PSP, QuadReal Invest in London's Cherry Park?

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PSP Investments put out a press release yesterday, Unibail-Rodamco-Westfield forms partnership with PSP Investments and QuadReal for a €750Mn (£670Mn) Private Rented Sector scheme in London:
Unibail-Rodamco-Westfield announces today that it has signed a conditional agreement with a wholly owned subsidiary of the Canadian public pension fund the “Public Sector Pension Investment Board” (PSP Investments) and global real estate company QuadReal Property Group (QuadReal), to form the “Cherry Park Partnership”. The Partnership will deliver the development and management of a €750Mn (£670Mn) Private Rented Sector (PRS) residential scheme, adjacent to Westfield Stratford City in London. It will be one of London’s largest single-site PRS schemes.

PSP Investments and QuadReal will each take a 37.5% share in the Cherry Park Partnership, while Unibail-Rodamco-Westfield will retain a 25% share and be appointed as the development and asset manager.

Olivier Bossard, Group Chief Development Officer, Unibail-Rodamco-Westfield, said: “This new residential quarter in the heart of Stratford City is an example of the Group’s strategy to significantly increase the densification of exceptional and highly connected retail destinations by adding offices, residential, hotels and other uses, where relevant. With the Cherry Park Partnership, we are leveraging our unique know-how and joining with strategic capital partners to reinvent city districts.”

Stéphane Jalbert, Managing Director Europe and Asia Pacific, Real Estate, PSP Investments, added: “London’s residential sector is chronically undersupplied and Cherry Park supports PSP’s broader long-term sectorial strategy to develop professionally managed residential assets alongside best-in-class investment partners. Once completed, this will be one of central London’s largest residential rental schemes and will offer future residents an incredible level of connectivity in an exciting and unique mixed-use location.”

Jay Kwan, Head of Europe, International Real Estate, QuadReal, said: ”This Partnership fits squarely into our investment strategy to densify successful retail destinations alongside world-class development and operating partners. We are excited to launch this new relationship with Unibail-Rodamco-Westfield whilst extending our long-standing and successful relationship with PSP.”

Construction work is set to start in Q2 2019, with a phased completion and a delivery expected post 2023. The Cherry Park Development will feature approximately 1,200 new homes benefitting from a suite of amenities including a residents’ gym, swimming pool, workspace and high-quality public areas.

Completion of the formation of the Cherry Park Partnership is subject to customary conditions precedent.
Unibail-Rodamco-Westfield also put out a press release on this deal:
On March 18, 2019, Unibail-Rodamco-Westfield announced the signing of a conditional agreement with a subsidiary of the Canadian public pension fund PSP Investments and global real estate company QuadReal Property Group, to form the "Cherry Park Partnership".

The Partnership will deliver a €750 Mn (£670 Mn) Private Rented Sector (PRS) residential scheme, adjacent to one of the Group’s London flagship destinations, Westfield Stratford City. It will be one of London's largest single-site PRS schemes. Construction work is set to start in Q2 2019, with a phased completion and a delivery expected post 2023. The Cherry Park Development will feature approximately 1,200 new homes benefitting from a suite of amenities including a residents' gym, swimming pool, workspace and high-quality public areas.

This new residential quarter in the heart of Stratford City is an example of Unibail-Rodamco-Westfield’s strategy to significantly increase the densification of exceptional and highly connected retail destinations by adding offices, residential, hotels and other uses, where relevant. With the Cherry Park Partnership, we are leveraging our unique know-how and joining with strategic capital partners to reinvent city districts.

Learn more about mixed-used projects and our vision of urban development in the URW 2018 Report.
Last week, I discussed BCI's record $7 billion partnership with RBC Global Asset Management and Quadreal Property Group, BCI's real estate subsidiary.

I explained why the deal made sense for everyone, allowing BCI to geographically diversify its real estate holdings outside Canada.

This week we find out BCI's QuadReal and PSP signed a deal with Unibail-Rodamco-Westfield to deliver a €750 Mn (£670 Mn) Private Rented Sector (PRS) residential scheme, one of London's largest single-site PRS schemes.

It's not by accident that PSP and QuadReal teamed up on this deal. Gordon Fyfe, BCI's President and CEO, and Neil Cunningham, PSP's President and CEO, go back years as Neil was the Head of PSP's Real Estate under Gordon's watch.

Neil is an expert in commercial real estate and he has a solid team backing him up at PSP. Gordon set up QuadReal back in 2016, shortly after joining BCI, and that company is headed by Dennis Lopez, a seasoned real estate investment professional with over 30 years of industry experience in real estate acquisition, development, M&A, financing and investment trusts, and someone who has worked in the Americas, Asia and Europe (note his international experience).

Mr. Lopez relies on Jonathan Dubois-Phillips, QuadReal's President of International Real Estate, to focus on the management and expansion of the company’s international assets. Mr. Dubois-Phillips was formerly a Managing Director of Nomura International, one of Asia’s largest Investment Banks, and also worked in a senior role with Lehman Brothers in the Global Real Estate Group where he invested on behalf of the bank and its private equity funds across Asia, as well as in Europe and North America.

Jay Kwan, Head of Europe, International Real Estate at QuadReal reports to Mr. Dubois-Phillips, and this partnership with PSP and Unibail-Rodamco-Westfield to build  London's largest single-site PRS schemes fits perfectly in PSP's and QuadReal's multi-family portfolios.

Interestingly, institutional involvement in the UK's private rented residential property only recently took off due to a long-standing fear of rent control and other reputational concerns related to the ownership of rented residential. Since 1990, the percentage of UK housing stock in the private rented sector has grown from 9% to 19% but mostly due to the growth in the private “Buy to Let” investor.

