Two of Canada's biggest pension funds said Wednesday they acquired a combined 49% stake in a shopping center in Rio de Janeiro for C$80 million, further bulking up their real estate holdings in Brazil.
Ivanhoe Cambridge, the real estate arm of Caisse de depot et placement du Quebec, and Toronto-based CPP Investment Board acquired the stake in Botafogo Praia Shopping center from Brookfield Brasil Shopping Centers, an arm of Brookfield Asset Management (BAM), an asset manager based in Toronto. They are each paying C$40 million towards the total price and as a result of the transaction, Invanhoe Cambridge and its Brazilian affiliate Ancar Ivanhoe Shopping Centers increased their position to 75.5% from 51%. CPP now owns a 24.5% stake in the shopping center.
Canadian pension funds have been active buyers of real estate holdings globally, attracted to the steady income these assets can generate to help them meet their payout obligations.
The Brazilian market is particularly attractive because of the relative strength of the country's economy, the resulting growing middle class and an under supply of high-quality institutional real estate, CPP says.
"Its fits very well" with the fund's objective of identifying real estate markets that "we think can outperform over...10-20 years," said Peter Ballon, CPP's head of real estate investments for the Americas.
The 166,824-square-foot Botafogo Praia Shopping center, located along Botafogo Beach in Rio, is comprised of 138 stores that benefit from the plaza's prime location and close promixity to public transit, the pension funds said.
The transaction is Ivanhoe Cambridge's first joint acquisition with CPP, but Ivanhoe Cambridge is already well established in the Brazilian market. With the latest deal, Ivanhoe Cambridge now owns 10 shopping centers across Brazil. Ivanhoe Cambridge's parent Caisse de depot oversees about C$151.7 billion in assets.
CPP, which has about C$152.3 billion under management, owns three retail properties, two office developments and eight industrial projects in Brazil.
In Brazil, CPP currently favors retail real estate because of the growing middle class. That group is expected to increase by an estimated 30 million over the next few years, or by the equivalent of Canada's population, Ballon noted.
CPP also likes the industrial real estate market in Brazil because of a shortage of buildings with the height, loading dock and heating requirements that international tenants and an increasing number of domestic tenants seek, he said.
Now we know who Michael Sabia was referring to when he said Canadian pension funds need to do more 'club deals'. However, as noted by the Montreal Gazette, Ivanhoe, through a Brazilian affiliate, already owned control of the center, so the Caisse’s interest is now 75.5 per cent and CPPIB’s 24.5 per cent.
Claude Sirois, senior vice-president of emerging markets for Ivanhoe Cambridge, said “the Brazilian retail sector is a strong focus for us and the latest deal confirms our long-term relationship with our affiliate Ancar Ivanhoe, with whom we now own 10 shopping centers across Brazil.”