Oct. 22 (Bloomberg) -- Caisse de Depot et Placement du Quebec, Canada's biggest pension-fund manager, plans to invest in Indian real estate for the first time and may spend up to C$1.6 billion ($1.7 billion) there in the next five years.
SITQ, the Caisse office-building unit that owns about C$10.6 billion worth of property, may have as much as 15 percent of its assets in India by 2012, Chief Executive Officer Paul Campbell said. SITQ now has no investments in the country.
The fund manager is moving into the world's second most populous nation to boost returns as rising borrowing costs make U.S. assets less attractive. Real estate development in the country is forecast to increase to $90 billion by 2015 from $12 billion in 2005, Moody's Investors Service said in a June report.
``We are really focused on India right now,'' Campbell said in an interview at Caisse headquarters in Montreal. ``This is the future, this is where the growth is going to be. We have no choice but to be there, or our returns over the next 20 years are going to lag.''
Campbell, who plans to travel to India later this month, said SITQ will probably focus on cities such as Mumbai and Hyderabad. The company will work with local partners since Indian law limits foreign control of real estate.
``Our business there will only be development because there is no stock,'' he said. ``We've been spending a lot of time in India this year, and there is nothing to buy.''
India Investors
SITQ posted a record return of 33.4 percent last year, almost double the unit's 10-year average of 17.3 percent. Campbell declined to discuss the company's 2007 performance.
The company is turning to India as buyout firms and venture capital investors are focusing on the country. ICICI Venture Funds Management Co., a unit of India's most valuable lender, unveiled plans last week to raise about $2 billion to create the country's biggest real estate fund.
ICICI Venture follows Housing Development Finance Corp., which raised $800 million in August and Sun-Apollo India Real Estate Fund LLC that got $630 million earlier this year. IL&FS Investment Managers Ltd. and Milestone Capital Partners are in the process of raising 10 billion rupees ($252 million) to invest in hotels, hospitals, warehouses, offices and houses.
``The real estate market is extremely buoyant,'' said Raja Seetharaman, associate director of markets at Jones Lang LaSalle Property Consultants (India) in Mumbai. ``There are at least 50 funds who are looking at India.''
SITQ's office tower holdings are split about evenly between Canada, the U.S. and European countries such as France and Germany. It owns the Paris headquarters of Areva SA, the world's largest maker of nuclear power plants, and New York City's 1515 Broadway, which houses the executive offices of U.S. media company Viacom Inc., owner of the MTV cable channel.
China Market
Besides India, SITQ may buy property in China and Russia. After investing $40 million last year in the Marbleton Property Fund, which focuses on Russia, the company is scouting for property in Shanghai and Beijing, Campbell said.
Closer to home, SITQ owns more than C$1 billion worth of buildings each in New York City and Washington. The company wants to buy more property in those cities as well as Boston and Seattle, while selling real estate in smaller markets such as Tampa, Houston and Denver, he said.
``You will find us increasing our exposure in Seattle, New York, Washington and Boston, which are really our four big markets, and selling elsewhere in the U.S.,'' he said. ``It's a lot easier if you don't have to think about 15 markets in a country of 300 million people. Big markets will go up and down, but there will generally be more liquidity there than anywhere else in the world.''
New York Market
Property returns in New York have been ``tremendous'' in recent years as rents picked up and vacancy rates dropped, Campbell said, declining to provide specific figures. SITQ has a partnership with SL Green Realty Corp., New York City's biggest office landlord.
``The market in midtown has seen the highest rate increases in any market anywhere in the last three years,'' Campbell said. ``Midtown Manhattan is really the financial center of the world and it will be for a long time to come.''
Campbell said he's optimistic real-estate returns will remain ``good'' even as interest rates rise for commercial mortgages. Rates for a 10-year commercial mortgage rose to more than 400 basis points above Treasuries since the end of July, after costing about 150 basis points in the first quarter, according to Bloomberg data.
More expensive debt may benefit SITQ since the company doesn't make purchases using leverage.
As leverage ``gets more difficult to get, it changes the universe for a lot of buyers,'' said Campbell. ``We are not leverage buyers, so if the debt markets are not there for our competition, we should be able to buy more cheaply.''
No comments:
Post a Comment