CPP Investments' Big Investments in Real Estate and Renewables

Michael Katz of Chief Investment Officer reports CPPIB invests $650 million in real estate and renewable energy:

The C$456.7 billion ($359.2 billion) Canada Pension Plan Investment Board (CPPIB) has committed up to a total of $650 million for multifamily real estate development deals in the United States and European renewable energy investments.

CPPIB has formed a joint venture with South Carolina-based real estate developer Greystar Real Estate Partners to pursue multifamily real estate development investments in certain US markets. The Canadian pension giant will pony up $350 million in equity toward the joint venture for a 90% stake, while Greystar has invested $39 million for the remaining 10%. Under the terms of the joint venture, Greystar will manage and operate the portfolio.

“There is a significant undersupply of rental housing in the US,” Hilary Spann, CPPIB’s head of real estate Americas, said in a statement. “Despite the global pandemic and short-term economic uncertainty, there continues to be an opportunity for long-term investors to develop high-quality multifamily properties in growth markets.”

The joint venture will develop class A, mid-, and high-rise multifamily properties in urban and inner-ring suburban communities in major American markets, including coastal markets and other regions that have a high population and strong job growth.

CPPIB also committed up to €245 million ($300 million) to its UK-based platform Renewable Power Capital Limited (RPC), which it launched last month, to support its first investment in European renewable energy.  

RPC will acquire a 100% interest in a portfolio of three wind farms in Finland from Swedish renewable power generation company OX2, which will build the wind farms under an engineering, procurement, and construction contract. OX2 will also be responsible for the technical and commercial management of the wind farms. The three wind farms are expected to be operational in 2022, at which point the portfolio is expected to produce nearly 590 GWh per year, which is equal to the amount of electricity consumed by approximately 118,000 households.

“Our new commitment to support RPC’s initial investment in Finland is fully aligned with our goal of deploying long-term, flexible capital in an attractive renewables market,” said Bruce Hogg, CPPIB’s head of power and renewables. “We continue to see a strong pipeline of other renewable opportunities in RPC’s high priority markets.”

RPC will invest in solar, onshore wind, and battery storage, among other technologies in Europe. CPPIB has made approximately C$9 billion of equity commitments to renewable energy globally as of Sept. 30, with investments in onshore wind, offshore wind, solar, hydro, and associated storage and distribution assets.

CPP Investments is expanding its deals with its partners, Greystar Real Estate and Renewable Power Capital Limited (RPC), a pan-European renewable energy investment platform established in 2020, which it backed.

In the joint venture deal with Greystar, CPP Investments will pony up $350 million in equity toward the for a 90% stake, while Greystar invested $39 million for the remaining 10%. Under the terms of the joint venture, Greystar will manage and operate the portfolio.

The joint venture will invest in multifamily properties in urban and inner-ring suburban communities in major American markets, including coastal markets and other regions that have a high population and strong job growth.

Basically, pandemic or no pandemic, people need to live somewhere and Greystar has a long and successful track record of developing and managing US apartment properties in major cities (see a recent blog comment of theirs on living in a Greystar community). 

For its part, Renewable Power Capital Limited (RPC) is ramping up quickly, as I expected when I covered this new platform back in December.

It is run by a very experienced team which Bruce Hogg, CPPIB’s head of power and renewables, relies on to put capital to work in renewable energy projects in Europe.  

Remember, when you're the size of CPPIB, the name of the game is scale, you need to scale up these investments quickly, efficiently, capitalizing on any opportunities. 

The same goes for CDPQ which made its first inroads into Taiwan's renewable energy market co-investing alongside Ørsted and local partner Cathay PE in Greater Changhua 1 Offshore Wind Farm.

CPP Investments committed up to €245 million ($300 million) to RPC to support its first investment in European renewable energy.  

