Commercial real estate investors and developers should look at affordable housing more closely as one way to solve some of the country’s housing problems, says Nathalie Palladitcheff, president and CEO of Ivanhoé Cambridge.
Palladitcheff will chair the Real Property Association of Canada (REALPAC) for two years starting in January and says housing will be a major issue for the organization and its members.
She will be the first Quebec-based chair of REALPAC, which represents top-tier executives in CRE from companies with a total of $1 trillion in assets under management.
Palladitcheff notes that affordable housing represents “a very low level of risk” for residential property owners, as most tenants in that type of housing pay their rents: “It’s another way to look at the return, which could be a kind of return on society, which is not only the financial return, but all the components of the return.
“For us as investors, it really means looking at the risk-return profile and not only the return,” she explained during an interview with RENX.
“Probably in the past, we looked only at the return, sometimes forgetting that risk matters, too (when it comes to achieving returns for pensioners).”
(Ivanhoé Cambridge is the real estate arm of Quebec’s pension fund manager, CDPQ, the Caisse de dépôt et placement du Québec.)
REALPAC and Canada's housing issues
As Palladitcheff prepares to begin her term as REALPAC chair, she noted “we should think about a new governance in the way we are doing housing, especially the way we can connect the public and private sector.”
Palladitcheff said REALPAC staffers already devote about half their days to finding housing solutions and while many discussions on the issue are taking place, “I can’t tell you that we have found the secret of the Caramilk (chocolate bar).”
Palladitcheff plans to bring her experience and Quebec government connections to REALPAC.
The native of France, who obtained her Canadian citizenship this year, also intends to bring best practices from outside the country to the association.
She added the need for student housing in major cities is “tremendous” and that Ivanhoé Cambridge plans to develop student housing with an immediate focus in Quebec, particularly Montreal.
“I hope it’s going to come out of the ground in the next months,” she said of its student housing plans. “It’s a complicated project that we have in mind, very ambitious.”
However, she noted Ivanhoé Cambridge has experience in student housing outside of Canada.
Case in point: In October, Ivanhoé Cambridge announced a commitment of about $1 billion Australian ($913 million Cdn) to the Scape Core Program, which has the largest student housing portfolio in Australia.
Opportunities for commercial real estate investors
For commercial real estate investors in Canada, “nothing is really easy right now,” she said, including oft-cited problems on the office side.
However, there are opportunities in logistics and niches like life sciences and film studios provide great potential.
For example, Ivanhoé Cambridge is a co-investor in TPG Real Estate Partners fund, which owns the Cinespace Film Studios in Toronto that are leased to Netflix.
Palladitcheff said Ivanhoé Cambridge has followed through on its 2020 decision to place a greater emphasis on residential and logistics at the expense of retail and office.
On the retail front, the company’s number of shopping centres in Canada has declined from 24 in 2020 to 19, and stakes in some that remain have been reduced.
In July, the company sold a 50 per cent stake of its 1.1 million-square-foot Laurier Quebec in the Quebec City suburb of Sainte-Foy, to Douville, Moffet & Associés.
Given the growth of e-commerce, the move away from shopping centres and toward logistics “was the right move. It's just a new equilibrium.”
Ivanhoé's shopping centres, ESG and the future
Ivanhoé Cambridge aims to keep shopping centres “which make sense in their environment,” and to build extensions, sometimes in logistics or in residential, “to build more of a community around the shopping centre.”
“We said we were going to sell one-third, so we sold one-third. There’s still a lot to do to manage (the remaining) shopping centres and extract the maximum (from them) but it will be more in repurposing than just disposing of.”
Ivanhoé Cambridge is on track on its commitment to have its portfolio achieve carbon neutrality by 2040, something that is “a day-to-day job,” she said.
“It’s directly related to the objectives of the investment and ESG teams and our remuneration is attached to those objectives, so if we don’t achieve the goals, we are not paid what we were expecting.
"It’s the right way to walk the talk.”
Palladitcheff said she doesn’t “want to make another Greta Thunberg of myself,” but is pursuing the carbon neutrality goal because it’s the way to be profitable in the long term.
“We were at the front of the parade when we said we want to be carbon neutral. Everybody looked at us and said ‘Really?’ and now everybody looks at us and says ‘OK, we understand, and we have to do the same.’ ”
In the next few years, Ivanhoé Cambridge, which had $69 billion in assets as of the end of 2021, plans to double its allocation in the Asia-Pacific region to 15 per cent of its portfolio.
Concentrating on countries like Singapore, Australia, South Korea and Japan provides “a different risk-return profile and it’s a great complement to the existing portfolio.”
As a plus, there are also fewer global investors in the region. “We compete a lot with the American pension funds, but we don’t really see them in those countries because they are very local,” said Palladitcheff.
“For us, it’s the way to find other opportunities outside of North America,” where Ivanhoé Cambridge has 70 per cent of its portfolio.