After two years of court-supervised restructuring, Strategic Group has exited that program with renewed confidence based on residential property holdings.
The real estate company was placed into restructuring in 2019. Over-exposure in its portfolio to office and retail properties was causing approximately $3 million per month in negative cash flow.
Strategic Group was able to reduce its debt by over $1 billion. They divested of 92 per cent of office space holdings.
“What that’s enabled us to do is have viable company going forward,” said Strategic Group CEO Riaz Mamdani.
He said that the company was able to provide full debt recovery to their lenders over the two year period.
“This is a promise we made two years ago, and I am glad we have kept it,” he said.
“I think that to have the ongoing credibility to have an ongoing operating business, we have both a legal an ethical and a business obligation to do our absolute best to meet our obligations—to meet our debt obligations.”
Office vacancy an ‘endemic issue’
According to the CBRE’s 2021 Q4 report on downtown office figures, Calgary reached a record high of 33.2 per cent overall office vacancy in the downtown. Mid-west core rates reached 49.6 percent, west end at 48.2 per cent, east end at 41.6 per cent, and 25.9 per cent vacancy in the central core.
Net office rental rates have been largely falling since 2016, and vacancy rates increasing since 2014 according to the report.
Mamdani called the prolonged period of high vacancy rates in the city an endemic issue. He said it has been present in Alberta for a long time.
He said that the restructuring through the courts allowed for the company to admit to mistakes made in holding too much office space. Then they removed office and retail projects that were not contributing to profitability.
Focus on residential properties has led to profitability
By focusing on residential rental properties, Strategic Group has been able to return to profitability. A first for the company since it began having negative cash flows in 2014.
Mamdani said they now have a team that's focused on growing the residential real estate portfolio. They'll do it through re-purposing and through acquisition. He said they would be stabilizing their office and retail holdings.
He said that the company would continue to look for profitable opportunities outside of residential.
"We're also opportunistic in that a good idea, is something that we will gravitate towards," he said.
"We have a pretty blank slate business plan that we can work outside of our prime mandate, which is to grow our residential portfolio."
Continued focus on Calgary
Strategic Group will continue to place focus on the Calgary real estate market. They also plan to continue to be involved in historical preservation and arts initiatives related to their properties.
The company said that it continues to have long-term confidence in the viability of both Calgary and Edmonton marketplaces.
"I think that the big reason for our pride in our business is because it's based in Calgary. Myself, the leadership team, almost everyone who works for strategic are really proud Albertans," said Mamdani.
"Our business plan is very Calgary-focused, it's very Alberta-focused, and we're here for the long haul."