Avigilon to Buy $42 Million Building

By John Honovich, Published Mar 02, 2015, 12:00am EST

Avigilon's spending spree continues.

After using nearly $100 million in cash buying OV's patents and 4 other companies' patents, Avigilon is spending another $42 million on a building.

In this note, we break down the purchase and its potential impact on the company.

The building is in Downton Vancouver at 555 Robson, and looks like so:

The building is 9 stories, has 135,000 square feet and is 40 years old.

Upsides

The building is extremely well located in the downtown of a major city. Indeed, it may be the only surveillance specific manufacturers to own such a centrally located building, as most manufacturers are in less dense, less urban areas.

As such, it should help in attracting talent, especially younger employees, who want to work in the central part of a city.

Equally, it is a showcase and a symbol of power to own a building, especially given the location.

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And according to Avigilon's announcement, "the monthly financing costs are expected to be on par with, or less than, the rent Avigilon currently pays for its leased office in Vancouver."

Concerns

Since many or most of Avigilon's senior operational, sales and marketing people are now being based out of Texas / US, following the COO's ascension, does Avigilon really need such prime real estate in Vancouver?

Indeed, Avigilon's own CEO has complained about the lack of senior talent in Vancouver, noting, "where the talent pool gets thin is at the more senior level." As such, is it really worth housing junior to mid-level employees in prime downtown real estate?

One of the reasons surveillance manufacturers generally avoid large urban areas is that significantly higher costs of such real estate is hard to justify versus.

Vancouver's real estate is one of the hottest markets in North America. If this continues, Avigilon will have a steal. If it is a bubble that soon pops, they will have a significant issue.

Increasing Risk

Looking at the moves over the past few months, the two patent purchases and now the $42 million building, it is pretty clear that Avigilon is increasing its risk level significantly.

With more risk, comes more potential reward but also increased probability of blowing things up. 

Undeniably, Avigilon continues to show that it is focused on massive success, while taking on more risk.

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