(July 9, 2012)—A Canadian pension heavyweight will acquire a 50% stake in two planned office buildings in downtown Sydney for $1 billion, the latest sign that global institutional investors are finding the allure of real estate hard to resist.
The $160 billion Canada Pension Plan Investment Board (CPPIB) and two Australian corporations will form a joint venture to invest in the towers, part of what is known as the Barangaroo South Project on the Sydney waterfront. The Barangaroo investment is CPPIB’s first direct foray into Australian office space and its largest real estate transaction to date.
“This is an excellent opportunity to invest in a high quality, iconic commercial waterfront real estate development,” said Graeme Eadie, senior vice-president, real estate investments for CPPIB. “We will be able to gain a significant exposure in Sydney’s Central Business District through a premium-grade office development offering the tenants highly efficient and environmentally sensitive facilities. This investment supports our real estate strategy to acquire premium, long term assets in key global markets.”
The joint venture will construct two office towers, one with 41 floors and the other with 38, representing 165,773 square meters of space. Workers are slated to complete construction in 2015. The group has also reserved the right to build a third tower at the site in the future.
CPPIB trumpeted the deal as a reflection of its savvy as an institutional investor. “Our comparative advantages, especially our long-term investment horizon and real estate expertise, enable us to deploy capital in complex transactions such as this one,” said Eadie. “CPPIB is one of only a few global institutional investors able to complete a transaction of this scope.”
CPPIB will partner with Lend Lease Corporation and the Australian Prime Property Fund Commercial (APPFC) to develop the two sites. Lend Lease is a real estate developer and asset manager, while APPFC is a wholesale investment vehicle run by Lend Lease.
The transaction comes on the heels of a survey by consultancy Towers Watson and the Financial Times that found that institutional investors are piling into real estate. The overwhelming number of funds surveyed dedicated a large proportion of their alternative allocation to the asset class.