Cross Border Acquisition of Essential Asset in Core Industrial Park

745 Southgate Drive, Guelph is an essential Food Grade manufacturing building in Guelph’s main Industrial Park with immediate access to Highways 6 and 401. Its immediate neighbors include Sleman’s Brewery, Denso Manufacturing, Hammond Power and Tim’s Hortons main Distribution facility.

3NP along with its American partner fulfilled the requirements in a CANAM portfolio sale/leaseback.

3NP’s custom solution resulted in an above current market cap rate and long-term lease paired with long term mortgage financing.

The Challenge

For a successful transaction 3NP needed to work with each of its stakeholders unique demands, the 3NP investor groups return expectations, the future tenants long term requirements and its American partners “sign and close” style transaction. All of which presented the following challenge:

• Underwriting, including appraisal and obtaining debt financing commitment, without a signed Agreement to Lease or Purchase and Sale
• Managing foreign currency exposure throughout the negotiations til closing
• Negotiating “Canadian Purchase and Sale and Lease Agreements” in a timely and fluid fashion without contradicting the American master lease
• Conducting and completing the whole process virtually due to COVID 19 constraints

Actions Taken

Step 1: Mobilize Canadian Team including; Appraisal, Bank debt providers, consultants – building, environmental, planning/zoning and legal team for acquisition and leasing.

Step 2: Establish process upfront with USA partner with clear communication protocols and milestones.

Step 3: Without a signed APS or Lease until the day of closing, utilize the full leverage of 3NP strong standing banking relationships.

Step 4: Contract appropriate terms and hedges to manage exposure to fluctuations in debt interest rate and USD/CAD exchange rates.

Step 5: Commit to USA parameters resulting in an improved cap rate and rental for Canadian property.

Results

Created attractive returns model for Investors.

Tenant-Operator secured the location with an initial term of 20 years, including annual increases of %2 in years 1-10, and %1.5 in years 11-20. While assuming responsibility for all cap-ex relating to the building.

Placed a first mortgage on the property with a 10-year fixed rate term.

Supported American client to ensure effective close.