RPC will acquire a 100% interest in a portfolio of three wind farms in Finland from Swedish renewable power generation company OX2, which will build the wind farms under an engineering, procurement, and construction contract. OX2 will also be responsible for the technical and commercial management of the wind farms. The three wind farms are expected to be operational in 2022, at which point the portfolio is expected to produce nearly 590 GWh per year, which is equal to the amount of electricity consumed by approximately 118,000 households.

Again, investing in wind farms is very profitable when you have the right partner and are investing in the right projects. 

RPC knows the European renewable energy market extremely well, it will be investing large sums over the next decade to ramp up CPP Investments' renewable energy investments in Europe.

In other related news, CPP Investments recently invested $200 million into a second joint venture with logistics real estate firm LOGOS to develop assets in Indonesia.

A portfolio of third-party logistics services, data centers, and industrial warehouses will be funded by the allocator-operator partnership in the greater Jakarta area, CPPIB said this week. 

“One of the key investment themes for CPP Investments has been Asia’s growing middle class and domestic consumption,” Jimmy Phua, managing director and head of Asian real estate investments at CPPIB, said in a statement. “We are pleased to be furthering our partnership with LOGOS and strengthening our position in Indonesia’s logistics market.”

CPPIB is expanding further into warehouses to meet growing demand for deliveries for online shoppers. The Canadian pension fund previously invested with LOGOS in 2017, when it also sought to acquire and develop logistics assets in the market.

Several logistics properties were also included in the initial venture, including Cibitung Logistics Hub, Cikarang Logistics Park, Cileungsi Distribution Centre, and Metrolink Logistics Hub. 

LOGOS, which has about $10.2 billion in assets in its Asia Pacific portfolio, said it already has several assets in mind for its newest venture that it will build and acquire over the next year. Through both ventures, it will develop up to $1 billion logistics assets over the coming years, it said. 

Logistics properties remain a hot area for all global pensions looking to capitalize on the rise of e-commerce at home and abroad, especially abroad where a growing middle class is supporting the growth of logistics properties.

What else? CPP Investments has run into some snags, losing $113 million a day after buying a 5% stake in Texas-based software company SolarWinds:

On Dec. 9, SolarWinds reported in press release that CPPIB had acquired an approximate 5% stake in the company for $315 million from private equity firm shareholders Silver Lake and Thoma Bravo. According to a US Securities and Exchange Commission (SEC) filing, the stake was acquired at a price of $21.97 per share of SolarWinds stock.

But just over a week later, on Dec. 17, SolarWinds revealed that it had been the victim of a “very sophisticated cyberattack” in which hackers compromised the firm’s Orion monitoring and management software. US intelligence blamed the hack on Russian government-backed operatives. As a result of the announcement, SolarWinds’ stock fell to an intra-day low of $13.98, or 36% below what CPPIB paid for its stake.

Although Silver Lake and Thoma Bravo said they didn’t know about the hack until after the sale, legal experts say the deal will likely be investigated by the SEC to determine if information was withheld about the possibility of a hack, according to a Washington Post report. The report said CPPIB will also likely look into whether the private equity companies breached their contract by failing to disclose any known cybersecurity risks.

“To the best of our knowledge, no one was aware of the hack leading to our capital commitment,” Michel Leduc, CPPIB’s senior managing director, said in a statement to the Post. However, he also said that CPPIB is “always focused on the very best interests of the fund and we will continue to assess the circumstances for optimal certainty.”

Complicating the matter as to what SolarWinds and its owners knew and when they knew it is a report from Bloomberg that a SolarWinds security adviser had warned company executives of cybersecurity risks three years ago. Ian Thornton-Trump reportedly gave a presentation to three SolarWinds executives in 2017 urging them to hire a cybersecurity senior director because he believed a major cybersecurity breach was inevitable.

Silver Lake and Thoma Bravo partnered to buy out SolarWinds in 2014 and then took the company public in 2018. According to CPPIB’s website, it has invested $3 billion in Silver Lake funds and $1.1 billion in Thoma Bravo funds since 2004.

