Giant Canadian Pension Manager Commits to Property

(July 25, 2012) — The Canada Pension Plan Investment Board (CPPIB) is investing US$355 million into seven residential properties in the United States, seeking long-term, stable investments as a downtrodden economic environement has taken a toll on the market.

The properties are located in San Francisco, Chicago, and Dallas.

The decision by the board to invest in US apartments follows the CPPIB’s completion of its largest real estate investment to date when it formed a joint venture with Lend Lease Corp. to develop and hold two office towers for $2 billion.

Peter Ballon, CPPIB’s vice-president and head of real estate investments in the Americas said: “We look forward to long-term partnerships with Essex Property Trust, Bentall Kennedy, and AMLI Residential, who are among the top US real estate companies specializing in the acquisition and development of Class A multifamily communities.”

Ballon added: “We believe that the limited supply of high quality rental properties and other broad demographic trends such as forecast population growth, declining home ownership and the echo-boom generation reaching peak rental propensity all support continued growth in the US multifamily sector.”

CPPIB’s multifamily portfolio now comprises interests in over 6,000 units in seven US markets. To date, CPPIB’s equity commitments in this sector total US$912 million.

In June, a panel hosted by The Trust Company (TTC) — a trustee company that offers services including infrastructure custody — gave weight to the CPPIB’s support of property investments, asserting that Canadian pension funds will increasingly look to Australia alongside investments closer to home for long-term infrastructure and investment opportunities. The panel featuring Scott Farrell and Matthew Stutsel, partners at KPMG; Komu Kumar, investment director of financial services at Austrade Canada; and Andrew Cannane, general manager of corporate clients at The Trust Company, looked at opportunities presented by the wave of Canadian investment into Australian infrastructure and property.

Canadian investment in Australian property and infrastructure has ballooned in recent years, with Australia now the third largest global destination for Canadian direct investment abroad (excluding tax havens), according to the TTC at the time. Canadian direct investment in Australia is approximately C$25 billion, making the two-way investment between both Australia and Canada around C$45 billion. “Canadian investors are looking for stable returns in the current low-yield environment and are showing a strong interest in Australia given its proximity to Asian markets and, in particular, China,” said Andrew Cannane, general manager of corporate clients at TTC. “On a relative risk weighting Australia is still a most attractive investment destination for investors; it is highly transparent, it has legal certainty, and a 4.3% GDP growth.”