Participants of rapidly disappearing defined benefit pension plans have long enjoyed the perks of direct real estate investment due to pension funds recognizing early on that a sizeable real estate portfolio offered great stability.
For participants in defined contribution (DC) plans, tapping into the stability of real estate ownership has been more difficult with no large pension fund backing their individual plans. In many ways, those in DC plans were on their own.
It is an unfortunate state of affairs life insurance giant Sun Life Financial set out to remedy.
Last year, the Toronto-based insurer sent out a request for proposals among real estate firms to find a partner that could give defined contribution pension plan members what defined benefit members take for granted: direct exposure to commercial real estate investment.
In the end, Bentall Kennedy was selected to launch the new Bentall Kennedy Canadian Real Estate Plus fund. Just as Sun Life had envisioned, the fund will be available to members of defined contribution pension and savings plans offered up by Sun Life Financial.
The new investment vehicle is based upon Bentall Kennedy’s long-running Prime Canadian Property Fund. That open-ended pooled fund has been running since 1983, holds about $3.5-billion in real estate assets and is invested in primarily by pension plans but also the likes of foundations, endowments and non-registered plans.
That 30-year-old fund is intended to make up between 70 and 80 per cent of the new fund structure with the remainder comprised of REIT Index funds and, cash and cash equivalents. (Image on left from the Bentall Kennedy website describing the Fund)
“(The Prime fund) is the real estate component of the Plus fund,” explained Chris Lawrence, executive vice-president of Bentall Kennedy. “The additional liquidity sleeve, the 20-30% of liquid assets that are intended to provide for the normal course liquidity requirements of the plan members.”
A DB Plan for DC’ers
Members of defined-contribution pension plans have not really been able to enjoy the diversification and stability offered to defined benefit plan members by direct real estate ownership because those assets are relatively illiquid.
The new Bentall investment vehicle is intended to provide that liquidity for plan members who pop in and out of the structure. “Plan members come and go, elect in and out of the various options that they have and you can’t be selling real estate assets without causing problems to the plan,” Lawrence said.
Sun Life understood the limitations of existing DC plans with regard to holding direct real estate investments and challenged Bentall and other firms to devise a workable investment scheme to bridge the gap.
“When Sun Life issued the request for proposals for a direct real estate solution, they stipulated that they wanted both daily valuation and daily liquidity so this is the solution we came up with and ended up winning the RFP,” said Lawrence.
Since that win last year, Bentall has been putting the plan together for its introduction to Sun Life investors.
Bentall’s Canadian Real Estate Plus platform has two objectives: to provide stable income returns for plan members; and to offer value-appreciation potential through the members’ investment “in a diversified mix of office, industrial, retail, multi-family residential and other income producing properties, and land held for development, in Canada.”
Bental contends that its primary allocation to direct investments in real estate subjects its investors to significantly less exposure to general stock market fluctuations than an investment in real estate investment trusts (REITs).
BKC Capital Inc., a subsidiary of Bentall Kennedy, is responsible for portfolio management of Canadian Real Estate Plus.
Bentall Kennedy (Canada) Limited Partnership is one of North America’s largest real estate investment advisors and Canada’s largest property manager. Bentall Kennedy serves the interests of more than 500 clients invested in office, retail, industrial, and multi-family residential properties totalling more than $30 billion and 145 million square feet in assets under management throughout North America.