CPPIB to target retail development in Germany as part of Unibail-Rodamco deal

Canada Pension Plan Investment Board (CPPIB) is on a drive to develop shopping centres in Germany, following its agreement last week with French real estate group Unibail-Rodamco to deepen its German retail platform, Andrea Orlandi, CPPIB’s managing director and head of real estate investment in Europe, told PropertyEU.

‘We have invested around CAN$1 bn (€740 mln) in the Unibail deal and we could spend another couple of billion euros this year if we find the right assets,’ he said. ‘We are opportunity-driven, it’s really just about finding the right investment opportunities. That could also include developing shopping centres in Germany as part of this joint venture. We’re patient, we’re not very reliant on debt, so we would welcome those kind of development opportunities,’ Orlandi added.

On 15 May, CPPIB, which manages Canada's public pension fund, announced that its wholly owned subsidiary CPPIB Europe had entered in an agreement to form a strategic joint venture with Unibail-Rodamco to grow its German retail real estate platform. As part of the deal, CPPIB will indirectly acquire a 46.1% stake in German retail developer mfi management für immobilien for €394 mln.

CPPIB will also invest an additional €366 mln in support of mfi’s financing strategies. Unibail-Rodamco's 94.15% stake in mfi will be reduced to 48% following the transaction, which is expected to close in the third quarter, the company said. Cushman & Wakefield advised CPPIB.

Game changer
‘This venture sends a message to the market that retail in Germany today is altogether a different game,’ said Thomas Dänzel, head of retail investment at Colliers International in Germany. ‘Retail has become a much more important asset class and that is driving the increase in the deal volume this year.’ Colliers did not advise on the venture.

Shopping centre transactions in Germany soared by almost 67% quarter-on-quarter to €1.35 bn in the first quarter, accounting for almost half of all retail deals, according to JLL. Supermarkets accounted for a further €782 mln of deals in the period, followed by high street transactions with €386 mln. In total, there were more than €3 bn of retail deals transacted in Germany in the first quarter, according to JLL.

CPPIB and Unibail-Rodamco’s latest partnership extends an existing German joint venture that they created last year when Unibail-Rodamco took a 50% stake in one of Germany’s largest shopping centres, the CentrO shopping center in Oberhausen, for €535 mln. CPPIB holds the remaining stake.

European heavyweight
The Canadian pension fund manager is already a big retail investor in Europe, with retail accounting for around 50% of its European real estate portfolio, or around €3.5 bn, in markets such as Germany, the UK, Spain and the Nordics. The group already owns two shopping centres in Germany, including CentrO.

And CPPIB is casting its net wide, Orlandi said. ‘We are willing to go deeper into markets to find good opportunities but it also depends on pricing and the opportunities that a given market presents. Typically, we would be looking at major shopping centres with a price tag of between €100 mln and €200 mln, although it could go higher. The size of our real estate platform facilitates focusing on bigger deals.’

Other investors with deep pockets are also muscling in on the retail action, notably indirect investors, according to Jörg Ritter, a member of the management board and head of retail investment in Germany at JLL. ‘This includes Asian and Middle Eastern SWFs and pension funds who need help on the ground to access the retail sector because they are typically more used to investing in CBD offices,’ he noted. ‘They might also invest via shopping centre vehicles, such as sector specific funds. We’re also seeing increased interest from North American investors,’ he added.

French retail landlord Klépierre’s acquisition of the Netherlands’ largest listed property company Corio in July last year - which created a €14 bn retail giant - is also driving the shopping centre investment market in Germany, not least because it included a German retail portfolio worth in excess of €1 bn, according to Ritter at JLL.

Dänzel is predicting a sharp rise in retail deals in Germany this year, due to burgeoning demand. For investors who’ve got the German retail bug, there are a number of portfolios up for grabs. Most notably,

CBRE is believed to be currently marketing a portfolio of four German shopping centres on behalf of Canadian investor Ivanhoe Cambridge, which is expected to sell for up to €700 mln, according to those who track the market. CBRE and Ivanhoe Cambridge could not immediately be reached for comment.

Colliers and JLL are also advising on the sale of the Hahn-Indigo retail portfolio in Germany which comprises 10 properties, of which two-thirds are hypermarkets. The properties are located close to cities such as Cologne. The portfolio, which comprises around 150,000 square metres, is expected to sell for around €160 mln and interest in the portfolio has been international, according to Colliers.

Hypermarkets are gaining in popularity due to the scarcity of shopping centre product coupled with the higher yields that hypermarkets offer, according to Dänzel. ‘There is a lot of interest in hypermarkets at the moment because they are more readily available and offer better yields. For a hypermarket, we’re talking about a multiple of 14 to 16, compared to 20 or higher for a supermarket.’

Student housing
Elsewhere in Europe, CPPIB has also been beefing up its portfolio. In March, it made its first foray into the student housing sector with its £1.1 bn (€1.5 bn) acquisition of UK student housing manager and developer Liberty Living to capitalize on a ‘rare opportunity’, Andrea Orlandi at CPPIB, told PropertyEU at the time.

Further deals are also on the cards this year. ‘We don’t have a minimum or maximum investment target,’ Orlandi said. ‘We’re not capital constrained.’ The pension fund manager has around $7 bn of real estate AUM in Europe and had $30 bn of real estate AUM globally as of end-December 2014.