On the surface, it seems out of kilter: a U.S.-headquartered real estate manager raising capital from Canadian pension funds and using the proceeds to invest in Canadian real estate assets.
But that?s the state of play at the Canadian arm of LaSalle Investment Management, a Chicago-based global firm that has been engaged in the process of raising investment dollars from Canadian institutions, spending them and then harvesting the investments for more than a decade.
And the firm, whose sole business is real estate and which has been in Canada since 2000, is about to embark on the same process for its fourth Canadian fund: the hope is to raise $250-million and generate a return of 10% net of fees.
If $250-million is raised, then it will be in line with its three previous funds: Fund 1 raised $268-million (based on a hoped-for 14% return) in 2003; Fund 2 raised $309.5-million (based on a 14% return) in 2006, while in 2009 Fund 3 raised $228-million, based on a 12% return.
All three funds are fully invested with Fund 1 being very close to being fully wound up. Each fund has a three-year investing period, a five-year period to execute the strategy, with the option for a two-year extension ? meaning a maximum of 10 years.
Zelick Altman, managing director and chief executive officer for the firm?s Canadian operations, said a new fund is required ?because our clients have a need to invest in real estate. We try to come up with a strategy that will fulfill that need. We, and they, feel that real estate is an excellent investment for them and we are looking at a strategy that we think will give them the best risk-adjusted returns.?
And Altman said the new fund, on which an initial closing is expected next month, will have a similar investment mandate as the other three: it will seek out income producing commercial buildings in the office, retail and warehouse market segments and will add in a touch (5%) of multi-family dwellings. But all must have upside potential.
?Our investments are in the value-add category,? said Altman. ?We are looking to buy investments that have a decent, stable income but where there are ways to add value to the property through active asset management.?
Examples include:? properties, which are under-leased; properties where rental rates are below market and properties that require renovations or expansions or need to be made more energy efficient.
In all those cases, higher rents are possible once changes are made.
The buildings bought tend to be non-core: LaSalle?s funds have owned 1045 Howe St. in Vancouver and and 11 King St. West in Toronto (where Telus Corp. was the major tenant.)
In both cases improvements were made and asset sales were made at low-cap rates. ?But we are not dependent on cap rates falling any more in order to get our return,? said Altman.
The new fund, along with the other three, has given the manager co-investment rights, a situation where it can invest, alongside the fund in a particular project. Those rights have ranged from 8%-10% of the amount raised. ?The fund is primarily a vehicle for our investors to invest. The only reason they like to see the advisor put money beside them is to show their commitment to the fund and have an alignment of interest,? said Altman.
LaSalle?s Canadian operation has offices in Vancouver and Toronto and employs more than a dozen professionals.
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