CPPIB buys London office portfolio, forms JV

The Canada Pension Plan Investment Board (CPPIB) and the BT Pension Scheme have structured a joint venture for central London offices. The Canadian pension is buying a 50 percent stake in eight offices for £173.9 million (€201.4 million; $262.8 million) from the pension for British Telecom's workers, with a view to doubling the size of the portfolio with fresh investments in the future.

Assets in the venture are core-plus to value-added in nature and are spread out over 550,000 square feet of offices, retail and ancillary accommodation. The portfolio comprises 100 Regent Street, 100 New Oxford Street, 40 Eastbourne Terrace, 50 Eastbourne Terrace, 242 Marylebone Road, Cheapside House, 20/24 Broadwick Street and 69 Carter Lane.

The deal, which was announced today, is the latest in a string of similar ventures structured between domestic owners of real estate assets and global investors wanting to increase their international exposure to certain markets. Instead of the seller exiting 100 percent of the ownership, in this new trend the owner typically retains a 50 percent stake in the assets it has sold and assumes the venture will make further acquisitions alongside fresh capital from the buyer.

There have been several examples in recent times. The most recent instance came earlier this month when PSP Investments, another of Canada’s large pension plans with $64.5 billion of assets, announced an agreement to tip €303 million of equity into a joint venture with UK REIT SEGRO, which controls a pan-European logistics portfolio.

Norges Bank Investment Management (NBIM), the manager of Norway’s Government Pension Fund Global, also has utilised the structure a number of times as it looks to rapidly assemble billions of assets from scratch. Late last year, NBIM announced a 50:50 partnership with Prologis. Known as Prologis European Logistics Partners, the venture was seeded with a portfolio of 195 properties, totaling approximately 49 million square feet. About 75 percent of the properties came from the former ProLogis European Properties Fund, with the remaining 25 percent comprising other assets in Europe wholly owned by Prologis.

Hermes Real Estate Investment Management , the London-based firm that has 70 investors as clients, acted for the BT pension in this latest transaction. Chris Taylor, chief executive officer, said he was “delighted to be entering into this joint venture partnership with CPPIB as a like-minded, long-term global investor.”

Taylor added: “Our ability to source opportunities off-market and act decisively together with a conviction to understand how occupiers assess real estate provides a compelling case for investing in this platform. We firmly believe Central London will continue to deliver attractive opportunities.”

Graeme Eadie, senior vice president and head of real estate investments for CPPIB, said: “We are pleased to be partnering with BT and Hermes on this unique opportunity to invest in a high-quality, well-diversified portfolio of office properties in prime Central London locations. This acquisition is in line with our strategy to capitalise on attractive opportunities in the London office market and invest alongside well-aligned partners. We see an excellent opportunity to increase the seed portfolio’s value and to grow the venture by acquiring more value-added product in Central London.”