Turner Classic: Behind Oxford Properties’ $60B Global Portfolio
President of Oxford Properties Group Michael Turner assumed his current role in May 2018 and oversees a $60 billion global portfolio of assets
Michael Turner was introduced to the art of deal-making by his father, an oil trader.
“I’d sit in the living room and listen,” he said. “We had a little table in the corner, and he’d sometimes have two phones, talking to people in different parts of the world.”
Like father, like son; it’s now Turner starting the rotation of long-distance calls around the globe on his morning walk to work.
The Oxford Properties Group president assumed his current role in May 2018 and today oversees a $60 billion global portfolio of assets — its investments include a little New York development you may have heard of called Hudson Yards.
Commercial Observer met with Turner, 47, at his office at 450 Park Avenue in late February. It was a busy week for him — although, presumably every week is — with the $973 million construction financing for Oxford (which is the investment arm of Canadian pension plan OMERS) and partner Canadian Pension Plan Investment Board’s St. John’s Terminal redevelopment in the market and being bid on by a group of fiercely competitive lenders. [Last week, CO learned that Wells Fargo will lead the deal.] The 1.3-million-square-foot property will be fully occupied by Google.
Commercial Observer: Is there such a thing as a typical day for you and, if so, what does that look like?
Michael Turner: There is a typical day when I’m not traveling. An alarm wakes me up at 5 o’clock, and I go ride a Peloton. I walk to work down Park Avenue and start my phone calls to the furthest parts of the world where people are going to be going to bed soon, so probably Asia. Then I’ll probably speak to somebody in London. I’m an early riser and New York doesn’t really start until 9:30, so I get about two hours of uninterrupted time to do stuff. And then I’m on the phone or on a screen internally throughout the day. Then I go home, I see my three kids [aged 8, 6 and 3], which is another few hours of chaos. I put them to bed and then I might have to connect with somebody on the phone at 9 p.m. because it’s their morning.
The construction financing for St. John’s Terminal is rumored to be one of the most heavily competed debt deals in the past couple of years.
I think between the long-term lease with Google and the project’s sponsorship, it’s a pretty high-profile loan. We were certainly delighted to have the [lender] interest that we’ve had over the last couple of weeks.
Not only did you sign Google at St. John’s Terminal, you also signed Facebook at Hudson Yards for more than 1.5 million square feet last year. What’s your secret sauce?
I’m going to have to give 100 percent of the credit for Facebook to Related [Companies], because they’ve been running point on that [deal]. The composition of occupancy is changing in New York and growth is not necessarily coming from traditional New York industries, but technology and new industries and I think we’re just in the way of a wave. Google’s a customer of ours in Toronto; Facebook’s new to us, but you tend to start to understand what that customer wants. St. John’s Terminal and Hudson Yards are very different projects but they’re [each] speaking to amenities, culture, branding and employee engagement; and projects that offer those things are going to find they’re well received by growing tenants who are in a war for talent.
What is the biggest complexity in redeveloping a project such as St. John’s Terminal?
I think just the adaptive reuse of a very large building. We took a view early on that Manhattan needed side-scrapers instead of skyscrapers and bet on the large floor plates. We underwrote it as if we would have to chop it up, but we were hopeful that we would find a large-format user who really wanted those 100,000-square-foot floor plates. And I think that was a major innovation; we could have flipped the density upright. But it’s going to be a fantastic project that’s becoming to the neighborhood and what Google wants to offer its employees.
Is New York more attractive from a development or acquisitions standpoint today?
I think New York’s going through a bit of a transition right now. And so projects where we can be more hands-on — St. John’s Terminal is a very good example of that — are the kind of thing that we want to do, as opposed to just buying another office building on Park Avenue and keeping it as-is, if that makes sense.
Where did you grow up? Is your family involved in the real estate industry?
I grew up in Toronto and went to university in Vancouver.
My family’s not in real estate. I got a job in real estate because I couldn’t get a job anywhere else [laughs]. My father was an oil trader and I grew up reading the commodities section of the paper. I’d listen to him on the telephone because he would come home in the evenings and still be working. This was long before cell phones. So I’d sit in the living room and listen. We had a little table in the corner, and he’d sometimes have two phones, talking to people in different parts of the world. That’s where I just got introduced to the idea of commerce and deal-making.
