- What Capital flows to the UK and Europe from Canadian pensions have slowed in recent years
- Why Higher interest rates and widening yields on real estate have shifted dynamics
- What next Funds are reassessing their portfolios and weighing future investments
Wind back a decade or so and there was little doubt that Canada was one of the top destinations from which investors in the U.K. and Europe could source capital. The country’s gigantic pension funds were deploying cash hand over fist as their historic underallocations toward real estate were addressed.
As interest rates and returns on bonds plummeted, increasingly more capital was allocated toward real estate to provide that extra yield through a wide variety of direct investments, GP fund deployments, joint ventures and buying shares in listed companies.
But in recent years, since the grand explosion of interest rates and the widening of yields across the real estate board, the Canadian taps have been turned down and capital has been trickling in rather than gushing.
The denominator effect has meant that many investors have seen their portfolios overbalance toward real estate, and some of the grand platforms that Canadian funds built up to deploy capital into real estate have been rightsized or internalised. Furthermore, some of the pension plans are starting to grow more slowly due to demographic changes.
Those assessments are undoubtedly generalisations, though, and each of the so-called Maple Eight funds have nuances and subtleties underpinning their real estate strategies, as unpicked by Green Street News in April.`
It is important to realise that by no means are there “for sale” signs across all Canadian-owned real estate in Europe, but attitudes have in large part evolved. Recaps or joint ventures are being sought rather than out-and-out expansion. In some instances there is a need to prove return on investments to fund the next tranche. For others there is just a need to bolster the coffers and reduce real estate holdings.
In terms of logistics specifically, most of the Canadian giants filled their boots in the last cycle and have typically been able to enjoy a broadly positive run – certainly more so than with their investments in the office sector – and are now in a position to reassess.
Omers-backed Oxford Properties is in the middle of one of the highest-profile processes ongoing in European logistics. It’s rattling toward the selection of a new partner for its €850m portfolio built up alongside its asset and investment management platform M7 Real Estate, which will allow it to double – at least – the size of the venture.
CDPQ-backed Ivanhoé Cambridge was restructured and internalised earlier this year and is in the process of recycling capital on astute investments it made during the last cycle. This includes a £100m-plus portfolio across the North West and Yorkshire that it built up alongside Peel and Macquarie as part of their PLP joint venture and an €85m Dutch portfolio it owns alongside Urbz Capital.
CPP, which is still experiencing overarching expansion at a fund level, formed a joint venture to build a £1bn U.K. logistics portfolio alongside Goodman and APG almost a decade ago. With APG’s consideration toward repatriating some mature investments back toward the Dutch residential market and CPP’s mantra of taking strong returns rather than sitting on them, it is not unimaginable that vehicle could become ripe for a recap in the medium term.
QuadReal continues to deploy funds through Valor, but perhaps not at quite the same rate as at the inception of their joint venture in 2020. Boreal, backed by OTPP, is still progressing at a steady pace, despite Cadillac Fairview’s internalisation.
Looking back, it is clear Aimco, which had deployed capital alongside the likes of Oxenwood, Canmoor and XLB, took its foot off the gas in the European logistics sector long before things became ultra-spicy. HOOPP’s deployment of capital though Verdion has always been a long-term, less high-octane and development-heavy endeavour.
PSP maintains a relationship with Segro through their SELP joint venture, whereby the vehicle has first refusal on opportunities it uncovers in Continental Europe, although it conveniently has no obligation to always go in alongside the REIT.
They may not be undertaking the rapid deployment of capital they were a decade or so ago, but Canada’s major pension funds are still shaping the European logistics market. And that means potential opportunity for others – not just by buying up stock as the market stabilises, but also through teaming up with experienced capital partners to grow alongside them.
