Simon Marriott, UK managing director of Oxford Properties, the real estate division of one of Canada’s largest pension funds, is shopping for London’s biggest and best buildings.
“The minimum we would be prepared to invest on a single asset is probably £100m of equity,” says Marriott. “So, if you’re gearing that 1:1 as part of a joint venture, that equates to £200m. When you have a C$17bn property portfolio, anything below that doesn’t make any sense, so isn’t an efficient deployment of capital for us. But as far as the upper limit goes, it could be north of £500m.”
Oxford, which is a wholly owned subsidiary of Canadian pensions giant OMERS, opened its six-strong London office two years ago, and has spent the downturn working to a simple mandate: to invest only in the best trophy assets in London with next to no upper limit on what it can spend, or in what time it should spend it.
And Marriott, who joined Oxford in January 2010 to head its UK operation, says the industry should be watching the fund closely on a number of “limited market” deals it is considering.
SouthGate
The company is bidding to buy Multi Development’s 50% stake in SouthGate shopping centre in Bath and has been linked with a number of other high-profile buildings.
Marriott, 47 years old and the former head of acquisitions for Macquarie Global Property Advisors, says the hard thing is being patient while waiting for the right opportunities: “There’s no pressure to spend the money because it’s not like it’s a closed fund with a finite investment period. But having said that, you don’t want to miss the opportunity and overpay for things when you’ve got lots of money.”
Waiting for opportunities is something Marriott has grown used to. He started his career as an aspiring actor, and even auditioned, unsuccessfully, for the lead role in the 1985 Spielberg film Young Sherlock Holmes.
The most headline-grabbing deal so far for Oxford is the company’s 50:50 jv agreement signed with British Land in October 2010 to develop the 736ft Cheesegrater skyscraper in the City, EC3. The agreement enabled construction to restart on the 610,000 sq ft office block in January.
“We developed a partnership with BL because it was an opportunity for us to get involved in one of the major development projects in London, plus we have a good relationship with them,” says Marriott. He insists he is not concerned about the prospect of letting a 47-storey tower at the same time as competitors Land Securities and Canary Wharf are building the 690,000 sq ft Walkie Talkie office tower in the Square Mile.
Watermark Place
On the investment side, Oxford exercised its pre-emption right to take full control of Watermark Place, EC4, from UBS last October. It paid around £185m – a 5.7% yield – for UBS’s 50% stake in the 525,000 sq ft office, ousting German fund Hannover Leasing, which had already placed the asset under offer. The deal ended more than six months of on-off sale talks between UBS and a string of parties, starting at an asking price of around £200m.
“We waited because the pricing was not right for us initially, but UBS were sellers and when the pricing was at a level that matched our expectations, we took the opportunity,” says Marriott. “We wanted to take control of the asset. We like to structure our jvs so that we have the opportunity to buy. We moved quickly and completed the sale in 10 days. The fact that we executed the deal so quickly proves that we’re serious.”
London is just the first of Oxford’s overseas targets, as the company seeks to diversify from the limited property investment stock in Canada.
Since opening its London office, the 1,300-strong company, which was established in 1960 and acquired by OMERS in 2001, opened another in New York last year.
It is now looking to global expansion, especially Asia. In the immediate term, however, it is planning to expand into France and then Germany, with Berlin, Munich, Hamburg, and Frankfurt being the main areas of interest.
However, Marriott admits that buying in London is not easy. Oxford is not the only real estate company with its eyes on super prime London stock.
Rivals
Since the downturn, the London property market has attracted interest from swarms of overseas investors, lured to the capital by its perceived safe-haven status and a weakened pound. These include rival Canadian pension funds CPPIB, HOPP and Cadillac Fairview, as well as players from Norway, China and South Korea.
“It’s really tough to invest at the moment,” says Marriott. “We’ve looked at every investment deal north of £100m, but it’s a very crowded market. Our cost of capital is competitive, but there are others who have just as much of it, if not more.
“Two years ago, you could have probably bought any bit of real estate in central London, and taken one of the public outfits private if you really had the appetite to do it,” he adds.
“But the world changes very quickly, and a lot of the trophy buildings and development sites still have a very strong incumbent owner who generally either doesn’t want to or doesn’t have to sell.”
“A lot of it comes down to relationships and whether people think you can perform.”
In the absence of trophy stock, Marriott says he and his team will keep one eye on investing in further development schemes – a risk that may need to be taken in order to get exposure to the market.
However, although it occupies part of the 8,600 sq ft OMERS worldwide office in New Street Square, EC4, and talks of pursuing a UK expansion plan, Marriott says his seven-strong team in the UK is not hiring at present.
“In future, we may look at hiring more asset management specialists, but are not looking for staff at the moment,” he says. “If we manage to buy a multilet investment, we will need someone to run the asset.
“I don’t see us hiring ahead of doing the deals, but may do so afterwards. This office is definitely a platform to grow.”
“We’ve looked at every investment deal north of £100m, but it’s a very crowded market”
Oxford Properties: the lowdown on a Canadian giant
Oxford Properties invests in and manages real estate assets on behalf of OMERS (the Ontario Municipal Employees Retirement System), a Canadian pension fund established in 1962 as a pension plan for employees of municipal governments, school boards, libraries, police and fire fighters, children’s aid societies and other local agencies throughout the Canadian province of Ontario.
As a pension plan, OMERS has around 365,000 active and retired members, and nearly 900 participating employers.
Oxford’s job is to use this equity to grow OMERS’ assets under management on behalf of its members. The company is divided into three geographic regions: Canada, the US and the UK. The executives who lead each region are all members of Oxford’s executive management team and its investment committee.
Oxford’s key investments include:
• Cheesegrater, 122 Leadenhall Street, EC3 In December, Oxford and British Land agreed a £340m joint venture deal on the 610,000 sq ft office development.
• Watermark Place, EC4 In July 2007, Oxford acquired a 250-year ground lease from UBS South East Recovery Fund to develop Watermark Place, an 11-storey, 525,000 sq ft office on the north bank of the River Thames. It did not pay UBS for the ground lease but instead agreed to take on the £200m construction costs of the scheme. It bought the remaining 50% stake from UBS last year for a reported £185m.
• TD Canada Trust Tower, Toronto, Canada The 1.2m sq ft office tower was acquired in a series of transactions involving Oxford and multiple parties between 1988 and 2008.
• CPPIB Partnership, Toronto, Canada In 2005, Oxford sold a 50% direct interest in this 8.1m sq ft portfolio, which included three development sites, to the Canadian Pension Plan Investment Board, together forming a strategic and collaborative partnership.
• Centennial Place, Calgary, Canada Oxford completed this 1.2m sq ft office development in Calgary’s central business district last summer.
