Ivanhoé Cambridge's Latest Joint Ventures in Brazil and the UK

Ivanhoé Cambridge and Hines recently announced multifamily joint venture in Brazil for multifamily projects in São Paulo:

Ivanhoé Cambridge and Hines, the global real estate firms, today announced a new joint venture to develop, own, and operate best-in-class multifamily buildings in São Paulo, Brazil. The venture will have the capacity to invest up to R$750 million of equity to deliver highly amenitized, international-caliber products and services to a market that is lacking in purpose-built multifamily rental projects. Hines’ multifamily property management firm, Willowick Residential, will be responsible for the property management of each project upon completion. 

“Ivanhoé Cambridge strongly believes in the global development of the residential rental-housing business and Brazil is no exception. We are very excited to enter the multifamily rental market in São Paulo together with Hines as first movers in the institutionalization of the sector in Brazil”, declared Adriano Mantesso, Managing Director, Head of Latin America, Ivanhoé Cambridge. 

“This joint venture with our longtime partner, Ivanhoé Cambridge, gives us the opportunity to bring our extensive global multifamily experience to this ever-growing market. There is a deep, unmet demand for high-quality, professionally managed rental projects in São Paulo, and a venture of this magnitude will provide a highly differentiated value proposition to customers,” said Alfonso Munk, Hines chief investment officer, Americas. 

The joint venture’s investment strategy will focus on projects located in vibrant urban submarkets close to transportation, employment hubs, shopping malls and entertainment centres. The projects will offer best-in-class amenities including spa-quality fitness facilities and pools, actively programmed tenant lounges, modular co-working spaces, and a multitude of lifestyle services. The projects will also reflect both partners’ ESG convictions and will target market leading energy efficiency and carbon performance. 

Both Ivanhoé Cambridge and Hines have expansive footprints in Brazil in a variety of product types including living/housing, office, industrial/logistics, and retail. Ivanhoé Cambridge has a current Brazilian commercial portfolio comprising almost 18 million square feet, and Hines Brazil has operations spanning 37 million square feet of real estate in its 24 years in Brazil. 

I am catching up on some real estate news at Ivanhoé Cambridge, CDPQ's massive real estate subsidiary.

This joint venture with longtime partner Hines to develop and rent out much needed high-quality multifamily residences in São Paulo, Brazil in vibrant urban submarkets close to transportation, employment hubs, shopping malls and entertainment centers will prove to be very successful.

Brazil is a high conviction area for CDPQ, CPP Investments and other large Canadian and global asset managers. 

Last year, Cyrela Brazil Realty, CPP Investments and Greystar announced a partnership with real estate developer SKR to develop, own and operate a purpose-built rental multifamily project in the Pinheiros/Rebouças district of São Paulo. 

When the two largest Canadian pension funds are investing in multifamily projects in Brazil, you can rest assured they've done their homework are aligned with their strategic partners to commit to these projects.

Why is Brazil so attractive? Guilherme Regal, Head of Capital Markets at Cushman and Wakefield,  recently posted this comment:

As the largest asset class in terms of commercial real estate investment in the US and other developed markets, and also the most resilient during economic downturns, the multifamily is gaining traction in the Brazilian real estate sector.

Initially, through some service-focused startups, now properties companies and real estate investment funds (FIIs) are increasing their multifamily investments in Brazil. At the end of 2021, the FIIs had around BRL 650 million under management, and properties companies are developing more than 10,000 units.

About 20% of Brazilian families live in rented apartments, representing more than 13 million households, of which 1 million are in São Paulo alone. There is therefore a huge market opportunity to institutionalize the sector that has traditionally been family-to-family.

Advantages of investing in multifamily properties:

• More resilient during economic downturns
• Growth investment profile in the Brazilian real estate sector
• Benefits from the reallocation of more cyclical sectors

Challenges

Currently, one of the main obstacles to accelerating the development of the sector is the recent increases in interest rates by the Central Bank, which after having progressively decreased in the last 3-4 years are now back to 11.75% to slow down inflation.

No doubt, high inflation is wreaking havoc everywhere including Brazil, but the economy is growing nicely and one big hedge fund there is betting inflation will drop. 

Regardless, people need to live somewhere and demand remains very strong for high-quality rental units in São Paulo, which is why I see a secular trend forming as Brazil's multifamily sector attracts foreign investors and becomes more institutionalized. 

