from the calgary herald
Calgary's Bow project partially deferred
The south block of the Bow skyscraper project, which was to house office, retail and cultural space, has been “deferred” due to the challenging economic times and construction for the time being will be stopped at grade level.
But the main 58-storey tower, which will be the future headquarters for EnCana Corp., continues to be constructed as planned.
In an annual information form filed this week, the owner of the project H&R REIT said: “The REIT and EnCana have agreed to defer the development of the above-grade part of the south block. EnCana has agreed to reimburse the REIT for certain development costs incurred to date in respect to the south block. The REIT is currently bearing the risk for construction overruns and project delays as the REIT does not have a fixed price contract on this project.”
“The REIT is working toward securing construction financing for the Bow . . . The REIT’s ability to obtain financing for its development commitments is a material uncertainty which may cast significant doubt on the ability of the REIT to continue as a going concern.”
The REIT is developing the massive two-million square-foot Bow tower at a budgeted cost of about $1.5 billion.
In a statement released Wednesday afternoon, Larry Froom, the REIT’s CFO, said: “To be clear, the operative word in this statement is ‘defer’. The south block is not being capped or cancelled. H&R is deferring the south block as a result of the current economic climate.”
He said the REIT is “making use of the phasing ability to focus on the north tower construction.”
“Construction continues on the below grade of the south block and has been designed to accommodate the above grade south block development. Later this month, H&R will provide further details on overall developments regarding financing of The Bow,” said Froom, adding that progress on the north tower is on schedule.
Calgary Mayor Dave Bronconnier said the REIT is meeting all of its obligations and commitments to the city regarding the project and its development permit conditions.
“And the commitment to the city was that they would start the south block within one year after occupancy of the north block,” said Bronconnier. “Now, what they had hoped to do a year and half ago when the world was different was effectively . . . (when) were about three-quarters of the way up (with the tower) then start the south block. But because of prices, the economy . . . they’re matching their private agreement that is between H&R REIT and EnCana to match the regulatory obligation which is to start the south block within one year of occupancy of the north block.”
The south block part of the project is for a smaller office tower housing office, retail and arts and cultural space in about 200,000 square feet. It is to be a seven-storey complex to be built where the historic York Hotel formerly existed. The complex is to be built using brick taken from the demolished hotel.
“Their (development permit) obligation within one year is to reconstruct that building on that site and provide a cultural and amenity space within the building,” said Bronconnier.
Alan Boras, spokesperson for EnCana Corp., said the company has reached an agreement with the REIT to essentially phase the south block development.
“They are working toward taking it up to grade and essentially that will be filled with a parking lot up to ground (level),” said Boras. “So they’re going to phase the second part and they’ve done that because of the economic environment.”
He said that as the REIT was working on its financing for the Bow project it approached EnCana and asked the company to consider a deferral of the south block development.
“So really this is just a change in timing. And this at the time was seen as a vital step . . . in keeping the Bow project on track so that it (tower) would be constructed,” said Boras.
He said that despite the deferral the intention is over time to build the south block.
The south block part of the project was for a smaller office tower housing retail and arts and cultural space. It was to be a seven-storey complex to be built where the historic York Hotel formerly existed. The complex was to be built using brick taken from the demolished hotel.
In a research note, Neil Downey, an analyst with RBC Dominion Securities Inc., said the deferral will have the effect of reducing the REIT’s commitments over the next three years.
“Of course, at the margin, it will result in less retail and amenity space for office workers within the immediate vicinity,” he said. “On the other hand (and without being privy to the plans), we believe H&R may be able to rework/modify the south block site to include an attractive urban green space which would be to the benefit of all Calgarians. We expect, but have not confirmed, that this course of action was contemplated and indeed incorporated into the revised development budget which H&R provided in its disclosures related to its 2008 financial results.”
The deferral of the south block part of the project is a minor setback and a reflection of the economy the city is in, said Bruce Graham, president and CEO of Calgary Economic Development.
“Everybody out there is being cautious,” he said. “The markets in real estate as everything else have changed dramatically and I think the intent is still to produce a quality project that includes both a north block and a south block. We just got a small dose of reality with the fact that EnCana and H&R are taking measured steps on this.”
The entire project is located on two blocks along Centre Street and 5th and 6th Avenues S.E.
In its annual information form, the REIT said the north block development and 1,361 parking spaces underneath the north block and south block developments are pre-leased to EnCana for about 25 years.
The REIT said construction of the north block development began in the spring of 2007 and is expected to be completed and delivered in phases with the first phases of the building being completed in the second half of 2011 and the estimated completion date for the entire office space being in 2012.
“In certain circumstances, should the delivery of tranches of space within the project be delayed, the REIT will be liable to the tenant for certain delay costs which may be significant. The steel is erected for the first tier (three floors) excluding the atrium. All three tower cranes are now erected and operational. The main ground floor slab has been poured and has opened to trucks for steel erection and other logistics. Steel fabrication is ongoing in many plants across Canada from Quebec through to British Columbia,” said the REIT.
The REIT is working toward securing construction financing for the Bow. It’s total investment in the Bow as at December 31, 2008 was approximately $402 million.
The REIT expects to spend about $375 million on the project over the next 12 months.
MTONEGUZZI@THEHERALD.CANWEST.COM
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