As Connect CRE Canada previously reported, Josan Properties recently completed the purchase of the Phipps-McKinnon office tower in downtown Edmonton.

Josan plans to complete a partial conversion project whereby the bottom half of the building will become rental apartments and the upper floors will remain office spaces. A new amenity floor, open to residential and office tenants alike, will also be part of the mix.

Josan will manage the residential leasing component. Avison Young will co-ordinate office leasing activities while also handling limited retail or service-spaces that will be part of the redevelopment.

Edmonton-based Josan is moving quickly on the partial conversion. In this interview, Raka Josan, president and CEO of the investment and development firm, explains why the company acquired the asset. He also outlines the partial conversion.

(Editor’s Note: Josan acquired the Phipps-McKinnon tower as part of a three-property portfolio, including the Sherlock Holmes pub and Sorrentino’s restaurant multi-tenant property, from an undisclosed institutional investor. Based in Eastern Canada, the investor sought to sell all three assets together as it vacates the Edmonton market. The pub and restaurant buildings will retain their existing uses and continue to be operated by long-time tenants.)

What was your initial plan for your investment in the Phipps-McKinnon tower?

We looked at the tower almost a year ago now. At that time, there were some rumours in the real estate community that the City of Edmonton would be coming forward with some sort of grant, or some sort of assistance, for conversions from office to multi-family. Again, it was just a rumour. I don’t think it was substantiated by anything other than the City of Calgary had done something similar with the $75 per-square-foot incentive. So you know, people were just talking in the community. There was a buzz that Edmonton was going to match that or do something similar. We didn’t budget a number in or anything, but we were optimistic that the city would come to the table with something of that sort.

So, our plan was: If that grant is forthcoming, we’ll buy this building. We’ll try to relocate what tenants we have in the building to other buildings and convert the whole tower to residential. The City of Edmonton, unfortunately, was not able to come to the table with any assistance in the form of a grant or otherwise. I think there’s still some conversations ongoing; but as of this point, there’s been nothing announced.

When we realized along our due diligence process that, okay, it doesn’t look like something’s coming, we said: Well, what else can we do here? This building does need some type of repurpose or some type of reallocation of the space to make it more efficient.

So, that’s when we started exploring [the question of]: Well, the majority of the vacancy is in the bottom half of the building? What if we just converted the bottom half of the building to residential? That actually turned out to be a really good fit; and it was almost like it was meant to be, because the elevator banks are separated between the bottom half and the top half. The mechanical systems are separated that way as well. So it really just created a good plan.

In addition to that, we’re now going have a building that’s occupied 24/7 and it’s going to create those different day-parts of activity in the building whereas any office building usually is occupied somewhere from 8 a.m. to 5 p.m. [or thereabouts], and then it’s silent on the weekends and silent in the evening. So, we’re pretty happy with how this this turned out, even if it wasn’t the original plan.

What is the time frame now for the partial conversion?

We went firm pretty early on this deal. We closed March 19th, but we were firm about three months before that. So, once we went firm, removed our conditions, we decided: We’re moving forward with this transaction. Let’s start getting our development permit for converting the bottom half of the building to residential.

So, we actually received our development permit before we closed the transaction, with the permission of the seller and the city, working together. Depending on how long the city takes [to approve a building permit], we’re hoping to be doing some work in the space in terms of demolition by mid- to-end of June. Then following that, it’s about a 12-month buildout. So, we’re looking at, hopefully, moving residents into the building, being completed, in summer 2025.

Could you explain the conversion plan?

It’s a 20-storey tower, actually, the top floor being a mechanical and storage penthouse. Floors one and two will remain the way they are. There’s Bianco and Lui-Chi’s [restaurants] on the main floor, and Cory [Wosnack, managing director of Avison Young’s Edmonton operation] is going to be leasing one of the other spaces on the main floor, hopefully, to a service or food and beverage-type use that will add some additional activity to that very happening lobby on the main floor.

Second floor has a couple of smaller tenants. They will stay there and that’ll remain, generally, an office use as well. Our third floor is where the amenity floor will go in. We’re pretty excited about putting a really state-of-the-art amenity floor in there with all the bells and whistles and and some really fun stuff like a sports simulator and a tenant lounge with a test kitchen and TVs and all that kind of stuff. We’ll also have some outdoor seating area on that third floor and a couple of there as well that will look on to Rice Howard Way.

They’ll lead into our fitness centre, which has a yoga room. We also have some meeting rooms and little business breakout rooms for people that want to have meetings. Maybe they don’t have them up in the office or maybe it’s for the residents that are working from home and they need to have a a meeting somewhere other than a coffee shop. They can have a quiet room there to to have meetings. So, we’re pretty excited about that floor. We think it’s going to be a really big draw and a really big attraction to the building.

Then floors four to 10 are the ones that are being converted to apartment units, a combination of one- and two-bedroom units and 91 units altogether.

Is it possible for you to divulge the purchase price?

The purchase price that we’re sharing is the package price for the three buildings. For the Phipps-McKinnon, Sherlock Holmes and the Sorrentino’s building, that’s $11.25 million.

What is the cost of the Phipps-McKinnon conversion?

Our budget number right now is about $22 million. … Primarily, that budget is for the conversion to residential. For the amenity floor on three and then residential on four to 10.

And that $22-million figure does not include the purchase price, correct?

Yeah, that’s correct. That’s in addition to the purchase price.

Do you see yourself doing other partial conversions?

Yeah, certainly, if the opportunity were to arise. This was just, for us, one of the most perfect buildings for something like this. A lot of [office] buildings don’t don’t fit the bill. Floor plates are too large or there’s other considerations in terms of how much deferred maintenance there is, how much change there is in mechanical systems and all those kind of things there are going to be. But if another opportunity came along that was similar to this one, we would definitely consider it.

We really believe in the concept. And, being raised in Edmonton myself, I really believe in that revitalization of our own downtown and bringing residents and people, boots on the ground, back into downtown after COVID. So we believe in the theory behind it as well as the practical use of having people living in downtown.

(Editor’s Note: This interview has been edited for brevity and clarity.)