The Gooderham “Flatiron” building in Toronto on Feb. 1.Christopher Katsarov/The Globe and Mail
Toronto’s historic Flatiron building has been sold for $15.4-million, in the city’s first high-profile office property sale in months.
Lee Chow Group, a small Toronto-based real estate investor, is the new owner of the wedge-shaped building, paying only $200,000 more than the $15.2-million that the previous owner paid for the building in 2011.
The lack of price appreciation is a symptom of the malaise that has hit office markets since employees switched to remote work during the pandemic. Toronto’s office vacancy rate is nearly 20 per cent owing to tenants slashing space and brand new office buildings opening and flooding downtown with more space.
Lee Chow managing partner Jason Chow said his family had been looking for a unique office building to complement the company’s $200-million portfolio of mostly small retail properties. Lee Chow, a combination of Jason’s parents surnames, owns 18 properties in Toronto and seven in Alberta, British Columbia and Prince Edward Island. The holdings include land and some residential properties.
The Flatiron building was privately marketed last summer during a tough period for the real estate market. The Bank of Canada surprised the country with a pair of interest-rate hikes after saying it would take a break from raising borrowing costs. And overall, investors have soured on office buildings. Publicly traded office owners like Dream Office REIT and Allied Properties REIT have lost about 70 per cent of their value since 2019.
But Mr. Chow said his family and company saw an opportunity. “We believe this type of office will always be in demand,” he said. “These types of properties only come around once a generation.”
The red brick property is close to Toronto’s main commuter train and public transportation hub. Although it is close to the financial heart of the city, it is in a part of downtown that is not dominated by glass skyscrapers.
The Flatiron is on a sliver of land with a park and a fountain that is popular with residents and tourists. It has five floors of office space with a Firkin pub in the basement. Also known as the Gooderham Building, it was built in 1892 and was the head office for the Gooderham and Worts distillery until the 1950s.
Mr. Chow said the property is fully leased and he has no plans to replace the Firkin.
The previous owner, Commercial Realty Group, said it spent $3-million to bring the property back to life, including overhauling the heating and cooling system and rebuilding the offices’ interior.
Liam Sauro, a Lee Chow partner who handled the sale negotiations, estimates it will still cost millions more to continue to restore the 130-year-old Flatiron. He said the number one priority is to work on the copper roof and gutters. In addition to managing its properties, Lee Chow also provides commercial loans and makes equity investments in other types of real estate.
“We are hopeful that the office market will return in some fashion and people will enjoy going back to the office,” said Mr. Sauro. “I don’t think anyone can put a timeline on when that will be.”