real estate investment | Pension360

Florida Pension Commits $200 Million to Apartments, Industrial Real Estate

The Florida State Board of Administration – the entity that manages the state’s pension assets – has invested $200 million in apartment buildings and industrial real estate in Chicago, Boston, Michigan and Florida, according to a report from Investments & Pensions Europe.

More details from IPE:

The four deals, closed through Heitman, will focus on the apartment and industrial sectors.

The pension fund is also considering three fund commitments worth a combined $213m but declined to provide further details.

Two industrial purchases, in markets not considered to be top tier, were bought for $43.9m and $29.1m, respectively.

The 672,000sqft Romeo industrial asset in Chicago and a 500,000sqft warehouse/industrial property in Denver were bought at $65 and $58 per sqft.

[…]

Florida also bought a 417-unit complex in a suburb north of Miami, paying $80.5m, or $193,000 a unit.

The fund also paid $59.4m for the Hannah Lofts student housing complex in East Lansing, Michigan, close to Michigan State University.

The Florida SBA manages $138.6 billion in pension assets.

Photo by Gwan Kho via Flickr CC License

Dallas Pension Overvalued Real Estate Investments by Millions, According to Review

An audit of the Dallas Police and Fire Pension System has revealed that the fund overvalued a number of risky real estate investments, including a vineyard in California and luxury homes in Hawaii.

The fund invests heavily in real estate but suffered $96 million in real estate losses in 2013 [Read the Pension360 coverage here].

From the Dallas Morning News:

After a year of wrangling and delay, an independent review of the $3.3 billion fund has confirmed what many suspected: accounting problems.

The review, which focused on the fund’s real estate holdings in 2013, estimates that it overvalued some properties by tens of millions of dollars.

The new appraisals and the city’s push for an audit came after The Dallas Morning News flagged problems with the fund’s accounting. The News reported in early 2013 that the fund valued many of its real estate ventures by what it had invested, rather than by appraisals or other methods. This was contrary to widely accepted standards.

“This report shows we need better governance and more transparency into our pension fund so we can address issues as they come up — not years after the damage has been done,” said Mayor Pro Tem Tennell Atkins, reading from a statement at a news conference he called Tuesday.

The specific findings:

[The review] found that $772 million in assets were at risk of being overvalued “because the valuation approaches or methods … appear to have been improperly applied and/or inconsistent with commonly accepted valuation practice.”

From this pool, Deloitte selected nine large assets that the fund had valued collectively at $585 million. The firm estimated the actual value of these assets instead to be between $507 million and $559 million.

Overvaluing assets on a fund’s books can create a falsely optimistic picture of its overall health, leaving police, firefighters and taxpayers on the hook for the future.

Fund officials, in a statement released Tuesday by their public relations firm, called the overvaluation flagged by Deloitte “financially immaterial when measured against DPFP’s entire investment portfolio.”

The Dallas fund allocated nearly 50 percent of its assets towards real estate investments as of 2012.

Photo by thinkpanama via Flickr CC License

Quebec Pension Buys Manhattan Office Tower for $2.2 Billion; Second Most Expensive Office Sale in U.S. History

Canadian pension fund Caisse de dépôt et placement du Québec said on Friday it had completed the second most expensive office sale in U.S. history by buying a Manhattan office tower for $2.2 billion.

The fund partnered with Callahan Capital Properties to buy the building, located at Three Bryant Park.

CalSTRS Buys $470 Million New York City Office Building

As part of a joint venture with MHP Real Estate Service, CalSTRS has bought a 1.2 million square foot office property at 180 Maiden Lane in downtown New York City.

The building is the former home of Goldman Sachs’ offices.

From Investments and Pensions Europe:

The US pension fund has invested $260m in the asset – around 55% of the deal – through a joint venture with New York City-based MHP Real Estate Service.

The deal was carried out via CalSTRS’s separate account real estate manager Clarion Partners.

The property is currently 66% vacant, with around 800,000sqft left empty by the departure of Goldman Sachs.

CalSTRS said it had a full-scale capital and leasing plan for the next five years that would result in an increase in capitalisation for the property.

The pension fund classified the 1.2m sqft asset, at 180 Maiden Lane, as value-added.

