Five years since the British Columbia Investment Management Corporation used its real estate holdings to launch QuadReal, the platform has doubled in overall size and quadrupled its exposure outside Canada. As it continues to scale, the firm is keen to make debt a bigger part of its business.
As part of its dedication to the ‘four quadrants’ of real estate – investments in listed and non-listed equity and debt – lending currently accounts for C$7 billion (€4.6 billion) of the firm’s C$60 billion portfolio. However, chief executive Dennis Lopez told PEI Media title PERE that the group hopes to double that within the next five years.
“As a lender you get a sense of things a little bit earlier – in terms of maybe other participants in the market getting too aggressive – that will lead to poor decision making on investments,” Lopez said. “So, having all the capabilities necessary to invest in public and private debt and equity and being active in those, we think, really makes us a better investor.” In the last year and a half, the Vancouver-based pension investor has opened debt-specific offices in Toronto and New York. More recently, it has used that increased manpower to issue riskier loans, Lopez said, executing its first stretch senior loan for a multifamily development last year.
“These are sectors and things that we are comfortable in,” Lopez said. “Since we are an equity investor and have operating and development capabilities ourselves, we are more comfortable going up the capital structure, higher up than some lenders, because, frankly, if things do not work out, we can operate them ourselves or finish the development ourselves.”
Thus far, most of QuadReal’s borrowers have been independent developers or those backed by private equity groups.
Eye on Europe
In March, QuadReal announced the hiring of Jim Ward from Wells Fargo’s Canadian division as its new head of Canadian real estate debt. It also announced the appointment of Prashant Raj as head of US real estate debt. Raj was previously a senior managing director at Guggenheim Commercial Real Estate Finance, where he led commercial real estate capital markets and special situations investing.
Raj said QuadReal’s loan book mirrors its equity strategy, focusing primarily on industrial, multifamily and niche property types – it issued its first data centre development loan last year. “We want to be active lenders in alternatives, which the more traditional financial institutions shy away from,” he said. “Many are uncomfortable lending on alternative properties.”
Although the focus of the debt business is currently on North America, Raj said QuadReal is considering opportunities in the European market.
“As we build out and scale our lending business in the United States, from our Canadian foundation, we are keeping an eye out for opportunities in the UK and in Europe selectively, both in private and public markets,” he commented.
In the US and the UK, QuadReal is evaluating debt assets and platforms that have been discounted by recent market dislocations.
Rated and raised
Last year, QuadReal’s financing entity, BCI QuadReal Realty, was given an AA rating, enabling it to raise debt from the bond market. It has since borrowed C$2.3 billion, including two green bond issuances totalling C$750M. The average term is 6.1 years and the average fixed coupon is 1.45 percent. The most recent green bond issuance is a three-year senior note maturing in March 2024, with an interest rate of 1.056 percent.
“One of the big advantages we saw in covid was our ability to reduce our cost of capital,” Raj said. “That is an opportunity for us, when rates are lower, to try and lock in as much as we can.”
Growth has been the primary objective for QuadReal since its inception, and over the past five years it has achieved that goal primarily on the equity side of the market. In the years ahead, that aggressive approach is likely to be replicated on the lending front.
For more on QuadReal’s investment strategy during the pandemic, see PERE’s full interview with CEO Dennis Lopez