OTPP's Bold New Property Venture in Asia-Pacific Region

Nguyen Thi Bich Ngoc of Deal Street Asia reports US realty investment firm Hines launches APAC fund with $400 million from OTPP arm:

US-headquartered real estate firm Hines has launched a flagship fund for the Asia-Pacific region, Hines Asian Property Partners (HAPP), with a $400 million investment from Cadillac Fairview, the real estate investment arm of Canada's largest single employer pension scheme, Ontario Teachers' Pension Plan.

Cadillac Fairview is the lead founding investor in the fund, according to a statement released on Tuesday. The transaction probably marks its first capital deployment in the region.

HAPP will be be a multi-sector, open-ended, diversified vehicle targeting top-tier markets in Japan, Australia, South Korea, Singapore and China. The fund will invest in logistics, office, living, retail and select niche sectors targeting core plus returns.

"We believe that Asia will accelerate growth and diversification benefits to our portfolio with potential long-term outperformance,” said Duncan Osborne, executive vice president of Investments at Cadillac Fairview. 

Hines, which entered APAC in 1996 with a presence in China, has expanded throughout 13 cities across Australia, greater China, India, Japan, South Korea, and Singapore with $5.3 billion of assets under management. The firm has acquired or developed 17 projects totaling 14 million square feet.

In January this year, Hines roped in Chiang Ling Ng from M&G Asia as its chief investment officer for the Asia market. A month later, Hines appointed a director in its Seoul office, and an associate based in Tokyo.

The firm's investment in the region include One Horizon Centre commercial building and office projects in Gurugram and Bengaluru India.

Meanwhile, the C$221 billion ($179.4 billion) Ontario Teachers' Pension Plan opened its Singapore office in Singapore last year to accelerate investments in India, Australia, New Zealand, and Southeast Asia. The pension fund's APC headquarters is located in Hong Kong which was set up in 2013.

Cadillac Fairview manages over C$36 billion of assets in the Americas and the United Kingdom.

Katherine Feser of the Houston Chronicle also reports Hines launches fund to invest in Asia-Pacific region:

Houston-based Hines has launched a fund, backed by a major Canadian pension investor, aimed at investing in properties across the Asia-Pacific region. Cadillac Fairview, the real estate investment arm of Ontario Teachers’ Pension Plan, provided $400 million in capital for the fund.

The Hines Asia Property Partners fund will have an initial capacity to invest approximately $900 million in markets including Japan, Australia, South Korea, Singapore, China and Hong Kong, according to Hines. The fund will focus on assets designed for future tenant demand. This includes logistics, office, residential, retail and other niche properties.

“We are very pleased to partner with such a prominent like-minded institutional investor like Cadillac Fairview to launch our flagship fund in Asia. We look forward to creating value for our current and future investors, project partners, and communities through the fund’s investments,” Hines Global Chief Investment Officer David Steinbach said in an announcement. “Our long-established teams in the Region have already started to identify and secure opportunities that are emerging post-COVID across Asia-Pacific.”

Hines, which entered China more than 25 years ago, has developed or acquired 1,450 properties totaling more than 485 million square feet worldwide since being founded in 1957. 

Duncan Osborne, executive vice president of investments at Cadillac Fairview, said the firm has a relationship with Hines dating back two decades and investing in Asia "will accelerate growth and diversification benefits to our portfolio with potential long-term outperformance.”

The new fund follows the formation of a joint venture between Hines and the National Pension Service of Korea last year to develop as much as $5 billion worth of commercial real estate worldwide, including projects in the Asia-Pacific region. The partners said that venture would address the demands of modern spaces.

OTPP's real estate subsidiary, Cadillac Fairview, put out a press release on this deal earlier today:

Hines, the international real estate firm, today announced the launch of Hines Asia Property Partners (HAPP), the firm’s new flagship fund for the Asia-Pacific Region with $400 million of capital from Cadillac Fairview, the real estate investment arm of Ontario Teachers’ Pension Plan, the largest single profession pension plan in Canada. The fund will be a multi-sector, open-ended, diversified vehicle targeting top-tier markets in Japan, Australia, South Korea, Singapore and China (including Hong Kong).

