Indeed, the Canada Pension Plan Investment Board lost 5 per cent on its real estate portfolio last year as the commercial real estate downturn deepened, while the Public Sector Pension Investment Board lost 16 per cent, the worst annual performance for these investments since the global financial crisis, the report said.
“What has worked well for the last 35 years may not work so well for the next five to 10 years,” Joe Taylor, CEO of the Ontario Teachers' Pension Plan, told Bloomberg.
The Ontario Teachers' Union has since transferred authority for most future real estate investments away from Cadillac Fairview and brought them in-house like the union's other asset classes, the report said. It also noted that Caisse du Savings and Investments Quebec lost 6.2 per cent on real estate in fiscal 2023, its worst return since the start of the coronavirus pandemic. In January, Caisse du Savings and Investments Quebec announced it would combine its real estate business with another that specializes in real estate-secured lending, a merger that is expected to save the union $100 million annually.
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The move toward a more streamlined, centralized structure represents a blueprint for how some of the world's most prolific real estate buyers are thinking about changing the game, Bloomberg said, noting it's also a recognition that the asset class is becoming more global and niche, with narrower profit margins and increased competition from other types of investments.
“The real estate industry is changing dramatically,” Jim Clayton, a professor at York University in Toronto, told Bloomberg. “At the same time, we're seeing accelerated structural changes in how we work and live post-COVID. So I think more people are really rethinking what real estate is.”
That's driving changes in how and what Canadian funds invest, the report said. But the Ontario Public Employees Retirement System is staying the course in this area despite a negative 7.2% return in the most recent reporting period, OMERS CEO Blake Hutchison said in the report. He added that the investment organization already works closely with its real estate subsidiary on allocation decisions.
“We don't just give them money and say, 'spend it.' They go through the exact same process as our private equity business and so on. So the synergies that other companies wish they could achieve, we've been achieving for decades.”
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