CAISSE COOLS ON U.S. MALLS
CAISSE SHOPS AROUND IN EUROPE US$1-BILLION SELLOFF Sinks investment in retail malls in Poland, Germany
MONTREAL •
With fears mounting of a slowdown in U. S. consumer spending, the Caisse de dépôt et placement du Québec, Canada’s largest investor, has made a $ 1- billion bet that the value of U. S. shopping malls will cool, and has instead turned its attention to undervalued malls in Germany and Poland.
In the past two years, the Caisse has liquidated its direct and indirect holdings in all but four of the 25 U.S. regional retail properties in which its real estate division invested in the late 1990s. The value of the properties sold from 2003 to early this year was about $1-billion, with net proceeds after debt to the Caisse of almost US$500- million.
The Caisse’s U. S. sales helped its shopping mall division, Ivanhoe Cambridge, post a record 35.1% return in 2004 and lifted the unit’s 10-year average return to 19.7%. The Caisse has also realized a significant but undisclosed profit on the sale this year of its stake in a private U.S. real estate investment trust with 13 malls.
With proceeds in hand, the Caisse looked overseas to Europe. In May, Ivanhoe Cambridge bought indirect control of Warsaw’s Wola Park shopping complex. Then, last week, it bought a 90%-plus interest in three German retail developments for $630-million, including the country’s largest mall, Paunsdorf Center in Leipzig.
“Our perspective is that the retail industry in the U.S. and particularly the regional shopping centres have had tremendous growth the last few years,” said Fernand Perreault, president of the Caisse’s real estate group. “It will be difficult to sustain that sales growth.
“ There are still good opportunities; we don’t foresee any catastrophe. But we thought Germany and Central Europe were a better play for the future.”
Some economists have warned for more than two years of a slowdown in U.S. consumer spending. The flags are everywhere. Americans are saving almost nothing, while borrowing against the rising values of their homes in some of the frothiest real estate markets in memory.
A handful of similar trading systems in the U.S., such as Archipelago Exchange, which was recently acquired by New York Stock Exchange, have snagged about 50% of the market share away from the bigger players, Mr. Bandeen said, noting CNQ’s fouryear expectations are “no where near” there.
The TSX said yesterday it “welcomes competition.”
“ We have a superior market model and we have marketplaces that are among the most liquid and the most efficient anywhere in the world,” said TSX spokesman Steve Kee.
CNQ’s own stock exchange, where about 50 companies trade, provides little competition for the senior exchanges. The total value of the shares traded on CNQ’s exchange last year totalled $26.6-million compared to the TSX’s total of $834-billion.
While CNQ’s own exchange will operate separately from its alternative market, one trader wondered whether CNQ’s alternative market will be able to generate liquidity as it operates in the TSX’s shadow. Mr. Cook, however, said CNQ’s speed and lower prices will attract a following.
“From the outset, there will be orders in the book,” he said. “ There will be liquidity available because we’re going to offer a service that is going to be very attractive to the kinds of players who will put orders in the book.” CNQ clients will have to pay an initial fee of $2500 and install specialized software to access CNQ’s trading platform.
While the trader, who asked not to be named, remains skeptical about liquidity, he said the Street may give the upstart a chance. “Cost is a big issue. If they are in fact cheaper, brokers will become interested,” the trader said.
Mr. Cook argues CNQ could actually boost market liquidity because its system attracts arbitrage traders looking to exploit differences in the price of a security between two exchanges.
Winning over traders won’t be CNQ’s only challenge. The OSC, which regulates CNQ, alleges three people with ties to the exchange — chief operating officer John Michael Malone, co-founder and minority shareholder James Patrick Boyle, and Lawrence Melnick, president of Champion Natural Health.com, a CNQ-listed company — participated in “unregistered trading” and “ authorized or facilitated unlawful distributions of securities” in three companies between March 1997 and Aug. 2000. None of the allegations have been proven and the OSC has set a hearing date for Oct. 27.
“None of these allegations have anything to do with [Mr. Malone’s] role at CNQ,” Mr. Cook said. “Everything took place long before the company was formed, let alone before we got up and operating.”