CPP Investment Board buys Manhattan properties

Date: Tuesday, May 11, 2010
Author: Investment Executive

The CPP Investment Board has purchased minority stakes in two office properties in the heart of New York City, in its latest investment play in the real estate market.

The two properties _ one on Avenue of the Americas and the other on Lexington Avenue _ have a combined value of US$1.45 billion, including the portions that the CPPIB doesn’t own.

The seller in both cases is SL Green Realty Corp.

The CPPIB, which makes investments on behalf of the Canada Pension Plan, had C$7.1 billion worth of real estate assets as of the end of last year but these are its first properties in Manhattan.

“We believe it is an attractive time to enter the New York market,” said Peter Ballon, CPPIB’s head of real-estate investments for the Americas.

These transactions reflect CPPIB’s growing reputation as a major global real estate investor with the capital, and more importantly, the internal capabilities to directly participate in large complex transactions such as these.”

The transactions come at a time when the Canadian dollar is relatively strong, making U.S.-dollar denominated deals less expensive than they were a year ago, and there are signs that the North American economy is reviving.

For US$576 million, including debt and working capital, CPPIB acquires 45% of 1221 Avenue of the Americas, also known as The McGraw-Hill building. It’s part of the Rockefeller Center complex.

The property’s original developer, Rockefeller Group International, Inc., will retain the remaining 55% ownership interest in 1221 Avenue of the Americas and will continue to manage and lease the property.

In the other transaction, CPPIB buys 45% of 600 Lexington Avenue for US$87 million. SL Green will manage the 36-storey building, which is 90% leased.

“We remain focused on our U.S. real estate investment strategy, which is to acquire premier commercial properties in key markets by partnering alongside top tier partners such as SL Green and Rockefeller Group,Hv Ballon said.

Last month, the CPPIB announced it formed a joint venture with Kimco Realty Corp. (NYSE:KIM) to take on a 45% stake in five former PL Retail properties in several states that Kimco acquired in the fourth quarter of 2009.

The board and Kimco said they intend to grow their joint venture over time through the acquisition of additional retail properties or portfolios.

The CPPIB is a professional investment management organization that invests the funds not needed by the CPP to pay current benefits on behalf of 17 million Canadian contributors and beneficiaries. It invests in everything from public and private equities to real estate, infrastructure and fixed-income instruments.

CPPIB’s Real Estate Investment group invests in commercial properties primarily through joint ventures with operating partners.

The group’s $7.1-billion global real estate portfolio contains mostly office and retail properties located in major centres across Canada, the United Kingdom, the United States, Mexico, Brazil, continental Europe and the Asia-Pacific region.