Palladitcheff: ‘If I didn’t solve these problems, someone else would have to’

In little more than three years of leading Ivanhoé Cambridge, Nathalie Palladitcheff has created a blueprint for success for the C$77bn investor and its C$400bn parent, Caisse de dépôt et placement du Québec. We spoke with her as she received PERE’s Lifetime Achievement Award.

Nathalie Palladitcheff was appointed chief executive officer at Ivanhoé Cambridge in October 2019. Shortly after taking the reins, she devised a three-point plan to transition the real estate subsidiary of Caisse de dépôt et placement du Québec, the institutional investor responsible for several public pension plans and insurance programs in Quebec, into a business able to handle a myriad of secular changes coming down the road. The plan involved radical levels of portfolio reconstruction, a streamlined business model and even a cultural overhaul. 

Months later, the world was in the grips of an unprecedented coronavirus pandemic. Palladitcheff had received a green light to proceed with her plan from Ivanhoé Cambridge’s board and CDPQ, but faced a dilemma about whether to go ahead while the world’s economic future was up in the air. “I questioned myself about it,” she admits. “But then decided, not only am I going to do it, I’m going to accelerate it.” Large parts of a plan expected to take three years were executed in one. Palladitcheff credits staff who labored tirelessly to get the work done. “That period taught me so much about the human being and how much can be done. People’s resources can be endless.”

The dust is now settling on the pandemic, even if the global economy remains fraught with challenges in its aftermath. But against a still-precarious market backdrop, Ivanhoé Cambridge and its parent CDPQ are already reaping the fruits of Palladitcheff’s decision. At the end of last month, the firm announced a headline return for 2022 of 12.42 percent from its approximately C$69 billion ($51.4 billion; €47.9 billion) of assets under management, similar to the 12.45 percent return achieved the previous year. In both years, the firm comfortably beat its benchmark made up of institutional peers.

That was a far cry from when Palladitcheff was promoted, when the firm’s performance had turned negative. Then, her proposal to pivot an asset base anchored by shopping centers and office towers to one prioritizing logistics and housing, and to jettison its asset management activities altogether to become solely an investment house, appeared to be bold calls. “Or just stupid,” she jokes. Indeed, in the following year as these moves were in progress – and with a world in lockdown and no vaccine in sight – Ivanhoé Cambridge’s returns plummeted further. 

Palladitcheff remained steadfast. She believed Ivanhoé Cambridge’s challenges would outlast the uncertain environment. Further, she was certain that the sooner it broke through the inevitable pain barrier of the overhaul, the healthier the organization would be later. 

“It’s important to make these choices, not only for next week, but next year, the year after, 10 years after that. My retirees are going to be around forever,” she explains. Palladitcheff assumes personal accountability in her rhetoric when referencing the 6 million Quebecers whose pensions are serviced by CDPQ. Calling them “my retirees,” she says the wrong real estate portfolio, incorrectly managed, would make that stewardship task harder. “These problems, if I didn’t solve them, someone else would have to. I was appointed to do this job, so it was my responsibility.”

In taking that responsibility head on – all the while championing environmental, social and governance issues – she has won the hearts and minds of Ivanhoé Cambridge’s 550-strong headcount, her bosses at CDPQ and the business communities of Montreal and the wider province of Quebec. Her efforts were even acknowledged by the broader Canadian real estate sector last year, when she was appointed chair of REALPAC, the country’s national real estate association, in November. 

“It’s an awesome example for CDPQ,” says Charles Emond, chief executive officer of the Caisse and Palladitcheff’s line manager. “I need a dozen Nathalies. In the last two years, we’ve beaten our benchmarks at the Caisse, and Nathalie has been instrumental in that achievement.”

“It’s important to make these choices, not only for next week, but next year, the year after, 10 years after that. My retirees are going to be around forever”

As such, selecting her for the much-coveted Lifetime Achievement Award in this year’s PERE Global Awards was not difficult. In winning, she stands alongside prior recipients from both private real estate’s manager and investor cohorts, including Starwood boss Barry Sternlicht, Lone Star founder John Grayken, AXA IM Alts’ global head Isabelle Scemama and APG leader Patrick Kanters. On joining this hall of fame, she says: “I know the team is going to be very proud. It’s cool when you can bring something like this to them.”

Emotional IQ

Palladitcheff’s victory is all the more remarkable given her time in private real estate only started in 2015, when Ivanhoé Cambridge appointed her chief financial officer. Furthermore, for the best part of the first three years, she was responsible for functions away from the investing limelight, including finance, information systems and human resources. She was promoted to president in early 2018 before ascending to CEO approximately 18 months later. But by her reckoning, that period and the two preceding decades working for professional services firms, banks – including on the remote French island of Réunion in the Indian Ocean – and listed property companies, gave her the skills to do the headline job at Ivanhoé Cambridge. 

A top capability of hers is the ability to communicate with a variety of stakeholders and associated or interested parties. “It helped me work on my emotional IQ. It’s not enough to just be skilled and competent. You need to understand where people come from. Speaking to the guys here and at CDPQ, and then the people at Morgan Stanley in New York for instance, they are two different experiences. They’ll be looking at the same numbers from different angles. Often, realizing what to do is not complicated; it is making it realized by others which can be hard,” she says.

