Two of Canada's largest pension funds are raising their stakes in the U.S. office-building market in a bet on a strong recovery of the world's largest economy.
Ivanhoé Cambridge, the real estate arm of the Caisse de dépôt et placement du Québec, is boosting its presence in high-end U.S. office properties with the $150-million (U.S.) acquisition of a 49-per-cent stake in a midtown Manhattan property, in partnership with Callahan Capital Properties. The deal is a joint venture with affiliates of Beacon Capital Partners.
In a separate announcement Thursday, the Canada Pension Plan Investment Board (CPPIB) said it plans to invest $108-million to increase its stake in a Manhattan office property and signalled it is looking for more U.S. office real estate in key markets.
Ivanhoé Cambridge's investment is in 330 Hudson, a 467,000-square-foot, 16-storey Class A building in the Hudson Square section of Midtown South.
CPPIB said it is increasing its stake in One Park Avenue to 45 per cent through a joint venture with Vornado Realty Trust. CPPIB previously held an indirect interest of about 11 per cent through its investment in the Vornado Capital Partners Parallel LP fund. The property is valued at $560-million, including the assumption of $250-million of debt, CPPIB said in a statement.
The Caisse, CPPIB and other Canadian pension funds are "betting on the U.S. recovery. They think employment gains are going to continue," said independent pension fund analyst Leo Kolivakis.
"It's fine to bet on the U.S. recovery but it can falter. There is still a lot of uncertainty in the global economy," said Mr. Kolivakis, who writes the Pension Pulse blog.
The Ivanhoé Cambridge investment in 330 Hudson follows on an $850-million deal last year to buy a majority stake in a 45-storey office tower on Manhattan's "Corporate Row."
Also last year, the Caisse placed $360-million in a twin office building complex in Chicago.
"330 Hudson is a leading example of the creative work environment that is increasingly desirable to the growing technology and media industries in Hudson Square, which is one of New York's most promising urban live/work neighbourhoods," Ivanhoé Cambridge executive vice-president for U.S. investments Adam Adamakakis said. "We hope to capitalize on more opportunities in key U.S. markets soon."
"We are delighted with the addition of 330 Hudson to the Ivanhoé Cambridge/Callahan portfolio as it exemplifies our strategy to build a high-quality office platform concentrated in top markets around the world," said Tim Callahan, chief executive officer of Callahan Capital Properties.
Ivanhoé Cambridge and Callahan have invested more than $2.1-billion in U.S. office platforms in five acquisitions. The Caisse's real estate division has been bulking up on office buildings, shopping centres and residential units and moving out of hotels, which are viewed as riskier real estate.
Last month, Quebec's giant pension asset manager put up for sale two iconic hotels, Toronto's Royal York and the Hotel Vancouver.
CPPIB, which manages a fund pool of more than $219.1-billion (Canadian), said its U.S. office strategy is to acquire high-quality assets in major cities.
"We look forward to further expanding our relationship with Vornado as we continue to build our office portfolio in the U.S.," Peter Ballon, CPPIB head of real estate investments in the Americas, said in a statement.
--With files from Reuters