Chilliwack’s Cottonwood Centre sells on retail strength

Strong sales performance following significant reinvestment has driven the sale of Cottonwood Centre in Chilliwack to a private Vancouver-based investor.

An investment consortium led by PCI Group acquired Cottonwood Centre in 2019 for $73 million with significant vacancies left by Sears Canada and Target.

With financial partners Nicola Wealth Real Estate and Northland Properties Group, PCI undertook $30 million in renovations and successfully backfilled the vacancies with Save-On-Foods and other retailers, successfully repositioning the property for the future.

“PCI is a merchant builder. They don’t hold anything. They basically either build something new and they sell it, or they find something like this where there’s a value-add,” said Jim Szabo, vice-chair of the capital markets group at CBRE Ltd. and a partner in the National Investment Team that sold the mall in 2019 and again this spring. “When they finally repositioned it, it became the dominant centre in that market.”

PCI attracted destination tenants like cosmetics retailer Sephora, not typically the kind of retailer seen in a market like Chilliwack. But the strategy paid off in the rapidly growing community, one that’s attracted homebuyers drawn by the area’s lower housing costs.

“The household incomes are pretty high out in that area,” Szabo said. “Housing’s not expensive, so people have more to spend than they do in the city.”

This has driven strong performance at Cottonwood Centre, where the gross rent/occupancy cost (GROC) ratio (a proportion of sales) is exceptionally low.

“That’s a measure of how well the tenants are doing. If it’s under 10 per cent, which you don’t see very often – in fact, almost never – that’s usually a good sign that all the tenants are making money,” Szabo explained. “A lot of the shopping centres we see are 15 per cent GROCs. … This centre was sub-nine, something in the eights, which we just never see.”

This points not only to strong performance, but potential upside on rents for the new owner, Finix Holdings of Vancouver, a private investment firm with roots in Asia that Szabo said “is excited to continue adding value to the property.”

Cottonwood Centre, with 248,156 square feet on 21.74 acres, offers plenty of scope for future retail intensification and development.

Finix hasn’t not disclosed its plans publicly, but has quietly been developing a portfolio of retail and mixed-use properties and is taking a long-term approach.

“We’ve sold them other properties in Vancouver and Richmond, so they’ve got a fairly good portfolio here and they buy for long-term investments,” Szabo said.