Oxford Properties Acquires CPP Investments' Stake in Canadian Office Towers
Oxford Properties has agreed to acquire Canada Pension Plan Investment Board’s (CPPIB) stake in a portfolio of seven office buildings in a deal that values the assets at $1.5bn, according to a person familiar with the matter, as reported by BNN Bloomberg.
The person, who requested anonymity due to the private nature of the discussions, said Oxford—real estate arm of the Ontario Municipal Employees Retirement System (Omers)—will purchase the 50 percent stake it does not already own.
The portfolio includes three buildings in Calgary and four in Vancouver, among them a recently completed tower called the Stack.
Spokespeople for both Oxford and CPPIB declined to comment.
The deal comes amid shifting dynamics in the North American office market.
While the sector was hit hard by the pandemic and a widespread shift to remote work, downtown office vacancy rates in Canada showed slight improvement by the end of last year, declining for the first time since 2020.
Oxford’s move contrasts with a broader trend among major investors, including CPPIB, who have been reducing their exposure to office properties.
In 2023, CPPIB offloaded interests in two US office buildings at significant discounts, including one Manhattan property sold for just US$1 plus the pension’s share of debt.
CPPIB also sold its stake in a Toronto office building earlier this year.
According to Bloomberg, Caisse de Dépôt et Placement du Québec, Canada’s second-largest pension fund, is currently seeking to sell a Chicago office tower.
The deal is expected to draw bids 59 percent below the asset’s purchase price nearly eight years ago.
Omers has also been affected by declining office valuations.
Its real estate portfolio posted a net loss of 4.9 percent last year, attributed in part to falling values for both office and life science properties. Still, the fund noted signs of improved leasing activity for higher-quality office assets.
Beyond Canada, Oxford retains a significant presence in international office markets, including New York City, where it co-developed the Hudson Yards project alongside Related Companies.
In the US, Blackstone Inc. has reportedly been seeking a stake in a New York City office tower, as per Bloomberg News.
Alright, kind of a slow Tuesday, transaction activity has been light all year and I suspect it will be dead this summer so I want to quickly go over real estate.
Now, I don't want to be quoted but I believe this was a co-investment alongside Oxford Properties and CPP Investments is exiting its stake so Oxford is buying it up.
These are all quality assets, especially The Stack, so Oxford did the right thing to buy back the remaining stake.
Go back to read my comment covering OMERS 2024 results where CEO Blake Hutcheson shared this with me:
Real Estate delivered a negative return again last year. It had a good operating year in terms of leasing space and adding value but the cap rate expansion continued to haunt, particularly in our life sciences business. We think that is largely behind us and operating company is doing well and Oxford has the pepper back in its step. We expect it to return to decent returns in the years ahead.
I asked Blake if Industrials are still doing well and if Offices are coming back.
He explained to me that Industrials is where the biggest net effect of rent rises over the last seven years but because a lot of assets are commodity in nature, when cost of capital went up, cap rates went up and values came down but "fundamentals remain quite strong including the phone calls we've been getting in recent months on both sides of the border to prepare for any supply chain disruptions."
He told me Industrials fundamentals are quite strong and they think the cap rate expansion is behind it, adding: "We would buy our Industrial portfolio on our books all day long at the price we mark them to."
For Offices, he told me it's a tale of two cities where "high quality office space is actually doing better than most people think."
He said their (Office) portfolio in Canada is 96% leased. "It's among the highest quality office buildings primarily in Calgary, Vancouver and Toronto and it's doing well."
He also stated they're doing new development projects in office, one in Sidney for example "that is outperforming" and they built the Stack in Vancouver and it's outperforming.
"Depending on the quality of your product, it will depend on your valuations. We think offices have come a long way and we are thinking about building new offices as we think we can take advantages of supply and demand dislocations when nobody else has the courage to build."
I asked Blake if rates stay elevated this year, will the Real Estate portfolio get hit again.
He was careful to nuance his answer stating commodity real estate, lower quality portfolios are more vulnerable to elevated rates as their valuations will get hit a lot harder than the higher quality real estate portfolios.
I also asked him if Dan Fournier is managing growth deceleration at Oxford or implementing another growth strategy.
Blake praised Dan stating he has done an "extraordinary job at Oxford" despite the returns:
In life Leo, you write an exam on a Wednesday and might get it back two weeks later. In Real Estate, you write an exam on a Wednesday, you actually start to see your returns three years later.
Dan came in during at a difficult time, he showed remarkable leadership, he studied where we were winning, where we were losing, he's put together a strategy where what we believe is the right go forward strategy with a great team around him.
We've been blessed to have him, he's put Oxford in a really good position for the future.
Nothing turns on a dime, no real estate business globally was able to able to outrun what happened to cap rates, Oxford was no exception, but I'd still put his record against any of the big real estate players in the world. I still fundamentally believe the future is bright and I give a lot of credit to Dan for helping us reposition it.
I am giving you this context to understand how OMERS thinks about real estate and remember, Blake Hutcheson used to run Oxford Properties so he knows what hes talking about in real estate.
Anyone you talk to managing a large institutional portfolio will tell you since the pandemic broke out, retail and offices have been hit hard and industrial and multifamily have done extremely well.
Life sciences were doing well till rates backed up and hit the biotech industry globally.
A few other niche areas remain solid like student housing and data centers but all in all, offices have lagged.
Recently however, retail and offices are coming back and some big investors like Blackstone are looking to invest in offices.
In real estate, typically Blackstone leads the rest of the pack so I pay attention to where they're investing.
Are we going back to pre-pandemic days where offices were booming? Doubtful but it's a hell of a lot better than it was just two years ago.
Interestingly, a recent survey found that an estimated 25% of Bay Area employees now work in the office every day of the week, and fewer are spending their whole week at home.
More and more companies are forcing their employees back to the office and there are good and bad reasons for doing so.
All this to say hybrid work is definitely here to stay but more and more employees are choosing to return back to the office to engage more with colleagues and superiors.
Nothing wrong with that but I'd be very careful extrapolating this trend well into the future, hybrid / flexible work remains the dominant model for the near and long term.
When I think back at my late 20s/ early thirties, going to the office was fun (admittedly, some days were brutal) because you met colleagues and even had lunch and drinks after work with them.
The older you get, the less infatuated you are with actually being in an office but to each their own as they say.
Alright, let me wrap it up there and if you have anything to add, feel free to ping me.
Below, Blackstone President Jon Gray says he expects some countries will strike trade deals with the US “fairly soon,” and the effective tariff rate will be around 10%. Gray says the uncertainty around a trade war is likely to slow down GDP growth. He also talks about the AI revolution, real estate and inflation in the US. He speaks to Bloomberg's Sonali Basak at the Milken Conference (3 weeks ago).
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