January 20, 2015

3 Big Questions About
Target's Sudden Departure

Target's announcement that it's shuttering its Canadian stores has sent ripples through the retail and real estate worlds. Edward Sonshine, CEO of RioCan REIT, Target's largest landlord, called its misadventure “a case study of how not to come to Canada.” Here's what we know—and don't.

How did this happen?

Target, which expects to report $5.4B in pre-tax losses for Q4, mostly due to the write-down of the Canadian fiasco, struggled to deliver the same in-store experience here that we'd come to love at US locations. Prices weren't competitive and supply chain issues led to limited selection. Despite an effort to fix operations, Target chairman Brian Cornell said last week the company was upping stakes in Canada and filing for creditor protection. “We were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021,” he said.

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So what's the damage?

Well, 133 stores are closing, representing 20M SF and 17,000 employees. RioCan will be hardest hit; with 27 stores at RioCan properties, Target is the REIT's seventh-largest tenant. RioCan says it expects minimal interruptions to lease payments, however: Target's US parent is generally guaranteeing leases. Ivanhoe Cambridge, Cadillac Fairview, Bentall Kennedy and H&R REIT are other Target landlords, as are Morguard, First Capital Realty, Calloway REIT and CREIT. For prime locations, the impact should be manageable, experts say. Vacated secondary, suburban locations may not fare as well.

Who'll fill the empty spaces?

Target leaves behind $2B in sales and 133 locations. Names bandied about as potential suitors for vacated spaces include grocers Loblaw, Sobeys and Metro; retailers Canadian Tire and Walmart; and home improvement chains Home Depot, Rona and Lowe's. But don't expect another US chain to make a major cross-border push. A strengthening US economy, weakening Loonie and plunging oil prices are deterrents to coming north, versus five years ago, when the resilient Canadian market lured US companies mired in recession. Target isn't the only retailer to leave Canada. Mexx, Jacob and Smart Set are closing shop; Sony stores, too, it was announced the same day as Target's big news. 

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Agellan To Build a New Porsche Dealership

If you're scouting choice locations for a Porsche dealership, you can't beat North America's second-most-traveled intersection. (Or the 8th hole of a country club golf course.) Agellan Commercial REIT has signed Porsche Cars Canada to a 20-year lease at its Parkway Place office campus at Highway 401 and Don Valley Parkway, a junction that sees 600,000 cars pass by daily, second only to LA's Santa Monica Freeway (though the cars pass by very, very slowly). The luxury automaker will occupy 60k SF at a new dealership that Agellan plans to build on a 3.3-acre site, currently a parking lot at the office complex.

Agellan also intends to build a 37k SF retail facility and 700-stall parking garage at Parkway Place (seen above), the REIT said last week in an update on its operations. Both projects are expected to be completed by 2017. Meanwhile, Agellan said it is exploring the potential sale of Parkway Place, which is its single-largest asset. Tenants at the North York campus—with four buildings tied together with a retail concourse—include IBM, Shoppers Drug Mart and CH2M Hill. If Parkway Place can be sold, Agellan says it will reinvest proceeds in US real estate assets

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Oxford CEO Joins Housing Task Force

Oxford Properties Group chief Blake Hutcheson has been named to a housing task force charged with reviewing how Toronto Community Housing Corp. operates, and exploring the possibility of breaking up the organization to function more efficiently. The task force will be led by former mayor Art Eggleton and includes ex-TD Bank CEO Ed Clark. TCHC, Canada's largest landlord, manages over 58,000 units in 2,300 buildings. It needs $2.6B in the next decade to deal with repairs. Announcing the task force Friday, Mayor John Tory told local media it's "just stupid" for the city to own buildings “that we allow to fall into such a state of disrepair that the units have to be closed.”


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Speaking of John Tory, how's he doing so far? ryan.starr@bisnow.com