Q: Groupe MACH’s (the company) success was built on repositioning assets to achieve maximum efficiency and then renting these units to high-quality tenants.
Published: November 06, 2023
Updated: February 16, 2024
In the ever-evolving landscape of Canada's real estate industry, the strategic competency of Groupe MACH—one of Canada’s leading private real estate owners and developers—has consistently stood as a testament to innovation and resilience.
In this exclusive Q&A session, Shilpa Mishra, BDO Canada’s Partner and Capital Advisory Leader, delves into the insights and vision of Groupe MACH with Amine Sadki, Director of Investments and Loans. The conversation uncovers their multifaceted approach to success, from repositioning assets and embracing sustainability to tackling the pressing need for residential housing.
A: Converting properties is certainly one of the strategies we deploy but it doesn’t fully encapsulate our journey.
I would say that Groupe MACH's success has been established upon a profound comprehension of our market and cultivating robust relationships within the real estate ecosystem. Our achievements are attributed to a combination of factors, including our deep understanding of market trends and proactive engagement with tenants, brokers, vendors, and other key stakeholders.
People who interact with us in the market genuinely feel that we care about the relationship. When we acquire a new building, our tenants feel that the new landlord is there for them, listening to their needs, picking up the phone, and showing that we are supporting them in their activities, and I think this makes a big difference.
The full integration of various departments within Groupe MACH, including the operations team, leasing team, development team, construction company, and legal department, undoubtedly enhances the company's agility and overall effectiveness. This integration facilitates seamless communication, streamlined processes, and collaborative decision-making, ultimately leading to an efficient decision-making process, great coordination, innovation, and enhanced customer experience.
By fostering enduring partnerships and staying attuned to market dynamics, we've been able to identify opportunities and leverage them effectively. This forward-thinking approach, spearheaded by Vincent Chiara and ingrained in the company's culture, has been pivotal in maintaining a competitive edge in our investments. This vision has empowered Groupe MACH to consistently anticipate and adapt to emerging trends in the real estate landscape. Additionally, by staying ahead of these trends, Groupe MACH remains agile and well-positioned to seize opportunities and drive continued success in the market. This dynamic approach underpins the company's ability to deliver value while maintaining its commitment to innovation and market leadership.
Q: How does a builder successfully convert/upgrade properties today given ESG requirements?
A: First, I would like to convey the role of ESG in MACH’s vision. We are deeply committed to ESG principles and are actively pursuing a B-Corp Certification as a testament to our dedication. We have integrated ESG considerations into our practices for years, far ahead of them becoming industry standards. Our pioneering spirit is evident through our achievements. Notably, as of now, almost 40% of our buildings have a LEED or Boma Best Certification. We were the first to develop the first LEED certified Office building in Montreal Le Phoenix, underscoring our commitment to sustainable architecture.
Moreover, our Quartier des Lumière project sets a precedent by being the first in Canada to achieve a Fitwell Development Certification, showcasing our dedication to promoting health and well-being through urban design. These accomplishments reflect our proactive approach to sustainability, innovation, and our ongoing mission to create a positive impact on both the built environment and the communities we serve.
As for the ESG requirements in our construction projects, I would say that building properties successfully while adhering to ESG requirements requires a comprehensive approach that integrates sustainability, community engagement, and responsible governance.
This is deployed through a careful site selection, a design that considers material selection, green spaces integration, and social equity while also having an acute understanding of technologies that help attain higher energy efficiency, water management, and waste reduction.
Q: Groupe MACH is currently working through a billion-dollar real estate megaproject to build out Radio-Canada’s head office. They are also building condos, apartments, and social housing on Quartier des Lumière. This is the type of incredible and outstanding work underway. However, the key need in the Canadian market is residential housing.
What is the ability of Groupe MACH to make an impact on the residential market given the need for this type of real estate?
A: Groupe MACH is well-positioned to make a significant impact on the residential market, particularly in addressing the pressing need for housing in Canada. The heart of our impact lies in our proactive approach and extensive expertise. We leverage our understanding of market dynamics, established relationships, and forward-thinking strategies to tackle housing challenges head-on. Our ability to identify opportunities, coupled with a track record of successfully delivering high-quality residential properties positions us to not only address the Canadian residential market's needs but also set new standards for innovation and sustainability within the industry.
Our involvement in projects like Quartier des Lumières, encompassing condos, apartments, and social housing, demonstrates our commitment to providing diverse housing options to meet varying community needs. By strategically integrating social housing within mixed-use developments, we contribute to both urban revitalization and social inclusivity.
We are also working on a fully ecologically sustainable mega-project "Leonard" in Lachine, signifying our ongoing dedication to pioneering sustainability and embracing the latest innovations in ESG. Through collaboration with a Swedish firm and a Montreal-based architect, we want to produce a project that should be at the forefront of integrating cutting-edge ESG advancements.
As we move forward, Groupe MACH remains dedicated to crafting residences that elevate living experiences, promote community well-being, and contribute to the overall development of vibrant neighborhoods.
Q: Are you leveraging private lenders?
A: No.
Q: How are you managing in a rising rate environment?
