Canada: Commercial Real Estate Transactions: Deconstructing Major Deals And Alook Ahead At 2007

Another Banner Year

2006 proved to be yet another excellent year for Canadian, American and global commercial real estate. Global direct investment in real estate in 2006 is estimated to be approximately twice that of five years ago. Demand for commercial real estate in Canada and the United States continued to exceed supply for most real estate sectors, resulting in strong competition for real estate assets and continued compression of capitalization rates in most real estate classes.

There are many reasons for this demand. They include the continued flow of private equity and institutional capital into real estate and the availability of financing on favourable terms through increasingly creative and flexible structures. Real estate has become an increasingly important asset class for institutional investors. Additionally, the growing involvement in real estate by a larger number of investors, often through funds, real estate investment trusts (REITs) and other investment structures, has greatly increased investor participation and liquidity.

As a result, there were generally high levels of activity and buoyant prices in all real estate sectors in 2006 in both Canada and the U.S. The intense competition and high prices for assets in the core real estate sectors in Canada and the U.S. (retail, office, industrial and multiunit residential) also resulted in an increased focus on real estate investment alternatives such as hotels, senior care housing and leisure markets, and more appetite for international real estate investments and investments in secondary and tertiary locations in North America.

M&A Activity Increases

The combination of increased liquidity in the real estate market in 2006 and limited supply resulted in record M&A activity in the real estate sector. Private equity capital, REITs and other real estate investors pursued upper-level portfolio acquisitions as a means of significantly increasing real estate exposure and purchasing assets they perceived as undervalued by the public markets. An example of this was the acquisition by Brookfield Properties Corporation and The Blackstone Group of Trizec Properties and Trizec Canada, for US$8.9 billion.

Other real estate M&A deals announced and/or closed in 2006 included:

  • the Blackstone Group's proposed US$36 billion leveraged buyout of Equity Office Properties Trust, a U.S. REIT founded by Sam Zell which owns more than 580 U.S. office properties -- as of the writing of this article, Vornado Realty Trust, Starwood Capital and Walton Street Capital have announced a competing bid for the trust's shares, valued at US$37.6 billion;
  • the acquisition by Kimco, a U.S. REIT focused on shopping centres located principally in the U.S. and Canada, of Pan Pacific Hotels for US$4 billion in cash and stock;
  • the acquisition of Summit REIT, Canada's largest industrial property owner/manager, by the Netherlands-based ING Real Estate for Cdn$3.3 billion; Summit REIT has now been privatized and operates as ING Real Estate Canada Trust with an announced intention of doubling its 33 million square foot portfolio within the next few years
  • the purchase by Australia's Centro Properties Group of Heritage Property Investment Trust, a U.S. REIT engaged in the ownership, management, leasing and redevelopment of community shopping centres, for US$1.8 billion;
  • SL Green's acquisition of Reckson Associates Realty Group, a large New York-based real estate operating company, for US$3.8 billion;
  • the US$415 million acquisition by a joint venture comprised of the Caisse de dépôt et placement du Québec, Westmont Hospitality Group and Citigroup Global Markets Realty Corp. of Boykin Lodging Corp., a large public U.S.-based hotel owner;
  • the Cdn$2.8 billion recommended offer by the Public Sector Pension Plan Board to acquire Retirement Residences Real Estate Investment Trust, a Canadian REIT;
  • the Cdn$440 million sale of TGS North American REIT, an open-end real estate investment trust invested in a diversified portfolio of commercial properties located in certain of the faster growing markets of western North America, to Great-West Life Assurance Company; and
  • Cominar Real Estate Investment Trust's friendly bid for Montréal's Alexis Nihon Real Estate Investment Trust (a merger that would create a REIT with assets of almost Cdn$2 billion) -- as of the writing of this article, Summit REIT (now owned by ING) has since taken up 2.8 million units of Alexis Nihon in the market.