HAPP intends to invest in logistics, office, living, retail and select niche sectors to build a diversified portfolio targeting core plus returns and balancing yield and growth. By focusing on next generation assets designed for future tenant demand, this fund will aim to capitalize on an attractive pricing environment and fundamental market shifts by leveraging Hines’ operating platform to create value at the asset level through active management and select development.

“We are very pleased to partner with such a prominent like-minded institutional investor like Cadillac Fairview to launch our flagship fund in Asia. We look forward to creating value for our current and future investors, project partners, and communities through the fund’s investments,” said David Steinbach, Hines Global Chief Investment Officer. “Our long-established teams in the Region have already started to identify and secure opportunities that are emerging post-COVID across Asia Pacific.”

 Cadillac Fairview, the real estate investment arm of the C$221 billion Ontario Teachers’ Pension Plan, is the lead founding investor.

“We are delighted to invest in Hines Asia Property Partners as a lead founding investor, and we believe that Asia will accelerate growth and diversification benefits to our portfolio with potential long-term outperformance,” said Duncan Osborne, Executive Vice President of Investments at Cadillac Fairview. “Our relationship with Hines dates back two decades and they have a proven track record as a trusted manager and operator with demonstrated history of successfully executing investments through their local market teams.”

HAPP will leverage Hines’ boots-on-the-ground experience in the region. The firm first entered in China over 25 years ago. Since 1996, Hines has expanded throughout 13 cities across Australia, China (including Hong Kong), India, Japan, South Korea and Singapore, with $5.3 billion of assets under management. HAPP will have oversight from a team of seasoned investment management professionals, comprised of David Steinbach, Global Chief Investment Officer and Co-Head of Investment Management; Chris Hughes, CEO of the Capital Markets Group and Co-Head of Investment Management; Chiang Ling Ng, Chief Investment Officer of Asia; Ray Lawler, CEO of Hines Asia Pacific Region and Simon Shen, HAPP Fund Manager, totaling over 100 years of career experience.

Chiang Ling Ng, who recently joined Hines from M&G, and now serves as the firm’s Chief Investment Officer, Asia, added, “This is such an exciting time to be beginning my tenure at Hines. The expertise of the team, in addition to the strength and confidence we instill in our investment partners, while leveraging our proprietary research, will enable us to quickly deploy capital and execute key off-market transactions across multiple locations and sectors. I look forward to working closely with the team to continue to elevate Hines’ platform and serve Hines investors in this region.”

 With HAPP, Hines will continue its expansion in the region and further demonstrate the firm’s commitment to become vertically integrated throughout Asia Pacific by elevating the investment management platform and capitalizing on opportunities in the region. In the current economic outlook, investors are increasing their focus and allocations toward Asia which offers strong underlying economic growth and the potential attractive risk-adjusted returns that present Hines and its investors with compelling opportunities in Asia.

 About Hines

Hines is a privately owned global real estate investment firm founded in 1957 with a presence in 240 cities in 27 countries. Hines oversees a portfolio of assets under management valued at approximately $160.9 billion¹, including $81.7 billion in assets under management for which Hines serves as investment manager, and $79.2 billion representing more than 172.9 million square feet of assets for which Hines provides third-party property-level services. Historically, Hines has developed, redeveloped or acquired approximately 1,450 properties, totaling over 485 million square feet. The firm has more than 180 developments currently underway around the world. With extensive experience in investments across the risk spectrum and all property types, and a pioneering commitment to ESG, Hines is one of the largest and most-respected real estate organizations in the world. Visit www.hines.com for more information. ¹AUM includes both the global Hines organization as well as RIA AUM as of December 31, 2020.

