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Upper Canada Mall in Newmarket, Ont., is an example of a super-regional urban mall that the pension funds believe will be more protected from online competition, because people tend to be attracted to them as a place to socialize.
Upper Canada Mall in Newmarket, Ont., is an example of a super-regional urban mall that the pension funds believe will be more protected from online competition, because people tend to be attracted to them as a place to socialize.

Retail

Pension funds expand joint venture with two super-regional malls Add to ...

Oxford Properties Group and the Canada Pension Plan Investment Board, which have already teamed up extensively in the office market, are now bolstering their partnership by doing more together in the retail space.

The two pension funds (Oxford is the real estate arm of the Ontario Municipal Employees Retirement System) have struck a deal that will see them each buy a 50-per-cent stake in a mall that the other currently owns. The two malls involved, Les Galeries de la Capitale in Quebec City and Upper Canada Mall in Newmarket, Ont., will be added to a retail joint venture that for years has only held one mall, Edmonton City Centre.

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Up until now CPPIB has owned 100 per cent of the 1.5-million-square-foot Les Galeries de la Capitale, and Oxford has owned 100 per cent of Upper Canada Mall, which is roughly 1 million square feet.

Once the two shopping centres go into the joint venture, they will both be managed by Oxford, boosting the size of the portfolio of Canadian retail properties that it manages to 12 million square feet.

“We want to grow our management platform, and it’s very difficult to simply acquire super-regional malls of a high quality,” Oxford executive vice-president Michael Kitt said in an interview. “They rarely trade, especially the management interests in them … so if you want to grow your management platform, you need to be creative, and this swap met our goal of expanding our management platform.”

He added that there is the potential for a lot of upside if Les Galeries de la Capitale is redeveloped and remerchandised.

While Oxford is searching for ways to manage more properties, CPPIB is looking for partners who want to buy interests in some of its Canadian assets, making this an ideal pairing, both sides say.

“Our retail portfolio here in Canada is the only real estate in our $20-billion portfolio that we own 100 per cent, so it is not consistent with our strategy to own real estate in a joint venture with a best-in-class partner,” said Peter Ballon, vice-president and head of real estate investments in the Americas for CPPIB.

“We have chosen to have partners because – because of our desire for scale around the world – we are in multiple markets, in multiple sectors, and we can’t be experts in each of those markets and each of those sectors,” he said in an interview.

Oxford also teams up with another pension plan, the Alberta Investment Management Corporation, in the retail space (those two are partners in Yorkdale Shopping Centre, Scarborough Town Centre and Square One mall), but CPPIB is already its most extensive co-ownership partner because of the number of office deals that the two have done together across the country.

Mr. Kitt said he likes the outlook for super-regional shopping centres in major markets, which is tied to employment growth and population levels, both of which are relatively strong.

“As long as those remain in place, retail will continue to be a very stable asset class and have many strong investment characteristics,” he said.

But he added that all retail isn’t created equal. One reason he favours super-regional malls in urban locations is that he feels they are more protected from online competition, because people tend to be attracted to them as a place to socialize and many of their tenants are in the fashion retail business as opposed to items such as electronics and books, which are increasingly purchased online.

Les Galeries de la Capitale, which has about 280 shops and services, was originally built in 1981 and then expanded two years ago. It is anchored by Hudson’s Bay, Target and Sears. Upper Canada Mall was built in 1974 and was expanded five years ago, and has about 210 shops anchored by the same three major retail tenants.

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