When asked for a facet of her effective communication, she emphasizes the need to prevent surprises. “Having worked for a listed company, I know you should never surprise your audience. It’s bad for the markets, even good surprises. What I tend to do when I know something is going to happen is talk about it a little bit. Then, when it happens, I say ‘hey, I told you already, there’s no surprise here’.” 

Palladitcheff honed these techniques working for companies such as Icade, a French-listed property company part-owned by France’s Caisse des dépôts et consignations, where she spent eight years. This experience, balancing the expectations of shareholders and the French government, gave Ivanhoé Cambridge the confidence to approach her for a role. “When the headhunter called for the CFO role, they told me they were looking for somebody as comfortable with the public and private sector as working for a government-linked company.”

“She has built up enough political credibility as well as strategic capability to take the big job,” says Francois Trausch, CEO and chief investment officer at PIMCO Prime Real Estate, the real estate business of German insurer Allianz. “I’m sure it wasn’t easy. It’s a fairly conservative environment there.” 

Indeed, for Trausch, what stands out about Palladitcheff’s attainments most is her integration into Quebec. “Just like the British and Americans, the French and Québécois are separated by a common language.” Trausch lauds her ability to first be accepted by the business community in the Canadian province, then to take a leading role through which she can make marks. “When was the last time a non-Quebec person led the company?” he asks.

“I need a dozen Nathalies. In the last two years, we’ve beaten our benchmarks at the Caisse, and Nathalie has been instrumental in that achievement” 

Charles Emond

The answer is never. “No foreigners,” Palladitcheff says. “No women either. Only male Quebecers.” She believes her appointment was an audacious move. “That’s why I’m grateful every day. I’m careful about what I say and how I say it because I know I was not born here in Quebec. I’m trying to deserve this very special place.”

That attitude is derived from her upbringing as a second-generation immigrant in France. Palladitcheff’s grandfather was Russian, her grandmother Yugoslavian. “As such, it was important for my father for us to be real French citizens and deserve the luck to be integrated in France. We had to make something of ourselves.” 

Now Palladitcheff has taken dual citizenship in order to be nationalized in Canada. Her family – she is married with three sons – has emigrated too. “Being a migrant now in this country means a lot of responsibility to deserve the welcome. I understand the feeling my father had. It was the same on Réunion Island. I had the same feeling then. Failure is not an option.” 

Completely reversing 

But while her social acclimatization has been successful, it is her performance in the hot seat at Ivanhoé Cambridge that has sealed the deal for her integration. 

“She’s undertaken a complete U-turn on the asset mix of the portfolio by doing about 200-plus transactions where we’ve got more of what we needed and less of what we didn’t want anymore,” Emond says. “We’re talking about completely reversing the percentages in a short amount of time.” 

In 2019, retail and office properties constituted almost 50 percent of Ivanhoé Cambridge’s asset base by value; today they are closer to 40 percent. Logistics and residential assets now make up the lion’s share of the other 60 percent, while retail has halved, and office holdings have notably reduced. “From asset classes going through structural challenges, we have moved towards new verticals with better fundamentals,” Emond says.

Connected to the portfolio reposition was the transitioning of Ivanhoé Cambridge’s asset management function, comprising approximately 330 staff mainly responsible for operating 21 million square feet of retail across 24 properties, valued at about C$10 billion. In August 2021, they were transferred to property services giant JLL. 

“What we did as a C$30 billion company was not what we should have been doing as a C$70 billion company. To me, being an investor and operator was something too complicated to achieve within the same company. It created two classes of citizens, two different thinkings about how to use money. We had to rethink the business model.” 

Emond says courage was needed to execute these plans, not least given they resulted in marking write-downs in the process. “Those decisions were not taken lightly. But she was a great communicator in the process. I’m not referring to spinning numbers, but explaining how we got to these conclusions and, therefore, keeping the team onboard and understanding where we’re going. Nathalie is good at handling these situations.”

‘Speed-dial’ is over

The third element of Palladitcheff’s plan to evolve Ivanhoé Cambridge pertains to its culture. This work, she says, remains ongoing. Most progress here has been made in repositioning the firm in terms of its perception and treatment in the market. While predecessors extolled a ‘speed-dial’ approach where managers were asked to prioritize calls to the investor when opportunities for funds or co-investments arose, Palladitcheff is adamant that Ivanhoé Cambridge’s portfolio construction plans are optimized if her team is doing the calling. 

“All the culture of this company was tainted by this so-called ‘first-call’ thing. This is the opposite of what I want to do. Now I ask the team to make the call first. Then we do what we want to do and can build our destiny instead of being passive and hoping people make us happy.” 

That message has been sent to the firm’s high-profile roster of manager partners with which Ivanhoé Cambridge invests both directly and via indirect strategies, including funds. Among its partners are Blackstone, Hines, KKR, Greystar and Tishman Speyer. Rob Speyer, CEO of Tishman Speyer, says his firm’s relationship with the Canadian institution was, in fact, formed as its approach was changing. 

