POLITICS

Scotiabank looks to sell its skyscraper headquarters in Toronto; might get $1B

01/19/2012 01:36 EST | Updated 03/20/2012 05:12 EDT
Scotiabank is in the early stages of hunting for buyers interested in Scotia Plaza, its skyscraper headquarters in downtown Toronto that could be worth as much as $1 billion.

The bank said Thursday that a sale of the second-tallest office tower in the country is being explored as part of Scotiabank's regular review of its operations.

"In the current low-interest rate environment, it's potentially a good time to sell and we have chosen to explore the sale of Scotia Plaza," bank spokeswoman Ann DeRabbie said in an email.

"We are at a very early stage in this process."

The move comes as Scotiabank looks to capitalize on a thriving market for commercial properties.

"We are the only large bank that currently owns our head office in downtown Toronto and, given market conditions, this could be an opportune time to maximize the value from our holdings," DeRabbie said.

Barclays Capital analyst John Aiken suggested the sale of the building could help boost Scotiabank's financial position ahead of new capital requirements.

"We view the sale of Scotia Plaza as a creative and brilliant move to help boost Scotia's capital ratios without having to alter its core strategic assets or issuing common equity," Aiken wrote in a note to clients.

"Consummating the sale could go a long way in putting this issue behind it."

Under the incoming Basel III rules, a bank's required Tier 1 capital ratio must be at least seven per cent. The ratio of how much of the bank's assets include shareholder equity and other core capital, is a key a measure of a bank's health and ability to endure downturns.

Canada's banks, which had relatively high levels of Tier 1 capital going into the 2008-2009 financial crisis, were widely regarded as among the world's most solidly financed during the global recession that was sparked by the U.S. banking scare.

Some also moved to further increase their Tier 1 capital, but on occasion with types of security that won't be allowed under the new rules.

According to real estate firm Avison Young, the office vacancy rate in Toronto fell 70 basis points to 7.9 per cent in 2011 and was expected to decline further this year.

The result compared with a national average of 7.6 per cent in 2011, down from 8.3 per cent in 2010.

In its outlook for 2012, the firm noted that 2010 saw a number of big real estate deals helped by historically low interest rates and lenders more willing to give loans.

Avison Young said the trends was expected to continue, "tempered only by a scarcity of high-quality assets and the spectre of international economic difficulties."

According to a report in the Globe and Mail citing real estate sources, Scotia Plaza could fetch up to $1 billion, which would make it the biggest commercial real estate deal in Canadian history.

The 68-storey, red granite tower near the corner of King and Bay streets has been the home of Scotiabank's Canadian operations since it opened in 1988.

The building, at 275 metres, is currently second only in height to First Canadian Place, also in downtown Toronto, which has 72 stories and stands 298 metres tall. However, plans call for the Trump International Hotel and Tower currently under construction in Toronto to take over second place at almost 277 metres.

All three are considerably shorter than the CN Tower, which soars 553 metres.

Scotiabank shares were up $1.25 at $53.81 on the Toronto Stock Exchange on Thursday.