Midtown Manhattan skyline at night.JOSHUA HAVIV/Getty Images/iStockphoto
Canadian institutional investors are gobbling up some of the world's highest-prized properties as they look for a way to put their money to work ahead of a possible slowdown in public equity markets.
Montreal-based Ivanhoé Cambridge's $2.25-billion (U.S.) purchase of a 42-storey office tower at 1095 Avenue of the Americas in New York from Blackstone Group LP is only the latest such acquisition.
Ivanhoé is currently looking to redeploy capital from other asset sales and the Blackstone asset marked an opportunity to do so, said an industry source familiar with the transaction. Ivanhoé has been getting out of hotels, for example, as it executes a strategy of simplifying its holdings and focusing on a smaller number of geographies.
"The market that makes the most sense to go invest right now is the U.S. market," said the source, adding that, while a sales agreement on the New York tower has been signed, a final deal is months away.
It marks the second highest price yet paid for an office building in the United States.
Canada's public and private funds, such as Ivanhoé parent Caisse de dépôt et placement du Québec, are plowing massive sums into the globe's premier markets, such as New York, London and Paris.
According to data from Real Capital Analytics, Canadians have been the single largest buyer of U.S.-based commercial real estate since 2010, acquiring property positions worth $8.3-billion through the first eight months of the year.
Brookfield Asset Management Inc.'s property unit is taking a run at Songbird Estates, owner of London's Canary Wharf financial district, in what would reportedly be the largest British property deal of the decade. Ontario Municipal Employees Retirement System's real estate unit, Oxford Industries Inc., is developing Hudson Yards in Manhattan and last year stuck a deal to build an office and retail complex in Lo
Although transaction prices have been climbing in recent years, the investors are looking at the cities as places where they can earn steady if non-spectacular returns as opportunities in fixed income remain unattractive and the lengthy bull run in global stock markets slows down. Investors are buying a predictable cash flow in building typically leased at very high levels.
"They're getting trophy assets that are irreplaceable and can only grow in value," said Sylvan Adams, who is one of Canada's shrewdest property developers as head of Montreal-based Iberville Developments Ltd. "And since they're in it for the long term and they're not players, they're not flippers, that's a trend which I think is going to stick around – until the next real estate crisis."
A projected downturn in equities and continued low interest rates in the months ahead will push the Caisse to shift more of its attention to private investments, such as infrastructure and real estate, as well as to emerging markets with potentially higher growth rates,
such as Mexico, Caisse chief executive Michael Sabia said in August.
The pension fund tallied a 6.7-per-cent return on investments for the first six months of the year and grew assets to $214.7-billion (Canadian). The year's second half will likely be weaker, Mr. Sabia said.
"These are really centres of the world" where the Canadians are putting their money," said Michel Nadeau, a former Caisse senior executive who now works at Quebec's Institute for Governance of Private and Public Organizations. "And they will continue to attract business. Transaction prices are really expensive. But in the long term I think rents [can make it worth the while]."
Ivanhoé bought the Avenue of the Americas property at an investment yield, as measured by capitalization rate, of 4.5 per cent, according to Bloomberg. Officials with both Ivanhoe and Blackstone declined to comment.
David Berman writes for Inside the Market, which offers readers up-to-the-minute analysis of stock trends and market-moving news throughout the trading day.