David Basche, Astria Properties' president, tackles questions on the company's entry onto the south Island real-estate market, the state of light industrial development in the region, and what's in-store for Astria. Citified.ca
Astria Properties' David Basche Q&A on light industrial development in Victoria, and the R-E market
Ten on the 10th
Published October 10, 2023
Citified's Ten on the 10th is a monthly question-and-answer segment connecting our readers with the insight and knowledge of Victoria's top real-estate and business professionals.
Ten on the Tenth's October, 2023 segment features David Basche, President of Langley, BC-based Astria Properties.
Asking the questions is Ross Marshall, Senior Vice President of the Victoria offices of commercial real-estate brokerage CBRE. As a leader in facilitating large-scale commercial real-estate transactions throughout the Capital Region – which include apartment complexes, industrial retail and office properties, and land/development opportunities – Ross and his team are at the forefront of market-leading real-estate transactions on Vancouver Island.
Would you like to be featured as part of a future Ten on the 10th Q&A? We'd like to hear from you.
In all our conversations, I’ve noted Astria Properties has a very specific business model. How did Astria come about, and can you tell us a little bit about your niche?
Astria Properties is a real estate development business specializing in boutique industrial projects. We classify boutique developments as projects that sit on four acres of land or less. We develop across British Columbia, and we currently have projects ranging from Kelowna to Vancouver Island.
In 2018, Josh Gaglardi formed Orion Construction, a light industrial design-build general contractor. Following rapid growth, Josh realized that the small-format land market is being neglected, as most of Orion’s developer clients look for projects five acres and up. This led to the beginning of Astria Properties, to capitalize on these sub-four-acre industrial parcels across British Columbia.
Over the course of four years, Astria quietly acquired various development sites in the Lower Mainland. In May 2022, I came on board, and we officially launched the business. Since then, the team has grown from just Josh and myself to five people. We have acquired four new development properties, and we are beginning to find our footing as a developer in British Columbia.
The sub-four-acre niche is highly interesting and provides immense opportunity. British Columbia is the province with the greatest number of small businesses, classified as having 50 employees or less. We are seeing strong demand from these groups wanting to own their own real-estate. Good examples of that are two build-to-suit projects we completed for Advanced Material Handling and Dr. Ma’s Laboratories. Smaller land parcels are also often easier to find than, let's say, a 20-acre property. In Metro Vancouver, 33% of all land parcels are less than five acres in size. The total number includes infrastructure industrial land for rail and airports, so the percentage of parcels under five acres is likely a lot higher. All that means is this is a large addressable market for Astria, and yet there are very few developers acting in this space.
What is it like being a sister company to Orion Construction. I understand that Orion is very busy in the lower mainland, will they also be your construction partner on Vancouver Island?
Being a sister company to Orion Construction gives us distinct advantages. Orion is our general contractor partner on all projects we develop, which makes us nearly fully integrated. Orion has a unique approach; they are a design-builder providing design, estimating, construction, and tenant improvement, all under the same roof. This allows us to be a very nimble organization. The market is more dynamic than ever, and being able to pivot focus is crucial. Orion is in the process of setting up business on the Island. They will be our construction partner for our project in Royal Bay, and they are currently also building two multi-family projects in Langford.
In your previous work, you acquired a number of sites on Vancouver Island, what was the drive and conviction for Astria to expand to Vancouver Island?
Over my time, I’ve experienced a differential in cap rates between the Lower Mainland and Vancouver Island. The fundamentals of Vancouver Island are very strong, and there shouldn't be a significant spread in cap rates, not that big anyways. This allows for optionality when looking at new development projects, either to sell or hold them. In today's environment, that is a must-have to ensure we aren't exposing ourselves to too much risk.
In the past, industrial development has heavily favored strata product. With rising interest rates, demand is beginning to slow down. In a time where there is less certainty around strata demand, we need to have a second exit option should we not hit the sales numbers we need to achieve. In the Lower Mainland, if we converted a strata project into a lease asset, the returns would be mediocre at best. On the Island, however, we are still able to achieve a decent cap rate, making the project much less risky while allowing us to grow.
Despite economic headwinds, it sounds like you have grown quite a bit in the last year. Tell us about your portfolio and what is currently keeping you busy.
We've been very diligent in our approach, focusing on development types within the industrial space that are less sensitive to interest rates and economic headwinds. For example, we are actively pursuing self-storage developments. Over the past two years, we have completed two build-to-suit projects: Advanced Material Handling in Abbotsford and Dr. Ma’s Laboratory in Surrey. Our current portfolio consists of six developments totaling 475,000 sq. ft.
Link200 in Langley is a 16-unit industrial strata project that is about to be completed. The other five projects are in various entitlement stages. Three of these projects we are building to lease, notably our Kelowna project, which is a build-to-suit for Canada Post, and our project in Colwood, Royal Bay, which will be a fantastic asset to support this growing community. We have a small-bay strata project in Kelowna as well, and we are looking to develop a self-storage facility on the Lower Mainland.
