Anyone looking for proof of how dramatically the commercial real estate sector has changed in Canada in the past 15 years need only walk by the Metro Toronto Convention Centre this week.
CB Richard Ellis Group Inc., one of the world's largest international real estate brokers, is holding its annual meeting there tomorrow and Thursday - the first to be staged in Canada. About 3,500 agents, brokers and support staff from 25 countries will gather to swap insights and plan strategy.
Why Canada? Because this country's biggest landlords and real estate brokers are increasingly becoming international powerhouses. In CB's case, its Latin American division is headed by the president of the Canadian unit, Blake Hutcheson, who will host his company's international gathering.
"International investment by Canadian real estate companies is becoming more pronounced every year," he says. "In the past, real estate has been overlooked as an investment class. No more."
Just 15 years ago, publicly traded real estate giants were reeling from a dramatic downturn in the economy. But, today, those same companies, snapped up in the early nineties by pension funds, are flourishing in Canada and expanding their reach into some of the world's most vibrant national and regional economies.
Ivanhoe Cambridge of Montreal, for example, now owned by the Caisse de dépôt et placement du Québec, has created a new office in Shanghai looking for development opportunities. In France, it owns 50 per cent of Simon Ivanhoe with 10 retail properties in France and Poland as well as shopping centres in Spain and Germany.
In Brazil, a current hot spot for many Canadian real estate companies, Ivanhoe Cambridge has a joint venture with a Brazilian partner, Ancar Empreendimentos Comerciais, and owns shopping centres in Rio de Janeiro, Brasilia and Porto Alegre.
Toronto-based Cadillac Fairview Corp., owned by Ontario Teachers' Pension Plan, is also into Brazilian shopping centres as well as office and retail towers in London's Canary Wharf and even a housing development in Beijing. Last June, it acquired a 46-per-cent interest in Multiplan Empreendimentos Imobilario, a privately held Brazilian shopping centre developer, which went public this summer, giving Cadillac Fairview a 30-per-cent share of the new Multiplan.
"We went looking for the best local player and found Multiplan," says Andrea Stephen, executive vice-president of investments at Cadillac Fairview.
"Three years ago, we began looking at ways to leverage on our experience and financial clout to get involved in the global market. We did studies on which markets held the most promise for us, and Brazil was one of them."
Brookfield Property Corp. is another major Canadian company finding a future in Brazil. Both it and its Toronto-based parent, Brookfield Asset Management Inc., have holdings in that country, the earliest dating to the early 1980s.
"The reason we did it is because Canada offers few opportunities any more for a company like ours," says Tom Farley, president of Canadian operations. "Virtually all the major office and retail properties in Canada have been traded and are now controlled by a very small group of companies, mainly pension funds and institutions.
"In fact, we are the only publicly traded company in Canada with major holdings. As a result, we have a choice of what to do with profits: Distribute them as dividends, pay down debt or grow through new acquisitions and development."
A never ending inflow of money is a key factor driving global investment, says David Bowden, president of Colliers International Canada.
"With pension funds, money flows in every month from both investment returns and the contributions made by members of the funds," he says. "That money has to go somewhere. There are now limited opportunities in Canada, so the pension funds are looking internationally for places where they can get superior returns at reasonable risk."
In fact, geographic diversification has proved a better way to reduce risk than by spreading a portfolio among various asset classes, says Jamie Ziegel, vice-president of investment sales at Cushman & Wakefield LePage. "Many started by expanding into the United States but now are looking abroad in high-growth areas of Europe and countries such as Brazil, China and India as well."
Cadillac Fairview's Ms. Stephen says her company's approach has been to test the waters as a passive investor and then, once a certain comfort level is reached with local market conditions, politics and business practices, seek out best-in-breed local partners.
"That is what we did in Brazil and what we are looking at now in Mexico," she says. "I don't think we will ever get to the stage where we actually have our own people on the ground."
In the case of major real estate brokers, they go where their clients go, Mr. Hutcheson says. "It is more challenging to conduct global business, but there is that need to go with your clients or you risk losing them," he says. "We have found great opportunities and quite dramatic growth in industrial properties along the U.S.-Mexican border and in Mexico City's office market."
When it comes to going global, brokers tend to focus on specific strategies, Mr. Ziegel says. Cushman & Wakefield, for example, targets major markets while "CB Richard Ellis seems to specialize in the smaller ones, especially in Latin America," he says.
Colliers says it too has a focus on smaller markets but certainly does not neglect the major ones.
"The hottest areas for us right now are Central Europe, India and China," Mr. Bowden says. "There are three types of clients: occupiers, landlords and investors - and if they are going there, so must we."
The international growth begs the question: Are these investments safe?
"Foreign investments do provide a higher risk premium," Ms. Stephen says. "But when you consider that 90 per cent of all Cadillac Fairview's assets are in safe and secure investments, we do have considerable room to participate in higher-risk and greater-reward properties."