Wednesday, January 17, 2018

CPPIB Investing in UK's Housing Shortage?

IPE reports, Lendlease and CPPIB team up to invest £1.5bn in UK BTR sector:
Lendlease and Canada Pension Plan Investment Board (CPPIB) have partnered to invest an initial £1.5bn (€1.7bn) in the UK build-to-rent (BTR) sector.

The partnership will begin with an investment of £450m in the next phase of new homes at Lendlease’s £2.3bn Elephant Park development in Elephant & Castle, London.

CPPIB will invest around £350m for 80% stake and Lendlease will invest the balance.

This partnership is in addition to the £800m that Lendlease has already committed to housing and infrastructure in the development and will accelerate the delivery of private rental and affordable homes.

Construction has already commenced, and the first homes in this phase are expected to be completed in 2020.

Following this initial investment, the partnership will also pursue opportunities within Lendlease’s wider residential urban regeneration activities in London and across the UK under a 50:50 joint venture.

It aims to help address the UK’s housing shortage, over time, providing thousands of homes in London and across the UK via the development, and long-term ownership, of BTR product.

Lendlease will develop, construct and manage the BTR homes on behalf of the partnership.

Dan Labbad, the CEO of Lendlease’s international operations, said: “In recent decades, structural shifts in the housing market have meant that demand has outstripped supply in the private rented sector, leading to a shortfall of homes in London and across the UK.

“Today’s announcement is a logical next step for us as a business and delivers on our strategy to grow our urban regeneration pipeline and accelerate the delivery of much-needed homes, by working with institutional capital partners to launch this new asset class for Lendlease’s investment platform.”

Andrea Orlandi, the managing director and head of real estate investments Europe at CPPIB, said: “This investment is a great opportunity for CPPIB to further diversify our European real estate portfolio, while at the same time addressing a need in the UK.

“Through this partnership, we are able to access a sector we believe is poised for long-term growth, and we are pleased to be able to do so with Lendlease, one of our existing top global partners.”

CPPIB is already a long-term global partner of Lendlease.
You can read CPPIB's press release on this deal here. Lendlease has a good description of Elephant Park on its website:
Lendlease is working in partnership with Southwark Council to deliver a GBP£2 billion regeneration programme on 28 acres of land in the centre of Elephant & Castle. Situated in London's Zone 1, our vision is to create Central London's new green heart.

Inspired by the strength of its past, we will re-establish Elephant & Castle as the most exciting new neighbourhood in London not only through what we're building, but also how we're doing it. Our approach to urban regeneration in Elephant & Castle is already setting new standards in sustainability, that will not only will make the Elephant a great place to live, but will play a vital role in tackling issues such as air pollution and carbon emissions, creating a positive impact beyond just the Elephant.

The regeneration comprises three sites:
  • Elephant Park Masterplan Almost 2,500 new homes on the site of the former Heygate Estate. Received outline planning permission in 2013 and will be completed in phases between now and 2025. The first two phases South Gardens and West Grove are in construction. 25% affordable housing.
  • Trafalgar Place 235 new homes, including 25% affordable housing and a local café. Completed May 2015.
  • One The Elephant 284 homes in a 37 storey tower and four storey pavilion building, adjacent to the councils new Leisure Centre. Completes June 2016.
Lendlease views the Elephant & Castle regeneration as a unique opportunity to work with a local authority to create positive change. We will harness the scale of the project to tackle head-on some of the most challenging issues that affect global cities like London.

The Elephant Effect is what will happen when we apply all our imagination, empathy and dedication, and get this right. To do this, we take a long term view to consider how our project will be used to enable sustainable outcomes, such as enhancing biodiversity in parks and buildings, improving public transport and cycle networks, and maximising the resource efficiency of homes. The approach to development and construction will also contribute to sustainable results, such as: utilising cross laminated timber building frames, providing interim site uses to during the construction phase, and working with our supply chain to trial new technologies.

The Elephant & Castle regeneration is one of 18 projects from across the world chosen to be part of the Climate Positive Development Programme. We have set a roadmap that will deliver a climate positive development by 2025, and through the programme, global projects will learn from our outcomes and best practice.

Elephant & Castle is also one of ten low carbon zones identified by the Mayor of London tasked with local production of cleaner better value energy to fuel local households and businesses. As such, we are developing plans for a combined heat and energy centre to power our sites and the surrounding area.
As you can read, not only is this project going to transform this London neighborhood into one of the most exciting ones, it is also respecting climate control principles, all part of CPPIB's environmental and socially responsible investing.

This is a mammoth project and one which will deliver excellent long-term cash flows and capital appreciation to CPPIB and its partner, Landlease. This is the value in finding a solid long-term partner in real estate that adds value to major projects like this.

It also seems this deal is coming at a good time as the British pound has strengthened considerably since Brexit:



Remember, CPPIB doesn't hedge currency risk so any strength in foreign assets due to capital appreciation and gain in foreign currencies works to the Fund's advantage over the long run even if there are short-term swings in currencies which can impact gains on any given year.

