Where Oxford is Looking for Growth

The real estate arm of the Canadian pension plan, OMERS, isn’t your typical LP. Its head of Europe explains how being an absolute return investor has shaped the organization’s strategy on the continent.

In just eight years, Oxford Properties Group has become a powerful player in Europe’s gateway markets closing on iconic deals such as the £500M [$727M; C$928M] redevelopment of the Royal Mail Sorting Center in New Oxford Street and partnering with The Crown Estate to redevelop an entire block of prime London West End space.

As an absolute-return investor targeting a 10 percent return from real estate though, Oxford Properties Group [Oxford]—the real estate arm of the Canadian pension plan, OMERS—isn’t your typical LP.

The organization’s executive vice president of Europe, Paul Brundage, explains Oxford is all about active asset and portfolio management, with a penchant for taking on development risk. Brundage talks about the platform’s growth since entering London in 2008 and offers his outlook on London and Paris and how Oxford could grow international assets to more than 50 percent of its C$80B portfolio [$63B].

PrivcapRE: Oxford is an absolute return investor targeting 10 percent from real estate. How do you generate that return?

Brundage: We undertake a greater amount of development. The other [way] is through active management of both your portfolio and of your assets. We just sold our Green Park asset in Reading [a 1.4M square foot office property acquired by Oxford in 2011 for £400m and sold to Singapore investor Mapletree in May 2016 for £563m after repositioning of the building’s tenants and leasing strategy]. Whereas, last year the original development that we did in London—Watermark Place, which we developed with a partner—we bought the partner out, refinanced it, and then sold a 50 percent interest. Lastly, we try to optimize our capital structure using a combination of equity, partners’ equity, and third-party debt.

Is it all about development in London?

Brundage: The sweet spot, initially, was development in London. Today we’re on our fifth development deal [there], and we’ve been very fortunate that all of those projects have exceeded our expectations. But we can’t just do development and development to hold. On some of the other deals that we’ve done, we needed to get some income to balance out the return and so we bought some longer-lease income assets in London [including Paternoster Square, a 1.1M square foot mixed-use asset close to St. Paul’s Cathedral].

Are you looking to secondary markets outside of London?

Brundage: We decided [in entering the U.K. market in 2008] that we were going to stay focused on major global centers and not chase secondary assets in secondary locations or markets.

What does your deal pipeline look like in London today?

Brundage: So we’re recapping the London portfolio. Where we have a development that is now an income-producing asset, we’re looking to recapitalize both debt and equity, depending on what our partner strategy ends up being. Those things can take on an interesting series of options for us. Our five developments are all under construction, so we also need a development pipeline for the future, but they’re harder to find. We’re looking at a number of them right now; some are bigger and more complex, so they’re going to take more time.

What has your strategy in Paris been?

Brundage: We like Paris as a market and we like certain locations an awful lot so we’ve bought on top of transportation nodes, using a lot of the same sort of view that we have around London as to where the emerging locations [outside the Golden Triangle area] are and we’ve bought income.

Has it been easier for you to compete for deals, given Oxford’s balance sheet and scale?

Brundage: Given the lot sizes in Paris are just smaller, it’s actually been very difficult for us to compete. We bid on one deal and we finished, I believe, 37th out of 60 on a €50M deal. I looked at our team and I said: “We’re not doing that again.”

What about developing in Paris?

Brundage: We have to do development at some point. So we’re trying to figure out how to do that because there just aren’t as many income deals to do. Just like in London, we missed the big one or two platform recaps at the beginning of the cycle but we’ve done okay building the business the old fashioned way, a single deal at a time, organically.

Will you grow even more outside of Canada?

Brundage: We put our strategy down on paper to effectively get to 50 percent outside of Canada by a [certain] point in time as we continued to grow. Today we are at somewhere north of 20 percent in Europe and about the same in the U.S. So we’re on our way to that 50-50 balance. And as we’ve looked at the next chapter, we may go to greater than 50 percent outside of Canada.

Where are you looking next?

Brundage: At this point we feel there is enough to do in our existing markets in the Northeast U.S. [New York, Boston and Washington D.C.], London, Paris, and with rebalancing our Canada portfolio. We don’t need to rush to add new markets [but] we are looking at Berlin and San Francisco. Those are the two we’re looking to add in Europe and the U.S.

Any plans for Asia?

Brundage: It’s very early and not something that we are likely to be jumping into immediately. It will come, I’m sure, down the road, but it’s not a current priority.