Sale of Landmark Properties

The same factors also resulted in the sale of several landmark properties (in some cases for record prices), including the purchase by Kushner Properties, a New Jersey family property firm, of 41-storey 666 Fifth Avenue in New York City from Tishman Speyer Properties and its partners at the record sale price of US$1.8 billion (or approximately US$1,200 per sq.ft.) for an individual building in the United States. Other notable asset transactions in 2006 included:

  • the US$998 million dollar acquisition by Ivanhoe Cambridge of the interests of The Mills Corporation in three shopping centres located in Canada, Spain and Scotland;
  • the Cdn$1.5 billion purchase by the Ontario Municipal Employees Retirement System (OMERS), through its real estate investment arm Oxford Properties, of seven Canadian hotels from Fairmont Hotels and Resorts, including the landmark Fairmont Banff Springs and the Fairmont Château Whistler;
  • the US$5.4 billion sale to Tishman Speyer by MetLife Inc. of Peter Cooper Village and Stuyvesant Town, a complex of 11,000 rental apartments in Manhattan, the largest single real estate transaction in U.S. history;
  • the US$1.05 billion sale to Hong Kong-based Hudson Waterfront Associates by a consortium including IPC US REIT, a Canadian REIT, of the 1.8 million sq.ft. Bank of America Center in San Francisco; and
  • the US$889 million sale to Fortis Property Group by a joint venture between Pennsylvania-based American Financial Realty Trust and IPC US REIT of the 1 million sq.ft. State Street Financial Center in Boston.

Club Deals and Joint Ventures

Real estate acquisition transactions and development projects frequently are executed by way of joint ventures between two or more entities. In some cases, international investors team up with local partners, and in others operator/managers combine with more passive investors. In 2006, however, due to the increased competition for assets and the size and complexity of the transactions being undertaken, joint venture arrangements also became common among private equity funds, pension funds and other investors.

While club deals are the only way some of the larger transactions can be effected by most investors, such arrangements substantially increase the legal, tax and business complexity of a transaction. Not only do traditional issues such as due diligence, price, tax structure, scope of representations and warranties and length of survival periods need to be negotiated between the seller and buyer, but also among the members of the purchasing syndicate, whose members often have different requirements, standards and internal approval mechanisms. In addition, participants in joint ventures need to negotiate their joint venture agreements and agree upon their approach to financing the transaction and other joint venture issues relating to the purchase and ownership of the asset. It is critical to ensure that there is compatibility in investment objectives between the members of the club. As the number of club members increases, issues such as the promote structure, the mechanism for making major decisions, the tax treatment of distributions, the payment of management fees (if any) and the nature and timing of exit strategies become increasingly complex and difficult to negotiate, especially if the joint venturers' interests are not aligned.

Of interest, the increase in the number of club deals has also led investment banks and real estate brokerage firms to market fewer transactions by way of public auction. In many instances, trophy assets or large portfolios are now being marketed through a private auction arranged by an investment bank or broker among two or three bidding groups. In some cases, the winning bidder is actually an expanded group that includes members from one or more losing bidders.

International Opportunities

In 2006, many of our institutional clients and other institutional investors devoted increasing attention to the global real estate market. It has been estimated that Canadian investors have spent at least Cdn$10 billion on foreign real estate in 2006, compared to Cdn$7.5 billion in 2005. For example, Canadian pension plans such as the Canada Pension Plan Investment Board (CPPIB), the Caisse de dépôt et placement du Québec (CDP), The Public Sector Pension Investment Board (PSP), OMERS and the Ontario Teachers Pension Plan Board (Teachers) all announced their intention to invest significant amounts in international markets, or to expand their investments in such markets. These investments were made both directly and (especially by the smaller pension funds) through investments in real estate funds operated by third party asset managers. 2006 saw an enormous amount of institutional money deployed by Canadian and U.S. investors in private funds that focused on international markets, including countries that were previously not considered by North American institutional investors, such as China, Russia and India. It is widely believed that much of the growth in the real estate industry over the next decade will take place in the emerging markets.

By way of example of the appetite for international investments, CDP, through its subsidiaries and divisions, Ivanhoe Cambridge, SITQ and Cadim, has been active in the United States, Brazil, Asia and Europe, often in joint ventures with other prominent real estate entities. CDP committed several hundred million dollars to U.S. real estate opportunities in 2006, principally in the hotel sector and in the U.S. east coast office market. CDP has also been active in real estate lending in the U.S. through its majority-owned subsidiary, CWCapital. Ivanhoe Cambridge completed significant transactions in Germany, Scotland, Spain and Brazil and made an initial foray into China.

