Few real estate companies are large enough to have carried out a one-year, $1-billion multi-billion acquisition spree without anyone noticing. Ivanhoé Cambridge, the real estate arm of Quebec pension fund giant Caisse de dépôt et placement du Québec, is one of those companies big enough to pull it off.
Recently Ivanhoé Cambridge announced the acquisition of three residential buildings comprising 484 rental units in three buildings in California’s Silicon Valley near San Jose. The deal gives it more than 1,400 apartments in the region, one of the most dynamic in the country and home to the likes of Apple, Facebook, Google, IBM and Intel.
What Ivanhoé Cambridge didn’t say in its announcement is that its residential real estate division is duplicating the Silicon Valley strategy in other economic hot spots in the U.S. and overseas.
Currently it owns alone or with partners close to 7,000 apartment units in about 35 buildings in the cities of New York, central London and its home town of Montreal. Over the past year or so after the company created its stand-alone residential group, the company has acquired more than 2500 rental units for approximately $1 billion.
Go Where the (Well-Heeled) Renters Are
The Ivanhoé Cambridge strategy is simple: buy in economically strong metropolitan areas where incomes are high and housing is expensive. “Our focus is on a handful of cities, know them well, as well as the local owners and operators in those cities, visit them often and invest,” said Ezio Sicurella, the Vice-President of Investments in the residential division.
“We have done almost $1 billion of gross investments over the last 10 months or so and that pace is expected to continue for the foreseeable future,” he said. Because of its size and the immense assets of the Caisse behind it, Ivanhoé Cambridge is a long-term, patient investor willing to snap up assets that may require substantial resources to bring up to standard but fit their investment model.
“These are all strong coastal markets, very high barrier to entry markets,” he added. “We like buying assets where you have a strong concentration of intellectual capital and where the affordability gap is very high. Where it is cheaper to rent than to buy a home.”
The San Francisco Bay area purchases are a good example of the strategy. The apartment buildings are in areas with some of the best school districts in California and median home prices are between $800,000 and $1 million. “We like the fact that we feel there is some protection and some upside on the rents quite frankly going forward. It is just so expensive to own a home” in that area.
The same holds true in markets such as New York and London, where prices are extremely high and apartment owners get the pick of tenants. “In those types of building where you are charging in excess of $2,000 a month or even $3,000 a month it tends to attract a certain type of tenant profile,” said Sicurella. “People that have good jobs, with strong employers. In some markets like the Silicon Valley, many tenants even get their rent paid by their employers. There is very little resistance on rent.”
Ivanhoé Cambridge’s buildings tend to have plenty of amenities such as gyms, common areas with wi-fi and close to mass transit and work centers. “Building that people want to live in, that you and I would want to live in. That are very attractive to live in just because of their location,” he said.
Location is Key
The old real estate cliché about location, location, location holds true, he said. “Location is something that we never compromise on. We are not afraid to buy a building that needs some loving care, that needs some investment and improvement, knowing that the location will always stand the test of time.”
The growing base of buildings is already giving the company the benefits of clustering, noted Sicurella. “Having critical mass and clustering is powerful. You can market your buildings more effectively to a wider tenant base with slightly different product. Obviously from an operational perspective you develop synergies on the maintenance side, on the leasing side, on the property management side and you can hire and attract better people.”
Ivanhoé Cambridge has not yet seriously considered branding its clusters of buildings, though the company’s investment vice-president does think it has merit. “Given that they are located in these 24-7 international cities, I think there is an advantage in considering a branding strategy,” he said. “We are one year into our residential strategy and I think branding is something we are definitely going to put a lot of thought into.”
The company has done some ground work in the Canadian cities of Toronto and Vancouver as well as Paris, Boston and parts of southern California.
“The California markets of Los Angeles and Orange Country and San Diego, that is a part of the country that has lagged certain other parts of the country such as northern California and New York or Washington and we feel that there is going to be very strong growth in those southern California markets in the next two or three years,” he said.
“We can’t afford to miss the opportunities so we are obviously spending a lot of time getting to know those markets as well.”