OTPP Bifurcates Cadillac Fairview, Internalizes Global Real Estate
Ontario Teachers’ Pension Plan is bringing its real estate investment operations in-house and naming Sal Iacono as the next chief executive of Cadillac Fairview Corp. Ltd., with the real estate company’s long-time head, John Sullivan, preparing to retire.
Mr. Sullivan will step down from Cadillac Fairview, which the Teachers pension plan owns, on Nov. 1 after 25 years at the company. Mr. Iacono, the current executive vice-president of operations, will take over, with Mr. Sullivan staying on as an adviser.
By January, Teachers aims to create an in-house real estate group that will take charge of its investing in the sector. Teachers will absorb the entire 37-person team of investment professionals from Cadillac Fairview and launch a search for a global head of real estate to lead it, the pension plan announced Monday.
Cadillac Fairview will continue to own, operate and develop real estate as Teachers takes over the investing activities.
Teachers framed the change as a way to create a more consistent approach to investing in real estate that better matches the model it uses for other asset classes such as infrastructure and private equity. Until now, investing in real estate has been managed by Cadillac Fairview as a subsidiary, but bringing it in-house is intended to allow for more information sharing and make it easier to co-source deals, according to a news release.
The real estate investment group will be “a strategic complement to our existing investment teams across other asset classes,” Ziad Hindo, Teachers’ chief investment officer, said in a prepared statement.
The change comes amid a dramatic shift in the investing climate for real estate, as the values of commercial real estate have declined and the volume of real estate deals has slowed. Evolving hybrid working habits are driving office vacancy rates higher and retail customers’ shopping preferences are changing.
In 2022, Teachers’ real estate portfolio – invested through Cadillac Fairview – lost 3.5 per cent, falling short of a benchmark portfolio it uses to measure its performance, which gained 6.7 per cent. Valuations on its Canadian retail and office portfolios, which make up a large proportion of Teachers’ real estate investments, fell as those properties underperformed.
Mr. Iacono has been at Cadillac Fairview since 2008, where he led the investments team and was a senior vice-president of development before he took over operations.
“I am confident that given his extensive experience, broad network, and strong leadership capabilities that he is well-placed to lead CF in the coming years,” Jeff Jacobson, chair of Cadillac Fairview’s board, said in a statement.
Mr. Sullivan has been CF’s CEO since 2011 and has guided the real estate company as it built its portfolio of retail, office and mixed-use properties, including major malls such as Toronto’s Eaton Centre. Teachers’ real estate portfolio is now worth $28-billion and makes up 12 per cent of its $247-billion in assets.
Mr. Sullivan was instrumental in helping land U.S. luxury retailer Nordstrom Inc. as an anchor tenant for some of its malls, and worked to build Cadillac Fairview’s brand into more of a household name. But with Nordstrom pulling out of Canada, some of Cadillac Fairview’s malls have been left scrambling to find new anchor tenants to fill the spaces it is leaving empty.
“Together we have built an unmatched portfolio, transformed cities across Canada and built exciting partnerships with some of the best companies in the world,” Mr. Sullivan said in a statement.
The Canadian Press also reports Teachers' restructures real estate division, names new Cadillac Fairview CEO:
The Ontario Teachers’ Pension Plan says it’s switching up how it handles real estate investments while announcing that the head of its Cadillac Fairview subsidiary is retiring.
The pension plan has been using its Cadillac Fairview division as its main avenue to invest in real estate, but says it plans to instead create an in-house group to oversee its global real estate investing and portfolio management.
The pension says the new structure will help it share information, co-sourcing, and best practices across its global platform.
As part of the changes, the pension plan will bring 37 of Cadillac Fairview’s real estate professionals to the organization.
The shift, expected to be in place by the start of next year, will leave Cadillac Fairview to focus on developing its Canadian real estate portfolio that is heavily concentrated in malls.
The moves come as Cadillac Fairview president and chief executive John Sullivan announced he plans to retire on Nov. 1, to be replaced by Salvatore Iacono, who currently serves as its executive vice-president of operations.
And Real Estate News Exchange reports Ontario Teachers' to split CF into 2 entities, CEO Sullivan to retire:
Cadillac Fairview will be split into two entities under a new operating model announced Monday by The Ontario Teachers’ Pension Plan, which also includes the retirement of longtime president and CEO John Sullivan. Ontario Teachers' will establish an in-house real estate group to oversee real estate investment activities.
The plan says the move aligns the real estate investment approach to that of other asset groups within Ontario Teachers' portfolio, where investment capabilities are embedded to “enable information sharing, co-sourcing, and best practices across its global platform.”
