Europe's wealthiest families have discovered Canadian commercial real estate as a safe haven investment, snapping up landmark properties in Toronto, Vancouver and Montreal over the past year, in part because of concerns about the European Union's uncertain future.
Foreign buyers purchased a record $5.6-billion of commercial properties in Canada last year, according to data from CBRE Group Inc., with Europeans accounting for $950-million of the total. Asian investors made up the majority of foreign buyers, but most deals involving buyers based in Asia were hotel and office building acquisitions by financial institutions such as China's Anbang Insurance Group.
The buying out of Europe, most of it by first-time investors in Canada, came from wealthy individuals such as Spain's Amancio Ortega, founder of the Zara retail chain, who snagged a landmark corner in Montreal, and Germany's Klaus-Michael Kuehne, whose estimated $10-billion (U.S.) fortune comes from family-owned shipping company Kuehne + Nagel. He acquired the 37-storey Royal Centre office building in Vancouver from Toronto-based Brookfield Canada Office Properties, which turned a $285-million (Canadian) profit on the sale.
Belgian real estate investor Isabelle Hayen recently acquired a two-storey property on what's known as "Mink Mile" of Toronto's Bloor St. that is ripe for redevelopment. The country's tallest condo developments are springing up on the same block. The seller was Bank of Nova Scotia, which opened a branch on the site in the 1940s.
A number of factors drew these families to Canada, according to CBRE, including the emergence of Toronto and Vancouver as perceived global destinations, with real estate valuations significantly below the prices commanded by commercial properties in larger financial centres such as London and New York.
Europeans are also coming to Canada to hedge the risks that come with assets denominated in euros, in the wake of last summer's Brexit vote in the U.K. and the continuing financial woes of nations such as Greece, which are combining to raise questions about the future of the European Union. Statistics from the European Central Bank show significant amounts of capital has exited countries such as Italy and Spain for markets that are perceived as more stable.
"Geopolitical uncertainty seems to increase on an almost daily basis. Against that backdrop, Canada is about as safe a bet as there is on a global scale,' said Peter Senst, president of CBRE Canada Capital Markets. "What's clear is Toronto and Vancouver have developed as gateway cities for global investors and we expect this demand to continue into 2017."
Spain's Mr. Ortega is something of a trailblazer for Europeans in Canada. Forbes magazine ranks the 80-year-old retail entrepreneur as the world's second richest man, with a net worth of $72-billion, and his holding company, called Ponte Gadea SL, is estimated to have more than $8-billion invested in real estate around the world, with a focus on London, New York, Los Angeles, Miami and Madrid.
Ponte Gadea made its first purchase in Canada in 2014, when Mr. Ortega paid $245-million (Canadian) for a 10-storey building in Toronto's Yorkville neighbourhood that is anchored by Louis Vuitton and Tiffany & Co. outlets. The sellers were Montreal-based Kevric Real Estate Corp. and two Canadian pension funds. Last year, Ponte Gadea acquired a vintage building at the corner of Ste-Catherine Street West and McGill College Avenue in Montreal that houses the city's flagship Banana Republic outlet.
Wealthy Europeans aren't the only high-net-worth individuals snapping up iconic Canadian properties. Florida-based billionaire Shahid Khan turned heads in September by paying $225-million (Canadian) for the Four Seasons Hotel in Toronto, the highest price paid to date for a single Canadian hotel property. He acquired the property from Saudi Arabia's Kingdom Holding Co., a long-time backer of the hotel chain. Mr. Khan made his fortune in auto parts and now owns a National Football League team and an English Premier League soccer side. When Mr. Khan announced the Four Seasons purchase, he said: "Without Toronto, you cannot tell the story of the greatest cities in the world."
In total, foreign buyers accounted for 27 per cent of last year's $34.7-billion in Canadian commercial real estate transactions, which CBRE counts as sales of properties worth $10-million or more. Both the amount of activity and the level of foreign investment set new highs. The previous record for foreign buyers was 9 per cent of transactions in 2008, while the previous high-water mark on the value of commercial transactions was set in 2007, when $32.1-billion in property changed hands.
Diversifying a family fortune into commercial real estate is a common practice, as many of Canada's richest families have large property portfolios. The Thomson family made its money in media and information services but also owns a number of properties, in part through Toronto-based Osmington Inc. (The Thomson family also owns The Globe and Mail through Woodbridge Co. Ltd.) The Westons made their fortune in groceries but now own property through a number of entities, including family company Wittington Investments Ltd.
With files from reporter Eric Reguly