CPPIB's $1 office tower deal uncovers anxiety among longtime buyers

financialpost.com:

Canadian pension funds have been among the world’s most prolific buyers of real estate, starting a revolution that inspired retirement plans around the globe to emulate them. Now the largest of them is taking steps to limit its exposure to the most-beleaguered property type — office buildings.

Canada Pension Plan Investment Board has done three deals at discounted prices, selling its interests in a pair of Vancouver towers, a business park in Southern California and a redevelopment project in Manhattan, with the New York stake off-loaded for the eyebrow-raising price of just US$1. The worry is those deals may set an example for other major investors seeking a way out of the turmoil too.

“It’s the opposite of a vote of confidence for office,” said John Kim, an analyst tracking real estate companies for BMO Capital Markets. “My question is, who could be next?”

Anxiety over office buildings has swept the financial world as the persistence of both remote work and higher borrowing costs undercuts the economic fundamentals that made the properties good investments in the first place. A wave of banks from New York to Tokyo recently conceded that loans they made against offices may never be fully repaid, sending their share prices plunging and prompting fears of a broader credit crunch.

But the real test will be what price office buildings actually trade for, and there have been precious few examples since interest rates started rising. That’s why industry watchers see discounted deals like CPPIB’s as an ominous sign for the market.

The pension fund isn’t actively backing away from offices, but it’s not looking to increase its office holdings either, according to a person with knowledge of its strategy. And where a property