MaRS nets $290 million West Tower financing to repay government loans

MaRS

MaRS announced today that it has completed private financing of $290 million from several Canadian insurance companies, which it will use to repay most of the Ontario government’s interest-bearing loans.

Manulife, Sun Life Financial, and iA Financial Group led the financing, investing in 19-year bonds issued by Phase II Investment Trust. Sun Life Financial and Manulife both occupy spaces within MaRS.

MaRS indicated that with the private financing, 75 percent of its government loan has now been refinanced.

“The West Tower is fully leased, and will soon generate the annualized net operating income required to be entirely self-sustaining.”

“MaRS has established itself as a centre for innovation and entrepreneurship, and we are pleased to support the continued growth of this market in Canada,” said Candace Shaw, head of private fixed income at Sun Life Investment Management. “The West Tower is an impressive state-of-the-art innovation complex with an exceptional roster of tenants, in one of the most desirable locations in Toronto. This transaction is an ideal fit to Sun Life’s long-term investment objectives.”

MaRS has been surrounded by controversy since 2011 after receiving a series of loans from the provincial government to build its West Tower. Between 2011 to 2014, the hub received $309 million from the government: a $224 million loan, $65 million to buy out the facility’s US developer, $4 million in debt-service payments, and $16 million for the land.

By the end of 2014, MaRS was only 31 percent occupied, while the provincial government faced criticism for a lack of transparency surrounding the $224 million loan, including accusations that it was a bailout. For its part, the government said at the time that it was investing in innovation, and encouraging research and commercialization.

In 2015, MaRS received an additional $86 million line of credit, bringing the total government investment in the space to $395 million.

However, things have been looking up for MaRS over the past year, as the West Tower is now fully leased. In November 2016, MaRS announced that a substantial portion of its loans would be repaid within five years, and the balance in 20 years. Now, the innovation hub claims its newest investment puts it almost three years ahead of schedule.

“The West Tower is fully leased, and will soon generate the annualized net operating income required to be entirely self-sustaining, putting MaRS on stable footing for decades to come. Canada now has an urban innovation hub at a scale that is fully competitive with any global counterparts,” said Ilse Treurnicht, CEO of MaRS. Treurnicht will be stepping down from her position in June of this year.

In its 1.5 million total square feet of space, MaRS houses 140 research labs, 200 companies, and claims those ventures have raised $2.6 billion in capital and generated $1.3 billion in revenue between 2008 and 2015, employing more than 5,200 people. Notable tenants include Autodesk, JLabs, LEAGUE, and firms like BDC and Real Ventures. MaRS says it now generates “millions” in operating income to service its loan payments, and credits high profile tenants like Facebook for making its payments ahead of schedule.

“The financing of MaRS’ West Tower is a sound investment opportunity for Manulife. We are pleased to have been involved and to have co-led the effort,” said Greg Wood, VP and senior managing director in Canadian real estate finance at Manulife.