The direct investor

The captive real estate development and acquisition arm of the Ontario Teachers' Pension Plan, Cadillac Fairview had a portfolio valued at approximately C$14.5 billion ($12.8 billion; €9.5 billion) at the end of 2006. Though 80 percent of its property investments are in Canada, the group recently has ventured further afield. In 2006, it acquired a 46 percent stake in Rio De Janeiro-based Multiplan Empreendimentos Imobiliários, the largest regional mall operator in Brazil. The pension fund investor has also been moving into Asia, primarily via investments in private equity real estate funds. Here, Andrea Stephen, the executive vice president for investments, talks about the problems with super-sized funds, what she likes about Brazil, and her interest in South Africa.

As an LP, what issues are at the forefront of your mind?
The most significant issue for us is the competitive landscape that we face. There is so much capital looking for real estate investment opportunities, and it's become very difficult to find good opportunities. There are obviously some out there, but it is becoming increasingly more difficult because there doesn't seem to be any slowdown in capital looking for real estate opportunities.

In terms of fund investments, the funds have become so large. If you have such a large amount of capital to invest— and there are certainly requirements to place it from a generating-a-return perspective—with so much competition in the marketplace, it's a big undertaking. It's a tough mandate.

How do you choose whether to invest in a real estate fund versus investing directly in a property?
We typically invest in funds when we can't access the direct real estate market. We would look at opportunities where we're trying to learn the market or we don't have a good understanding of the market and we know the fund manager has a presence and track record in the market.

With all the new funds coming to the market, have you seen any particularly interesting funds or strategies?
We recently invested in a fund that takes minority positions in public and private equity opportunities globally. We thought that was an interesting take [and a way] to get some equity exposure, to get some entity exposure. There has also certainly been a lot of focus on Asia.

Does Cadillac Fairview have exposure to Asia?
We do through funds and we also have one direct investment, a residential development in Beijing.

Do you plan to pursue more direct investments in Asia?
Our view on direct investments in Asia is that we're going to learn and understand more about the market through some of the funds we're in—and look for more potential co-investment opportunities. I wouldn't say our focus on direct investment opportunities is in Asia.

Cadillac Fairview has been active in Brazil, a “hot market.” What is particularly attractive about the country?
As for a “hot market,” when we started looking at Brazil, it wasn't. And that was part of the attraction to us. We had, like everyone else, been studying the BRIC markets and Brazil seemed to be the one that not a lot of capital was flowing to, with the focus being on China and India. That is part of what initially attracted us to the market. As we learned and understood more about the market and the type of real estate opportunities that were there, we got very excited about it. The population is very young. There is an emerging middle class. The economy has really been doing well. Inflation has been under control for the last six or seven years. Interest rates have been coming down. Everything is coming together perfectly for it to be poised to grow as quickly as it should be growing.

What is the “next Brazil” for Cadillac Fairview?
Right now, we think there is still a lot of opportunity in Brazil. We're looking at Mexico as a market to try and build some sort of platform on a direct investment basis. South Africa is a market that we're very interested in. In terms of other emerging markets, we're really trying to use our funds' investments to study some of the new markets and see what the experiences are in terms of getting capital in and out, what returns are like, and what it's like doing business there in an effort to pick the “next Brazil.” We're still in the learning stage, I would say.

Cadillac Fairview has made direct investments recently in Toronto. What were the drivers behind those deals?
The biggest driver is always returns. We had the site, and office and retail are our specialties: We're always looking for opportunities to utilize any excess density we have. We were looking for that type of opportunity. While I focus on investing in developed properties, we have a development team in-house, and I would say the majority of the investment in Canada over the next two to three years will be by way of development because the returns are better. That's what it boils down to. [We go] wherever we can earn the most for our invested capital.