And in another major real estate deal announced last week, Cortland Partners, CPPIB and GIC Form Strategic Joint Venture in U.S. Multifamily Real Estate:
Cortland Partners, Canada Pension Plan Investment Board (CPPIB) and GIC announced today that they have formed a joint venture with a targeted equity amount of US$550 million to acquire and renovate 8,000 to 10,000 Class B multifamily units in the U.S. CPPIB and GIC will each own a 45% interest in the joint venture and Cortland Partners will own the remaining 10% interest.

Class B properties are generally well-maintained older assets with opportunities for improvements to the buildings for the benefit of tenants, ongoing maintenance and long-term appreciation. The joint venture has initially acquired three value-add, Class B garden-style communities located in high-growth markets of major U.S. metropolitan areas:
  • Lakecrest at Gateway Park, a 440-unit rental complex located in Denver, Colorado;
  • Aurum Falls River, a 284-unit rental complex in Raleigh, North Carolina; and
  • Waterstone Apartments, a 308-unit rental complex in Austin, Texas.
“Partnering with these first-class organizations solidifies our business model and proves that a Class B multifamily investment strategy reflects smart money,” says Mike Altman, Chief Investment Officer, Cortland Partners. “We look forward to expanding our relationship with CPPIB and GIC through this joint venture.”

The joint venture will pursue additional opportunities to acquire multifamily properties that are candidates for value-add strategies, primarily in major markets throughout the Southern and Southeastern U.S.

“The U.S. multifamily real estate sector continues to offer compelling risk-adjusted returns for the CPP Fund, driven by favourable population growth and employment trends,” said Hilary Spann, Managing Director, Head of Americas, Real Estate Investments, CPPIB. “By focusing on Class B asset opportunities, this joint venture enables us to add diversification to our U.S. multifamily portfolio, which is concentrated in prime urban locations. We are pleased to form this new joint venture with Cortland Partners, a vertically integrated operator and one of the largest multifamily owner-operators in the U.S., and GIC, a longstanding partner we know well.”

Lee Kok Sun, Chief Investment Officer, GIC Real Estate, said “This venture will pursue a value-add strategy to capture the strong demand and resilient return profile of the U.S. multifamily sector. We look forward to growing this venture with Cortland, an experienced multifamily firm with a sizeable presence in the Sun Belt target markets, and CPPIB, a partner who shares our long-term investment philosophy.”

About Cortland Partners

Cortland Partners is a global, multifamily real estate investment firm that leverages proprietary design and build supply chains with in-house construction, property, and facilities management services to unlock value in high-growth U.S. markets. Headquartered in Atlanta, GA, Cortland owns and manages over 45,000 apartment communities across the U.S. with regional offices in Charlotte, Dallas, Denver, Houston, and Orlando. Cortland also houses a global materials sourcing office in Shanghai, China and an international development office in London, U.K. Cortland Partners is a National Multifamily Housing Council (NMHC) Top 50 Owner and Manager and is ranked among Atlanta’s “Top 25 Largest Workplaces” (2017). For more information, visit www.cortlandpartners.com.

About CPPIB

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of 20 million contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, São Paulo and Sydney, CPPIB is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At September 30, 2017, the CPP Fund totalled C$328.2 billion. For more information about CPPIB, please visit www.cppib.com or follow us on LinkedIn, Facebook or Twitter.

About GIC

GIC is a leading global investment firm with well over US$100 billion in assets under management. Established in 1981 to secure the financial future of Singapore, the firm manages Singapore’s foreign reserves. A disciplined long-term value investor, GIC is uniquely positioned for investments across a wide range of asset classes, including real estate, private equity, equities and fixed income. GIC has investments in over 40 countries and has been investing in emerging markets for more than two decades. Headquartered in Singapore, GIC employs over 1,400 people across 10 offices in key financial cities worldwide. For more information about GIC, please visit www.gic.com.sg.
You will recall last March I discussed why CPPIB and Singapore's GIC were betting big on US college housing, so I'm not surprised to see these two huge funds partner on this particular deal.

Lastly, in another huge deal announced this week, CPPIB and Goldman Sachs Asset Management LP led an investment round of more than $950 million for Enfoca, a Peruvian private-equity firm.

There is more detail on this deal from this press release:
Enfoca, a leading private equity fund manager based in Lima, Peru, today announced the completion of a General Partner-led secondary transaction in which a new investment fund managed by Enfoca purchased exposure to the portfolio companies of three Enfoca-managed funds by providing a liquidity option to the existing Limited Partners (LPs). The new fund also obtained commitments for new capital to develop the portfolio.