The added benefit of this joint venture with Hines is the projects will also reflect both partners’ ESG convictions and will target market leading energy efficiency and carbon performance.

Ivanhoé Cambridge is recognized as a global leader in terms of sustainable investing and it takes this role very seriously at home and abroad. 

For example, in early May it put out a press release pledging to reduce the carbon footprint of its Montreal properties by 55% by 2030:

 In conjunction with its involvement in the Montréal Climate Summit taking place today, Ivanhoé Cambridge has pledged to reduce the carbon intensity of its Montreal properties by 55% by 2030 in relation to 2017. This commitment is equivalent to a reduction of about 8,000 tonnes of CO₂ equivalent and will align the Company’s Montreal portfolio with the goal of 1.5 degrees Celsius established under the Paris Agreement.

To a large extent, the planned reductions are based on a strategy focusing on energy savings, more efficient systems, and buildings, proven technologies, and a shift to electrification. Ivanhoé Cambridge’s commitment is also aligned with the City of Montreal’s Climate Plan and the commitments that the City announced during the Summit for the decarbonization of buildings in Montreal.

“By announcing this commitment today, we want to continue to play a leadership role in our industry and inspire our peers to make ambitious commitments and invest in the transition to low-carbon real estate. As we did in Glasgow last November when we took part in COP26, we’re determined to work with all players in the real estate industry to identify solutions that will enable us to accelerate the decarbonization of our real estate assets,” said Élise Proulx, Head of Quebec Economic Development at Ivanhoé Cambridge.

Key role of the real estate sector

The latest report of the Intergovernmental Panel on Climate Change states that, in relation to the other economic sectors, real estate will have to contribute one-quarter of the emission reductions needed to achieve carbon neutrality by 2050. Because 80% of the buildings we will be using in 2050 have already been constructed, the major challenge is to transform the existing building stock.

Last April, Ivanhoé Cambridge announced ambitious decarbonization targets with its commitment to achieve carbon neutrality by 2040 for its global portfolio of assets. This commitment includes:

• reducing the carbon intensity of the global portfolio by 35% by 2025 versus 2017;
• increasing low-carbon investments by $6 billion by 2025 versus 2020; and
• aiming for all the Company’s new developments to be net zero carbon from 2025.

“The target we’ve set for 2030 for our Montreal properties is, therefore, yet another ambitious step toward our overall commitment to carbon neutrality by 2040,” Ms. Proulx added.

Ivanhoé Cambridge intends to continue its active involvement in the work of the Montréal Climate Partnership (MCP), which brings together from various sectors leading players who are all committed to achieving the city’s climate ambitions. For example, the Company is involved the MCP’s Buildings Working Group and will continue to share its decarbonization expertise with the group and contribute to the search for common solutions.

Achieving carbon neutrality by 2040 gives you an idea of how committed Ivanhoé Cambridge is when it comes to reducing the carbon intensity of its global portfolio of assets.

In another joint venture worth mentioning here, PLP recently announced the formation of its second UK develop-to-core logistics venture:

PLP is pleased to announce the successful close of its second UK develop-to-core logistics venture (UKLV2). The new venture, which has over £750 million of investment capacity, will focus on developing PLP’s deep pipeline of logistics real estate opportunities. Once capital is deployed, PLP’s assets under management are expected to be over £2.5 billion. 

The UKLV2 investment vehicle has been capitalised by majority investor Ivanhoé Cambridge, Peel L&P and Greater Manchester Pension Fund, alongside an investment from PLP for enhanced alignment.  

UKLV2 follows the success of PLP’s first investment vehicle, UKLV1, to which Ivanhoe Cambridge, Peel L&P, Macquarie Asset Management and senior management committed £500m of equity to develop over 10m sq ft of prime logistics space. 

The venture’s develop-to-hold strategy will deliver high-quality large scale logistics facilities, located close to major urban conurbations across the UK. All projects will be sourced, developed, and managed by PLP’s experienced sector-specialist team.  

The new venture has been seeded with a recently acquired, 18-acre prime logistics development opportunity (“PLP Stafford”) at Stone Business Park in the West Midlands. This speculative development of a 340,000 sq ft logistics unit will commence in September 2022, with practical completion scheduled for April 2023. 

As a specialist developer and investment manager, PLP’s philosophy is focused on generating long term value and performance for its investment partners and tenants. This strategy combines market leading ESG credentials with investment in design initiatives to future proof assets, enabling occupiers to increase renewable energy adoption incrementally and cost effectively.   

