Varcoe: Starting over is hard to do: Developers ponder knocking down old office buildings in downtown's west end

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Calgary will soon see several smaller derelict buildings knocked down in the downtown’s west end, with nearly $180,000 in taxpayer money coming from the city to help make it happen.

The prize, however, is much larger: a new $155-million, 33-storey tower featuring hundreds of housing units and retail space for an area that needs to be revitalized.

The grant money will come from the city’s Downtown Calgary Demolition Incentive Program.

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It’s the first time the $3-million initiative has been tapped since it was established last year, as some property owners seem reluctant to tear down older buildings — even those that are sitting empty and have little chance of being revived.

“I am surprised,” said Natalie Marchut, manager of development and strategy for the city’s downtown strategy group.

“With the amount of vacant office space that we still see in the downtown, many buildings of which are 100 per cent vacant and have been for years . . . we did think we would see more applications come in,” she added.

“There’s still that reticence in the market, to maybe let go of what is seen as an asset and start over.”

Starting over.

It’s a good way to look at this moment in time for the west end of downtown, which has been ground zero for the vacancy woes in the city’s office towers.

After the collapse of oil prices last decade, the vacancy rate in downtown office buildings soared above the one-third mark. While the situation has improved recently, the rate still sat at 30.3 per cent at the end of June, according to a report by CBRE.

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And the vacancy level in the downtown’s west end, where many Class B and C office buildings were constructed in the 1960s and ‘70s, is much higher. CBRE said the area between 5th and 8th Streets S.W. had a vacancy rate of nearly 50 per cent.

Some experts have maintained the city isn’t overbuilt but under-demolished, with too many aging office buildings that have no future and can’t be turned into residential units.

The city’s demolition program aims to remove about 200,000 square feet of office space from the mix, offering incentives for property owners looking to build something new.

In the first approved project — by Edmonton-based Cantiro Group — three older buildings on the south side of 4th Avenue S.W. are eligible for the grant.

The buildings, constructed between 1905 and 1958, were home to a law firm, print shop office and engineering consultant in the past, but sat empty for years. A fourth structure on the block will also be removed, but is not part of the grant program.

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Total cost of the demolition for the project is pegged at $550,000, according to Cantiro.

The city’s grant program offers $15 per square foot to approved projects, plus an additional $5 per square foot for special abatement requirements, such as sites that need asbestos removed.

Jodie Wacko, chief operating officer of Cantiro Group, said the incentive wasn’t a “make or break” for the project proceeding, but showed the city wanted to work with the company.

“When we first started looking at the site, we did tour the buildings . . . they’re in horrible shape,” he said in an interview.

“We met with the city, in terms of what could be done here, and the highest and best use for that corner would be to reimagine it and start over with a quality project.”

The new structure will offer rental apartments, and have retail and potentially small office or daycare spaces on the first two floors, Wacko said.

The project would have about 320,000 square feet of space and be built in four years.

“Downtown Calgary has got a lot going for it. And with the population boom and the good fortune we have in all of Alberta . . . it was worth $150-million-plus investment.”

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Marchut believes the financial incentives are appropriate and expects the program will draw more interest over time.

“The first one is always a big deal. We hope to see it as a catalyst in gaining interest in the industry,” she added.

The broader city downtown development incentive program started three years ago, offering grants to property owners to convert aging office buildings into residential properties. The $153-million initiative provides grants of $75 per square foot to approved office conversion redevelopment.

So far, the city has approved a dozen office conversion projects that will remove more than 1.6 million square feet of space.

The initial office-to-residential program was paused last October after applications exceeded the remaining funding.

A new phase is expected to open for applications later this month. The city has earmarked $52.5 million of federal funding to kick-start more housing in the downtown.

Steven Paynter, a principal at Gensler in Toronto — an architecture, design and planning firm — said Calgary’s office-to-residential program has been a success and attracted widespread attention, particularly as other cities grapple with downtown vacancy issues.

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“It’s still the standout program in North America,” he said. “Other cities have tried to copy it and done so less successfully, generally, because they’ve made the programs horrifically complicated. Calgary’s is very simple.”

Maxim Olshevsky, managing director of Peoplefirst Developments, calls the west end of downtown a “hidden gem” and the company has three approved office-to-residential projects in the neighbourhood.

He believes momentum is growing and expects additional projects — including those involving demolition — as more people move into Calgary’s core.

“There’s a lot of action that is going on,” Olshevsky said. “It’s a compound effect of creating additional vibrancy, one project at a time.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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