Oil ‘Stress Event’ to Fuel Manulife Property, Energy DealsKatia Dmitrieva
Manulife Financial Corp. is telling owners of office towers and energy assets in Calgary that it wants to buy what they have, as long as any deals reflect the plunge in oil markets.
Slumping crude prices have forced companies in the province of Alberta to slash jobs and reduce spending for office space. While property owners and energy executives are holding on to their assets for now, the pressure to sell could intensify, said Kevin Adolphe, who leads Manulife Asset Management’s private markets unit.
“We are making it well known that we are a purchaser,” Adolphe said in an interview in Toronto, where the company is based. “It usually takes a stress event for people to reset their expectations. We’re having these advance conversations so people know we’re interested.”
Manulife, Canada’s largest life insurer, invests through its private markets unit in holdings from mortgages to cranberry fields to commercial real estate. The company’s executives are seeking deals in Canada’s oil patch as Adolphe works to expand the C$85 billion ($67 billion) in private assets that his unit manages. That includes a plan to double, within five years, the C$16 billion in third party assets.
The oil slump, prompted by global oversupply, is forcing firms to cut workers, including 13 percent of jobs at Nexen Energy and 15 percent of Talisman Energy Inc.’s head office. Manulife’s oil and gas company, NAL Resources, is slowing operations across Alberta and Saskatchewan as it grapples with the commodity slide, Adolphe said. The business of more than 270 people produces oil and natural gas liquids from drilling in locations including the Cardium shale region near Edmonton.
“There’s a lot of talk about whether this is going to be the same or if this is going to be different,” Adolphe said. “It’s going to be different. Oil prices will stay low for a longer period than the previous declines.”
Landlords are already feeling the pinch as tenants rent out space they no longer need. Subleased space in Calgary increased as much in the first few weeks of this year as it did in all of 2014.
The bulk of top-tier office towers there and in other Canadian cities is owned by institutions managing billions of dollars, including pension funds. Real estate investment trusts and smaller companies that feel pressure from shareholders may be less likely to wait out the slump, Adolphe said.
“Sellers are going to become more-willing sellers, which means we are entering a buyer’s market,” Jason Whitley, portfolio manager at EnergyX Capital Management, said by phone Tuesday. “In that instance, the likely buyers for large assets or corporate sales are deep pocketed ‘super majors’ or financial players like pension funds and insurance companies.”
West Texas Intermediate Crude has traded at an average of about $48.75 a barrel since Dec. 31, down from more than $100 in June. The price of oil will stay around this level for a year to 18 months, Adolphe said.
“If people have the view that we’re going to get back to 90, 100 bucks, don’t bother coming talking to us,” Adolphe said. “If you’re realistic in terms of your pricing expectations, there’s a deal to be had. But the longer you hold out, it’s going to be more difficult for you.”
Just two years ago, Manulife said oil would lead growth in the energy province. The insurer is building a 27-story glass-coated office tower in Calgary with Brion Energy Corp. signed on as a lead tenant.
Manulife slipped 0.8 percent to C$21.65 at 4 p.m. in Toronto trading.
(An earlier version of this story was corrected to specify which assets the company plans to double.)