Ivanhoé Cambridge’s $1bn bet on collaborative spaces

The firm’s We Company commitment is a hedge against a model the industry takes for granted

How is Ivanhoé Cambridge, the real estate investment arm of Canadian pension Caisse de dépôt et placement du Québec, so comfortable doing business with The We Company, that it is committing $1 billion to a strategic partnership with a disruptor that is splitting opinions?

From what the collaborative space giant’s managing partner Richard Gomel and Ivanhoé Cambridge chief investment and innovation officer Sylvain Fortier – as well as other market sources – have told PERE, the answer lies somewhere in the detail.

The partnership will be led by 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 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.

However, PERE also understands that all transactions must go through the vehicle’s investment committee, which includes an undisclosed number of Ivanhoé Cambridge executives. The Canadian institution 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’s Fortier said, though he declined to comment on whether it holds the right of first refusal in the strategic partnership or on how much discretion ARK has over the $1 billion investment.

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 We Company’s global presence and expansion into other property types – such as residential – through its co-living platform WeLive. The strategic partnership expects low, double-digit returns on a blended basis over a medium to long-term period, according to Fortier.

GP or LP?

Ivanhoé Cambridge looks to stay in a “GP-like position” alongside ARK with the option to be involved with future funds the platform might want to raise, but Fortier adds the Canadian investor would consider providing future capital as a traditional limited partner, too. Gomel said the partners can use combined capital in the vehicle to acquire single assets, purchase portfolios, seed any upcoming ARK real estate funds or even back third-party funds – much like a fund of funds.

Fortier views this as a mid- to long-term partnership, where the two sides will buy and redevelop assets together, adding value through We Company’s hospitality brands. The 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 added. 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.

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, We Company, still relies on outside funding and made a $1.9 billion annual loss for 2018, making certain landlords and other partners seek favorable economics and conditions in deals it undertakes.

However, Fortier said it is also a risk for Ivanhoé Cambridge not to invest with ARK, given We Company’s current significance in the market; the partnership acts as a hedge against the traditional model that the industry takes for granted. He said: “This equity commitment is… our commitment to being open to how things are being done today.”