Jeremy Greenland, CEO of PLP, said: “Having fully allocated £500 million of equity commitments in UKLV1, we’re delighted to have received so much support from our capital partners on UKLV2. We have a great pipeline in store for this venture.” 

Stanislas Henry, Senior Vice President, Operations and Strategic Partnerships, Europe at Ivanhoé Cambridge, said: “We are excited to start this new chapter in the development of PLP, following the very successful initial venture developed between 2017 and 2022. As a historical and strategic partner, Ivanhoé Cambridge is very happy to renew its trust in PLP’s management and team, who are very much aligned with our key financial performance objectives and with our ESG values. This investment also confirms our commitment to European logistics, a major focus of our strategic plan.” 

Kevin Etchells, Senior Investment Manager at Greater Manchester Pension Fund said: “GMPF is delighted to be part of this new venture. The fund considers the UK logistics market to offer attractive risk adjusted returns. However, there is a clear shift of occupiers seeking out best in class assets, in particular with high ESG specifications. PLP has a strong team with an excellent track record in developing prime assets and are fully aligned with GMPF’s long-term investment objectives. We look forward to working with them further in developing and managing the portfolio”.  

Steven Underwood, Chief Executive Officer of The Peel Group and Peel L&P said: “It’s fantastic to see the growth story of PLP continue with the successful close of UKLV2.  We are delighted to confirm our support for PLP’s management and team as they continue to carve a leading position in the UK logistics market.”

In early June, I discussed how Ivanhoé Cambridge expanded its Hub&Flow logistics platform into Germany and stated this:

I looked into CDPQ's 2021 Annual Report which you can download here and checked out the geographic and sector exposures for Real Estate on page 47:

As you can see, over the last five years, exposure to the US, Europe and Asia Pacific increased while there was a decrease in Canada, mostly in Retail and Offices, while residential (multifamily) and especially logistics saw a sharp increase in exposure during that time.

The push toward logistics started before the pandemic and accelerated throughout it.

Now, tripling the size of its logistics portfolio in Europe by 2025 sounds ambitious but it's definitely achievable.

The time is ripe for European investments. The war in Ukraine and the ECB's loose monetary policy have sent the euro to multi-year lows relative to the US dollar and now is the time to take advantage of opportunities there across public and private markets:

At the time, the press release also stated this:

This transaction is in line with Ivanhoé Cambridge’s logistics strategy in Continental Europe, which was initiated by the Hub & Flow portfolio in February 2020 and continued with the acquisitions of three projects currently under development in Roye (Hauts-de-France), Mer (southwest of Orléans) and Fos-sur-Mer (Bouches-du-Rhône) in France. This portfolio complements Ivanhoé Cambridge’s European logistics operations, such as the partnership with PLP for the development of a first-class logistics portfolio in the United Kingdom and the collaboration with URBZ Capital as part of its strategy dedicated to last-mile logistics in Europe.

These logistics investments with strong partners and through its Hub&Flow European logistics real estate platform are proving to be very successful and will drive Ivanhoé Cambridge's performance over the long run. 

Again, multifamily and logistics is where most of Canada's large pensions are focusing their attention in their real estate portfolios and for good reason, these are the areas which will experience the strongest growth over the long run as the rise of e-commerce and increasing demand for housing shape strong secular trends.

Lastly, Ivanhoé Cambridge has turned the corner on 2020. It remains a global real estate powerhouse which is doing very well under the leadership of Nathalie Palladitcheff, its President and Chief Executive Officer since 2019.

I invite you to stay informed of the organization's latest news here and see all the latest news which I cannot cover in one post.

Below, an older 2020 Commercial Real Estate Library podcast interview with Nathalie Palladitcheff, President and CEO of Ivanhoé Cambridge discussing strategy and opportunities.

I also embedded a more recent shorter clip from Russell Reynolds Associates featuring insights on leadership from Nathalie. 

I had the pleasure of speaking with her and Stéphane Villemain, Vice President, Corporate Social Responsibility back in December of last year and think very highly of both of them. You can read that interview here. 

Lastly, I embedded a recent RExperts clip from on Brazil's rental housing market which explains the housing shortage going on there and what are the challenges and opportunities in this sector.

Update: Some more good news from  Ivanhoé Cambridge:

As stated above, the real estate sector will play a critical part in decarbonizing the world and achieving net neutrality by 2050 or earlier. We need to see more initiatives like Fifth Wall's Climate Fund.