Pro Real Estate Investment Trust recently notched a deal to acquire a portfolio of industrial properties in Winnipeg for almost $100m through a creative strategic relationship with Parkit Enterprise, which owned the assets.
The move is part of Proreit’s ultimate goal of getting to $2bn of assets under management with a $1bn market capitalization within three to five years, depending on the market.
Green Street News spoke with Proreit chief executive Gordon Lawlor about the firm’s recent Winnipeg splash, buying opportunities and adapting to today’s unique market.
Why Winnipeg, and why now?
We already have 13 assets in Winnipeg, and we’re adding these six assets. We’d been looking at five of those six assets for a while. Some came up for sale in 2023 from Pure Industrial REIT, but the market was underwater at the time so we didn’t [pursue the assets]. Parkit had bought them and increased the cashflow, so they’ve done well with them.
That was our focus: Get more assets in Winnipeg. The population is close to a million people now, it’s a gateway to the west, and it’s a steady city that has modest growth. We’ve seen rent increases on properties we bought [in Winnipeg]. It’s a market we like. Not everybody’s there, and not all the competition’s there.
Your pool is [mainly] private buyers, so that’s why we’ve been successful accumulating a portfolio there.
What markets are you eyeing, and how does your spending program look the rest of the year?
We’d love to have more assets in Ottawa. Ottawa is interesting because we have a platform there. We have an office there. From a standpoint of management efficiencies, that would be the next area we could add assets and not have to add people.
Ottawa is a little more difficult, though. The cap rates are more compressed, and there aren’t as many big players in there, so the assets don’t trade as much.
We bought a hundred million [dollars in assets] this year. If we sell some assets, we could buy another $20m or $30m. That’d be a good year for us in a market that’s closed, if you will.
We’ve got a billion dollars in assets across Canada. Our goal is to get to $2bn in assets and $1bn in market cap.
Most of your spending has been done for this year already?
It depends on the asset, but on the acquisition side, likely. We don’t increase debt to buy assets. In this [Winnipeg] deal, our debt went up by maybe one percentage point, but we’ll deal with that on the asset sales side and straighten it up.
So if we ended up with $130m in asset buys in 2025, that’d be a decent year. Our best year was in 2021 with $300m [of acquisitions] when the market was fully open.
Can you talk about your investment thesis and how you assess the market today?
We like to buy assets in nodes and cities, mostly primary and secondary cities, where we have a platform. The thesis is small- and mid-bay industrial real estate.
You hear all the noise about large-bay having higher vacancies and whatnot, so we don’t play in that world. Properties under 200,000 sq ft – that’s our focus. They’re a lot more liquid in the market. We’re keeping to our strategy: small- and mid-bay assets; class B assets [with some cashflow growth].
We haven’t been focused in Alberta. We’ve got a couple cold storage buildings in Edmonton that were kind of one-off, long-term leases, but Winnipeg we like. It’s a two-hour flight from our Montréal head office.
We’re not going to buy any assets in Ireland or anything like that and surprise anybody.
How do you choose your hub markets?
By design. You look at cities that have over a half-million people, and that was Winnipeg, for example, which has historically been a very stable industrial market.
Ottawa has about a million people, and there’s not a lot of land there for extra development, which means industrial is more coveted there.
Being located in Montréal is another factor. We understand all of the nodes around here, on and off the Island.
We don’t have any assets in Québec City, so that would be on our list [of markets we’re interested in]. But we’d have to start from scratch by creating a platform there.
Parkit’s going to own about 9.6% of you through this deal. Can you elaborate on the business case?
We haven’t raised equity since September of 2021, and the market’s basically been closed in early 2022 from a pricing standpoint because of interest rates. So this is an opportunity to get $40m in equity.
This group owns close to 10% of us, and they’ll want to buy in the market after the deal closes and increase their percentage. They can go up to at least 15% ownership, further to discussions with us.
We have a 20% holder. … This deal will get them under 18%. Assuming they’d like to keep their 20%, they’ll probably buy on the board after the fact as well.
To be brutally honest, nothing’s gone on here for three years in the space. This is an interesting [deal], and we got a little bit of credit for doing it.
Do you foresee more deals with ParkIt?
Likely. They still have assets in Ottawa and Montréal. They have one more small asset in Winnipeg that we will probably buy later. It had a leasing issue during due diligence. There’s probably a chance to get another $100m in assets from them, subject to them agreeing.
Going forward, this is a relationship with Parkit. Steve Scott’s the chair of Parkit and the chair and CEO of StorageVault, which is the largest self-storage company in Canada. There’s some smart money behind those guys.
How have you adapted your strategy in the past six months?
Pragmatic things. The auto, steel and aluminium industries have an asterisk beside them. So that would mean in southwestern Ontario, or anywhere more focused on [those industries], we’d be a little bit more careful on the buy side.
For this [Winnipeg] deal, we interviewed all the major tenants and asked them if they’re subject to tariffs.
It doesn’t really change our strategy. It gives us more focused underwriting to make sure some of this noise doesn’t come through into [our] future cashflow.
We do pretty good due diligence already. … So a little bit more of a deeper dive into the businesses that are inside, instead of just the covenant of the tenant, which is usually the focus: What’s their business and how might it be affected by the craziness that’s going on south of the border?
