Allied Properties REIT touts itself as the leading owner andmanger of class 1 office properties in Canada. A market source inToronto tells GlobeSt.com that the REIT specializes in off-marketdeals for high-quality, vintage brick-and-beam buildings that canbe converted into loft-style offices or their sites scraped andrebuilt. He says the just-bought properties were all off-marketpickups, predominately from families that had passed down the realestate for generations. He says the REIT has been averaging 6.5%cap rates on its recent deals.

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Allied Properties Monday reported the fund-raising drive anddisclosed deals totaling $72 million for a 130,532-sf building at204-214 King St. West and 34,414-sf structure at 70 Richmond St.East, both in Toronto's Downtown core, and a 251,345-sf, fullyleased asset at 5505 Saint-Laurent Blvd. in Montreal. The deal, setto close in August, bears a cap rate of slightly more than 8%.

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In a press release distributed yesterday in the US, the REITreported closing a $30.75-million deal for more in-town properties:32,559 sf at 183 Bathurst St., 26,271 sf at 489 King St. West,11,183 at 495 King St. West and 8,400 sf at 499 King St. West. A255,671-sf building at 860 Richmond St. East is included in theprice, but it will close after "a minor title issue" is resolved,according to the REIT's press release.

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The King Street West properties are "located right in the midstof our King and Spadina portfolio, making this a very strategicacquisition for us," REIT president and CEO Michael Emory says inthe press release. The 495 and 499 King St. West propertiesrepresent "significant redevelopment potential," he says. "Becauseof existing lease commitment, well operate them as rentalproperties until about 2012 when we expect to put them intofull-scale redevelopment, market conditions permitting."

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The market source says the REIT last month bought a 67,393-sfbuilding at 179 John St. and 91,215-sf building at 96 Spadina Ave.,both in Toronto. The REIT's purchase agreement, reported inmid-February, says the two assets were under contract for $28million.

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The REIT develops class 1 office space through adaptive re-useof light-industrial structures in urban infill areas. The spacetypically attracts architects, media and advertising firms astenants. According to a management presentation, the REIT is buyingproperties with "considerably less GLA than is permissible underthe current zoning."

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In his March report, Emory says the Toronto portfolio, then 48properties, spanned 19.3 acres with about 2.6 million sf of grossleaseable area or slightly more than three times the land'scoverage. Based on current zoning, Emory estimates 2.6 million sfof additional GLA could be built. "Because of structurallimitations and existing lease commitments, the amount ofadditional GLA that we could, in practice, create in the near termis considerably less," he says in the report. Aproperty-by-property analysis shows "it is practically possible tocreate between 500,000 and 750,000 sf of additional GLA in the nearterm, market conditions permitting," says Emory, who was unable tocomment about the Allied Properties' deals due to the quietperiod.

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Come August, the six-year-old REIT's portfolio will total 5.6million sf, of which 52% in 55 buildings are in Toronto. Montrealwill account for 36% of the real estate; Winnipeg, 7%; Quebec City,3%; and Waterloo, 2%. At the Q1 close, the REIT's portfolio was97.6% leased, excluding a long list of properties underdevelopment.

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The REIT admits it has lease roll-over risk: 12.8% of theportfolio coming due this year; 11.4% in 2009; 22.5% in 2010; 15.7%in 2011; and 13.2% in 2012. The weighted average lease term is fouryears.

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In addition to its acquisition pipeline, the REIT has severalredevelopment plans in the works, with a heavy concentration inDowntown West and King West submarkets, which have totalinventories of 9.2 million sf and 1.9 million sf, respectively, ofoffice space and vacancy rates of 3.4% and 8.5%, respectively. Thethird submarket, Downtown East, contains 2.1 million sf and a 7.5%vacancy, according to market reports.

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At 544 King St. West, the REIT is planning to break ground inspring 2009 on a 150,000 sf of GLA in a LEED-certified design. The19,400-sf tract will include 66 parking spaces. Preleasing willbegin in September, according to the REIT's report.

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At 96 Spadina Ave., the REIT has a partially renovated buildingwith 91,000 sf of GLA. The plan is to finish the renovation on the60%-leased asset before 2008 ends. Also in Toronto, the REIT isplanning a 150,000-sf, LEED-certified building at 230 Richmond St.East and another large-scale office project at 134 Peter St.

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The Montreal development docket includes a 22,000-sf officebuilding, which is being preleased, for 4450 Saint Laurent Blvd.which abuts an 82,688-sf building at 4446 Saint Laurent Blvd. thatwas bought in 2006.

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