

Two towers
- East tower 56 floors 247M (811Ft) making it taller than the Bow.
- West tower is 40 Floors
The design is similar to the one we've seen, but less boxy and more curvy. A large central area of glass in between the two towers.

They are very close to submitting a DP, if they haven't done so already.
Oh boy! Oh BOY!
     
     
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