You worked for CBRE Canada prior to joining Oxford. What was your role there?
I was in investment sales. So, I worked for clients like Oxford, helping them sell assets or deploy capital.
What did that experience teach you about the business?
When you end up negotiating hundreds of agreements, you deal with really interesting people and you have to get into the solutions business, so — fundamentally — a customer service DNA was what I grew up with. Intellectually, [the role at CBRE] didn’t offer the complexities of my current role and so a decade ago I decided I was ready to do something else. I got a call from Oxford, which was a well-known, large client of mine, and I said [to myself], “That seems like a logical fit.”
You joined Oxford in 2010. How was the experience of sourcing investments at that time, post-crisis?
It was really good timing. Not because we said, “Hey, we’re really smart. Let’s go do this right now.” Oxford’s shareholder is a pension plan, OMERS. OMERS had outgrown the opportunity set of its domestic market and it just wasn’t prudent from a risk standpoint to keep having such a dominant position. So, [Oxford] sent leaders off to London and New York in 2008 or 2009. We were arriving in new places and we had capital to deploy at a time when people were desperate to be recapitalized. It didn’t feel like we were kids in a candy store, though. The world was a bit scary; we were new to the neighborhood and wondered every day what mistakes we were making. But it all turned out okay.
What was your first acquisition in New York?
I may get this wrong, but I think it was Hudson Yards …
Not too shabby a market debut.
That was negotiated in 2009 and concluded in 2010. We also made a number of credit investments. We were buying performing loans that were selling for less than par and we had a credit deal at the Helmsley Building.
When you first started talking about the vision for Hudson Yards, did it feel like an insurmountable accomplishment?
We had observed in other markets around the world that customers want new. At the time, the average age of an office building in New York was 70 years old and the average age of an office building in London was 30 years old. So, all this new inventory in a major financial center had happened on the other side of the pond but wasn’t happening here. So, there was a bet. I remember when we approved 10 Hudson Yards — which is the most southern part and the only part of the project that was on terra firma at the time, as opposed to over the tracks — and it’s now the Coach building. We didn’t know how the rest of it was going to be received and that was a bit of a leap of faith at the time. But it has surpassed my wildest dreams, and it’s happened way faster than any of us would have assumed. But if I told you, “Oh, yeah, we knew it would work out that way,” that would be pretty disingenuous.
Did you have a relationship with Related before Hudson Yards?
My predecessor, Blake Hutcheson [now CEO of OMERS] had a relationship with Jay Cross, and Jay Cross was the lead for Related on Hudson Yards. At the time, the other financial partners and investors in Hudson Yards were living through the pain of the financial crisis. That wasn’t our pain, that was our opportunity.
How was opening day at Hudson Yards for you?
Honestly, I was on vacation with my kids. So I got photos [laughs] and it looked like a pretty good party. The next opening event is going to be in March, the observation deck opening. I was up there in December and it’s pretty cool.
I’ll tell you a true story: I went up the Vessel with my kids one day. And they were really disappointed. And the reason they were disappointed is because they were looking at the swimming pool at the Equinox. They were mad that I didn’t bring their swimming suits and I said we couldn’t go there anyway, and they said, “I don’t understand, you own the hotel!” and I said, “I don’t own the hotel. That’s not how it works.” And the overall experience was just a giant disappointment because their dad couldn’t get them in the Equinox pool.
I’ve heard you talk in the past about “The Oxford Way.”
The Oxford Way is really focused on the customer and the environment. We don’t exist if we don’t give people a relevant reason to want to be somewhere where they work, shop or play. And most of the real estate industry — including architects by the way — speak about buildings as if they’re objects. But you wouldn’t characterize your home as an object, it’s a place. And so, we have to be relevant from a service standpoint. That’s really “The Oxford Way”: attention to quality.
