Waterloo Innovation Network

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Wekerle now owns six former BlackBerry buildings in Waterloo
February 9, 2015 | Terry Pender | The Record | LINK

WATERLOO — The Waterloo Innovation Network — headed by colourful Bay Street financier Michael Wekerle — now owns a cluster of six former BlackBerry buildings along Columbia and Phillip streets and has an option to buy a seventh.

Wekerle, the founder of Toronto-based investment bank Difference Capital, bought the former BlackBerry building at 156 Columbia St. W. about a year ago. It is now fully leased.

"I said I would do it by year end, I did it by the end of January," Wekerle said in an interview. "It is 44,000 square feet and it is fully tenanted now."

Wekerle, a "dragon" on the CBC television show "Dragons' Den," is betting big on Waterloo and the technology companies located here. Since October, he has spent about $47.9 million on the six BlackBerry properties. He put a mortgage for $26 million on some of those properties.

Wekerle established what he calls the Waterloo Innovation Network last year to support the growth of Waterloo Region's technology startups. In January, he hired former Waterloo mayor Brenda Halloran as the network's chief executive officer.

In addition to 156 Columbia St. W., Wekerle's holdings of former BlackBerry buildings include:

•70 Columbia St. W. with 30,000 square feet of space. It is currently vacant, but potential tenants are looking at it.

•176 Columbia St. W with 144,000 square feet. It is leased to BlackBerry.

•180 Columbia St. W. with 62,000 square feet. About one-third is leased and there are term sheets out to other potential tenants.

•450 Phillip St. with 30,000 square feet. It is 16 per cent leased.

•460 Phillip St. with 40,000 square feet. It is fully leased.

Waterloo Innovation Network also owns empty lots at 385 and 405 Phillip St.

Wekerle is looking at another former BlackBerry building at 440 Phillip St. "I went through the building, it is a big building with about 160,000 square feet," he said. "About half of it is rented on a very short-term lease to BlackBerry."

Wekerle made his name in the technology sector as the lead trader at GMP when BlackBerry, then called Research In Motion, went public in 1997. All these years later, he is back, buying up former BlackBerry buildings. BlackBerry employed about 11,000 workers in Waterloo in 2011, but its local workforce was trimmed back 2,700 as the smartphone maker's market share tumbled.

When it comes to 440 Phillip St., Wekerle said a big question is how long BlackBerry would like to stay in the building. He is confident the once-dominant smartphone maker will execute a turnaround.

"I do believe BlackBerry is on the up-and-coming," Wekerle said. "We need BlackBerry in Waterloo and Kitchener."

Last year, BlackBerry sold nearly all of its Canadian real estate. San Francisco-based Spear Street Capital bought all of the Waterloo properties and has turned a profit on the buildings it sold to the Waterloo Innovation Network.

In May 2014, Spear paid $13.7 million for 176 Columbia St. W. About six months later, Waterloo Innovation Network paid Spear $20.4 million for the property.

At 170 Columbia St. W., Spear paid $2.8 million in August 2014. About three months later, Waterloo Innovation Network paid $4.3 million for the property.

Spear made a combined profit of $2.6 million on three other properties it owned for about six months before selling them to Waterloo Innovation Network.

Peter Whatmore, executive managing director and senior vice-president for the southwestern Ontario office of commercial real estate firm CBRE, said predictions that the former BlackBerry buildings would cause a 10-year glut of office space in Waterloo Region are proving to be unfounded.

Whatmore said the growing technology sector in the region means it will take two or three years for the former BlackBerry buildings to be occupied by other companies.

"The market is a very strong market in the Canadian context, it is growing, you are creating jobs and you have high-tech companies that are occupying space at pretty amazing levels," he said.

The vacancy rate for office space in suburban Waterloo did increase in 2014 — to 13.5 per cent, with a total of 5.2 million square feet of empty office space. The slow, steady absorption of that space will continue this year, according to a CBRE report on local office space.

"It's not moving the needle on vacancy rates, but it likely will by the end of the year," Whatmore said of the leasing activity.

BlackBerry constructed high-quality buildings and there is a demand for that kind of space among other technology companies, said Karl Innanen, managing director for Colliers International's Waterloo Region office.

Colliers is working with Spear Street Capital to lease the former BlackBerry buildings still owned by Spear Street. They are larger than the buildings acquired by Waterloo Innovation Network.

Innanen said there is a pent-up demand for big buildings with the right infrastructure — back-up power supplies and enhanced cooling systems for servers.

"We are finding that there are a lot of tenants looking at these spaces," he said. "They want to be close to the university, close to the LRT (light rail transit)."

Mark Arbour, chief operating officer of the Waterloo Innovation Network, said the network is keen to buy more properties in the Kitchener and Waterloo area if appropriate opportunities occur.

"We certainly have an interest in a number of other properties," he said. "Waterloo is where we want to be. We are just very bullish on the area."

Waterloo Innovation Network's short-term plan is to find suitable tenants for its buildings, Arbour said.

The buildings owned by Waterloo Innovation Network have attracted a growing list of startups and technology firms, including Magnet Forensics, Auvik Networks, Coherent Logix, Netsweeper, Nuance, Axonify and ChangeIt.

Arbour said term sheets are out with other prospective tenants that could result in leases for another 40,000 square feet of space.

The longer-term plan is to redevelop the area around Columbia and Phillip streets, said Arbour.

"We are looking to increase the commercial space with regards to more office space, more tech space," he said in an interview.

The master plan for the area will call for a mix of retail, commercial, office and residential.

"That is a long process. We have to go through a number of different government channels to obtain that type of approval," Arbour said. "We have to work with the city to make sure our vision aligns with their vision."

The former BlackBerry buildings Spear Street still owns are at 455, 451 and 440 Phillip St.

"They have been left with the big floor plates for large tenants, which is exactly what they do well," Innanen said. "It has actually worked out well for Spear Street, and I believe it will work out for the Waterloo Innovation Network."

The network is going after smaller firms that Spear is not interested in, he said. "It is kind of a symbiotic relationship between the two."