A lot of thought and arithmetic goes into a decision to develop a piece of land, or redevelop a building. A whole other layer of complexion is then added on top of that if the project involves converting a building for an entirely different use, and yet another layer if it's a heritage building. This is the case with the Petro Fina Building, Peoplefirst Development's latest office conversion project.
Owned by Calgary-based Astra Group Corp, Peoplefirst Developments acquired the Petro Fina Building on 736 8 Avenue SW just a few months ago, in February, Maxim Olshevsky, CEO of Astra Group and Managing Director of Peoplefirst, tells STOREYS, and they acquired it with conversion in mind.
The building was originally built in 1959 and was foreclosed on after the previous owner defaulted on its mortgage, Olshevsky says -- another example of office landlords and office REITs in Calgary experiencing financial hardships, something that became relatively commonplace even before the COVID-19 pandemic, after the troubles of Calgary's oil and gas industry.
Because of those circumstances, Astra Group was able to acquire the Petro Fina Building for "a very appealing price," Olshevsky says, but that wasn't the only appealing factor.
"For us, what made a lot of sense was the corner location," Olshevsky says. (Another office conversion of theirs, called The Cornerstone, is also located at a corner.) "8th Avenue is scheduled to get a facelift, and the size really helped, as it was just big enough to make economic sense to convert."
The Cornerstone, on 909 5 Avenue SW, before it was converted (left) and a rendering of it after (right). (Peoplefirst Developments)
Last month, the City of Calgary announced five new office buildings, including the Petro Fina Building, that are set to be converted under the latest round of the City's Downtown Calgary Development Incentive Program. Upon inspection of the full list of projects, one commonality sticks out: most of the buildings are not skyscrapers and are fairly square -- about as tall as they are wide.
This isn't necessarily by choice, however.
Olshevsky points out that the bigger an office building is, the more likely it is that it's a newer asset, or a higher class designation. He says that converting those bigger buildings would likely bring a better economic return, but they are also less likely to be vacant, which means more tenants would have to be relocated. Class B and C buildings are often what's vacant, and are typically around 10 storeys, so it's more that this is just what's available to work with.
The decision to convert the Petro Fina Building was not a no-brainer, though. Olshevsky says that they began analyzing the building's potential leading up to the acquisition, but that it took about a month after taking possession of it to confirm -- a process that included analyzing the building from head to toe, looking at various factors such as its structure, bones, and envelope.
"The floorplate sizes were a problem," he says. "The building is essentially three different-sized floorplates stacked on top of one another." He also says that the building allows for very low amounts of parking, and that very little of the building's mechanical components, besides the elevators, can be salvaged, which means they'll all need to be replaced.
On the other hand, Olshevsky says, the building's structure allows for more windows (but no balconies), and there was no asbestos in places where they were expecting there to be.
The building envelope -- the jacket-like layer around a building that shields the interior from the exterior -- is always a key component of any building, but converting an existing building adds another layer to the considerations.
"They're always challenging," Olshevsky says, "especially for old buildings, because they were built differently back then. The current model is a perfect seal, so with conversions you have to decide what to do, and it often becomes a hybrid between new and old."
In other cases of new versus old, the considerations are much simpler, such as with HVAC equipment, Olshevsky says, which is now often half the size of HVAC equipment from back in the day and provides more flexibility in terms of placement.
Regarding the heritage component, he and his team found the original architectural drawings for the building, and have plans to restore some parts of the interior that have been changed since the building was first constructed.
"Everything comes down to costs," Olshevsky says, "but the appealing purchase price makes it more likely that the project can absorb the hard costs." Different suite mixes and potential rents are also often considered, and the Petro Fina Building will see approximately 130,000 sq. ft of office space converted into 105 two-bedroom and three-bedroom homes, about half of which will be offered at below-market rental rates, along with some retail space on the second floor.
How big of a factor are the City of Calgary's incentives -- $75 per sq. ft of existing office space to be converted -- when it comes to the financials of the project?
"The grants are what makes it work," Olshevsky says. "A little bit of risk tolerance is always involved, a little bit of an unknown. Having grants is what makes the project feasible."
It helps, he adds, that there is a "direct line of communication" with the Downtown Strategy Team. "It becomes more a partnership and not just a blackhole that you submit [an application] into.
Going forward, Olshevsky says his intention is for Peoplefirst Developments to continue focusing on office conversions in Calgary and will be looking at buying more buildings so they have a steady amount of projects in their development pipeline.
Their other conversion project, The Cornerstone on 909 5th Avenue SW, is expected to complete construction later this year, and conversion of the Petro Fina Building is currently scheduled to be completed in 2024.