In 2006, Teachers, through its real estate subsidiary Cadillac Fairview, entered the Brazilian market by making a significant investment in Brazil's largest owner/manager of retail real estate. Cadillac Fairview has stated that this entry into the Brazilian market is part of the company's strategy to diversify its portfolio through international expansion.

Some Canadian REITs were also active outside Canada in 2006. For example, IPC US REIT, the only Canadian REIT to invest exclusively in U.S. commercial real estate, continued to acquire office buildings, with acquisitions in Columbus, Las Vegas, Houston and Memphis, among other locations.


Not surprisingly, the real estate activity levels in 2006 resulted in a significant increase in the aggregate amount of commercial real estate loan originations and securitizations being completed. According to Commercial Mortgage Alert, a U.S. publication focusing on real estate financing and securitization, loan securitizations grew 20% in the first nine months of 2006 over the comparable period in 2005.

The increased size of purchase transactions meant that as the equity participations became more segregated between various joint venture participants, so too did the debt participations. In addition to traditional first mortgage financings, mezzanine financings continued to flourish and the collateralized debt obligation market grew significantly in size, providing a more efficient financing vehicle for financing the subordinate pieces of the debt capital structure.


In Canada, REITs are still a relatively new investment vehicle and in 2006 they continued to grow and increase in importance as retail investors searching for yield continued to purchase new unit offerings by REITs. Due to the increasing difficulty of executing accretive acquisitions, some REITs increasingly turned to development activity and re-investing in their existing properties. A notable example of the importance of REITs to the Canadian market is Calloway REIT, which announced a number of significant acquisitions and financings in 2006, including an announced acquisition of 16 major properties for aggregate consideration of approximately Cdn$1 billion. Upon the completion of this transaction, Calloway will have an operating portfolio of 122 properties and a net ownership interest of 18.3 million sq.ft. of leased area, together with significant future development potential.

Construction Activity

The liquidity in the real estate market and the availability of financing on favourable terms also resulted in significant new construction in local markets in Canada and the United States where leasing conditions were buoyant. For example, strong leasing markets in Toronto and Calgary resulted in significant new development projects for both cities in 2006. In Toronto three new downtown office towers were announced (together with substantial construction in the suburban office market, though not at the same pace as in recent years), including the Bay-Adelaide Centre, a major development in Toronto's financial core, with the first phase consisting of a 1.1 million sq.ft., 50 storey office tower. In Calgary, approximately 9.5 million sq.ft. of new office space is under construction or planned, including the proposed 1.7 million sq.ft. EnCana headquarters, The Bow.

2007 Outlook

Most analysts predict that the commercial real estate markets in North America will revert to more historic levels of return in 2007 and there will be a lower level of real estate M&A activity. M&A will continue, however, to appeal to large private equity funds and institutions as a relatively easy and rapid way to build core real estate portfolios. Already in 2007 significant M&A activity has been experienced. The Mills Corporation has agreed to be acquired by Toronto-based Brookfield Asset Management for US$1.35 billion while Ventas Inc. has agreed to acquire Toronto-based Sunrise Senior Living REIT and its portfolio of 74 assisted living communities in the U.S. and Canada for approximately US$1.8 billion, including the assumption of debt. In addition, it is expected that in 2007 we will see a large number of smaller asset and portfolio transactions as the buyers who acquired large portfolios through prior M&A or portfolio deals integrate their newly acquired portfolios with existing holdings and dispose of non-core properties.

It is likely that Canadian pension plans, eager to meet higher target weightings for real estate investments, will continue to invest internationally both for diversification purposes and to obtain a better return. It is likely that in Canada in 2007 investors will continue to confront the challenge of funding real estate assets at satisfactory pricing. It is also probable that many institutional investors, especially the pension funds with limited inhouse resources, will continue to invest in funds administered by third party real estate asset managers.

The complexity of real estate transactions will certainly continue to increase and we will see continued interest in international investments, as institutions and other large investors seek to diversify their real estate portfolio and obtain more favourable returns than are attainable in domestic markets. The major real estate transactions likely will be done increasingly by joint ventures between groups of investors and will be financed by increasingly complicated equity and debt capital structures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.