On top of that, we are bringing to market an end-to-end development management solution for industrial property owners. We are meeting a lot of groups who own great properties but have little development expertise or don't have the right resources in place. Our objective is to assist these groups in developing their properties. We approach these opportunities with the same process and methodology as we apply to our own projects, to build a product that is unparalleled in quality and functionality, while delivering superior services to our clients.
This is a great segue to your project in Colwood, particularly Royal Bay. Can you tell us how this project came about and what your plans are?
We've been actively looking for a project on the Island this year. When the property located on the northwest corner of Metchosin Road and Ryder Hesjedal Way came up for sale, we strongly believed it's the right fit for Astria. The site is just a little under two and a half acres in size, and our vision for the development fits our business model well.
Royal Bay is a beautiful growing community. We see an opportunity to build additional commercial amenities here to support the 5000+ homes that will be completed and the 10,000+ people moving to Royal Bay. The zoning is very flexible, allowing us to deliver a variety of uses. We recently branded this project Arbutus Landing, and for now, we are planning four small buildings on the perimeter of the property. We've been receiving strong tenant interest in this project, and we look forward to sharing more updates soon.
What is your long-term strategy for Vancouver Island?
We are looking to grow Astria’s business on the Island over the long term, again focusing on sub-four-acre properties with industrial zoning. We are looking to buy existing income-producing real estate as well as acquiring development sites. Our preference would be to build-to-own, as we want to become a long term member of the community. We like the fundamentals of Vancouver Island for what we are looking to achieve. We think population growth will continue to be strong. We are also noticing a strong uptick in residential building permit values over the last several years. In relation to industrial building permits, residential is growing much more rapidly. Ultimately, those people moving to Vancouver Island will demand employment, goods, and services. This will be positive for the industrial sector. There is also a shortage of specialized, tailored facilities for the owner-user market which we are looking to tap into.
With strategy in mind, what are your thoughts on the market currently, where do you believe things are going and how is Astria positioning itself for future growth.
This could be a ten-page answer, so I'll keep it brief. We haven't seen an economic shock like this since the Global Financial Crisis, yet we've experienced unprecedented growth in all asset classes over the past years. This is simply not sustainable, so the aftermath of the COVID pandemic is forcing normalization in the real-estate market. This is important!
We're witnessing record volatility in the bond market, which directly impacts the real-estate market. However, the labor market continues to remain robust. With the recent contraction and flattening of the GDP, it seems that elevated interest rates are starting to constrain the economy. Depending on the Bank of Canada's rate decision, we may see some further contraction in the real-estate market, but I believe the market will remain range-bound until inflation is in check and rates begin to decrease.
We remain committed to industrial development but are focusing on sub-areas within our niche to adapt to the current economic conditions. We're less focused on industrial strata products and are actively pursuing self-storage developments. Additionally, we are introducing a third-party management platform for select clients, as mentioned earlier.
Based on your exposure to the south Island market, what is one area where the south Island can improve? Ie, would it be a provincial and/or federal infrastructure project? A municipal transit investment into a ferry from the West Shore, or perhaps something like municipal amalgamation?
Traffic congestion, particularly on Highway 1, is something that needs improvement as the West Shore continues to grow. The Capital Regional District is forecasted to grow by 20% between 2019 and 2038, with the highest growth rate expected on the West Shore. While improved transit infrastructure will help, alternative solutions need to be explored.
A new ferry connection between Royal Bay and Esquimalt, as well as Ship Point in downtown Victoria, could be an excellent solution. There is precedent, such as the Vancouver SeaBus, for how well a commuter ferry can work. We hope to see this infrastructure become a reality.
What are some differences you may have noticed between developing land on the Island, and other parts of BC?
From an entitlement perspective, the smaller municipalities generally mean staff have a more intimate knowledge of the entire municipality. It is easier to establish a direct line of communication, and staff are typically more hands-on. From a design perspective, the stringent seismic codes on the island, compared to the lower mainland and particularly the interior, require careful consideration of the structural design of each building, as the implications of an inefficient design are significant. We are continuing to expand our network on the island, including building a strong trades base, largely facilitated by Orion's construction of various multi-family projects there. It is a great place to work and a location where we will be actively seeking more projects.
Despite building at what feels like full capacity, we are still under-supplying residential units compared to periods several decades ago. Why do you think that is?
It's a combination of factors: land scarcity, development red tape, and a population that is growing faster than we can keep up with. Cities need to innovate to address supply shortages in both the residential and industrial sectors. Policies such as the Missing Middle Housing Initiative or promoting multi-level industrial development through relaxed zoning are great starts, but more needs to be done. We are currently working with Colwood, and it's encouraging to see how responsive the municipality is and how practical they are. They are a great example of offering expedient approval timelines, which are critical to addressing any supply shortage. C
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