Editor’s Choice: 'C' is for canny

Canada Pension Plan Investment Board may be a suitably sober name for a heavyweight institutional investor, but the label doesn’t do justice to its entrepreneurial spirit.

The Toronto-based company – whose abbreviated name CPPIB is just about as forbidding as the full appellation – only started actively investing in real estate internationally in 2006. But it is a fast learner. Since opening their first European office in London in 2008, the savvy Canadians have struck partnerships with some of the most respected real estate specialists on the planet.

Just take a look at who they have teamed up with so far in Europe. The list of partners on the company’s website reads like a Who’s Who of the good and the great in their respective specialisations. In the UK, CPPIB has joined forces with some of the largest listed real estate companies in the country including Land Securities, Hammerson and Intu. It also has a stake in one of London’s most prestigious shopping centres, Westfield Stratford City, together with its Dutch pension fund peer APG.

Last week CPPIB cemented its partnership with Europe’s largest listed real estate company Unibail-Rodamco by taking a 46% indirect stake in German shopping centre developer-manager Mfi. Following the transaction, Unibail-Rodamco has just under 48% in Mfi. The Paris-listed retail giant initially acquired a 51% stake in the company which owned 90.4% of Mfi in June 2013 from Perella Weinberg Partners. It subsequently boosted its stake to 94.15% in two separate transactions in July 2014 and April 2015.

CPPIB and Unibail-Rodamco were already partners in the Centro shopping centre in Oberhausen near Dusseldorf: last year CPPIB sold Unibail-Rodamco half of the 50% stake it had acquired in the massive retail scheme in May 2011.

Recurring theme
Alliances with like-minded investors have become a recurring theme in CPPIB’s European strategy. Two years ago, the Canadian pension giant formed a 50-50 joint venture with its UK peer Hermes, the real estate investment management arm of the BT Pension Scheme, to acquire eight Central London office assets. At the time, Graeme Eadie, senior vice-president and head of real estate investments for CPPIB, said he saw ‘an excellent opportunity to increase the seed portfolio’s value and to grow the venture by acquiring more value-add product in Central London’.

The pair went on to buy the 214,000 sq ft Aldgate House for £100 mln and teamed up again to buy the South Bank Tower in London for €164 mln in a forward-funding deal. South Bank Tower, which was previously known as King’s Reach Tower, is a major mixed-use development in a booming part of London’s Riverside which is rapidly becoming a coveted destination for both residential and commercial occupiers. Scheduled for completion between October 2015 and May 2016, the development will comprise 269,000 sq ft (25,000 m2) of office and retail accommodation, along with 191 residential apartments across 41 storeys.

Less than six months later, the duo struck again in the UK regions with the 50-50 acquisition of the €233 mln Wellington Place city centre regeneration project in the city of Leeds. Located in the city centre, Wellington Place is being developed and managed by London-listed property company MEPC, and envisages 140,000 m2 of commercial, retail, leisure and residential space.

The acquisition of the development illustrates CPPIB's broad real estate taste and its predilection for urban renewal schemes and iconic buildings.

Shopping spree
Since embarking on its shopping spree in Europe, CPPIB has collected a wide range of large and striking retail assets including a 33.3% stake in the Bullring shopping centre in Birmingham with Hammerson. At end-2012 it partnered with Helsinki-listed Citycon to buy Kista Galleria - one of the largest shopping centres in Scandinavia for more than €532 mln. Less than 12 months later, it joined forces with Intu Properties to acquire Parque Principado shopping centre in Oviedo, Northern Spain. CPPIB also has a presence in Turkey through its stake in Multi's Turkish mall fund.

Including its acquisition of Mfi, the Canadian pension fund manager now has around €3.5 bn of retail assets in Europe, including Germany, the UK, Spain and the Nordics. This equates to roughly 50% of CPPIB’s total real estate portfolio in Europe. The pension fund manager had around $30 bn of real estate AUM globally as of end-December 2014.

While CPPIB clearly belongs to the new wave of institutional investor with a partiality for shopping with like-minded partners in joint venture structures, it is no stranger to traditional fund vehicles. The Canadian pension fund is an investor in two co-mingled funds managed by Blackstone with a focus in the US and Europe, as well as several co-mingled funds with LaSalle Investment Management and TIAA Henderson Real Estate.

Off the beaten track
The Toronto-based investor is also prepared to go off the beaten track. In July 2014, it landed in Brussels where it acquired a 39% stake in Interparking, Europe’s largest parking lot operator, from Belgian insurer AG’s real estate arm for €376 mln.

‘AG Real Estate wanted to add a strong, experienced partner, favouring a vision of long-term development to support the growth of the company in Europe and possibly in other international markets,’ the majority owner said at the time in a statement.

CPPIB’s long-term horizon has facilitated its entry in another fast-growing niche segment: the UK student housing sector. Earlier this year, the pension fund announced its €1.5 bn acquisition of the Liberty Living platform in the UK from the Brandeaux Student Accommodation Fund. Liberty Living is one of the UK’s largest student accommodation developers with over 16,700 rooms in more than 40 residences located in 17 of the largest university towns and cities across the UK.

Together with Liberty Living, CPPIB aims to build further scale and grow its market share in this fast-growing segment. And with its stake in Mfi, it now also has a new key to unlock the potential of Germany’s massive retail market.

Commenting on the transaction, Andrea Orlandi, CPPIB’s managing director and head of real estate investment in Europe, told PropertyEU that it has already invested around CAN$1 bn (€740 mln) in the Unibail-Rodamco deal and that it is prepared to spend another couple of billion euros this year if it finds the right assets.

‘We are opportunity-driven, it’s really just about finding the right investment opportunities,’ he said. That could also include developing shopping centres in Germany, he added. ‘We’re patient, we’re not very reliant on debt, so we would welcome those kind of development opportunities.’

According to Thomas Dänzel, head of retail investment at Colliers International in Germany, CPPIB’s latest venture sends a message to the market that retail in Germany today is altogether a different game. But the Canadians have been changing the game for much longer as the driver of new developments across Europe in a wide range of different sectors.

If you have trouble remembering the name of this game changer, maybe the following epithet will help: this Canny Property Player Invests Big.

Judi Seebus
Editor in chief