The Migration Continues – A Guest Post from Llenrock Group
Apr 15, 2013
This post from Eric Hawthorn is part of our Llenrock guest post series and originally appeared on the Llenrock Group blog.
The U.S. has long been a popular target for CRE capital from other countries. Even though individual markets like London are perennially popular, the U.S. seems to hold the most opportunities for international investors (at least according to AFIRE‘s international investor survey). When we consider the relative stability of the U.S.–and particularly the various asset classes in its gateway markets–it’s no surprise. The recent global economic crisis, from which we’re still experiencing aftershocks in one form or another, may actually be one of the conditions spurring foreign institutions to invest within our borders. The general decline in real estate values has created new opportunities for yield in CRE’s nascent recovery.
One of the biggest investors in U.S. real estate is our neighbor to the north. By and large, Canada avoided the wrath of 2008-09′s economic crisis (at least someone was making good financial decisions…), but its economy, however solid, still needs new investments. Real estate is a fairly limited asset class in Canada; there are only so many opportunities within its borders. So where should Canada’s REITs and intitutional investors deploy their capital? The U.S. is an obvious choice.
According to CoStar, New York City contains more office inventory than the entire nation of Canada.
Canada’s capital migration continues, and some new players are entering the picture.
Last year, the Philadelphia Real Estate Council (PREC) published a white paper exploring potential sources for institutional real estate capital. (You can go here to download the article as a PDF, along with PREC’s many other fine articles.) The author, Cornell University’s Crystal Wilson, describes a number of pension funds showing increased interest in CRE opportunities.
Along with pensions in Norway, Denmark, and the Netherlands, two Canadian pension funds enter the discussion: the Public Sector Pension Investment Board (PSP Investments) and the Ontario Municipal Employees Retirement System (OMERS). While these two alone account for billions of dollars in U.S. investments, there is one more pension fund that deserves mention: Caisse de depot et placement du Quebec. Representing this Quebecois investment giant is fund manager Ivanhoe Cambridge, whose recent aggressive acquisition of U.S. office, multifamily, and retail assets has captured the industry’s attention.
CoStar Group’s Randyl Drummer writes,
Already a leader in Canada’s real estate sector with assets of $15 billion, including more than $5 billion in Quebec, the firm last week made a series of executive appointments as part of the plan to increase its U.S. holdings. Among the leadership changes was the selection of Executive Vice President Adam Adamakakis to work directly with [Tim] Callahan, a star in U.S. commercial real estate, and his company, Chicago-based Callahan Capital Partners, to focus on strong growth of the company’s U.S. investment and asset management business.
Of course, pension funds are extremely finicky investors, so Ivanhoe Cambridge’s increased presence in the U.S. will only benefit certain markets. Like its peers, Ivanhoe Cambridge isn’t interested in flipping small office buildings or repositioning distressed assets; they want quality, stability, and an assurance of long-term revenue. They want investments, not a quick buck.
So it should be no surprise that one of its main targets (along with investment hubs like Manhattan and Chicago) is Silicon Valley. Here’s CoStar again:
The investment of more than $400 million “enables us to acquire a critical mass of assets in a [market] that is seeing one of the best growth rates in the US,” [said Ivanhoe Cambridge’s President of Global Investments]. “We look forward to working with our experienced partners… to increase the value of the office and R&D properties through additional investments and through strong asset management…”
In general, real estate investors are looking toward assets and markets that attract members of the “ICEE” industries (Intellectual Capital, Energy, Education). I suggest, however, that the United States’ economic future rests particularly on the “intellectual capital side,” which is to say, software and technology. Apparently, Ivanhoe Cambridge shares this view.