H&R REIT secures new financing for Bow Tower

The construction of the Bow Tower is back on track after the real estate investment trust that owns the development project closed a multi-million dollar financial deal with a group of lenders.

H&R REIT announced that it closed a $425-million, 42-month construction facility with a syndicate of lenders led by RBC Capital Markets and TD Securities and including The Bank of Nova Scotia, Bank of Montreal, Alberta Treasury Branches and Canadian Western Bank.

The company’s president & CEO Tom Hofstedter described the project as the largest and most prominent office tower in Canada west of Toronto.

He added that the strategy is to secure a strategic joint venture partner and to use a portion of the sale proceeds to repay the construction facility.

This would leave the company with excess cash proceeds, as well as an interest in the Bow, which is free and clear of any debt.

The company announced in its third quarter financial statement last November that there were no financing arrangements in place on any of its development projects, due to difficult economic conditions.

In response, it was forced to explore financing alternatives.

The Bow is a 58-story office tower in downtown Calgary, which will have about two million square feet of space and will be located in Calgary’s downtown financial district.

The new skyscraper is expected to reach 32 storeys by the end of this year and its full height of 58 storeys by June 2010.

“We believe that we have now successfully resolved key issues regarding our sources of capital for the project and have secured fixed-cost contracts for all the major construction components,” said Hofstedter.

“We are confident that our expected $900 million equity investment required for this remarkable project will produce stable and growing returns for our unitholders for many years to come,”.

EnCana will be head-leasing the entire office tower and all of the 1,361 underground parking spaces on a triple-net basis for an initial term of 25 years.

H&R REIT projects the net operating income in the first full year of operations to be about $94.3 million, with annual contractual rental escalations.

Construction of the south block of the Bow project, which was to house office, retail and cultural space in about 200,000 square feet, has been deferred due to the recession.

Construction will be stopped at grade.

The south block will eventually become a seven-storey complex on the site of the historic York Hotel.

It is to be built using bricks taken from the demolished hotel.

The Bow complex, located on two blocks of Centre Street and 5th and 6th Avenues S.E., was budgeted to cost about $1.5 billion. The trust had invested about $402 million in the project as of Dec. 31, 2008.

The skyscraper is named after the nearby Bow River.