* To pay C$31 million for Lougheed heritage building
* First step into city part of national expansion plan
* Sees potential 1-2 mln sq ft of space acquisitions
By Ka Yan Ng
TORONTO, Aug 5 Allied Properties REIT (AP_u.TO) said on Thursday it has stepped into the Calgary office market with an agreement to buy a distressed heritage property to position itself to become more of a national player.
The capital of Alberta's oil patch was formerly a market the trust had no desire to be a part of, but the change of heart was more aligned to a view that property in the western Canadian city had sufficiently corrected from when it was "extraordinarily hot" in oil boom times between 2005-08.
"I have no idea whether it has hit bottom, but it is closer to the bottom certainly than it was when we were not particularly interested in investing in the market," Michael Emory, Allied's president and chief executive, said on a conference call with analysts the day after the trust released second-quarter results.
Emory added that there is probably between 1 and 2 million square feet that could, given time, fit into Allied's specialty of urban office spaces.
Late on Wednesday, Allied said it will buy the Lougheed Building in downtown Calgary for C$31 million ($30.4 million), a heritage property with 86,478 square feet of gross leasable area.
The building, which has been extensively renovated and retrofitted, was placed into receivership shortly after its first mortgage expired without being repaid or refinanced, Emory said. It was the first distressed property Allied had come across in a long time, he added.
In conjunction with the Calgary announcement, Allied also said it has agreed to buy two buildings in Toronto's downtown for C$19 million, further bolstering one of its core markets, which also include Montreal.
It is the latest REIT to recently announce inroads into new markets. Earlier this week, Artis Real Estate Investment Trust (AX_u.TO) announced it is moving east, buying C$116.5 million worth of Toronto real estate after years of focusing nearly exclusively on Western Canada.
Winnipeg, Manitoba-based Artis is part of a wave of Canadian REITs eyeing acquisitions this year, betting on the country's economic recovery and renewed demand for office space.
An Avison Young mid-year report on Canadian office markets on Thursday said property fundamentals may be turning more positive for some regions, but are not yet back to pre-recession form.
The report said the national office vacancy rate finished the first half of 2010 at 9.9 percent, up from 8.4 percent a year ago. Of the 12 markets surveyed, eight continue to display market-wide vacancy rates below 10 percent, the report said.
($1=$1.02 Canadian) (Reporting by Ka Yan Ng; )