While the two organizations have traded historically, there had not been a transaction for more than a decade before a Zoom call in 2021 – during a covid lockdown – between Palladitcheff and Speyer, which led to the discovery of common ground. “It ended up being a two-hour call,” Speyer recalls. 

“She’s one of the most intensely curious people I’ve met, in particular about innovation and change in an industry which has resisted change for decades. A lot of people are focused on what they already know. Nathalie is focused on what’s next.” 

That focus led to two equity commitments by Ivanhoé Cambridge in Tishman Speyer vehicles last year: C$286 million to the New York-based manager’s Breakthrough Life Science Property Fund, a discretionary fund specializing in the development of life science offices across the US and Europe; and C$18.7 million in the Tishman Speyer Proptech Venture Fund, which is used to buy into disruptive technologies in real estate construction. 

“I remember having breakfast with her at Rockefeller Center,” Speyer recalls. “At the end, she said, ‘Can you take me to one of your co-working spaces so I can see what you’re doing?’ There, she must have asked me a million questions about the dynamics of that business.” Palladitcheff admits to routinely quizzing people to help inform her own views. She does not limit this practice to senior executives either. “I always ask a cab driver what they think of an area,” she claims. “I want to know what they think of its safety, its schools, the shops, the restaurants. This is important for building communities.”

Palladitcheff wants to build a better community at Ivanhoé Cambridge too, in line with the ESG values she promotes. A scan of the firm’s board and executive committee suggests progress, with a notable array of positions now held by women. 

“She has a great sensitivity for diversity,” Trausch comments. “Some women get to the top, but don’t necessarily promote diversity. She pushes this factor.” Palladitcheff does not articulate specific diversity targets. But, having already positioned the firm on a clear path to decarbonization – a 2040 target was set two years ago, and the firm signed up to the world’s biggest business network focused on resilience, Resilience First, in January – there is a suggestion that attaining the right cultural mix of staff remains one of few outstanding changes on her slate.

This leads PERE to ask an inevitable question: what next? Certainly, Emond is keen to retain Palladitcheff within CDPQ. “I don’t want to lose her,” he says. But he is also cognizant that the best leaders fit the times they serve. “Organizations need different things and people along their history.” He is furthermore convinced she will be successful in whatever she does. “Someone like her will always have applicability and be attractive to many organizations.”

“I don’t know what the next step will be. I have many ideas,” says Palladitcheff. In one departure from the current day job, she has a teaching assignment at the prestigious Massachusetts Institute of Technology in June. “They asked me to do something on leadership. I’m sure I’m going to love that.” 

She does not know how long she will stay at Ivanhoé Cambridge. “But I can tell you, almost every CEO stays too long. I don’t want to be a CEO [about whom] people say ‘finally, she’s leaving.’ I hope one day I’ll have the feeling it’s over and someone else will be better than me. And I’ll be better somewhere else too.”

Stonecutter court

A differentiated solution

Having made one bold call regarding Ivanhoé Cambridge’s retail assets, much thought will go toward rationalizing the firm’s office holdings

Palladitcheff says further hard decisions will need to be taken regarding the Canadian investor’s office properties, which currently account for 24 percent of the firm’s total assets. According to a report in the Commercial Observer, the PacMutual building in downtown Los Angeles, a 460,000 square-foot office in the portfolio, has been listed for sale at half the $200 million price it was originally purchased for in 2015. “It’s not going to be that price,” she confirms. But she concedes that asset sales will need to be one option for the firm’s office holdings. 

Unlike the one-stop solution determined for Ivanhoé Cambridge’s retail properties, many of the offices kept on the books will require a differentiated approach. “I think what’s happening in offices right now is very different to what occurred to shopping centers. Offices will be about having a solution for each building versus one solution for the whole portfolio.”

She provides three examples of this tailor-made strategy. At 1211 Avenue of the Americas in New York, the firm agreed a 1.2 million-square-foot lease extension through to 2042 with Fox Corporation and News Corp. The tenure of the occupation by the media giant has enabled Ivanhoé Cambridge to embark on a series of upgrades to the building that would otherwise not have been possible. 

In Boston, the firm partnered with Sydney-headquartered Lendlease to develop FORUM, a 350,000 square-foot life sciences complex aimed at integrating public access with the private work of its occupiers. The partners are teaming up with MassBioEd, a nonprofit education foundation, to help foster workforce development in the life sciences industry.

Meanwhile, in London, the investor has embarked on the redevelopment of Stonecutter Court in a joint venture with Pimco Prime Real Estate. Enabled by a pre-lease to law firm Travers Smith, the venture is expected to culminate with an amenitized workplace, specifically tailored for use by a hybrid workforce. A key element of the redevelopment will be flexible space that is quickly reconfigurable. Another will be plenty of health and wellness functions.

“We also have a solution for a potential conversion of an office tower into residential. It will be a massive disruption,” Palladitcheff says. “This is the kind of thing I want the team to do today.”