(Bloomberg)—A risky roll of the dice made in the depths of the financial crisis a decade ago will begin to bear fruit next week for a small Canadian pension fund leading the biggest private real estate project in U.S. history.
With Hudson Yards’ seven-story retail complex set to open March 15, workers were busy putting finishing touches on store interiors, stocking up merchandised goods and hoisting up a giant sign for anchor tenant Neiman Marcus on the exterior wall of the building facing 10th Avenue in New York on Tuesday.
The development of the once gritty industrial space on the West Side of Manhattan will eventually feature 28 acres spread across five office towers, a luxury condo with units starting at about $5 million and a public school. Driving the $25 billion development is little-known Oxford Properties Group, the real estate arm of a pension fund for retired police officers and city clerks in Ontario that teamed up with Related Cos. to take a chance in 2010 amid the real estate crash.
“Those did not feel like cheap decisions. They all felt like we were paying too much and maybe the world was ending,” said Oxford president Michael Turner, who was still in his early days at the company when the deal was struck. “We happened to be able to be there as a sponsor of quality, with fortitude and a balance sheet to make a decision.”
Oxford’s big bet for the Omers pension fund is an integral part of the company’s trajectory from a tiny property firm focused on Canada to an increasingly ambitious global player that just got too big for its own country. A decade ago, the Toronto-based fund had 96 percent of its assets in Canada. Now, more than 55 percent is invested abroad, with total assets approaching C$60 billion ($45 billion).
Oxford Vernacular
“That became part of the story of Oxford and the vernacular of Oxford,” said Turner, 45, who took over as president last April. “The rest of the world is bigger than Canada, so that’s a long game and we’re going to continue to grow in Canada as we have.”
On the Hudson Yards deal, a couple of Canadians teamed up quickly to make it happen. Tishman Speyer, the initial winner of the Metropolitan Transportation Authority’s tender process to develop the area, withdrew its bid and Related came on shortly after. Goldman Sachs Group Inc. was Related’s former partner in the deal but the investment bank changed its focus from long-term plays and Oxford joined instead, Joanna Rose, a spokeswoman for Related said.
Canadian Connection
Jay Cross, Related’s president of Hudson Yards and former president of the New York Jets football team, is a Canadian who worked on the Air Canada Centre arena in Toronto and knew Oxford’s former president Blake Hutcheson from their previous years working in the same industry. Hutcheson, a former executive at CB Richard Ellis who hails from Huntsville, Ontario, worked with Cross on the deal, in which Oxford and Related are 50-50 partners on the general group that oversees the entire development.
Hutcheson, who is now the president and chief pension officer for Omers, couldn’t be reached for comment, nor could Cross.
Oxford’s arrival at Hudson Yards went along with other bets it’s made in the past decade to expand to new territories despite looming uncertainty. The financial crisis hit just after the firm struck its first European deal to acquire 50 percent and develop 530,000 square feet at Watermark place in London. That turned out to be a very “fortuitous, successful investment,” Turner said. Oxford bought the entire property in 2010.
‘Beds and Sheds’
The global push has certainly paid off: Omers reported returns of 8.7 percent and 11.4 percent on its real estate investments in 2018 and 2017, respectively. That compares with gains of 2.3 percent and 11.5 percent for the Omers fund overall.
Oxford is looking to boost its exposure in the industrial and multi-family space, which they dubbed their ‘beds and sheds’ strategy, by about 20 percent each from 11 percent and 7 percent, respectively. It’s targeting cities that attract a flow of technology and talent like New York, London, Sydney and Toronto.
They’re not the only ones looking to reap greater returns by looking outside Canada. For the past five years, publicly recorded commercial real estate investments abroad by Canadian pension funds was C$84.6 billion, compared with C$19.8 billion invested domestically, according to CBRE research. Ivanhoe Cambridge Inc., a unit of Caisse de Depot et Placement du Quebec, bought IDI Logistics in the U.S. in a $3.5 billion deal last year and has recruited Oxford as a partner.
Some of these developers also hold stakes in Hudson Yards, which has different ownership splits within each of its assets, including some third-party capital. Brookfield Property Partners LP, the real estate arm of Toronto-based Brookfield Asset Management Inc., is developing Manhattan West, an 8-acre mixed-use neighborhood that includes One Manhattan West, a 2 million square foot office tower with tenants including Accenture Plc and the National Hockey League.
Capital Outflow
Oxford saw record growth in 2018, boosting its assets under management by almost a third to C$58 billion. The firm made its first forays into U.S. industrial real estate, London multi-family and Australia’s office sector with billion dollar bets. Oxford is also leading the transformation of an old freight terminal at Hudson Square that will become the New York campus for Google.
On a global scale, Oxford is still the “small fish in the pond” but the sponsorship of Omers is a competitive advantage given its stable, long-term source of funding, Turner said.
“It was a transformational year for Oxford, a lot of fun and a little bit stressful at times,” Turner said. “All of the big transactions that we did in 2018 were in service of where we think are the greatest medium to long-term tailwinds and getting more exposure to those.”
--With assistance from Paula Sambo and Esteban Duarte.To contact the reporter on this story: Natalie Wong in Toronto at [email protected] To contact the editors responsible for this story: Debarati Roy at [email protected] David Scanlan
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