CF's global team of 37 real estate investment professionals will transition into the Ontario Teachers’ organization and a search will begin for a global head of real estate, to lead the group. This role will report to Ziad Hindo, chief investment officer, and will join Ontario Teachers' investment executive team.
"We are excited to continue our decades-long relationship with CF under an evolved model that will capitalize on expertise across our two organizations and further strengthen our respective positions as a leading global investor and a best-in-class Canadian real estate owner and developer," Hindo said in the announcement.
"We are excited to welcome members of CF's international investments team directly into Ontario Teachers' in the new year as we establish a leading real estate investment group as a strategic complement to our existing investment teams across other asset classes."
The new model is to be in place Jan. 1, 2024.
Ontario Teachers' will focus on global real estate investing and portfolio management, while CF will focus on growth, diversification and densification of its real estate portfolio in Canada. CF will also continue to provide a variety of real estate services to Ontario Teachers' global platform.
Ontario Teachers' considers this an important step as it continues to execute its global growth strategy working towards reaching $300 billion in net assets by 2030.
Alright, someone sent me this story on Monday and I'm going to cover it today.
Let me be brutally honest, I'm not surprised OTPP is bifurcating Cadillac Fairview and internalizing its international operations.
CEO Jo Taylor has been clear he wants to globalize OTPP's operations and work with best in class global partners.
Cadillac Fairview, its real estate subsidiary, was just beginning its global operations, diversifying away from Canada and adding more logistics and multifamily residential real estate, diversifying away from Retail and Office.
But it was a slow transition and I think Jo and Ziad realized they need to internalize international real estate operations to reach the goal of $300 billion of assets under management by 2030.
Cadillac Fairview will continue to operate and as the statement says, it will focus on growth, diversification, and densification of its unmatched real estate portfolio in Canada, building on its strong reputation and history as a leader in this space. CF will also continue to provide excellence in a variety of real estate services to Ontario Teachers’ global real estate platform.
Remember over 65% of its assets are in Canada and most of those (43%) are in Retail with the balance (22%) in Office:
Don't forget, just like his predecessors Graven Larsen, Neil Petroff and Bob Bertram, Ziad Hindo sits on the board of directors of Cadillac Fairview and is very well aware of its assets and operations.
Another key OTPP person who sits on the CF Board is Stephen McLellan, who leads the Total Fund Management department, which coordinates Teachers' asset allocation, portfolio construction, sustainable investing and treasury teams.
Real estate figures prominently in Teachers' climate strategy to achieve net zero and that's why Stephen sits on that board. He also needs to figure out total portfolio construction and where the best risk adjusted opportunities lie across all asset classes.
What do I expect after this bifurcation of CF is accomplished?
Well, I expect Ziad and Stephen will want to significantly bolster real estate's global portfolio and diversify properly across sectors like logistics, multifamily and niche sectors like life science properties and student housing.
Cadillac Faiview already started this process announcing several major deals last year but it will take off in a major way once the team is internal, part of the fabric of Teachers' just like Infrastructure and Natural Resources, Private Equity and other teams.
As far as Cadillac Faiview, it still has great Canadian assets it needs to manage but it's fair to assume it won't be growing like Oxford Properties, Ivanhoé Cambridge and others that have a significant lead in terms of geographic and sector diversification.
Now, someone asked me what I think of subsidiaries and pensions.
I'm all for them if there is great governance and a lot of disclosure and internal communication between teams.
Obviously, my bias is what CPP and PSP Investments have done, put them all under one organization, and that's because you can force them to communicate with one another and really leverage off the expertise of internal teams.
That's where I think Teachers' is heading and I wouldn't be surprised if five years down the road or sooner, they internalize all their real estate operations, domestic and international.
Final note: I did reach out to Jo Taylor and Ziad Hindo to discuss all this but they didn't get back to me and that's fine, I see the writing on the wall and don't need them to tell me where they're going with all this.
Lastly, I recommend you read the transcript of OTPP's AGM meeting held back in April or watch it here as it is well worth watching.
Below, Simon Brewer of Money Maze Podcast interviews OTPP's CEO Jo Taylor.
This is a great interview where Jo talks about his upbringing, education and discusses his time with 3i which educated him in Venture capital and growth investing. He also discusses delegating investment decisions, their appetite to be less constrained than many and their geographic and asset priorities, along with why thy have, at times, made big asset allocation switches.
I like what he says: "You really earn your money when things don't go right." That's spot on.
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