Canada Pension Plan Investment Board won IP Real Estate’s Best Global Real Estate Investor award this year. Andrea Orlandi talks to Richard Lowe
Two years in a row, Canada Pension Plan Investment Board (CPPIB) has come away with the top accolade at the IP Real Estate Global Awards. Once again, this time in Munich, it won ‘Best Global Real Estate Investor’.
It is perhaps no coincidence that these awards were won during a particularly marked period of growth for the Canadian institution. Andrea Orlandi, head of real estate investments for Europe, tells of how the global real estate portfolio has grown from CAD7bn to CAD28bn (€5bn to €20bn) in four years.
“I think that gives an idea of the growth of our presence in the real estate sector,” he says. “And the team we have focusing on real estate doubled in that period of time too. So real estate is very much an important sector for us.”
CPPIB recently opened offices in New York and São Paulo. The investor already has offices in Toronto, Hong Kong and London. Press reports suggest Mumbai is next, but CPPIB would not confirm this.
But none of this should come as a surprise. CPPIB is one of the most visibly active investors in the global real estate market. Most recently, it has allocated an additional US$500m (€386m) to its US logistics joint venture with Goodman, invested a further $330m for its US multi-family programme, while in Europe it has invested in the South Bank Tower project as part of its ongoing London partnership with Hermes Real Estate.
Its direct joint-venture approach has enabled it to quadruple its real estate exposure in four years, but it necessitates an in-house team.
“Given the size of the fund, given our global presence, we want to focus on large investments, the larger markets,” Orlandi says. “The joint-venture model gives us a level of governance – of supervision – of our investments that, perhaps, a fund investment does not. Given our size, we’ve been able to bring in-house a lot of the management capabilities. There is a rationale for dealing directly with the major property operators.”
One of the main benefits of the joint-venture approach is that both parties stand to gain. CPPIB gets to “leverage” on the skills of the operator, Orlandi says, while they access equity.
“We are leveraging other people’s teams, their resources, where they can really focus on what they’re good at,” he says. “It allows us to team up with the best-in-class operators where they can focus on the operations, invest alongside us, and we are a provider of capital.”
But CPPIB’s in-house resources also means the institution is not just a passive investor. “We have the ability to be responsive with the team we have, focusing on issues as they come along, being able to make timely investment decisions,” Orlandi says. “So if you are going to do the joint-venture model, which we have, you want to make sure you have the right team, make sure you can be responsive to your partner. You want to be responsive to market opportunities and be able to move commercially and quickly to take advantage of them as they come along.”
The speed with which European real estate markets have been rebounding over the past 18 months – Spain and Ireland are notable examples – has the highlighted the importance of being able to respond quickly.
“Scale is one of our strengths – the ability to underwrite large complicated deals,” Orlandi says. “We can invest $100m in an investment, we can invest a $1bn in a single investment. That gives us a competitive advantage. And the ability to underwrite that risk, because it is a large investment and it requires a thorough analysis.
“Two years ago, I’m not sure we would have thought we were going to be in Spain – and a year ago we did our first investment in Spain,” Orlandi says, referring to CPPIB’s joint venture Intu, enabling the UK listed retail specialist to move into Spain.
“I would argue we were probably the first institutional investor to go back into Spain after the crisis,” he says. “We underwrote that deal and were probably one of the few people working in Spain in August.”
Orlandi likes the word “flexible”. He says: “In Europe, given the multiple jurisdictions you have, you have to be able to move around the different countries and move around the different asset classes within those countries to get your investments done.
“We’re focused on what I’d call ‘core quality’ assets, and that reflects the nature of what we are as a long-term investor. We’re looking to own the assets for a long time, so we want to make sure the quality is there in the assets, whether it’s a shopping centre or an office building.
“I don’t think that changes; how we access those investments may change. One of our advantages we have is – because we can be patient – we can do deals that maybe other people cannot do.”
One of CPPIB’s most recent deals marks a slight departure in its strategy and reflects an increasingly competitive marketplace. Earlier in the year, it acquired a 15% stake in Citycon, a listed Nordic shopping centre specialist, through majority owner Gazit-Globe. Large institutional investors are increasingly turning to the listed markets to gain access to markets at a time when pricing in the direct markets is often prohibitive.
“There is not a lot of liquidity in the case of large shopping centres in the Nordic market, so it gave us an immediate exposure to the entire market,” Orlandi says. “So it was a way to scale up pretty quickly. That is a new type of investment, but I call it an evolution.” He points to the fact that is a case of “teaming up with smart partners…. and good management teams”.
CPPIB will continue to be active in the global real estate markets, but the fact that competition is likely to intensify, let alone decrease, means innovation and flexibility will continue to be crucial.
“I expect the fall will be a busy time,” Orlandi says. “Investments are becoming more selective, they are becoming sometimes more complex. For us that actually may be a good thing, because we can manage complexity; we can manage the real estate risk.”