Call it the Canadian invasion.
Oxford Properties Group’s latest foray into London, a joint venture with an ancient royal real estate concern, underscores how Canadian pension funds are gobbling up prime properties across the globe.
Oxford, the real estate arm of the Ontario Municipal Employees Retirement System, announced Tuesday it had struck a 50-50 partnership with The Crown Estate, which traces its roots back almost 1,000 years and owns some of London’s most expensive real estate.
Under the deal, the two groups will build a 260,000-sq.-ft. office and retail complex in St. James’s Market, near Piccadilly Circus in London’s west end. The project, consisting of two buildings, is part of a 10-year plan by The Crown Estate to redevelop the area with 500,000 sq. ft. of office, retail and residential space.
Oxford has been on a hunt in Europe, with plans to add some $7-billion in real estate to its portfolio by 2015, part of a move by OMERS to shift from stocks and bonds into other investments. It opened a London office about five years ago, and has invested about $3-billion in the city for a total portfolio of four million square feet of office space.
Paul Brundage, who heads the London office, said the group wants to expand across London and into other parts of Europe, with France and Germany likely targets.
Through Oxford, OMERS is just one of Canada’s major pension funds shaking up the global real estate scene.
Earlier this month, the Canada Pension Plan Investment Board struck a joint venture for a one-third stake in a British shopping centre, at the same time launching a co-investment program with GE Capital Real Estate for mid-size office buildings in Tokyo. Late last year, the CPPIB also bought into a shopping centre in Stockholm.
Healthcare of Ontario Pension Plan (HOOPP) has also done a deal with The Crown Estate. The Caisse de dépôt et placement du Québec, on the other hand, has sold some European properties.
Oxford hopes this latest $500-million joint venture will open doors for more real estate investments in London.
Property prices in London’s West End are among the highest in Britain and The Crown Estate, which acts on behalf of the government, owns half of the buildings around Piccadilly. Oxford had been trying to invest in the area for years without success.
“We have found the West End to be very difficult to access at returns that make sense to us,” said Mr. Brundage. “We’re hoping that this is the beginning of a long relationship with the Crown Estate.”
Added Oxford’s chief executive Blake Hutcheson: “I think the main thing is we really like the partner, we really like the development opportunity, we really like the West End, we really like the city of London, and this is completely on strategy for us.”
The Crown Estate is an unusual partner. It traces its roots back to 1066, when the Normans decreed that all land belonged to William the Conqueror “in right of the Crown” as he was King.
While the ownership system evolved, the underlying principle remained with all land belonging to the Crown unless private ownership could be established. Parliament took over management of the crown lands in the 1700s and today the property, now known as The Crown Estate, is run by an independent board with all annual profits turned over to the government.
The company manages a $12-billion portfolio that includes office towers, shopping malls, farmland, forests, the Ascot Racecourse and the entire seabed around Britain. The Queen’s private holdings, such as Sandringham and Balmoral, are excluded.
The plan to redevelop the Estate’s St. James’s Market properties has been in the works for years but the company needs private partners because by law it cannot take on debt. It formed its joint venture with HOOPP in 2010 to develop part of the project, a $150-million section that will be finished this summer.
“I think there’s a real comfort level for the Crown with the Canadian pension funds,” said Mr. Hutcheson. “Clearly there’s a long-time colonial relationship, there’s a sense of comfort in the way we do business and they do business.”