Oxford Properties Group's €1.1 billion joint venture acquisition of the Sony Center in Berlin marks the beginning of a much larger move by the company into the German capital, the company's executive vice president and senior managing director for Europe and Asia told S&P Global Market Intelligence.
Speaking on the sidelines of Munich's EXPO Real international trade fair for property and investment, Paul Brundage said his firm views Berlin as a third core city alongside London and Paris and that it will now begin to build a team there to pursue further acquisitions.
"Berlin is a core city for us," Brundage said. "[The Sony Center acquisition] is a really great start for us and will allow us to build a platform [there]. We've got a really good pipeline of opportunities." Oxford Properties will look to carry over its development strategy from London, where it has undertaken six development projects, he added. "I'd like to think we can do a development deal in Berlin at some point," Brundage said.
Oxford Properties, the real estate investment arm of the Canadian government's pension fund, had been researching the Berlin market for the last several years in preparation for an acquisition, according to Brundage. "I wish we had been ready to come a little sooner because I think the performance of the market has been excellent over the last couple of years," he said.
Brundage did not disclose the net initial yield on the Sony Center acquisition but noted that Oxford Properties was looking at the deal as a total return investor. Oxford Properties purchased the Sony Center from South Korea's national pension fund as part of a joint venture with U.S. private equity house Madison International Realty LLC.
"It's going to have a low initial yield because of what it is and because we think the rents actually have room to grow," he said. "So we would envision that with the right kind of long-term debt against it, this would be a high-single-figure total return, which for this kind of real estate fits our risk appetite."
The Sony Center acquisition comes just months after Oxford Properties and British Land Co. Plc sold "The Cheesegrater" building in the City of London for £1.15 billion. The two deals, among the largest ever transacted in Europe, should not be seen as Oxford Properties reducing its exposure to London and allocating its capital elsewhere, said Brundage.
"I'm concerned about Brexit in the immediate term as it relates to office occupier demand," he said. "But I find it difficult to conceive that London won't live in the long run. We still have a very significant portfolio of great world-class office assets in London that we intend to hold, so there will be no fire sale pending at Oxford."
Following the Sony Center deal, Oxford Properties has C$8.5 billion of assets under management in Europe, Brundage said, of which approximately C$5.5 billion is deployed in the U.K. The company is aiming to have C$5 billion in assets under management in continental Europe by 2020.
"We could easily invest another several billion dollars in Paris and Berlin over the next three to five years," said Brundage.