The Bow, so named for the Bow River that runs through Calgary, is slated to be the new headquarters of EnCana Corp., a natural gas producer that is also involved in the extraction of oil from Canada's huge tar sands reserves and is one of Canada's largest publicly held companies. The Bell project would be phase three of a complex that already includes nearly 775,000 square feet of office space leased to units of Bell Canada.

The 58-story Bow will be the largest single-tenant office complex in Western Canada and will become upon completion the premier trophy property in H&R REIT's 41-million-square-foot portfolio, H&R execs said in announcing the project in 2007. The quoted rate at the time of the deal—which is a 25-year triple-net lease—wasapproximately $36.37 per square foot with annual rental increases of 1.5%.

H&R expects to incur approximately $390 million of the $1.1 billion in construction costs for the Bow and Bell projects during the next 12 months. Tom Hofstedterpresident and CEO of the Toronto-based REIT, stated in its recent earnings report that, "At present there are no financing arrangements in place on any of the REIT's development projects, and the current difficult economic conditions have impacted H&R's financing strategy."

Among the financing options that H&R is considering is using its cash and unused operating line of credit as of Sept. 30, which totals approximately $232 million. Another option is to place permanent financing on or selling the third phase of Bell, and yet another is selling an interest in the Bow. Selling or refinancing other assets is also an option for raising the funds.

Despite the tough financing environment, Hofstedter said that H&R is confident of securing construction financing to move the Bow project forward. The company has invested about $350 million in it and believes that the long-term lease with one of Canada's largest companies, along with other attributes of the project, will work in its favor as H&R seeks the funding to complete the development.

Instant Insights /

REIT Weighs Financing Options on $1B in Projects

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