Will Canadian pension funds find opportunity in retail real estate assets?

As retailers everywhere continue to struggle amid the current economic climate, a trend has emerged in the U.S that sees landlords buying the assets or operations of their distressed retailer tenants.

Another option emerging for landlords struggling to collect rent payments is transitioning retail space into a mixed-use property with commercial and residential space.

Speaking to the Financial Post on the possibility of Canadian pension funds with investments in retail real estate following this growing U.S. trend, Charlene Schafer suggested that it was unlikely—including due to the risk profile of some retailers not aligning with the investment strategies of Canadian pension funds. 

“I would be surprised if the big pension funds were going down this path,” she said.

Charlene highlighted that if these investments were to be carried out in Canada, they would need to pass the scrutiny of risk management at some of Canada’s largest pension funds.

She continued, saying that while real estate is an attractive investment to pension funds, retail alone “has not been a popular asset class among these pension plans and institutional investors”.

Charlene also pointed out that given the geographic diversification of Canadian pension funds, it’s still possible they will invest in retail deals outside of Canada.

“Even if we don’t see them (getting involved) locally in that space, we may see some cross-border activity,” Charlene said.

Charlene added that there are domestic investors who have “a little higher risk tolerance than a pension” that may seek to pool funds and purchase struggling Canadian retailers.

“I’m hearing a lot of rumblings about opportunistic funds,” she said.

You can read more of Charlene and the team’s insights on the Real Estate practice page.