Oxford Properties Group – the real estate arm of Canadian pension fund OMERS – has an ambitious growth plan that includes expanding its footprint globally and growing its portfolio of properties to more than $30 billion.
Oxford’s president and chief executive Blake Hutcheson (pictured) says that the fund is patiently building out its portfolio of properties that include commercial real estate properties in Canada, the UK and the US.
The real estate fund manages a portfolio of properties valued at around $20 billion, of which $4 billion comes from third-party investors.
Hutcheson says the fund has used its 50 years of experience in Canada in its push to expand abroad.
“The only way to invest in cities and countries far beyond that which are comfortable is to put people on the ground, and scale it with a few of our people and a lot of local people and build on the relationships and know-how in the local market,” he says.
“We don’t need to do it overnight; we will take our time, and we will in every sense be a local player before we start to part with significant amounts of money for projects – be they development or otherwise.”
Oxford is a strong believer in the fundamentals of the US property market, choosing to focus its attention on the cities of Washington, New York and Boston.
Its expansion into New York is a case study in how the fund operates. Since moving into its New York office two years ago, Hutcheson says the fund “kicked a few tyres” and underwrote a number of deals before deciding to take the plunge.
It has more than $1 billion in investments in the US, with plans to grow this to $5 billion in the coming years, Hutcheson says.
Its most high-profile US investment is the Hudson Yards project on Manhattan’s far West Side.
The project is a 50/50 joint venture with US property developer Related Companies, and is a 26-acre mixed-use development.
Luxury brand Coach Inc recently agreed to be a major anchor tenant, taking up the lower one-third of the available commercial space in the initial 51-storey tower located at the Eastern Rail Yards site.
Hutcheson says the joint venture is seeking additional third-party investments and is set to roll out a number of development projects on the Hudson Yards site in the coming years.
The master plan for the rail yards includes approximately 5000 residences in nine residential buildings; 557,418 square metres of commercial office space; 92,903 square metres of retail space; and a new 750-pupil public school.
The development is backed by a $3 billion public infrastructure spending program, which includes an extension of the No.7 subway line, scheduled to be opened in December 2013.
Despite slow economic growth projected for both the US (and Europe), Hutcheson says the Oxford and its investors are still strong believers in the country’s property markets.
“The bidders lists are thinner than they have been in a long time and we believe in the cities we are betting on long term, and we are in and around a lot of deals and we will place a few bets when we think it is strategic,” he says.
“I genuinely think the US is a great market to be focused on and we are only focused from an office standpoint on Boston, Washington and New York.”
Oxford is an integral part of OMERS’ push to move more assets from public to private markets.
It has a target asset allocation of 53 per cent in public markets and 47 per cent in private markets, and the $50 billion fund has a number of corporate entities that invest up to 47 per cent of the allocation to private investments.
These investment groups operate under the OMERS Worldwide brand, and include OMERS Capital Markets OMERS Private Equity, Borealis Infrastructure, OMERS Strategic Investments and Oxford.
These investment entities also have a global focus that fits with OMERS’ strategy to reduce existing home biases.
“We operate very autonomously, very entrepreneurially outside of the OMERS family for execution, but very much part of the OMERS investment family for sponsorship and support and it has been a terrific relationship for both,” Hutcheson says.
OMERS as sponsor provides both equity and debt funding for projects, Hutcheson says.
The capacity to access funding quickly allows the fund to be nimble when it comes to taking opportunities, whether they be in investment, development or seeing gaps in the market related to property investment.
One such gap the fund has successfully exploited is extending credit to other developers, where Oxford is happy to be an owner in the underlying investment if something were to go wrong, Hutcheson says.
Oxford can also leverage off the OMERS brand itself to attract other institutional investors. One such example is $1 billion the Canada Pension Plan has invested with Oxford on a number of joint ventures.
During a times of volatility, Hutcheson says institutional investors can see property as an attractive source stability.
Oxford has achieved a greater than 10 per cent yield over five, 10, 15 and 20 year periods, which also provides pension funds such as OMERS a reliable asset class for long-term liability matching.
OMERS have also looked to build third-party relationships through its various investment entities as a way of obtaining the necessary scale to participate in deals where the number of players is reduced.
Likewise Hutcheson says that the property market offers opportunities for those that can take on big deals.
“There are some projects that because of their sheer size there are very few entities that can play at that level, and so we are able to invest in sizeable transactions on our own,” he says.
“There are some transactions that you can get better returns because of the barrier to entry so that strategy within OMERS is very advantageous to both Borealis Infrastructure and Oxford in looking at significant scale transactions.
Along with its expansion into US markets, Oxford has also looked to the UK for opportunities.
Like it did in New York this has involved Oxford seeking a local joint venture partner, in this case with one of the UK’s largest real estate investment trusts Britain Land to develop a 47-storey tower block in London’s Square Mile.
In its home-base of Canada Oxford is also constructing downtown office buildings in Toronto and Vancouver, and has recently finished a $500 million office building in Calgary.
Hutcheson says the Oxford would be irresponsible not to be also casting its eye further afield to opportunities in other regions, including Asia.
While not nominating particular countries of interest, Hutcheson says that they expect to grow their global footprint further in the next two to three years.
“A significant proportion of our go forward strategy will be development but it won’t be the only line of attack, it will be one of many and it will be when we think we can manufacture better yields than buying them,” he says.