UPDATE 3-Canada Pension Plan buys Manhattan real estate

Mon May 10, 2010 5:53pm EDT

* Stakes valued at total $663 mln

* Buys 45 pct stake in McGraw-Hill building

* In joint venture for 45 pct of 600 Lexington Ave (Adds details on CPPIB portfolio. In U.S. dollars unless noted)

By Pav Jordan

TORONTO, May 10 (Reuters) - The Canada Pension Plan Investment Board (CPPIB) said on Monday it has bought into the coveted Manhattan real estate market for the first time, taking stakes in skyscrapers valued at more than $1.45 billion.

The CPPIB said its real estate arm bought a 45 percent stake in 1221 Avenue of the Americas, the McGraw-Hill building, from SL Green Realty Corp (SLG.N) for $576 million.

It also formed a joint venture with SL Green, which owns and manages Manhattan properties, to acquire a 45 percent stake in 600 Lexington Avenue for $87 million.

CPPIB, which invests funds from the Canada Pension Plan, to which almost all working Canadians contribute, was one of the world's top private equity buyers last year.

"These are two great assets in a market that's coming back," Graeme Eadie, CPPIB's senior vice-president for real estate investments, said in an interview.

"These are our first investments in the Manhattan market, and it's an area that we think has future growth for us."

The CPPIB was involved in three of the top five global private equity deals of 2009, including the largest leveraged buyout of the year -- the $4 billion acquisition by CPPIB and U.S. private equity firm TPG [TPG.UL] of IMS Health Inc RX.N, a prescription drug sales data provider.

With deep pools of capital and long-term investment outlooks, Canadian pension funds are a new breed of financial investor, able to easily outmuscle buyout firms.

"In prior years we've looked at UK and Australia because we thought those were markets that were going to free up more quickly than the U.S., but with the passage of time we are seeing some deals come to market that are attractive to us, and we think this is a good time to enter the U.S. market," Eadie said.

He said pricing was becoming clearer in the United States for better-quality assets, allowing buyers to assess tenant demand and rental structures over the short and long terms.

In the four emerging markets where CPPIB is active, Eadie said it will focus most heavily on Brazil and China, and less on Mexico, where there are political issues and growth is less robust, and Turkey.

As of Dec. 31, CPPIB's global real estate portfolio had an equity value of C$7.1 billion ($7 billion), and included mostly office and retail properties in Canada, Britain, the United States, Mexico, Brazil, Europe and the Asia-Pacific region.

SL Green is the largest office landlord in Manhattan. (Additional reporting by Abhiram Nandakumar in Bangalore; editing by Peter Galloway)

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