CHICAGO—For years, owners in the world's top markets have become accustomed to Canadian investors beating a path to their door whenever their buildings go on sale. But at the spring meeting of the Urban Land Institute in Vancouver, which began yesterday, officials from Chicago-based JLL will release their latest research report, titled “The Canadian Quartet—Playing on the World Stage,” which shows how the flow of Canadian money largely goes only one-way, out of Canada and into shopping centers in Germany, industrial warehouses in Mexico and multifamily properties in the US.
Canadian offshore investment accounted for a one-fifth of all global cross-border investment activity in 2013, totaling nearly $10 billion, JLL found. But so far, foreigners have had few opportunities to make big investments in Canada, including the top four cities of Vancouver, Toronto, Montreal and Calgary. In 2012, for example, just 1% of transactions in Canada involved foreign groups. This number did jump to 9% in 2013, but inbound investment in Australia, a similar country in many respects, regularly exceeds 30%.
“There's no doubt the global investment community has been stymied when it comes to finding that crack in Canada's armor,” Lucy Fletcher, vice president of JLL's International Capital Group in Canada, tells GlobeSt.com, a source of frustration since Canadian real estate generates one of highest rates of return in the world. “There is a huge amount of foreign capital that wants to access the product here.”
However, not only does Canada have a compulsory domestic pension plan, Canadian funds generally devote a greater portion of their money to real estate investments, somewhere between 10% and 13%, than most of their global counterparts. The South Koreans, to take one example, generally devote between 6% and 8% to real estate. The top 10 Canadian pension funds now control over US $713 billion.
In addition to overseas investments, much of that Canadian wealth gets locked into real estate investments in the country's four major cities, effectively blocking the many foreigners who see Canada as a safe and attractive place to buy, Fletcher says.
And this dynamic is unlikely to change in the near future. According to a 2013 report by CBC News, for example, Mark Wiseman, the chief executive officer of the Canada Pension Plan Investment Board, has said “private equity, real estate and infrastructure are a better fit for the long view and relatively risk-averse tastes of CPPIB.”
Fletcher is not convinced this state of affairs is necessarily a problem for Canada, especially since it has been a consistently strong market. However, she would like to see greater liquidity and figure out how clients can get access to such a healthy market.
“There are groups finding their way around it,” she says. The Chinese state-owned developer Greenland Holding Group, for example, recently announced that it has plans to invest 400 million Canadian dollars, or about US $360 million, in a multifamily project in Canada.
For other foreigners, she believes “there is an opportunity through a strategic partnership agreement with one of the domestic pension funds.” By joining these groups in investments outside of Canada, Europeans, Americans and others may just get a foot in the door. “The increasing interest from south of the border and continental Europe has been significant.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
