Canada’s largest single-purpose pension fund has forged a path to buy into the lucrative West End office market after creating a £350m joint venture fund with the Hermes managed BT Pension Scheme.
Canada Pension Plan Investment Board has bought a half share in an eight strong portfolio of central London offices from BTPS which will seed the fund, with ambitions to grow to more than £700m in the next couple of years.
CPPIB will pay BTPS £173.9m for a 50% interest in the portfolio of core-plus buildings, primarily located in the West End.
The move is the latest attempt by CPPIB to access the West End office market.
With net assets of C$183.3bn (£117.2bn) as of March 2013 making it one of the world’s top 10 pension plans, it has struggled to find offices with large enough lot sizes in the West End.
A 2011 tie-up with Grosvenor Fund Management to invest £200m in West End offices has yet to yield any deals for the investor.
Its £163m JV with Land Securities to develop the £1bn Victoria Circle scheme saw it taking on significant development risk in order to access the scale it desired.
CPPIB managing director and head of real estate investments in Europe Wenzel Hoberg said: “We have been trying to access the market for quite a while since we started our programme here.
“What we really like about this is that we have a partner who is also 50% aligned, with operating skills and capital which is not often the case.”
For BTPS, the deal offers the chance to rebalance its £4.2bn real estate portfolio in favour of more overseas opportunities.
Hermes Real Estate Investment Management chief executive Chris Taylor said: “This is a really good way in which we can grow our business but also diversify the existing portfolio.”
Taylor said the scheme was three years into a five year real estate strategy to invest more overseas which has already seen deals in the US, Europe and Australia, including a $150m investment in the New York private rented sector.
Taylor said the fund was closing in on a large transaction in France and would be increasingly seeking opportunities in “core Europe”.
The JV will typically target buildings of between £50m-£75m in central London with short to medium term income and clear asset management opportunities, targeting returns of around 10%.
Its will be led by Hermes Real Estate Investment Management fund director Chris Darroch and Hermes director and head of asset management David Price.
The portfolio includes high profile buildings such as 100 Regent Street, W1 (pictured) and 100 New Oxford Street, WC1, adding to CPPIB’s collection of trophy assets.
The Canadian giant has a global real estate portfolio valued at around C$22bn (£14bn), of which UK property makes up around 10%.
It includes stakes in several high profile shopping centres such as Westfield Stratford, the Bullring in Birmingham and Silverburn in Glasgow.
The fund originally entered the UK real estate market in 2006 with its purchase of a majority stake in 55 Bishopsgate, EC2.
It has since sold down its City holdings, exiting a 50% stake in 10 Gresham Street, EC2 alongside Hammerson in autumn last year.
Malaysian pension fund KWAP paid £200m for the building two years after CPPIB and Hammerson bought it for £175m.
The joint venture portfolio comprises:
• 100 Regent Street, W1
• 100 New Oxford Street, WC1
•40 Eastbourne Terrace, W2
• 50 Eastbourne Terrace, W2
• 242 Marylebone Road, NW1
• Cheapside House, EC2
• 20/24 Broadwick Street, W1
• 69 Carter Lane, EC4
jack.sidders@estatesgazette.com
