U.S. Property Investor LaSalle Launches Its Biggest Canada FundBy and
Manulife-backed firm expected to follow in first quarter
International investors seeking apartment buildings, offices
LaSalle Investment Management Inc., a real-estate investment firm with $58 billion under management, is launching its biggest Canadian real estate fund as investors seek a safe haven amid global turmoil.
LaSalle plans to seed the portfolio with about C$750 million ($582 million) in assets over the next three to six years. The Chicago-based company is finding interest in countries including Germany, the Netherlands, and U.K., and they’re not the only one tapping foreign demand. Conundrum Capital Corp., backed by Manulife Financial Corp., plans to launch a fund in the first quarter that could raise as much as C$500 million from investors for Toronto apartment buildings.
“The immediate visceral reaction is there’s a great point of entry because the Canadian dollar’s low,” John McKinlay, chief executive officer of LaSalle Canada, said in an interview at Bloomberg’s Toronto office. “What really resonates is the fact that the long-term returns for Canada are right in the mix with its competitive set -- other major markets in the U.K., U.S., Australia -- but the volatility is a lot less.”
Global investors have been seeking a safe haven amid political tensions such as Brexit, Saudi Arabia’s crack down on corruption among its princes and U.S. President Donald Trump’s immigration policies. Canada, with its open borders, stable financial system and rule of law, is often seen as oasis of stability.
Dan Argiros, the head of Toronto-based real estate investment firm Conundrum Capital, landed in the Middle East when news broke of Saudi Arabia’s corruption purge in November. The timing couldn’t have been better to pitch his biggest-yet Canadian apartment fund.
“For the first time ever, some of the largest institutions in the region say, ‘You know, we want to take a serious look,’” Argiros said in an interview at Manulife’s Toronto office. “They’re putting serious capital permanently in Canada."
Commercial property sales hit a record C$34.7 billion last year, when nearly a third of all transactions were to foreign players, according to brokerage CBRE Group Inc.
In Canada’s largest city, demand for commercial assets is driving prices to a record. The vacancy rate for downtown office buildings sits at 5.1 percent and cap rates -- a measure of property value that drops with increasing demand -- are among the lowest in North America at around 4.5 percent, CBRE said.
LaSalle’s new fund will be its first Canadian open-ended fund and could run into the billions as new capital is added from investors. It will invest in everything from offices to storage facilities. Its previous four Canadian closed-end funds ranged from C$300 million to C$400 million a piece, McKinlay said.
Multifamily towers are also attractive because they tend to be the least volatile sector of the real-estate market, Argiros said. “You’re not going to make 40 percent returns any given year, but the cash flow is very predictable,” he said.
The residential vacancy rate in Ontario dropped to 1.6 percent this year, its lowest since 2000, according to government housing agency Canada Mortgage & Housing Corp.
There also seems to be more turnover in the property market, said McKinlay.
“Canada, internationally, has suffered from more of the perception that it was a closed market,” he said. “You see more and more of the large pension funds trading out of what’s their non-fortress assets.”