INTERVIEW Oxford Properties seeks to double global portfolio by 2020

Oxford Properties, the real estate arm of Canadian pension fund OMERS which acquired the London headquarters of media group Time Inc at end-October, aims to almost double its global real estate portfolio to CAN$60 bn (€42 bn) by 2020.

‘Our strategic vision is to grow our global real estate portfolio to CAN$60 bn by 2020, up from $37 bn today,’ Paul Brundage, executive vice president and senior managing director of Oxford Properties Europe, told PropertyEU. ‘Europe accounts for about 20% of the global total, so it’s conceivable that the European portfolio could double in the period.’

The group’s European portfolio currently totals CAN$7 bn, of which around 85% is in London and 15% in Paris. At end-October, OMERS (Ontario Municipal Employees Retirement System) - acting via Oxford Properties - and Singaporean sovereign wealth fund Temasek purchased the London headquarters of media group Time Inc for £415 mln (€578 mln). The joint venture acquisition of the 46,000 m2 Blue Fin Building in London's South Bank district is expected to close by the end of the year.

‘The Blue Fin deal is our biggest deal so far this year,’ Brundage said. ‘We’ve really tried to build a portfolio of complementary assets as part of our strategy of in investing in core and value-added properties. We don’t target trophy assets where there is nothing to do – we like deals like this one, which are core with a twist. We really liked the Blue Fin building because of the quality of the asset but also because of the opportunity to work with Time Inc as well as Temasek, with whom we also partnered on the MidCity deal in Holborn two years ago.’

Leaseback deal with a difference
Blue Fin is, indeed, a sale-and-leaseback transaction with a difference: it enables Time Inc UK to retain 45% of the space and associated income, with the remaining 55% converting over to leases with Oxford Properties and its joint venture partner, Brundage added.

In addition, the transaction reinforces Oxford’s belief that specific emerging ‘live-work-play’ destinations will outperform over time as a result of improvements to infrastructure and shifting occupier dynamics, Brundage said.

Blue Fin is a ‘substantial’ transaction, according to Rob Hayes, director and co-head of London offices at Colliers. ‘It shows that the South Bank is becoming more popular with overseas investors –a lot of overseas investors haven’t looked at sub-markets like this in the past. It shows their confidence in the area as well as improved investor sentiment.’

The London market witnessed £12.3 bn of office transactions in the first 10 months of the year, compared to £14.2 bn during 2014, according to Colliers. Oxford Properties is focusing on key sub-markets in the city, such as the City of London, the West End and Thames Valley, Brundage said. ‘We’re currently working on a development project, The Post Building, on the corner of New Oxford Street and Museum Street and have around £300 mln in future commitments to ongoing development projects in London, including the Crown Estates project in St James’s. Our aim is to have a diversified income stream and portfolio.’

The Post Building is a 50-50 joint venture with Brockton Capital announced in May to redevelop the former Royal Mail Sorting Office near Covent Garden. The 320,000 square foot (3,450 m2) space will include offices, street-level retail and affordable housing.

France and Germany
However, Oxford Properties is also mulling what it can ‘add on’ to the London portfolio, Brundage said. ‘Paris is also a big growth market for us. We’ve invested around $1 bn in Paris over the last three deals and would like to double that if we can within the next five years to get critical mass.’

Last month, Oxford Properties acquired the recently redeveloped PariSquare office complex from Tristan Capital Partners and Stam Europe for an undisclosed amount. Tristan and Stam Europe re-opened the 24,100 m2 building in Paris' Bastille district a year ago after having invested over €100 mln in the project, which involved the conversion of a former car park. Analysts estimate that it is likely to have sold for around €250 mln.

There were €10.7 bn in office deals in Paris in the first three quarters of 2015, up from €9.2 bn in the same period last year, according to Colliers.

New markets are also in the offing. ‘We’d like to add another major European market to the portfolio,’ Brundage said. ‘We’ve been looking at Germany but it is polycentric, with the challenge of how to access that market, but it is certainly on our list.’

Whatever happens in the future, partnerships will remain key to the group’s investment strategy: ‘Our approach has always been about partnerships at different stages of our evolution,’ said Brundage. ‘Most of our investments are north of £200 mln, so our view has been that we want to have a certain amount of concentration in individual assets rather than just holding a handful of massive assets – partnerships allow us to do that. We like to work with a few strong, strategic partners, such as Temasek on this Blue Fin deal.’