Silver Lake and Thoma Bravo are top private equity funds, I wouldn't worry too much about CPP Investments' stake in SolarWinds, I'm sure they will find a way to work things out.

Lastly, Peter Bill wrote a somewhat nasty article for Property Week on SEGRO, CPPIB and boxing clever:   

Word has it SEGRO is seeking a plot in or around the Square Mile on which to dig a ruddy great big hole.

A cavern capable of containing a ‘subterranean city logistics hub’. A hole big lorries rumble into and little vans scurry out of. With the possibility of a cherry on top in the shape of over-ground development.

This is not surprising. Last September, David Sleath’s merry band signed a deal with SNCF and French developer Icade to insert an 800,000 sq ft underground logistics hub beneath the over-ground redevelopment of the Gobelins station in Paris, not far south of Notre Dame Cathedral.

Where SEGRO’s agent Savills is looking in London is a mystery. There are 1960s underground car parks with complex ownerships that might be converted, with difficulty. But can I suggest a freehold on which a valuable commercial cherry could be sat?

Cushman & Wakefield is selling 41 Tower Hill, a traffic-marooned nine-floor block adjacent to Tower Gateway DLR, hard against the main line into Fenchurch Street. To the rear sits the Minories car park. The freehold of these 1.7 acres was bought by now-troubled Chinese property company SRE in 2016 for £84m.

Also marooned in this unedifying architectural triangle lies 40 Tower Hill, a smaller block owned by an unknown Middle East investor and leased out as a seat of learning for overseas students as the Tower Hill Study Centre.

The Chinese government might want to bag either block as temporary space, if it ever gets to start work on its new embassy in nearby Royal Mint Court. But bag that as well and SEGRO would have acres of underground space. We will leave it to the imagination of developers (and C&W) as to what might work. Someone is probably already on the job.

Clunker or runner?

When the Canadian Pension Plan Investment Board (CPPIB) pulled its £250m block of debt at the 11th hour from the Jenga tower of rescheduled intu loans last June, the owner of Lakeside and the Trafford Centre collapsed. The Canadians evidently did not share the faith of the other debt holders that things would take a turn for the better.

CPPIB’s loan was secured against the Trafford Centre, which fell into its hands along with responsibility for paying high interest to holders of some £675m of bonds.

You can imagine how the intu board felt at this last-minute betrayal, or, indeed, the other debtors who had agreed the standstill. Note: Canadian pension funds tend to have more wolf than Labrador in their DNA than Brits might imagine. British-born boss Mark Machin, 54, trained to be a surgeon before moving on to Goldman Sachs to operate in a world where the scalpel is just another tool in the box. In 2015, Machin joined CPPIB – effectively a $460bn sovereign wealth fund whose beneficiaries are pensioners rather than despots.

Has CPPIB repossessed a clunker – or maybe a long-term runner? Last year, it failed to flip the 1.97 million sq ft centre, which stands in an ocean of car parks and has a five-mile light rail connection into Manchester city centre.

Word is CPPIB wanted £1.2bn, as the mark-to-market value of £675m bonds paying 6% to 8% interest is close to £1bn (meaning sellers are going to want a lot more than the face value for surrendering bonds paying high interest rates.) The highest bid is rumoured to have been £800m, horribly low for a centre once valued at over £2bn.

Just before intu went under, it published figures showed rents had dived from £105m in 2019 to an estimated £66m in 2020. This year? £50m? Who knows?

The problem CPPIB has is that the interest on the bonds must be around £50m as well. Never mind. Machin said last month: “We are increasingly focused on creating added value to our assets.” Any developer fancy a long-haul JV with scary but clever CPPIB?

Geez, who pissed in Mr. Bill's Cheerios? Remind me to talk to Mark Machin about this deal but it seems to me that CPP Investments is defending its best interests and is rightly holding out for a better offer.

Alright, let me wrap it up there.

Below, listen to an interview with Robert Gammon who runs Salesforce at Greystar. Great interview even if the focus is integrating technology in real estate. Take the time to watch it.

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