Oxford’s Turner: Mega-deals are ‘not a great use of our time’

The president of the Canadian pension investor said increased competition and bidding wars have caused his investment team to focus on smaller deals.

Turner: with an abundance of capital chasing big deals, smaller opportunities are worth the headache

Oxford Properties Group is looking at smaller deals than it would have in the past and is also forming partnerships with specialized operators as it seeks to grow its platform, Michael Turner, the firm’s president, told attendees at this week’s PERE American Forum in New York.

The real estate arm of the Ontario Municipal Employees’ Retirement System has done about 90 deals this year, including 66 acquisitions in the US. It also has completed 12 sales. “Because there is just an enormous amount of capital [competing for larger deals], we have done fewer portfolio transactions this year and really dropped down in the market and did a lot of smaller deals,” Turner said.

While the high volume of smaller deals put strain on Oxford’s acquisition team, avoiding bidding wars on large deals made the effort worthwhile.

“[It] was taxing on our team [to focus on smaller deals], but we were able to deploy a meaningful amount of capital and stay out of the way of some of the mega-buyer competitions where they had real pressure to deploy capital,” Turner said. “I think that put some inflation into pricing.”

Life sciences portfolio expansion

A growing number of Oxford’s equity investments have been in the emerging life science sector. This represents a shift in philosophy for Turner, who has historically avoided big, long-term bets on a sector he thought was prone to rapid obsolescence. 

“Early on in my career, I thought, well, I don’t want to own those depreciable pieces of equipment,” Turner said.

Experience and observing the market, however, taught Turner that while the equipment in these centers often changes, basic fundamentals still apply. 

“It goes back to your grade 11 chemistry class and having a bench, knowing how much space you need,” he added. “What’s the equipment you need? And what’s the ventilation that’s required and the roof and so on and so forth.”

Institutional support from investors and tenants also plays a role in selection. “What’s the ecosystem? Is there an ecosystem of venture capital? Of [National Institute of Health] funding? Of clinicians and of companies that are going to grow?” he added.

The debt story

While Oxford’s equity investments have focused on burgeoning sectors like life science, its lending business has been more oriented toward value plays in less popular sectors like hospitality and the growing market for studio space. 

“The high conviction we’ve had in the equity space and life sciences and in logistics are also expressed in our debt book, but those have been paid off,” Turner said. “We’ve had to replace it with things where we just find better relative value. We found better opportunities in hospitality.”

Looking ahead

Going into 2022, Turner said Oxford will continue to seek out smaller investments and resist the temptation to commit large amounts of capital to a few big, highly sought after properties.

“I think there’s more competition in that space than there has been historically, and a lot of those players this year in particular, let’s say the non-traded REITs run by large asset managers, just have a lower cost of capital than we do,” Turner said. “We found that is not a great use of our time, and it is not a way that we’ve been able to meet the return requirements [for our shareholders].”