April 27 is our 60th anniversary. So we’ve done some things right for us to be around for 60 years; most real estate companies don’t make 60 years. I wouldn’t presume, unless we’re good stewards of the business, that we will be around for 60 [more] years. But, I think we have a pretty good shot.
You have real estate investments across the globe, including in Australia and in the U.K. How would you describe your portfolio today?
So, it’s about $60 billion of assets. It took us — and I worked this out — 60 years to get to $60 billion. [But] we’ll have to grow by another $60 billion in the next six years and that’s really driven by our shareholder. As a pension plan ages, its liabilities grow and so its assets have to grow because they have to match. Their liabilities will double in the next eight to 10 years and they’ll need to take real estate from 16 percent of the plan to 23 percent of the plan, which is why we’ll double in the next six-ish years.
What’s the plan for that huge increase?
We’re trying to execute it. So it’s $60 billion of assets today, about two-thirds of those are ours and another third would be partners like a CPP and other well-known sovereigns around the world. We have a number of institutions that we invest with around the world; about a third of our investments are in Canada, a third in the U.S., and the rest would be Europe and Asia-Pacific. By property type, I would say — as a percentage of our portfolio — we probably have more offices than we’d like. We’re growing more meaningfully in “sheds and beds,” which is a very crowded space right now, but we’ve got to get more capital in those spaces.
We bought a great developer in America called IDI [Logistics, with partner Ivanhoe Cambridge], based in Atlanta and we’re feeding them capital. Last year, we were the lead investor in a company called ESR, [which is] going public on the Hong Kong Stock Exchange. It’s a Pan-Asian logistics company. We bought an interest in the public shares and we will co-invest with them in markets like Australia. We also have a residential platform called Get Living in London, and London is 60 years behind New York in terms of purpose-built rentals. It’s kind of shocking how under-offered that market is in terms of housing choice and having a professional owner. That business is going well, and I think we have about 3,000 units and a pipeline of another 2,000. We have to build it all because you can’t buy the stock. As you would know, there’s not really concrete high-rise to buy in London. We want to build it to a large critical mass of probably 12,000 units.
Has Brexit deterred you from the U.K. or encouraged you towards it from an opportunistic investment standpoint?
If you had talked to our team, they would have told you the world was ending, and the sun would never rise. And then I think someone said, “Nah, I think the sun will rise and it’ll fall tonight, too. And the same thing will happen the next day.” We have been a large seller in the U.K. for literally the last 24 months, but it’s outperformed what we would have thought. So, at this point, we’re looking to redeploy in London again. A lot of occupiers have spent years delaying decisions because they don’t know what the regulatory landscape will look like or what the trading arrangements will look like. At some point, people have to stop kicking the can down the road and make decisions. We’ve reached that point; there’s no more debating [whether] Brexit [will] happen or not. It’s happening. [London is] still a great city, and we’ll be looking to start acquiring there again, at scale.
What are you buying in the U.S. right now?
We’re buying apartments and have more of a focus on the West just because we have a heavy footprint already in the Northeast, and we’re looking to get capital into other parts of America. So, we’ll be buying and building, and that will be from a multifamily and logistics standpoint. We don’t own any office assets on the West Coast.
Is there a reason for that?
Yes, we just missed it. We put boots on the ground [in the U.S.] and said, let’s get to work somewhere and we picked New York, Washington and Boston because we didn’t think we had the resources or expertise to be everywhere all at once. I think today we have a different infrastructure and a different opportunity to more meaningfully put capital in the West.
When it comes to JV partners, how are you assessing them? How are you deciding, “This group is a good partner for Oxford” today?
I’m not going to say 100 percent, but probably with 99 percent [of our partnerships] we’ve never had to pull out an agreement to resolve a dispute. So it’s fundamentally about an alignment of interests with partners who share our values, have real skin in the game and would see “The Oxford Way” as something they wanted to be a part of, as opposed to not. So, CPP is a large partner of ours; in the U.K., The Crown Estate is a partner of ours; Norges [Bank] is a partner of ours; GIC is a partner of ours; as are some other sovereigns who prefer not to be named.
