They call it minimizing risk, and that’s exactly what Cadillac Fairview is doing by finding a buyer for 50% of the Ontario Teachers’ Pension Plan (OTPP) $4 billion commercial real estate portfolio. Others, such as the Healthcare of Ontario Pension Plan, are also looking to unload commercial properties in the city as prices reach record levels.

If you thought it was just Vancouver residential real estate that’s expensive, think again. These latest moves shine a light on commercial prices that have also gotten out of hand; pension funds don’t take money off the table without good reasons.

Which REITs could be affected by the pension funds’ move to the sidelines? These three are the likeliest suspects.

Dream Office Real Estate Investment Trust (TSX:D.UN)

Approximately 39% of the REIT’s square feet of gross leasable area is located in western Canada, leaving it vulnerable not only to a correction in commercial real estate prices in Vancouver, but also to continuing woes in the oil patch.

Dream’s strategic plan, which it hopes will reduce the gap between its unit price and net asset value, calls for it to divide its real estate holdings into three categories: core assets, quality assets but not irreplaceable, and value-add assets.

The core assets, which represent 46% of its total portfolio, will be held indefinitely. Included among those assets is the Station Tower office building in suburban Vancouver. With almost 225,000 square feet of gross leasable area, it represents a significant holding for the company in the lower mainland.

In total, Dream has approximately 2.4 million square feet in B.C., Saskatchewan, and the Northwest Territories. Of that, approximately 865,000 square feet is located in either Vancouver or Victoria. It might not be a lot when compared to its total square footage across the country of 23 million, but it’s definitely something to consider when deciding whether to buy its stock (if you don’t own it) or to trim your position if you do.

With significant holdings in the Toronto area already, one must consider the possibility that the REIT will be forced to buy more properties in the Vancouver area—at prices that currently appear excessive.

Allied Properties Real Estate Investment Trust (TSX:AP.UN)

I used to work in one of its old buildings in downtown Toronto, so I’m very familiar with its business model of investing in Class I office buildings that have been restored and retrofitted from their light-industrial uses of yesteryear. There’s no arguing with its success in this area. As far as I know, they’re the biggest.

While contributor Nelson Smith is right to remind investors that Allied’s exposure to the Vancouver market is limited given most of its space is in Toronto and Montreal, it’s equally important to consider Allied’s business model before dismissing any concerns about Vancouver. Here’s why.

Of the 12 million square feet that it owns, about 8.5 million is in Toronto or Montreal. Here in Toronto, we tend to tear down a lot of our history, so the 4.2 million in total gross leasable area probably represents a good chunk of the entire Class I stock available in the city. In Montreal, it’s likely not nearly as dominant, but 4.3 million square feet is still a lot.

What does that have to do with Vancouver?

While it currently has a lot of projects underway in Toronto, eventually it’s going to have to start expanding into Vancouver in a more meaningful fashion. Currently, its Vancouver portfolio, including adjoining retail, is 285,000 square feet, or approximately 2.5% of its overall total. If it wants to continue investing in Class I buildings in this country, at some point it’s going to have to open its wallet to buy properties in the Vancouver area.

While not as Vancouver heavy as Dream Office REIT, it’s something to keep in mind when looking at its stock.

Morguard Real Estate Investment Trust (TSX:MRT.UN)

With 49 total properties across six provinces, including 28 office and industrial properties, Morguard has 8.7 million square feet of gross leasable area. While that’s less than either Dream Office or Allied Properties REIT, investors should know that Morgaurd REIT’s three office properties in Vancouver and Victoria represent 6.9% of that total and 18% of its 28-property office portfolio.

So, while it might not own as much real estate as the either two, its exposure to Vancouver area real estate is actually greater.

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