We Company’s investment arm wins $1bn from Ivanhoé Cambridge

Ivanhoé Cambridge, the real estate investment arm of Canadian pension CDPQ, has committed $1 billion in equity as part of the launch of a strategic partnership with The We Company, PERE has learned.

The partnership will be led by The We Company’s new real estate acquisition and management platform ARK, which is investing an undisclosed seed amount from its balance sheet in an investment vehicle alongside the $1 billion commitment from Ivanhoé Cambridge, according to managing partner Richard Gomel. PERE understands that this vehicle is structured like a fund-of-one, and ARK will be actively managing the investments on a day-to-day basis.

PERE understands that all transactions must go through the vehicle’s investment committee, which includes an undisclosed number of Ivanhoé Cambridge members. Ivanhoé Cambridge will also sit on the investment committee of the ARK platform itself.

Capital calls for the new vehicle will be made on an investment-by-investment basis, Ivanhoé Cambridge chief investment and innovation officer Sylvain Fortier said. The firm declined to comment on whether it holds the right of first refusal in the strategic partnership and how much discretion ARK has over the $1 billion investment.

The investments will not be limited by geography, property type or risk-return profile at this time, though acquisitions will likely skew towards small to mid-sized office properties, Fortier said. Ivanhoé Cambridge wants to keep its investment options open, given The We Company’s global presence and expansion into other property types – such as residential – through its co-living platform WeLive. The strategic partnership expects to invest in assets across the risk spectrum and anticipates low double-digit returns on a blended basis over a medium to long-term period, according to Fortier.

Ivanhoé Cambridge looks to stay in a “GP-like position” alongside ARK with the option to be involved with any future funds the new platform might want to raise, but Fortier added that the Canadian investor will consider providing capital as a limited partner. Gomel, formerly a partner at JPMorgan subsidiary Junius Real Estate Partners, said the partners can use combined capital in the vehicle to acquire single assets, purchase portfolios, seed any upcoming ARK real estate funds or back third-party funds ­– much like a fund-of-funds.

Fortier sees this as a mid to long-term partnership where the two sides will buy and redevelop assets together, adding value through The We Company’s hospitality brands. The We Company’s direct connection to the end user and its reputation as an industry disruptor drove Ivanhoé Cambridge’s investment, according to Fortier. Acquiring assets with a partner that is also a tenant through its co-working WeWork brand creates good alignment, he said. WeWork’s existing global presence across 100 cities also complements Ivanhoé Cambridge’s desire to increase real estate exposures in Europe, Asia and Latin America.

PERE understands that ARK intends to launch a series of open-ended and closed-ended investment vehicles. The We Company previously announced an open-ended Europe and US-focused real estate fund known as WeWork Property Investors. The $1 billion WPI, which includes some institutional investors, will combine with ARK.

ARK will act as an umbrella entity to WPI, which is managed by The We Company affiliate WeWork Property Advisors and private equity firm Rhône Group. ARK declined to disclose any additional details related to the “combination.” The platform now has $2.9 billion in equity to deploy, which includes the $1 billion from WPI and the $1 billion from Ivanhoé Cambridge. ARK did not disclose the origins of the additional $900 million.

Fortier acknowledged that investing with ARK can be considered risky. The new investment platform has yet to develop a track record, while ARK’s parent, The We Company, still relies on outside funding and reported a $1.9 billion annual loss for 2018.

However, Fortier also said it is a risk for Ivanhoé Cambridge not to invest with ARK, given that The We Company is such an important force in the market right now. Ivanhoé Cambridge will still lease up the vast majority of its offices the conventional way with long-term leases and blue-chip tenants. The strategic partnership acts as a hedge against the traditional model that the industry takes for granted, he noted.

“This equity commitment is an important one for Ivanhoé Cambridge,” Fortier told PERE. “It’s our commitment to being open to how things are being done today.”