 About Cadillac Fairview

Cadillac Fairview (CF) is a globally focused owner, operator, investor and developer of best-in-class real estate across retail, office, residential, industrial and mixed-use asset classes. Wholly owned by the Ontario Teachers' Pension Plan, CF manages in excess of C$36 billion of assets across the Americas and the United Kingdom, with further expansion planned into Europe and Asia.

Internationally, CF invests in communities with like-minded partners, including Stanhope in the UK, Lincoln Property Company in the U.S., and Multiplan in Brazil. The company's Canadian portfolio comprises 69 landmark properties, including the Toronto-Dominion Centre, CF Toronto Eaton Centre, Tour Deloitte, CF Carrefour Laval, CF Chinook Centre and CF Pacific Centre. 

Continually striving to make a positive impact in communities where it operates by promoting social connection, growth, and a sustainable future, CF's Purpose is Transforming Communities for a Vibrant Tomorrow. Learn more at cadillacfairview.com and follow CF on LinkedIn, Twitter, and Instagram.

This is a huge deal for OTPP as its real estate subsidiary, Cadillac Fairview, is partnering up with a great partner, Hines, to expand into the Asia-Pacific region.

Go back to read my comment on OTPP's 2020 results when I pointed out that there was a diversification problem in Teachers' real estate holdings:

[...] it's Teachers' Real Estate that posted the biggest declines last year, -13.7%, and it's important to understand why:

Operating income was $0.8 billion, 30% lower than 2019 due to rent abatements and lower occupancy, particularly for Canadian retail, which was significantly impacted by mandatory COVID-19 shutdowns causing extended mall closures, lower tenant sales revenues, tenant bankruptcies and a worsened outlook over the short term. Net real estate loss of $4.1 billion for 2020 was $5.6 billion lower than 2019 due to significant valuation losses for Canadian retail, a decline in Macerich and Multiplan shares and a substantially weaker Brazilian Real.

At year end, the retail occupancy rate (spaces less than 15,000 square feet and for lease terms greater than one year) was 85% (91% in 2019), while the office occupancy rate was 94% (93% in 2019). Decline in retail occupancy was partially offset by short-term occupancy (lease terms of less than one year) of 6% in response to challenges and uncertainty created by COVID-19. Canadian office properties were not significantly impacted by pandemic shutdowns since tenants continued to honour their rent obligations and the positive view on the long-term value of office markets has persisted.

The construction of two major office projects was completed in 2020: 16 York Street and 33 Dundas Street West, both in Toronto. Development of a third major office complex, 160 Front Street West in Toronto, continued with minor pandemic-related delays. In line with Cadillac Fairview’s focus on scaling and diversifying its global real estate platform, it acquired White City Place in London, UK.

I must say, Cadillac Fairview really needs to scale and diversify its global real estate portfolio. When I saw this, I was dumbfounded:

Importantly, 55% in Canadian Retail and 30% in Canadian Office and 7% Emerging Markets? Where is the geographic and sector diversification? What about US, European, Asian and Australian exposure and what about logistics and multi-family and other sectors?

I'm missing something here and there aren't enough details in the Annual Report or on the Cadillac Fairview website

How can it be that in 2021, OTPP's real estate portfolio is still so concentrated in Canada (they need to follow BCI's QuadReal and diversify it a lot more).

I understand, liabilities are in Canadian dollars but if it's one thing that Canada's large pensions are good at it's geographic and sector diversification.

Now, to be fair, the pandemic hit Retail real estate assets especially hard and they will bounce back eventually but there's still a tremendous amount of work that needs to be done at Cadillac Fairview to divest from Retail and diversify the portfolio geographically and in terms of sectors.

Again, I might be missing something here but I was shocked reading only 2% of Real Estate assets are in the US and only 1% in the UK, and most are Canadian malls and offices.

