Canada Pension Buys $900 Million Stake in Office Buildings

  • Oxford sells 50% interest in seven Canadian properties
  • Purchase was a ‘rare opportunity,’ Canada Pension says

Canada Pension Plan Investment Board acquired a 50 percent stake in a Canadian office portfolio from Oxford Properties Group for about C$1.18 billion ($900 million), one of the country’s largest property transactions this year.

The seven towers have a total of 4.2 million square feet (390,000 square meters) and include the five-building Richmond-Adelaide Centre in downtown Toronto’s financial district, Canada Pension and Oxford said in a statement Thursday. The deal also includes Centennial Place and Eau Claire Tower in downtown Calgary, where commercial rents and vacancies have been hit by the low price of oil.

“We like Toronto and Calgary as markets to invest in, and these assets in particular we think are great assets that we can hold for the long term,” Peter Ballon, head of Canada Pension’s real estate investments, said by phone.

The transaction marks the latest major pension-fund deal this year as the long-term investors look to reinvest profit into new developments and acquisitions. Ontario Teachers’ Pension Plan is seeking to a buyer for a minority stake in its real estate portfolio in Vancouver, the country’s hottest commercial and residential market, while two other pension funds are selling office towers near the city.

Durable Leases

Ballon said the Calgary properties were appealing, despite high vacancies and sliding rents in the city amid the sustained drop in oil prices, because of their top quality, high occupancy and “durable” 10-year leases in place with tenants.

“There’s no doubt Calgary is a cyclical market,” Ballon said. “Having said that, it is a well-established office market in Canada, it’s one of the most attractive office markets in Canada. We think now is a good time to be investing in Calgary -- it’s better to invest in Calgary at this stage in the cycle than at the peak of the cycle.”

Oxford, the real estate arm of the Ontario Municipal Employees Retirement System, sold the stake in its portfolio as it seeks to put capital into almost two dozen developments worth about C$5 billion, said Blake Hutcheson, the company’s chief executive officer.

‘Actively Investing’

“We’re a seller today, but we’re reinvesting in several development projects across the country, and we’re also a buyer in this market,” said Hutcheson, who oversees about C$43 billion in assets across 200 investments globally. “We’re actively investing in the U.K., Paris, in predominately three markets in the U.S.: Washington, Boston, New York. It’s always a competition for yield."

Oxford assets have nearly tripled in the last six years as the firm expands and seeks returns to match the long-dated liabilities of retirees. Hutcheson said the fund may develop more projects in Vancouver “in the forseeable future,” while continuing to build out major assets such as the sprawling Hudson Yards complex in Manhattan.

Oxford will continue to manage the Toronto and Calgary properties, generating fees, according the statement. The transaction brings the total size of the jointly owned Oxford-Canada Pension office portfolio to more than 12 million square feet, the two firms said, since they began their real estate partnership about a decade ago.

Canada Pension, the country’s largest pension-fund manager, oversees the retirement savings of 19 million people and OMERS, Oxford’s parent company, oversees C$77 billion for its 461,000 members.

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