Canadian Pension Fund Buys Interests in Bay Area Apartments

International Home Sales, The National Association of Realtors®

By Jon Peterson

The Toronto-based Canada Pension Plan Investment Board has acquired a 45 percent interest in three San Francisco Bay Area apartment complexes now under construction or soon to be: the 900 Folsom St. and 260 5th St. projects in San Francisco and the West Dublin BART project in Dublin.

The seller was Palo Alto-based Essex Property Trust Inc.

“The San Francisco region is one of our targeted markets. We think this area has high barriers to entry, which should limit our future competition,” said Peter Ballon, vice president and head of real estate investments for the Americas for the Canadian pension fund.

Essex bought both San Francisco sites from Avant Housing last month. Avant is a shared enterprise of San Francisco’s AGI Capital Group and TMG Partners. The AGI-TMG Housing Partners Fund is financed with funding from the California Public Employees’ Retirement System.

Essex started construction on the Dublin project in 2011 and plans initial occupancy next June, with an eye on having the project well leased and producing good income by March 2014. The 309-unit development has a total cost of $94.5 million, according to a May 2 news release disclosing Essex’ first-quarter results posted on its Web site.

Through a spokesman, Essex declined comment for this story, saying that it intended to give greater information during a conference call with analysts planned for Aug 1. Essex is a publicly traded company.

The two properties in San Francisco have a value of $190 million, according to Avant. The projects involve the development of 463 units. The Folsom Street project is under construction and the 5th Street project is to break ground next month.

The pension fund’s investment in the projects is all in the form of equity.

It is the second major investment with Essex for the Canadian fund. Last summer, the pension fund said it had bought a 45 percent interest in a more than 760-unit complex being developed by the real estate investment trust in North San Jose. It paid $92 million.

CPPIB has only been investing in U.S. apartments since mid-2011 but has amassed a portfolio of more than 6,000 units with equity commitments totaling $912 million. In this latest commitment, the Canadian fund’s Bay Area investments are part of $355 million in total invested in five developments and two existing properties in the United States. The other assets are in Dallas and Chicago.

The pension fund looks to invest in apartments alongside what it considers best-in-class apartment owners and developers. The companies it has invested with include Essex and other companies with Bay Area projects such as AvalonBay Communities Inc. and Archstone. “We like working with these firms and hope to conduct more business with them in the future,” Ballon said.

CPPIB takes only partial interests in properties or developments. The pension fund has no targeted allocation for investing in real estate. “If we find a compelling investment opportunity, we will go after it. But we won’t be investing just to satisfy a certain allocation,” Ballon said.

CPPIB’s global real estate portfolio is valued at $17.1 billion through the end of March. Its real estate assets make up 10.6 percent of its $161.6 billion of total plan assets.

West Coast Commercial Real Estate News