Zellers Building

[GoStumpy]

For reference, smaller warehouse space in Kelowna can be as low as $7 or less per square foot

[forumdoug]

Probably a misunderstanding of how commercial leasing works. Rates for something like this would run < $10/s.f. But that's an ANNUAL rate, not monthly. So I'd guess if there's any truth to that $65k figure, that's $65k per year.

Then again, now that I've done a bit of research, I think you're probably right about it being $65k/mo: the property's lease, according to Artis' website (the leaseholder), includes the old Extra Foods building too. So if it is $65k/mo it could be for both buildings. That is a lot of space. Its a little over 100k square feet combined. So if $65k is an annual figure, that's only $0.65/sf and that's way too low. $65k per month would work out to $7.80/s.f which is probably right on the money.

Yet another thing to consider... again from Artis' website... is that the lease is already paid by Zellers (now Target) until 2023. So there would be VERY little motivation to find another tenant. Artis would be obligated to offer it for lease to another party, but they don't have to discount it for sure. If another party steps up, then Target is off the hook, so of course Artis is going to demand top dollar. Target is a big company with very deep pockets, so they're undoubtedly paying the lease rate. They just decided that its better for the books to waste $65k/mo than it is to operate it as a store (involving renos, staff, etc in a poor location). You might think they'd sublease it but you never know, they may not be allowed to as per the terms of the lease. Extra Foods is referred to as a "shadow lease", which I have to admit is a term I'm not familiar with.

Umm...small error in your thesis, as far as I know, this isn't one of the 170 or so odd leases Target acquired. Was originally supposed to be over 220 then they scaled back their plans a couple years ago and Wal-Mart acquired some leases. That didn't affect this, though, as this was one of the 70 or 80 (or so) either properties HBC owned or leased that had to retain as respective assets/liabilities. Through either HBC, Zellers Inc or one of its myriad corporate subsidiaries, HBC pays the rent to Artis REIT through 2023 (you had the year right).

As far as "shadow lease" is concerned, I'm not exactly sure either. It could mean they have a cheap "ground lease" with the landlord (retailer owns the building and all its internals, sort of like a mobile home park) or, more likely, the company itself owns the ground (or 99-year lease agreement with the WFN member), building and all its internals and they share joint marketing efforts/costs with the adjacent mall/shopping centre owner.

I think a "sub-lease" is probably allowed...HBC would probably love to do a deal (do they really need a huge storage facility?) to offset the rent they're paying. The question is, can they even find someone (that isn't already here and that we could support profitably) looking for 105,000+ square foot single-tenant building, with a retail commercial zoning? I'm not sure they can. That said, in the age of e-retailing, you're seeing less and less demand for physical storefronts for retailers (i.e., those that sell goods). There will always be demand for retailers & professionals that offer services (i.e., hair & nail salons, banks, insurance brokers, dentists, doctors, investment services, lawyers, etc.) but they can only assume so much supply. I used to preach here that the landlords in West Kelowna took advantage of the cheap labour and costs to build all these new buildings in 2008 through 2011 in anticipation of demand coming back - but even if you assume the economy does pick up, I still think we're currently overbuilt by at least two major shopping centres. I think we could potentially fill all the shopping centres in Westbank/West Kelowna but Governors Landing Shopping Centre and Westbank Shopping Centre would have to sit completely empty, in order for every other shopping centre to fill up - either through new tenants or existing tenants relocating. This is purely anecdotal and not fact-based, but it's logical. One needs to look at the vacancies in each of the shopping centres collectively, not to mention individual storefronts for lease on Main St and elsewhere, to realize that.

You also have to consider, in many service-oriented retailers/professionals, we've probably hit saturation in pharmacies, banks, insurance brokers (maybe one more of those we could support, potentially), dentists, family doctors/walk-in clinics (might be able to support one more, again potentially), coffee shops, gas stations, convenience stores, lawyers, notaries public and real estate.

There might be some targeted, "tuck-in" potential, I think, maybe in the areas of travel agents, optometrists, chiropractors, frozen yogurt, quick-service restaurants (not mainstream ones and only maybe 1 or 2 more) and, finally, an eyeglass/contact lense retailer (I'm thinking we could easily support both a Pearle Vision and a Lenscrafters, if they're listening).

Beyond that, I just don't see room for much more. I think the District of West Kelowna and Westbank First Nation need to shift their focus to the industrial and professional segments - to manufacturing (of course) but also to logistics (why not try and get an Amazon.com or eBay's GSI Commerce division fulfillment centre?), to contact/call centre providers (2014 is very different than the "mini-boom" years of a decade ago and the "labour shortages") and to those sort of things.

Cheers,
Doug