OMERS to invest $475m in NY development

The Ontario Municipal Employees Retirement System’s real estate arm will reportedly be the lead equity partner with Related Companies for a $15bn development of Manhattan’s Hudson Yards, after Goldman Sachs Real Estate Principal Investment Area withdrew from the deal.

Ontario Municipal Employees Retirement System will reportedly invest $475 million in a $15 billion development of Manhattan’s west side, taking over from Goldman Sachs’ Real Estate Investment Area as lead partner with US developer Related Companies.

The investment is another sign that large institutional investors are increasingly eyeing direct real estate deals in key US cities. Earlier this month, the Canada Pension Plan Investment Board acquired a 45 percent interest in Manhattan’s McGraw Hill building alongside REIT SL Green for roughly $576 million.

OMERS’ $18 billion real estate investment and development arm, Oxford Properties Group, will help develop the 26-acre mixed-use community planned for Hudson Yards, the largest undeveloped single piece of property in Manhattan. Originally, Tishman Speyer had won the rights to develop the land – which will see one million square feet of real estate developed – but the firm pulled out of the deal last January over planning arguments with the seller, New York’s Metropolitan Transit Authority. Goldman Sachs REPIA and Related then entered the fray, bidding $1 billion to develop the land.

Now Goldman has reportedly pulled out, with OMERS taking over its position. Spokespresons for OMERS and Oxford Properties were unavailable for comment at press time.

OMERS’ role in the Hudson Yards deal is a reassuring sign that the Canadian pension has faith in US real estate, after the asset class returned just 1.3 percent for the pension in 2009 against a 6.7 percent benchmark. In 2008, OMERS reported gains of 6 percent for its real estate assets against a benchmark 8.3 percent.

Canadian pensions have become increasingly large players in direct real estate deals the past 10 years, with OMERS chief Philip Haggarty saying pensions in the country had recorded annual returns of 5.3 percent over the decade, compared to 3.2 percent for similar-sized US pension plans.

In addition to CPPIB’s acquisition of the McGraw Hill building, the pension formed a joint venture with SL Green to acquire a 45 percent stake in the REIT’s recently-purchased office building, at 600 Lexington Avenue, for approximately $87 million.