TORONTO -- More foreign investors -- including major U.S. pension funds -- are showing an interest in the Canadian real estate market in their quest for stability and greater diversity in their holdings, an industry forum heard yesterday.

"This is a landmark year," Blake Hutcheson, president of CB Richard Ellis Ltd., told a conference in Toronto.

Since the start of 2002, Mr. Hutcheson said, $1.4-billion has been invested in Canadian real estate from foreign sources, with most of that flowing to retail and multiresidential properties. That represents about 12 per cent of the $12.6-billion total invested in properties worth more than $4-million this year.

"Most are looking for returns," he said.

But he added that some foreign investors are coming to Canada for safety, as well.

Chicago-based Greg Vorwaller, head of investment properties internationally for CB Richard Ellis, said Canada is not well known to many foreign investors, but it is emerging on their radar screen.

Jacques Gordon, head of research for Chicago-based LaSalle Investment Management Inc., said his firm is looking at the Canadian market with California Public Employees Retirement System (Calpers), a huge California pension fund.

Mr. Vorwaller said that as soon as a large player such as Calpers enters the Canadian market, others are sure to follow.

"There will be a herd mentality as other pension investors look to take a position in Canada," he said.

Already, he told the gathering, TIAA-CREF, which manages New York's teachers' fund, has done a joint venture with the Caisse de dépôt et placement du Québec in Boston.

Now that they have done one deal with a Canadian player in the United States, he said, it is likely the U.S. fund could do a deal in Canada.

Mr. Gordon was not so sure, and said he expects most future foreign investment in Canada to come from places such as Israel and Germany.

Gil Blutrich, president of Skyline International Development Inc., one of the firms in Canada that is buying properties on behalf of Israeli investors, said he expects investments from that country to increase next year when the laws that govern Israeli pension plans are relaxed to allow them to make more foreign investments.

Mr. Blutrich said he is not interested in trophy buildings such as downtown skyscrapers but in less high-profile office space and some retail buildings.

Mr. Vorwaller said that will not be the case when the big U.S. pension funds come to town. He predicted that, like their Canadian counterparts, they will be looking for core holdings such as major office properties or regional malls and well-located industrial holdings.

They might achieve this, he said, by joining local institutional investors who also are looking for greater diversity.

"It makes sense to partner up," he said.

In an earlier session on sources of capital, Dan Sullivan, deputy chairman of Scotia Capital, said he expects less activity in real estate from Canadian pension funds in the coming year.

"They have bought most of the trophies in the country and there is not much left to buy," he said.

He noted that, with the falling value of equities, real estate now accounts for more than 10 per cent of some funds' holdings, but that he does not expect many to sell properties to correct that imbalance.

"This has been the best asset class for them. They should be happy to sit on them."