Canada Pension Plan Investment Board (CPPIB), which made a capital commitment of US$380 million, and Goldman Sachs Asset Management LP’s Vintage Funds (GSAM) led the transaction. The three largest Peruvian pension funds, Integra, Prima and Profuturo, which have invested with Enfoca since 2007, are also committing new capital to the fund after taking advantage of this opportunity to obtain partial liquidity for their existing investments with Enfoca. In aggregate, the transaction represents a total capital commitment of over US$950 million and sets a new benchmark for General Partner-led liquidity alternatives in the LatAm private equity market.

Through a competitive bidding process, the transaction provided Enfoca’s existing LPs with a liquidity option with attractive returns on their original investments. The transaction gives the new LPs the opportunity to invest in a unique high-growth portfolio of Peruvian mid-market companies and also provides Enfoca with access to capital for new investments and continued growth of the portfolio, as well as an extended duration to realize the portfolio’s potential. Enfoca will serve as the General Partner of the new fund and will manage the portfolio post-closing.

“We are pleased to deliver liquidity for our existing LPs with attractive returns in a landmark transaction for the LatAm private equity market, while introducing CPPIB, a sophisticated global institutional investor, and GSAM, a successful global private equity investor, to our fund. The significant unrealized value in the portfolio provides our new investors with unique access to sectors in the Peruvian market and the Andean region that have experienced rapid growth,” said Jesús Zamora, Co-Founder and Chief Executive Officer of Enfoca.

“This sizable transaction supported by our new investors represents an important milestone for Enfoca and provides our portfolio with greater flexibility and access to capital,” said Jorge Basadre, Co-Founder of Enfoca. “We thank those LPs who are exiting our fund for their support over the years and look forward to working closely with our new and continuing investors as we grow our businesses in the future.”

“CPPIB is delighted to partner with Enfoca and GSAM in this direct secondary transaction, which allows us to benefit from their deep market expertise and track record in Peru,” said Michael Woolhouse, Managing Director, Head of Secondaries & Co-Investments, CPPIB. “Through this transaction, CPPIB will gain further access to this growing market and increase its overall investment in Latin America, one of our strategic focus regions.”

Steve Lessar, co-head of Goldman Sachs Asset Management’s Vintage Funds, said, “We are pleased to be partnering with Enfoca and CPPIB to invest in a portfolio of market-leading, consumer-oriented companies with meaningful growth prospects driven by a strong Peruvian economy. We have been impressed with Enfoca’s investment strategy and look forward to investing additional capital to support the growth of these portfolio companies.”

Park Hill Group LLC served as financial advisor and Davis Polk & Wardwell LLP and Payet, Rey, Cauvi, Pérez Abogados served as legal advisors to Enfoca.

About Enfoca

Enfoca, founded in 2000, is a private equity fund manager based in Lima, Peru. Enfoca manages funds with more than US$1 billion in assets, investing in Peru and other Andean region markets. Enfoca targets companies that operate in sectors that Enfoca believes are positioned to benefit from growth in the economy and consumer spending, such as healthcare, media, education, housing and consumer goods. For more information about Enfoca, please visit: http://www.enfoca.com.pe/

About CPPIB

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of 20 million contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, São Paulo and Sydney, CPPIB is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At September 30, 2017, the CPP Fund totaled C$328.2 billion. For more information about CPPIB, please visit www.cppib.com or follow us on LinkedIn, Facebook or Twitter.

About Goldman Sachs Asset Management LP’s Vintage Funds

The Vintage Funds invest in the secondary market for private equity, providing liquidity, capital and partnering solutions to private market investors and managers globally. With over $26 billion in committed capital, the Vintage Funds have been innovators in the secondary market for over 20 years. The Vintage Funds are managed by the Alternative Investments & Manager Selection (“AIMS”) Group within Goldman Sachs Asset Management. The AIMS Group provides investors with investment and advisory solutions across hedge fund, private equity, real estate, public equity, fixed income and environmental, social, governance and impact-focused investment strategies. For more information, visit: www.gsam.com
Below, an interview with Chris Baines (environmentalist) and Carlo Lorenzi (London Wildlife Trust) on the benefits of having inner city nature on your doorstep.

I also embedded an interview with Lendlease Project Director for Elephant & Castle Pascal Mittermiaer on their world leading plans for sustainable 'healthy homes' and green spaces at Elephant Park, utilising innovative materials such as cross-laminated timber.

Third, Sustain's Sarah Williams talks about the growing popularity of inner city grow gardens and the benefits of growing your own food, no matter where you live.

Lastly, welcome to West Grove, the next chapter of Elephant Park, Central London’s greenest new place to live. West Grove is set around two landscaped courtyards in two distinct neighbourhoods, Highwood Gardens and Orchard Gardens. West Grove is ideally located to enjoy the independent shops on Elephant Park’s new central shopping street, as well as the brand new park at the heart of the development. The estimated completion date for West Grove is Spring/Summer 2018.

It looks like paradise in London. You can watch more clips on Elephant Park here. This is another great long-term investment for CPPIB, one that will benefit all Canadians.




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