Oxford Properties Group is on the hunt in Europe as it looks to add $7-billion to the real estate portfolio it manages by 2015, part of a massive expansion that would boost its size by nearly a third.
As it looks to bulk up, the real estate giant is also considering developing three new Canadian office towers, and vying for the chance to create a complex with a casino in downtown Toronto.
Its rapid growth comes as the Ontario Municipal Employees Retirement System, of which Oxford is the real estate investment arm, seeks to shift its portfolio away from public stocks and bonds into private investments such as real estate, infrastructure and private equity. At the end of last year the pension fund had 60 per cent of its assets in public markets and 40 per cent in private market assets, and its goal is to bring the mix to 53 per cent public, 47 per cent private. Its desire to undertake the shift was heightened by the toll that the financial crisis took on public markets. OMERS' capital markets arm, which manages its publicly traded investments, posted a return of 7.5 per cent last year, while Oxford's real estate investments earned 16.9 per cent.
When CEO Blake Hutcheson took the helm in early 2010, he set an internal goal to roughly double its assets under management in five years, from about $16-billion to about $30-billion. That was to include increasing its Canadian business by about $5-billion, and its U.S. and British businesses by roughly $4-billion apiece. At this point, the assets that it manages for itself and its partners, including committed capital, are in the neighbourhood of $23-billion.
To continue fuelling solid returns, Oxford has been rebalancing its holdings in Canada. "We're selling some of our older buildings and replacing them with new assets," Mr. Hutcheson said in an interview. It recently sold a 50-per-cent stake in the TD Canada Trust Tower in the heart of Toronto's financial district for roughly $450-million, money that it can use to invest in other projects.
"We really like the metrics behind some of these [new] office developments that we're doing," Mr. Hutcheson said.
And it's got its eye on more. "We're seriously looking at 100 Adelaide [Street West, in Toronto's core], and we're seriously looking at two other major office projects in Canada that could be hitting the headlines in the next six months if they pencil out, if we get the right amount of pre-leasing."
Oxford is also considering a retail and residential development project at the major Toronto intersection of Yonge and Bloor Streets, where it owns a large parcel of property on the northwest corner. "We'd have to do that with residential partners, but that could be one of the most spectacular future developments," Mr. Hutcheson said.
And it is one of the firms seeking the chance to build a casino complex in Toronto, if the city should decide it wants one, and has sketched out its vision for a multibillion-dollar redevelopment of the Metro Toronto Convention Centre site, which would include a hotel, retail and residential space. "We have a terrific site that has huge benefits for our city," Mr. Hutcheson said.
"We wouldn't want anything that was associated with our project that wasn't in good taste," he added. "We have $9-billion invested in the city of Toronto, we have no interest in contributing anything to our city that isn't well conceived, that doesn't manage congestion, manage traffic flow."
To continue feeding the growth of one of Canada's largest pension plans and keep risk in check through diversification, Oxford is also increasingly looking outside this country.
Mr. Hutcheson is conscious of the fact that the success or failure of Oxford's investments can impact a pension fund with 429,000 members. Within geographies "we really look at our industrial product and our multifamily product as our bonds, and our office and our retail as our equities," Mr. Hutcheson said.
He believes in expertise and scale. "The greatest mistake is jumping on an airplane, flying into a new city and thinking you can outsmart people on the ground who have the relationships, who understand that this side of the street where the sun shines is more valuable than that side of the street."
Oxford's first step abroad was to London four years ago, followed by New York. At this point it is focusing its U.S. resources on Washington, Boston and New York.
Its fingerprints are now on high-profile projects such as Hudson Yards, a 12-million-square-foot mixed-use development in midtown Manhattan, and Fifth Avenue's Olympic Tower.
And it's taking this chance to explore the opportunities in some major European cities where the sovereign debt crisis has taken a toll. "When the world zigs, we zag, so we're doing a deep dive on a few other markets in addition to London," Mr. Hutcheson said.