The investment management arm of the Canada Pension Plan recently sold its head office building in downtown Toronto at a $74.5-million loss, the Star has learned, as the pension fund prepares to move to one of the most expensive office towers in the city.
According to a summary of the transaction by data analytics company Altus Group, CPP Investments sold the property to Infrastructure Ontario — another Crown corporation — for $145.5 million on May 14.
CPP Investments originally purchased the 1 Queen St. E. building at Yonge and Queen, along with the adjacent Confederation Life Building at 20 Richmond St. E., for $220 million in June, 2013. The 500,000-square-foot office complex has been serving as their headquarters since 2001.
The transaction marks a roughly 34 per cent decline in value over 13 years.
The fund’s managers are set to move to a new, upscale office at CIBC Square at an estimated cost of $300 million to $430 million to lease the space for a decade, as reported by the Star in 2024.
The money to pay for the new office is part of the fund’s operating expenses, which are deducted from the net income of the pension fund, which more than 22 million Canadian workers must contribute to by law.
“The sale and relocation is the right decision for the CPP Fund,” CPP Investments spokesperson Michel Leduc wrote in an emailed statement to the Star.
“It was deliberate, well executed, and it delivered a very strong result by exceeding independent valuation, avoided many millions of dollars in further capital investment, and transferred future leasing, operating and vacancy risk to the buyer,” he added. “On a risk-adjusted basis, it is a clear win.”
Leduc emphasized that the office market has faced several challenges since the pandemic with the rise of remote work, calling the trend “the most consequential repricing of office property in a generation.”
“Since 2020, older office assets across Toronto have fallen sharply in value on higher vacancy, changing workplace patterns and rising capital requirements.”
He added that the sale has no bearing on the fund’s investment returns since the head office was a corporate asset and not a fund investment.
Infrastructure Ontario spokesperson Ian McConachie confirmed the acquisition of the property “as a strategic investment,” though he did not specify what the agency plans to do with the new space.
Peter Senst, one of the CBRE brokers behind the deal, declined to comment for this story.
Despite return-to-office mandates ramping up recently, demand for offices continues to be lower than pre-pandemic, according to Peter Norman, principal of consulting firm Norman Economic Strategies.
A period of low value for Toronto office space
That’s largely because companies have been trying to be more efficient with their space by reducing their floor plates.
Norman, who was not involved with the CPP Investments transaction, said that this is a period of low value for office space overall, and that could explain why 1 Queen St. E sold at a loss.
“If your rent growth outlook now is softer than it was back (in 2013), then that’s obviously going affect the value of the building.”
Corporations have also been preferring newer office towers with more modern amenities and optimal location, belonging to the so-called “AAA-class,” versus classes A, B or C.
Leduc said CPP Investments has not yet relocated to the new office at 141 Bay St., part of the “AAA-class” office complex CIBC Square, just a few steps away from Union Station.
Still, he maintained that the new office is not “upscale” and that the tower is “comparable to those occupied by Canada’s leading financial institutions.”
He said that the cost estimate of $300 million to $430 million is overstated, adding that the actual cost is below that range. He did not say what that cost is expected to be.
According to Leduc, the move will reduce CPP Investments’ footprint by roughly 12 per cent while getting rid of private offices, including for senior executives.
He highlighted that it is expected to cut related carbon emissions by at least 45 per cent.
“We secured the new space at an opportune time to lease in Toronto,” said Leduc. “Another win.”