A: We utilize a full range of financing manoeuvers and instruments to hedge our risk, be it interest rate swaps to futures, but also work closely with our financing partners and their trading desks to craft financing strategies that work for both our needs and our objectives.
We typically don’t play the “timing the curve” game, and we are very aware that our main objective is to create value based on our real estate decisions and not market events. A very limited and controlled portion of our debt portfolio is floating, and it is being very closely monitored.
Q: Groupe MACH is a family-owned business. It has been very successful over the past 22 years given its focus on successful transactions.
Looking forward, what do you think will keep the company in a leading position?
A:
I would say our future success will be mainly driven by our relationships and our vision. We have a very intricate investing strategy that might be a bit different.
Firstly, I would like to highlight our current holdings and the impressive pipeline of residential development projects. The multi-family division alone currently accounts for a substantial portion of our portfolio, with a valuation of over $1.2B. This demonstrates our commitment to meeting the increasing demand for residential properties and positions us favorably within the flourishing housing market.
Moreover, our portfolio includes substantial land holdings valued at $587,500,000. These lands present lucrative possibilities for future development, allowing us to strategically enhance our portfolio’s long-term growth potential. We currently have 15 million square feet of residential development in the pipeline.
Additionally, our retail segment holds a healthy value of $1.6B. This sector not only provides a solid foundation for revenue generation but also taps into the ever-evolving consumer market. With a diverse range of retail assets under our control, we possess the ability to adapt to changing trends and capitalize on emerging opportunities.
It is also worth noting that our investments in the industrial sector have yielded exceptional results, totaling a significant value of $1.4B. This thriving division aligns with the growing demand for logistics, manufacturing, and warehousing spaces, indicating our ability to capture value across multiple sectors. We developed a little over 1.5 million square feet of industrial over the past two years and are expanding our footprint in this sector as we are looking into a few industrial developments for a potential start in the next few quarters.
While our office assets currently make up a significant portion of our holdings, valued at $5.1B, it is important to recognize that this sector has traditionally been a stable source of income, especially when we leverage our network of strong tenants. Our plan A is that we firmly believe in this segment, and we believe that the current trend has an expiry date. But we also recognize the risk associated with plan A. We acknowledge the need to adapt and evolve as market dynamics change and the risk associated with plan A.
Q: Why does Groupe MACH continue to believe in the office space, i.e., does Groupe MACH think the office will come back? And does Groupe MACH believe in the strategy to reposition the office into a residential?
A: Before we dive into MACH’s vision, mentioned as plan A earlier, I would like to highlight that it is true that the office currently is seen as the black sheep of real estate. Many players out there believe that the asset class is dead or on the verge of dying. Understandably, the news coverage and the pandemic left a lot of bad sentiment and brought forward a new era of working from home. However, the market has lived through those shifts in the past. Note the retail crisis when e-commerce was seen as the end of malls and retail centers, only for them to come back to the forefront when we realized that shopping from home is complementary to brick-and-mortar presence. The experience factor of shopping cannot be mimicked in a website. I personally believe the same goes for office work.
A lot of companies and CEOs are more and more vocal about the necessity to have their employees back to the office after realizing that working from home may hurt productivity, creativity, the ability to create and maintain a company’s culture, and furthermore employee retention. Zoom calls are good but will never replace a face-to-face meeting due to the social nature of humans. Working from home can be practical but is it a long-term option? Not really.
Ironically, one of the latest companies to join Amazon, Facebook (Meta), Morgan Stanley, RBC, and BNC is none other than Zoom itself as the CEO just requested that Zoom employees be back in the office, which for me says a lot.
It is important to recognize that this sector has traditionally been a stable source of income especially when, as it is the case of MACH, we leverage a strong network of trusted tenants that we supported for years throughout their expansion and that believe in our ability to provide the best possible work environment for their staff.
Now, we might be wrong about our plan A or the speed at which the office market recovers, and we are completely aware of that. Therefore, throughout the current cycle that showed threats to the office sector, we noticed that prices have plunged enough that in many cases they are actually below the value of the land itself. In addition to that, the gap between the price tag and the value of land helps cover the cost of demolition and paves the way for the construction of residential projects that are in hot demand, and that would be our plan B.
Throughout the current cycle that showed threats to the office sector, we religiously followed a strategy in every office investment we did over the past three years. Each one of our investments goes through an analysis of:
- Is the replacement cost higher than the purchase price?
- Is the density value higher than the purchase price?
- Is there a multi-use zoning in place? Or is the city showing a strong desire to rezone and permit residential use?
We firmly believe that this strategy shields our office investment from any macro-crisis and gives us room to manoeuvre as this is not solely an office play, but it is, in fact, a land banking play with no carrying costs.
An example would be one of our latest acquisitions, the 160 Elgin Street in Ottawa which we bought for $277 million. 160 Elgin is a beautiful high-end 1 million square foot class A fully leased office asset with a WALT of 8+. The replacement cost of this type of asset now is north of $400 per square foot. It also happens to be standing on land which has permitted 2.2 to 2.7 million square foot density at a current land value trading between $110 to $130 per square foot in downtown Ottawa.