Canadian investors are the most active foreign investors in U.S. real estate today. Do you still see the U.S. as a safe haven?
America is a safe haven for sure. The world’s headlines are pretty noisy right now, and they have been for several years, but I think the underlying economy is in better shape than the tabloids might suggest, or people shouting at each other between CNN and Fox News might suggest. You have to have the courage to look past that, but there’s no doubt that the U.S. economy is the most dynamic, solid economy in the world. It’s not without its challenges in the period ahead. But we’re not here because it’s a safe haven and we’re trying to escape something; there’s growth, we have a competitive advantage and a whole confluence of factors suggest that we’ll be here for the next 60 years.
Do you think there will be any kind of market disruption with the upcoming presidential election?
I would say I’ve been surprised at the world’s ability to see through noise. If I told you five years ago that the U.K. was going to leave the European Union, there was going to be a U.S. election and the most unlikely candidate would win, that we’d see trade wars, impeachment trials and so on and so forth but, by the way, the stock market will be up another 30 or 40 percent and unemployment will be at an all-time low? You would have said, under those conditions that’s not going to happen. So I think the world’s more resilient than I would have thought. And if I painted a picture of that noisy policy headline, I would have been fairly scared by it, but we’ve been proven otherwise. I would say in the U.K., we were concerned about a Labor government. They were using words like “nationalized,” as in, people are going to take assets. That’s not good for confidence. I don’t see that happening here. Americans will decide who their leader will be, and the sun will rise the following day, whoever it is.
So what keeps you up at night?
The overall debt markets are 12 times bigger than the equity markets. If you get a small amount of money leaving a huge pond that’s eight to 12 times bigger than the equity markets a lot of money is going to come into property. History would usually show that those are the times where mistakes are made.
What’s high on your agenda for this year?
One is deployment. We’ve got to get money out. In the push of capital from a world of no yielding bonds, our shareholder experiences the same thing. And it would be the same for any life company or pension plan; anybody who has liabilities, their liabilities are compounding. Their traditional assets are not compounding at the rate they had in the past. So we’ve got to get more capital to work for them and that’s really a big priority. Last year, I reorganized our operating model and our leadership team. I put new leaders into place and put a number of new global committees into place and I feel like I’m getting the traction around that heavy lifting now. People are coming together and gelling and are more familiar with their roles, and they’re feeling good.
You hired a new COO recently?
Yes. We’ve led on the “Build, invest in assets around the world,” and we’re catching up in the “How do we manage that infrastructure globally?” The aspiration is to be able to manage any asset in the world from anywhere in the world. Cloud computing allows you to envision that in ways you couldn’t have even thought about five years ago. So our COO [Dean Hopkins] is not a real estate person, he’s a technologist. And his job is to build that common digital infrastructure which could be used by IDI in Atlanta, or in Sydney or in London or in San Francisco.
Will we see more acquisitions in New York this year?
I think New York will be more active in terms of credit. I don’t know what flow will come from unexpected opportunities, but we’ll intentionally be spending more time in the West rather than on this particular island.
But one thing I would say, I was walking on Park Avenue South the other day and saw the CBRE banners that say, “New York, Real Estate Capital of the World” — have you ever seen those? Well, it absolutely is, and I don’t just mean that from the amount of investment volume or stock that’s here. Rather, the number of decisions that are made or influences here that impact markets all around the world that we operate in. This place is just more relevant than anybody can possibly imagine.
Speaking of your credit business: You’re primarily originating mezzanine loans?
Yes. Our largest loan last year was $720 million [for Blackstone’s acquisition of Colony Industrial] and it’s a great space for us in terms of information advantages from being able to build or invest equity and see credit flow. We’ve been doing it for a decade and 90 percent of that business happens right through this city. On transitioning assets, senior lenders like having us in the capital stack because they know that we, in the event that something goes bad, we would fix it, lease it and operate it. So they have a partner who’s more junior to them, who knows how to deal with these things and step in.
Any early inklings that your kids might be interested in careers in real estate?
Well, I hope they wouldn’t end up here for the same reason I did, which is because I couldn’t get a job anywhere else [laughs].