Strategic Group’s decision to seek creditor protection Wednesday for its 50 properties in Calgary and six other projects was a necessary move to ensure the company’s long-term viability, its president told Calgary’s Business.
Strategic, one of Calgary’s largest integrated property companies, announced Wednesday that it had filed for creditor protection for every project in Alberta, driven by a long-term financial downturn that has left Calgary’s downtown with a 24.6 per cent vacancy rate.
“That’s effectively our entire Alberta portfolio,” Riaz Mamdani told Calgary’s Business in an exclusive interview. “Our long-term viability would be threatened if we didn’t take action today.”
Yet, the company will remain Calgary-based.
“We’re committed to Alberta, and we’re a Calgary-based company,” he said. “That’s not going to change.”
Documents filed by Strategic show that mortgages on the properties – which range from such landmarks as the downtown Petro Fina building to business parks and shopping plazas – totalled $651 million.
Riaz Mamdani
“We’re pretty confident everyone can get all their money, if we move in a timely manner,” Mamdani said.
Strategic reported in a news release that its exposure to the office market is a “significant risk for the longevity of the company.” Since mid-2014, 78 tenants occupying 573,333 square feet did not survive as going concerns or did not remain in their leased premises, despite being under lease agreements.
Mamdami told CB that November was the worst month he had seen in his career for tenants breaking leases, “and December is even worse.”
He noted that even major national franchises are exiting some projects, such as Boston Pizza and Five Guys – “clients that never leave.”
While many tenants honour their lease commitments, there are other “midnight runners” who simply vacate buildings and refuse to pay penalties for early departures. They become extremely difficult to collect from, leaving Strategic holding the bag for missed payments.
Strategic now has 354 employees, down “significantly,” Mamdami said, and he “can’t see” how the company could operate with any fewer employees.
He said that Strategic will complete construction and conversion projects that are under way. In recent years, Strategic has diversified its real estate to include a viable multi-family rental portfolio, a move designed to support a long-term successful future for the company. Actions include:
- Repurposing commercial buildings into residential rental apartments, with two conversions complete and two more buildings set to be converted in 2020.
- Reducing staff by 19 employees.
- Repurposing office space to storage and retail.
Strategic’s operations include property management, leasing, development, re-development, repurposing, and construction. It owns and manages a national office, retail, and apartment portfolio across the country.
Mamdami said it is not just the depth of this recession, but the length of time that is taking its toll.
“I know tomorrow is a better day,” he said. “I just don’t know how far away tomorrow is.”
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