After reading my comment, OTPP's CIO Ziad Hindo shared additional insights on OTPP's real estate portfolio:

Regarding your question about real estate, we have a very strong and seasoned team at Cadillac Fairview (CF) that we work very closely with. I have included some additional notes on CF/real estate below: 

  1. CF is building up capabilities internationally (London to cover Europe and Singapore to cover Asia). They have just hired heads of Europe. They have also identified strong local partners to deploy capital with. 
  2. Also in the US, CF is establishing a presence in multi-family having acquired a large stake into Lincoln (One of the largest multifamily operators in the US)
  3. In the US, they’re also focusing on deploying capital into the Life Sciences real estate sector. 
  4. CF will also augment its strong asset base in Canada by diversifying geographically and through different sectors. 
  5. CF is also diversifying its Canadian assets by densifying its retail assets. An example is the residential development in Richmond mall/BC. CF has always been a top notch operator and developer, and the densification program of its shopping malls is going to be quite extensive over the next few years. 
  6. Despite the headwinds suffered as a result of the pandemic, Teachers’ has done exceptionally well since buying CF and making it its wholly owned real estate subsidiary in in 2000 with strong and consistent returns. 
  7. Teachers’ intends to add to its real asset exposure, both infrastructure and real estate (through CF). We’re clearly attracted to the stable, inflation linked cashflows (particularly given the reduction in Fixed Income exposure). 
  8. Also worth highlighting the progress we’ve made in infrastructure investing as a result of our desire to increase exposure to real assets with significant acquisitions (Caruna, SGI, Enwave (Canada), ADNOC and Equis in Asia, all done over the past 12 months). 

No doubt, prior to the pandemic, Cadillac Fairview was delivering consistently strong results, but the pandemic exposed some fundamental problems, namely, lack of geographic and sector diversification.

With this bold new venture into the Asia-Pacific property market, OTPP is taking the much needed steps to diversify its real estate holdings outside of Canada into Asia.

And it chose a solid partner in Hines to do this properly:

HAPP will leverage Hines’ boots-on-the-ground experience in the region. The firm first entered in China over 25 years ago. Since 1996, Hines has expanded throughout 13 cities across Australia, China (including Hong Kong), India, Japan, South Korea and Singapore, with $5.3 billion of assets under management. HAPP will have oversight from a team of seasoned investment management professionals, comprised of David Steinbach, Global Chief Investment Officer and Co-Head of Investment Management; Chris Hughes, CEO of the Capital Markets Group and Co-Head of Investment Management; Chiang Ling Ng, Chief Investment Officer of Asia; Ray Lawler, CEO of Hines Asia Pacific Region and Simon Shen, HAPP Fund Manager, totaling over 100 years of career experience.

I also find it interesting that Hines and the National Pension Service of Korea struck a joint venture last year to develop as much as $5 billion worth of commercial real estate worldwide, including projects in the Asia-Pacific region. 

That tells me Hines is cementing a leading position in the region and partnering up with the right long-term partners to acquire and develop properties in the region. 

All in all, this is a great deal for OTPP, Hines and the pension plan's beneficiaries.

Jo Taylor was nominated CEO of OTPP to build its global brand and expand its global investments and this is exactly what he's doing. 

I expect this to be the first of many new property deals in the region.

John Sullivan, President and CEO of Cadillac Fairview, has a big job repositioning that portfolio to diversify it across geographies and sectors but they are well on their way and need to keep doing big deals like this with the right partners.

Below, Gerald D. Hines, the founder and chairman of the Hines real estate firm, died last year at the age of 95. Watch a clip about this remarkable man.

Also, watch a clip on Hines' global real estate platform featuring insights from Jeff Hines, Chairman and CEO, as well as others. 

This is a powerhouse real estate firm to partner up with, one that OTPP's Cadillac Fairview chose carefully and I expect Hines Asian Property Partners (HAPP) will grow by leaps and bounds over the next decades.

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