Ivanhoe Cambridge aims to expand U.S. portfolio

Commercial real estate in Canada at peak prices

Top-priced commercial real estate in Canada, driven up by demand for higher returns and fierce competition from real estate investment trusts, has Ivanhoe Cambridge looking to vastly expand its U.S. portfolio through larger deals and a new strategic partnership.

“We want to be in the U.S. office business the way we’re present in the Canadian mall business,” said William Tresham, president, global investments, of Ivanhoe Cambridge, the real estate wing of Quebec pension fund manager Caisse de dépôt et placement du Québec. “We’re trying more and more to up the size (of deals).”

While several Canadian pension funds — like the mixed partnership led by Kingsett Capital to acquire Primaris Retail REIT through a $4.4-billion bid — remain active north of the border, some players like Ivanhoe Cambridge say they’d generally rather build than buy in Canada.

“Canada is at its all-time high for peak pricing,” said Tresham, who handles investments, including strategy and portfolio management at the company, with about $30 billion in assets.

He’s turning to the U.S. at a time of record-breaking investment in the Canadian commercial real estate market, as institutional players give some ground to yieldhungry REITs willing to pay top dollar for quality properties.

Of the expected $28.5 billion in Canadian commercial real estate sales in 2012, about 45 per cent of the transactions were made by REITs, up from about 25 per cent in the past, said Alexandre Sieber, senior vicepresident and senior manag- ing director of CBRE Ltd.’s Quebec operations.

National Bank Financial analyst Heather Kirk said Canadian REITs are becoming more active in part because of the favourable conditions for them to secure capital, compared to pension funds, which have liabilities in terms of future pension payouts.

“A lot of people think that the REITs now have the cheaper cost of capital relative to the pension funds,” she wrote in an email. “This makes them more competitive than in the past.”

Unlike most Canadian REITs, which have to buy in Canada, pension funds are going global to look for a larger available pool of properties for sale, along with strong returns.

“They have the ability to invest abroad,” Sieber said. “Most Canadian pension funds have been very active in the United States. The first natural step to going global is going to your neighbour.”

In an interview, Tresham told The Gazette he’s bullish on the U.S. market, which is in recovery but where prices are at 75 per cent to 80 per cent of their peak.

Tresham said Ivanhoe Cambridge is looking to grow its minimal U.S. mall presence, multi-residential building node in California and office towers through a new “platform” approach that would involve buying as a portfolio, rather than just acquiring individual properties.

Within just the office division, Tresham said he would like to eventually see Ivanhoe Cambridge’s U.S. exposure grow from the existing 30 to 40 per cent.

To execute that strategy, Ivanhoe Cambridge has joined forces with Callahan Capital Partners, headed by Tresham’s former associate, Timothy Callahan, who served as chief executive of Trizec Properties Inc. and Equity Office Properties, once two of the largest public U.S. office REITs.

Tresham, who worked with Timothy Callahan for a total of eight years, both as chief operating officer at Callahan Capital Partners until 2010 and at Trizec., said he has no interests in his former firm.