Canadian pension fund operators are revising their strategies after getting their commercial real estate investments wrong, Bloomberg reports.

Large losses are roiling US$1.24 trillion worth of funds typically known for stability. Hurt by high borrowing costs and the office market’s struggles, at least four fund operators are now retooling their operations, according to the wire service.

“What’s worked famously well for the last 35 years may not work so well for the next five to 10,” Jo Taylor, CEO of the Ontario Teachers’ Pension Plan, told Bloomberg.

The Teachers’ real estate operation is grappling with the worst four-year run since its acquisition of Cadillac Fairview in 2000 led to large gains, according to Bloomberg.

CF is Teachers’ commercial real estate investment arm. The report implies that Taylor brought CF in-house in 2023 due to the investment declines.

The pension funds have invested $170 billion in commercial real estate.

The Caisse de dépôt et placement du Québec (CDPQ) suffered a 6.2% loss on its real estate bets in 2023, according to Bloomberg. The report suggested that loss was behind CDPQ’s decision to integrate its Ivanhoé Cambridge real estate arm with Otéra Capital and turn the subsidiaries into investment groups within the parent firm.

The Canada Pension Plan Investment Board, which manages the country’s largest fund, took a 5% loss on its property portfolio at the end of the last fiscal year, Bloomberg reported. Meanwhile, the Pension Sector Pension Investment Board took a whopping 16% hit on its commercial real estate bets.

That decline was the worst fiscal-year performance for those investments since the 2008-09 global financial crisis, according to Bloomberg. CPPIB has sold some office assets at steep discounts lately, including a Manhattan tower that sold for only $1, according to reports.

The efforts helped CPPIB reduce its office exposure to 6% of the fund’s real assts at March 31 from 9% a year earlier, according the its annual report, Bloomberg noted.

“The real estate sector is changing dramatically,” Jim Clayton, a professor at Toronto’s York University, told the media outlet. “At the same time, we now have this structural shift in the way we work and live which has sped up post-COVID. So, I think you have people really rethinking what real estate is.”

But the Ontario Municipal Employees Retirement System is holding onto its office assets. Blake Hutcheson, CEO of OMERS, told Bloomberg that the fund’s office assets are performing well but were hit by losses because appraisers reduced their values. OMERS’ overall real estate portfolio took a 7.2% loss in 2023.

But Hutcheson is avoiding the real estate business integrations occurring among other pension funds and letting Toronto-based subsidiary Oxford Properties continue to act as the investment arm for OMERS. He contended that OMERS has worked more closely with Oxford than other pension fund operators have with their real estate investment operations.

“We don’t give them money and say, ‘Go spend it.’ They go through the exact same process as our private equity business and the like,” he told Bloomberg.

“So, the synergies that the others hope to achieve? We’ve been achieving for decades.”