How did the value of the land for the future Northvolt battery mega-factory, the purchase of which was entirely funded by the government, rise from $20 million to $240 million in just eight years?
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“The economy is difficult at the moment, so we are very happy with this transaction,” admits Alice Wu, a member of the group that sold the 18.5 million square foot property to the Swedish company on October 31.
“I never thought we could do a transaction like this,” she adds.
“It’s like winning at Loto-Québec,” says Gaétan Houle, who was co-owner from 2013 to 2015.
Record sales
According to many, $240 million is the highest price ever paid for land in Quebec.
Mr Houle had a housing project on land between Saint-Basile-le-Grand and McMasterville in Montérégie.
However, he and his business partners threw in the towel as long delays loomed to change the zoning of the predominantly industrial site. After all, an explosives factory was located on the site from 1878 to 1999.
“We knew that this project could take a long time to develop,” says Gaétan Houle.
In the fall of 2015, a group consisting of Ms. Wu and two other investors, Luc Poirier and Serge Gariépy, paid $20 million for the land. Mr. Gariépy claims that the bill, including commissions and related costs, totaled $35 million.
Illustration provided by Northvolt
“Problems” in two ministries
The buyers also wanted to build an ambitious residential project on the property, but the Department of Transportation was concerned about traffic congestion that the addition of more than 4,000 residential units would create on Route 116.
“They did not refuse categorically, but there were also problems that had to be clarified with the Ministry of Municipal Affairs, which is normal for such a large property,” admits Serge Gariépy.
Despite everything, in spring 2019 the city of Saint-Basile-le-Grand officially asked the government for permission to change the development of the property and make it residential.
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“Then the government realized that this country existed,” says the mayor of Saint-Basile, Yves Lessard. So they told us, “No, we don’t want to rezone it because we don’t have any other land with this potential for industry.”
This wasn’t particularly good news for the property owners. At this time, the value of industrial land increased but remained significantly lower than that of residential land.
Photo Francis Halin
“We sold at a good price”
However, the pandemic and its negative impact on supply chains have led to an increase in industrial property prices. For example, at the end of 2021, a 4.3 million square foot property in Saint-Bruno-de-Montarville sold for $95 million, or $22 per square foot. Two months later, a transaction closed in Candiac for more than $27 per square foot.
Northvolt, for its part, paid about $13 per square foot.
“When there is a shortage, it is normal that demand is there and prices go up,” notes Mr. Gariépy, who started negotiations with Northvolt during the visit of the industry’s leaders to Quebec in February.
“We sold to Northvolt at a good price because they bought all the land. It was easier for the rest of us,” explains Serge Gariépy.
François Des Rosiers, a professor at the University of Laval and a real estate expert, does not find the price paid by Northvolt “exorbitant,” but emphasizes that the sellers were in a position of strength.
“They needed to know they had good bargaining power,” he said. Northvolt is a very large project and that’s exactly where they wanted to locate it.”
François Des Rosier’s photo from Laval University website
An offer that Quebec blocks in 2022
Mr. Gariépy argues that his group received a purchase offer of more than $130 million in 2022 for two-thirds of the property, which equates to about $200 million for the entire site. The potential buyers had an industrial condominium project, but according to our information, Quebec vetoed it and wanted to keep the land for the battery sector.
By collecting $240 million, the sellers received the equivalent of what they could have earned by implementing their housing project – without having to wait for years and without taking any risks.
According to a reliable source in the real estate industry, the developers could have hoped to make a profit of about $200 million on a project with 4,000 apartments, which works out to about $50,000 per unit.
Mr Gariépy assures that Northvolt did not pay more because it benefited from a government loan.
“We knew the government would help them financially,” he admits. You would have had to be a little detached not to know, but we didn’t know to what extent. The people at Northvolt were pretty discreet.”
– With Philippe Langlois, QMI Agency
Read on Monday: Who is Alice Wu, one of the former owners of the huge Northvolt land?
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