Over the years, the Canada Pension Plan Investment Board (CPPIB), one of the world’s biggest pension funds, has built a significant U.S. portfolio, investing $137.4 billion in public and private companies, real estate assets and commitments to real estate and private equity funds. By the end of its first quarter, U.S. investments represented 37.5 percent of the Canada Pension Plan (CPP) Fund’s total assets.
The CPP Real Estate group, which focuses primarily on the world's most transparent markets, including the U.S., has a distinct presence in U.S. industrial, office, retail, multifamily and student housing sectors.
Property performance between those sectors has varied widely in recent years, but the industrial sector continues to be one of the most attractive propositions for real estate investors, primarily due to e-commerce growth and modernization of global supply chains. To take advantage of this growth, earlier this month CPPIB formed a joint venture with WPT Industrial Real Estate Investment Trust and Alberta Investment Management Corp. (AIMCo) to expand its presence in the U.S. industrial sector. CPPIB and AIMCo will each own a 45 percent interest in the JV, while WPT will own the remaining 10 percent interest and will manage the properties.
The JV partners plan to invest up to $1 billion of equity in industrial properties located in both strategic logistics markets, including Atlanta, Chicago and Dallas, and gateway markets, including New Jersey, Los Angeles and Seattle.
NREI asked Hilary Spann, CPPIB managing director and head of Americas real estate investments, about the benefits the CCP Real Estate group expects to derive from this newest venture, CPPIB’s current U.S. holdings and the JV’s investment targets.
This Q&A has been edited for style and clarity.
NREI: What advantages does partnering with WPT and AIMCo provide CPPIB?
Hilary Spann: The U.S. industrial sector is benefiting from demand bolstered by favourable U.S. macroeconomic indicators, healthy sector fundamentals and structural shifts, including e-commerce and supply chain reconfiguration and modernization, which are forecast to persist.
The JV with WPT, an established national industrial owner, operator and developer, and AIMCo, an existing CPPIB investment partner, provides CPPIB with U.S. industrial development partners in a scalable, well-aligned structure to increase its exposure to this attractive sector over a long investment period.
NREI: What type of resources do your partners bring to the table?
Hilary Spann: WPT is an industrial platform building itself for growth with national exposure that will enable the JV to source opportunities in targeted prime national/regional hub markets and super prime gateway markets, consistent with CPPIB’s U.S. industrial strategy.
CPPIB brings a breadth of international investment and industrial sector experience to operate as a right-fit partner in this investment process.
NREI: What are CPPIB’s current U.S. industrial real estate holdings?
Hilary Spann: CPPIB has direct investments in U.S. industrial assets comprising interests in 120 million square feet across 29 markets through joint ventures.
NREI: Which U.S. cities are most attractive to this newest partnership and why?
Hilary Spann: The JV will target investing in a diversified mix of prime national/regional hub markets comprising: Atlanta, Chicago, Dallas, Houston and Lehigh Valley/Central Pennsylvania and “super prime” gateway markets comprising: New York City/New Jersey, San Francisco/Oakland/Central Valley, Seattle, Los Angeles/Inland Empire and Miami/South Florida.
Those markets are most likely to experience warehouse demand benefitting from favourable U.S. macroeconomic indicators and healthy sector fundamentals.
NREI: Has the JV already acquired any assets?
Hilary Spann: The JV has not yet acquired any assets, but there is a pipeline of non-disclosed asset opportunities under evaluation.
NREI: How long do you plan to hold the assets and is there also an exit strategy in place?
Hilary Spann: The intention is to aggregate assets and hold them over the long term.
NREI: What size or type of industrial buildings is this partnership likely to target, or what types of warehouse features are attractive to this partnership when selecting assets to purchase?
Hilary Spann: The JV will target both new development and value-add investments in industrial warehouses in varying sizes and configurations in targeted U.S. logistics markets. Investments will range from development of large, modern class-A buildings to acquisitions of smaller, infill buildings that present opportunities to create value through leasing, refurbishment and/or redevelopment.