Canadian Investor Plans Overhaul of Mission West Portfolio

San Jose

By Jon Peterson

Two Canadian companies investing pension fund money have acquired all but a sliver of the equity in the former Mission West portfolio acquired by San Francisco’s Divco West Properties and TPG Real Estate at the end of last year.

Aerial view of San JoseMoreover, the president of global investments for Montreal-based Ivanhoé Cambridge said he expects the portfolio to produce returns in the “teens” over a three-year to 10-year hold.

“We are looking at investing additional capital into the portfolio in the range of tens of millions of dollars,” said Bill Tresham, president of global investments for Ivanhoé Cambridge. “This will assist us in making the portfolio perform at a higher level in the future.”

For the more than $400 million in equity that it placed into the transaction, Ivanhoé Cambridge has gained a 50 percent interest in the 73 office buildings that make up the former Mission West portfolio. This investor was brought into the deal by TPG.

The other investor in the portfolio is the Public Sector Pension Investment Board, according to a person with knowledge of the transaction. PSP is also a Montreal-based pension fund investment manager. A PSP spokesperson said PSP does not comment on individual transactions. The manager stated in its 2012 annual report that it had acquired office buildings in Silicon Valley but it gave no detail.

PSP has a net asset value on its real estate portfolio of $7.1 billion through March 2012, according to its Web site. Direct ownership or co-investments constitute 79 percent of the investor’s real estate portfolio.

PSP has a total of $64.5 billion of assets under management, according to its Web site. It invests on behalf of the pension plans of the Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force.

Divco brought the second equity investor into the transaction, Tresham said. Neither TPG nor Divco West would comment for this story.

“We like the overall economy in Silicon Valley. We have seen how strong the overall real estate has performed in the region recently. We also think that there is an opportunity to improve the portfolio from a management and operations perspective. These were factors that led us to make our first investment in commercial real estate in the region for some time,” said Tresham.

It won’t be the last deal for the investors in the marketplace, he said. “We would very much like to find more commercial assets to buy either in the Silicon Valley or the San Francisco marketplace. These areas have attributes we like including strong growth, limited new supply and a diverse economy.”

In December 2011, Ivanhoé Cambridge completed the $235 million acquisition of the 948-unit Park Kiely apartment complex in San Jose located at 355 Kiely Road.

Ivanhoé Cambridge has now completed three major real estate transactions with TPG in the last year. The other two involved a $200 million investment in an asset in Holland and a $450 million deal for real estate in London.

Ivanhoe Cambridge is the real estate subsidiary of the Caisse de dépôt et placement du Québec, one of Canada’s largest institutional fund managers. It had ownership in real estate assets valued at $30 billion Canadian dollars at of the end of 2011, the most recent tally available.

West Coast Commercial Real Estate News