Developers of the Southwest Waterfront toured the globe in search of investors willing to back their project: the Middle East, Europe, China and other parts of Asia among them.
They found a taker in Canada.
For years major Canadian investors have held occasional stakes in downtown Washington real estate, properties that were well-leased and dependable for long-term income.
But recently institutions from north of the border are taking a more aggressive look at American commercial real estate and Washington in particular.
“A decade ago you would have 2, 3, 4 percent of their portfolio in real estate,” said Ross J. Moore, director of research for Canada at the real estate services firm CBRE, of Canadian funds. “Now some are getting up to 10 percent, and I’ve heard of one targeting 10 percent.”
Traditional Canadian investors still have major stakes in Washington real estate. Brookfield Asset Management, based in Toronto, is one of the biggest investors downtown.
Ivanhoe Cambridge, a Montreal-based manager of more than $40 billion (Canadian), owns a portfolio of at least a dozen downtown office buildings controlled by developer and landlord Tishman Speyer, including five buildings on Pennsylvania Avenue.
The Canada Pension Plan Investment Board, which manages public pension funds, owns major stakes in two other downtown properties, at 1299 Pennsylvania Ave. NW and 1101 17th St. NW.
More recent deals demonstrate the growing interest among Canadians in development projects, particularly when it comes to urban neighborhoods. PSP Investments, based in Montreal, plans to put up $220 million of the first $800 million of the $2 billion overhaul of the Southwest Waterfront. In New York City, Oxford Properties Group, the Toronto-based real estate arm of Ontario Municipal Employees Retirement System, is a major investor in the 13.3-million-square-foot Hudson Yards project.
“Today, the big pension funds are putting, I’m going to say, 50 percent of every dollar into development. They are in this for the long haul — they are not the least bit concerned about how their investment looks two to three years from now, they’re looking out 12 or 14 years,” Moore said. “They’re not the least bit queasy about development.”
Moore said part of the reason Canadian funds typically favor cities is that only about one-third of the Canadian office market is in the suburbs, versus two-thirds in cities. The numbers are roughly flipped in the United States.
“When they go to the U.S., they’re not going to go to a suburban market. They’re going to go to a Chicago, a New York, a Boston or a Washington, that have a well-defined, downtown market,” Moore said.
Even suburban development hasn’t soured Canadian investors in the Washington area, however. In 2012, the Walton Group, based in Calgary, purchased the 479-acre Westphalia Town Center project in Prince George’s County.