The UK development market is about to receive some much-needed good news: Oxford Properties is over from Canada with £3.5bn to spend - and that’s just for starters. Meet your new best friend, development director Richard Pilkington
If Richard Pilkington isn’t already on your contacts list, you may want to add him pretty quickly. As development director at Oxford Properties, a Canadian real estate and development company that has now moved into the UK market, he has a cool £3.5bn ready and waiting to invest in British commercial and retail projects over the next three years. In short, he could be one of your newest, and richest, clients.
Oxford Properties, or Oxford as it is more casually referred to by Pilkington, has been operating in the UK since 2009 when it went in on a 50/50 split with UBS on the 525,000ft2 Watermark Place project near St Paul’s in the City of London - Oxford bought their 50% stake last year so now own the building outright.But it’s only now that it is starting to establish itself as a major player in the UK development market - and it certainly has the credentials: “Oxford has about £12bn worth of assets under management,” says Pilkington sitting in his City-based offices. “And if you look at our equity, it’s about £8bn. That basically makes us about the size of British Land.”
And the 43-year-old adds that Oxford is here to stay, meaning long-term opportunities all down the supply chain: “There is the initial £3.5bn to spend over the next three to five years but because this is a pension fund, we are trying to build a portfolio to generate income and we’re here for the long term - the next 10 years at least.”
Pilkington is a former QS, project manager and development manager who has worked for big name construction firms including Balfour Beatty, Laing O’Rourke and Lend Lease Europe. So now that he’s heading up development at a firm with so much to offer, what sort of schemes will he want to get Oxford Properties involved with? How will it sit alongside existing developers such as British Land and Land Securities, and how can construction firms get in on the action?
The secret to Oxford’s success, size and investment capabilities is its Canadian parent company, a CA $55bn pension fund called OMERS, one of Canada’s largest institutional investors. Unlike most of the rest of the world, Canada has avoided the brunt of the recession and so has maintained a strong economy since 2008. It grew by 3% last year and is expected to continue expanding until 2015. This has meant investment levels have remained high - a point highlighted by OMERS’ fund, 55% of which has gone into private markets including real estate - overseen by Oxford. Pilkington explains that this arm of the OMERS machine was created in 2001 after the pension fund merged the original Oxford Properties, with Hammerson Canada, creating a $17bn real estate business.
The good news for UK construction firms is that after almost a decade of building up business in Canada alone, Oxford is now focused on diversifying globally by taking a huge chunk of its investment elsewhere and, right now, the UK is top of the list.
The UK business
“Our focus at the moment is to create a business in both the US and Europe where we can replicate what we have in Canada,” says Pilkington. “We won’t be building a business on the same scale as the Canadian business but we’re looking at investing that £3.5bn - mainly in the UK, though a bit in Germany and Paris too. It’s a big fund, it’s a big capital pool.”
He adds that although the group is looking at other countries in Europe, this work will all be managed out of its UK offices in London, where most of the investment will go: “Predominantly we have been looking at commercial and retail in London - within the M25 - and we would look at retail outside of London. But there isn’t much outside of that that fits our lot size. We’re looking to invest £100m of equity into any deal and if you try to relate that to property scale in London, you’re looking at a minimum size of a 250,000 or 300,000ft2 office building.”
He adds that he believes Oxford has as much to offer as the UK’s best-known developers: “Taking that £3.5bn, British Land’s market cap is about £6bn, for Land Secs it’s around £11bn and I think Hammerson is about £4bn - so based on that, we would see ourselves building a business platform that has a similar value to a group like Hammerson.”
Strategy and reaction
So how have other UK developers reacted to the new kid on the block? Wary? Impressed? “I don’t think they’re wary, no. If you look at what’s happened to the world, going into meltdown, I think lots of people have gone into partnership. Brookfield has partnered with Great Portland Estates on the Bishopsgate tower, Land Secs and Canary are doing Fenchurch Street, ourselves and British Land are doing Leadenhall. No one wants to put that kind of money into a single project and so partnerships will continue to happen.”
And this is how Oxford has approached the UK development market - partnering with other major firms. But, while Pilkington says it would never try to assert itself as an expert on British schemes, it is certainly not going to be a backseat investor: “Having a big capital pool has allowed us to get in alongside all the big names and our approach is to say that we want to work with the best in class like the Stanhopes, the British Lands, the Land Secs - but to have a seat at the table. We have always made it clear that we’re not a passive investor. We’re not just going to put money in and do nothing but at the same time we’re not trying to suggest we’re a top UK developer. So it is a bit tough to find that balance but the bottom line at the moment is that if you have capital, you’re in a strong position.”
He adds that Oxford’s involvement also means building relationships with contractors and the supply chain on schemes, something he feels in a good position to do as a result of his past experience in the construction sector. And taking advantage of this connection between Oxford and the supply chain is something that firms need to cotton on to.
Winning the work
Pilkington says that ultimately what Oxford is looking for is the best of the best: “If we bought a site ourselves, we would have the money to do that and we would seek to work with main contractors, companies like Mace, Skanska, McAlpine, Laing O’Rourke. My view would be that we will have relationships with a number of big organisations aligned to our way of thinking and the way we work.
“With the large amount of capital we have we’re going to need to work with a series of partners and leverage their supply chains. We’re a big enabler in a market where there is no debt finance for construction projects and there isn’t likely to be any in the foreseeable future.”h
Where is oxford?
- Oxford Properties Group is one of North America’s largest commercial real estate investment, development and management firms, and it oversees and manages approximately CA $17bn of real estate.
- The company is split into three geographic regions: Canada, the US and the UK.
- Oxford Properties, which was acquired by OMERS in 2001, opened its now seven-strong London office at New Street Square in 2009. A New York office was opened in 2010.
- Oxford’s key existing investments include 122 Leadenhall Street and Watermark Place (left) in London, TD Canada Trust Tower in Toronto and Centennial Place in Calgary.
- As its UK real estate platform continues to grow, Oxford will be looking to Western Europe - and specifically France and Germany - as key markets for its active development strategy.