A downtown Toronto office building sold to a private buyer will not be redeveloped for different purposes, says the JLL broker who represented the seller in the transaction.

The asset at 77 Peter Street is bucking an emerging trend whereby investors are looking at buying older, smaller office properties and repositioning them for other uses.

“If anything, there could be a rooftop addition, something of that sort,” said Jackson Safrata. “But I do not see this being converted to another use. This will be a high-performing, income-producing asset for the long term.”

JLL announced the sale of the building for $12.5 million in August. Safrata described the buyer as a high-net-worth individual and successful business owner. The property had been owned by the seller’s family for generations.

Although the brick-and-beam building is several decades old, it is of triple-A quality and represents a “plug-and-play” opportunity for tenants, said Safrata. The property is 76% leased to AppLovin, a Palo Alto, Calif.-based technology with operations in Canada.

According to Safrata, the sale highlights the growth of private-capital investor interest in the Toronto office sector which, like other Canadian office markets, has been hit hard by the effects of the COVID-19 pandemic, high interest rates and the hybrid-work movement, among other factors.

“It’s been a tough market to dispose of office assets, and we were able to find a solution for the seller,” said Safrata. “I think, really, at the end of the day, there’s a few things that went into it, like the quality of the tenant that’s in place and the quality of the asset as well, and the location. Those three things are all triple-A.

“So, we were able to find a buyer in a market where it’s challenging to sell and it’s challenging to find office buyers. But I think, for the right asset, which this is one of them, there are groups out there looking to acquire.”

Institutional investors have largely kept their capital on the sidelines in downtown Toronto. While large, class A properties are not actively trading in Canada’s largest office sector, prospective buyers have displayed an appetite for smaller, income-producing assets priced under $30 million, according to Safrata.

“There’s more interest in assets that are well-located, that, maybe, are on larger parcels of land that could be redeveloped in the future, or are buildings that could be repositioned,” he said. “Obviously, that’s a trend: Potentially repositioning to some form of residential use [or] self-storage [or] life sciences.

“And, I think investors are becoming more creative to find attractive acquisition opportunities or contrarian investment opportunities where, maybe, the herd is not focused.”

But properties like 77 Peter are not widely available in downtown Toronto, said Safrata.

The seller was already a JLL client, with the real estate firm having provided leasing services. JLL worked with the seller on the sale project for two years.

“It was a big deal to get done,” said Safrata. The market responded by showing considerable interest in understanding the deal’s metrics, he added.

“It spurred a lot of discussions with other private investors that are looking to buy similar types of assets,” he said. “So, we’re hopeful that’ll lead to more deals in the near future.”