It's also worth noting that PSP and QuadReal's partner on this deal, Unibail-Rodamco-Westfield, is Europe’s largest property firm and it specializes in shopping centers (click on image):


This shift to a residential (with some retail) is something new for this firm as far as I can tell, but given its track record of success, I wouldn't bet against this deal.

Now, you might be asking, why are these two large Canadian public pensions investing in a huge project in London with all the uncertainty surrounding Brexit?

My answer to this is they're obviously looking way beyond Brexit and no matter what happens, this is a great long-term project.

Brexit or no Brexit, London is the financial capital of Europe and it will remain so. As more and more people will move to live in London, property prices are going to continue going through the roof and young adults and older pensioners will opt to rent (touches on rising inequality theme), so this is a great project over the long run.

Moreover, with the British pound well off its 5-year high relative to the Canadian dollar, and some saying to keep selling it versus the CAD (I don't agree), now is as good a time as ever to take currency risk to invest in this London project (click on image):


If a favorable Brexit deal is struck, these assets will increase in value significantly.

Right now, it looks unlikely the UK will leave the EU on the 29th of March and all indications are that Prime Minister Theresa May is going to ask for a delay.

The situation is one big mess and the EU can't seem to give the UK too much leeway or else its members will reject any deal.

Still, Brexit or no Brexit, London will thrive as a cosmopolitan global city and that's why PSP and BCI's QuadReal invested in this multi-million-pound project.

Interestingly, exactly one month ago, CPPIB signed a partnership with La Française and its shareholder CMNE to develop Grand Paris investment vehicle:
La Française and Canada Pension Plan Investment Board (CPPIB) announce the signing of a strategic partnership for the launch of a real estate investment and development vehicle: Société Foncière et Immobilière du Grand Paris. The joint venture between CPPIB (80%) and Caisse Fédérale du Crédit Mutuel Nord Europe (CMNE) (20%), La Française’s shareholder, will invest in major real estate projects linked to the Grand Paris infrastructure in the Greater Paris area.

Paris, February 15, 2019 - With over C$368 billion in assets under management worldwide, CPPIB continues to expand its investment program and has formed a joint venture with CMNE, La Française’s majority shareholder, to focus on Grand Paris related real estate projects – one of the most significant and prestigious regeneration projects in Europe. The parties will initially allocate €387.5 million in equity to the venture.

With €19 billion in real estate assets under management and over 40 years of investment experience, La Française has seized the real estate investment and community development opportunities offered by the Grand Paris Express transit project over the past several years. Early on, and in order to capture substantial value, the group has positioned itself on several strategic locations that are part of a broader urban regeneration initiative and close to hubs that will be serviced by the Grand Paris Express.

La Française’s expertise and longstanding reputation have enabled Société Foncière et Immobilière du Grand Paris, managed by Guillaume Pasquier, Head of Real Estate Business Development Grand Paris Project, and Anne Génot, CIO, Grand Paris and European Real Estate Business Development Director, to secure two flagship projects: Saint-Denis-Pleyel (mixed use) and Villejuif-Gustave Roussy (office buildings).

“This new partnership in France with a leading real estate manager and investor like La Française and its parent company CMNE allows us to invest in a strategically important development in Paris,” says Andrea Orlandi, Managing Director, Head of Europe, Real Estate Investments at CPPIB. “Through this partnership, we will target regeneration and infrastructure-led investments, and we expect the Grand Paris Express to significantly transform the Greater Paris market over the next decade and beyond. We look forward to growing the venture anchored by the significant development opportunities in Paris and its Grand Paris Express project.”

The joint venture will look to grow the partnership through additional development projects beyond Saint-Denis-Pleyel and Villejuif-Gustave Roussy that are consistent with its overall investment strategy.

“This partnership with a leading institutional investor will enable La Française, with the support of its shareholder, CMNE, to step up its real estate business development and participate, along with other public and private stakeholders, in making Paris a “Global City,” concludes Xavier Lépine, Chairman of La Française Group.
I guess CPPIB isn't too perturbed by Les Gilets Jaunes and the ongoing protests in Paris, they're taking a very long view on this city and rightly so.

I mention this because an astute reader of my blog who is long European shares relative to US sent me a tweet from Callum Thomas, Head of Research at Top Down Charts:



His reasoning is everyone is so bearish on Europe that any good news will propel these stocks higher, much higher, and he may be right but I don't rely on mean reversion to make money in these markets.

Below, Unibail-Rodamco-Westfield's CFO, Jaap Tonckens, spoke to CNBC in August after the firm  reported a jump in first-half profits. Very sharp guy, listen to what he says about retailers bucking the trend and doing well.

Next, following the successful acquisition of Westfield Corporation by Unibail-Rodamco, the new Group has been listed on the 5th June 2018 on Euronext Amsterdam and Euronext Paris. The new Group opened the trading day in both Euronext marketplaces. Christophe Cuvillier, CEO of Unibail-Rodamco-Westfield, opens the trading day in Paris and discusses the merger.

Next, BBC's Newsnight discusses why Brexit has thrown the UK into a constitutional crisis and BB's political correspondent Jonathan Blake explains why it now looks unlikely that the UK will leave the EU on the 29th of March. Like I said, anyway you slice it, Brexit is a complete mess!

Lastly, since I'm talking about real estate, take the time to watch this interview (in French) with the President of Ivanhoé Cambridge, Natalie Palladitcheff, on Gérald Filion's show:



Very impressive lady who along with Daniel Fournier is in charge of one of the most important institutional real estate portfolios in the world.

I was particularly struck by the demographics statistics she cited on India (half the population is younger than 25) and Mexico which explains why the Caisse and others are investing heavily in these emerging markets (but the bulk remains in developed markets).




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