The Canada Pension Plan Investment Board may be ultimately focused on Canadian retirees, but its real estate activities this year have been anything but local. With few deals to be found in Canada’s relatively robust commercial real estate market, the $138-billion fund has spent a lot of time scouring recession-battered countries for the deals it couldn’t find at home.
It has been working with a considerable advantage—the Canadian market didn’t see property values decline at the same rate as other countries, because the banks were able to keep the money flowing and renegotiate mortgages through the worst of the recession.
That left the fund with cash that could be spent where owners have been under considerably more pressure—it has spent $1.1 billion in the United States, and about $950 million in Europe. By contrast, its only Canadian deal was worth $230 million.
The CPPIB bought a 25-per-cent stake in London’s Westfield Stratford City centre. The mall’s owners estimate that 70 per
cent of all foot traffic to the Olympic site will make its way
through the $2.5-billion complex. Photo credit: Westfield Group
On Monday the fund cut its biggest European deal of the year, saying it would spend $600 million for a quarter stake in a London shopping centre next to the city’s Olympic village. The pension fund said it would own 25% of the Westfield Stratford City project, with APG of the Netherlands scooping up another 25% stake for the same price. Developer Westfield Group will retain the other 50% of the retail project, which has been valued near $2.5 billion.
The centre will be anchored by British chain stores John Lewis, Marks & Spencer, Waitrose and a movie theatre. It will include more than 300 stores and 50 restaurants. The mall will have 1.9 million square feet of retail and entertainment space when it is finished in the third quarter of 2011. About 75% of the space is leased.
The fund’s senior vice-president of real estate operations, Graeme Eadie, answered questions about the fund’s approach.
What attracted you to the shopping centre?
It’s a very major shopping centre in the U.K. market and in Europe. We’re getting in at the front end, which should get us some long-term upside. The deal really hits all of the sweet spots for us.
What sweet spots?
Well, the return is primary. The long-term profile is next. We have a very strong partner in Westfield and a well-aligned investment partner with APG.
What is the U.K. strategy?
The core philosophy is to find good quality, long-term assets. We entered the market a few years ago, and now the market has gone through the trough and is coming back out the other side.
So you feel U.K. real estate has bottomed out?
I think the pricing has recovered to the point where we are being a little more selective. We bought a few things [through the recession] and backed off, and as it appeared to be bottoming we started to buy again.
How many people do you have working in London?
We have eight doing real estate; there’s a private equity team on top of that.
What about in your other offices?
We have six in Hong Kong, and then the balance is in Toronto, where we have about 24 people.
Where are the opportunities right now for commercial real estate buyers?
Australia seems to be offering some interesting opportunities. We have some exposure to China. Canada and the U.S. are core markets, but in the U.S. pricing has increased so it’s a little more difficult to find deals that are really attractive.
What are you seeing in China?
Most of the opportunities there are in building new—there’s not very much that we’d buy. It moves at a quicker pace—there’s very high growth and many development opportunities. You have to be nimble.
But wasn’t it easier to be a cash buyer last year than it is now?
Strangely, not entirely. Pricing was such last year that the vendors didn’t want to sell. The vendors have to get their price, but it has to be something that we still see as attractive.
How are things in Canada? You haven’t been that busy here.
Canada is fairly strong, the fundamentals are generally good across the board. But there’s not a lot that comes available. There just isn’t a lot of depth to the market.
WHERE CANADA PENSION PLAN INVESTMENT BOARD IS BUYING REAL ESTATE
Europe: $762 million
London: Westfield Stratford City shopping centre, $486 million. CPPIB on Monday said it would buy a quarter stake in the giant retail development next to the site of the 2012 Summer Olympics. The mall’s owners estimate that 70% of all foot traffic to the Olympic site will make its way through the $2.5 billion centre.
London: 10 Gresham Street, $208-million. The fund bought a 70% stake in a London office tower being sold by its German owners. The eight-storey, 260,000-square-foot property is occupied by Lloyds TSB bank and seven other tenants.
Hürth, Germany: Hürth Park shopping centre, $68 million. The fund took an 80% interest in a shopping centre that hit the market after its owner folded. The centre, just outside Cologne, has about 60,000 square feet of retail space, with Peek & Cloppenburg, Real and Saturn as anchor tenants.
United States: $840 million
New York City: 1221 Avenue of the Americas/600 Lexington Avenue, $575 million. The fund bought 45% stakes in the two office towers in a deal it cites as a sign that it has arrived as one of the world’s big players. The building on Avenue of the Americas, part of the Rockefeller Center complex, makes up the lion’s share of the deal.
Washington, D.C.: 1299 Pennsylvania Avenue NW and 1101 17th Street NW, $92 million. The fund has a 45% interest in the office towers in its first deal in the city. Known as the Warner Building, 1299 Pennsylvania Avenue is a 13-storey, class-A office building with more than 600,000 square feet, about three blocks east of the White House. The other property is a 13-storey tower.
Multiple locations: Five shopping centres, $173 million. CPPIB partnered with Kimco Realty Corp., taking 45% stakes in shopping centres in Hollywood, Fla.; Arlington, Va.; and the California cities of San Diego, Temecula and El Cajon.
Canada: $230 million
Multiple locations: Eight shopping centres, $230-million. The fund bought the Hillside Centre in Victoria outright, and boosted its stake to 100% in shopping centres in such cities as Prince George, B.C.; and London, Stoney Creek, Sudbury and Thunder Bay, Ont. It took a 90% stake in malls in Quebec City and Sherbrooke, Que.
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