Gary Rufrano, director and a member of the acquisitions group at Clarion, said there would be “many tenants who will be looking for space” in the area.

“Rental rates in the sub-market are 25-35% less than in Manhattan,” he said.

“There also is the fact that, in the down-town area, new amenities like shops, restaurants and housing options have been added to the sub-market over the past couple of years.”

MHP, which will oversee the day-to-day operations of the property, will carry out a $28m refurbishment of the property’s lobby and amenities.

The redevelopment includes the addition of a cafeteria and fitness centre for tenants.

CalSTRS manages $190 billion in assets.

Photo by Sarath Kuchi via Flickr CC License

Texas Teachers Pension Forms $450 Million Residential Real Estate Venture

The Teacher Retirement System of Texas is entering a joint venture with Camden Property Trust that will invest $450 million in U.S. residential real estate.

The US pension fund is investing in Camden Property Trust’s Multifamily Fund III vehicle, supplying $144m in equity.

[…]

Ric Campo, chairman and chief executive at Camden, said there were “many value-add opportunities in the US”.

“We could buy existing properties we can renovate and improve, and we could also develop new properties,” he added.

Targeted returns for the investment fund are a 12% net IRR, with a maximum 60% leverage component.

Camden has full investment discretion on the fund, which will last until 2026.

Targeted markets will include Texas, Georgia, North and South Carolina, Washington, DC, and Florida, as well as Southern California, Phoenix and Denver.

Most of the transactions will be with properties of around 250 units and in the investment range of $40m to $50m.

Camden and Texas Teachers also agreed to extend the life of the Camden Multifamily Value Fund I and II by nine years.

“The properties in the funds have moved from a value-add to its current status of a core asset,” Campo said.

“We and Texas Teachers are enjoying the cash flow these properties are producing.”

By increasing the life of the two funds from 2017 to 2026, investors will have “much more flexibility” to sell the assets, which have a gross market value of $1.1bn, Campo added.

The funds own 22 communities totalling 7,278 apartment units in a variety of US markets.

Ownership is split 68.7% to Texas Teachers and 31.3% to Camden.

TRS Texas manages $126 billion in assets.

Canada Pension Takes On $198 Million Real Estate Project in Suzhou

The Canada Pension Plan Investment Board (CPPIB) has committed $198 million to a massive real estate development project in Suzhou, China.

The fund is investing in the Times Paradise Walk project, a 735,000 square meter space consisting of residential, retail, office and hotel space.

From a release:

Canada Pension Plan Investment Board (CPPIB) and Longfor Properties Company Ltd. (Longfor) announced today that they have formed a new joint venture for a major mixed-use development project in Suzhou, Jiangsu Province, China.

The new joint venture was formed on December 23, 2014 with CPPIB committing RMB 1,250 million (C$234 million) to jointly develop the Times Paradise Walk project in Suzhou, the fifth most affluent city in China with a population of 10 million. The mixed-use development is an integrated project comprising residential, office, retail and hotel space covering a total gross floor area of 735,000 square metres. It is designed to be a top quality, one-stop commercial destination in Suzhou with completion scheduled in multiple phases between 2016 and 2019.

“This is CPPIB’s first direct joint venture in a mixed-use development in China and we are pleased to be doing this alongside Longfor, a well-respected and experienced developer in China,” said Jimmy Phua, Managing Director, Head of Real Estate Investments Asia for CPPIB. “We look forward to building a long-term strategic partnership with Longfor that will allow CPPIB to continue to invest in large scale mixed-use and retail projects in China, a market in which we see long-term growth potential.”

Located in the heart of the Central Business District of the Suzhou Gaoxin District with connections to the subway lines, Times Paradise Walk Suzhou, which started construction in 2013, has already received strong responses following two separate residential launches in 2014 with total contract sales of RMB 1.9 billion.

The CPPIB manages $234.4 billion for the Canada Pension Plan.

Photo credit: “Canada blank map” by Lokal_Profil image cut to remove USA by Paul Robinson – Vector map BlankMap-USA-states-Canada-provinces.svg.Modified by Lokal_Profil. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Canada_blank_map.svg#mediaviewer/File:Canada_blank_map.svg

Canada Pensions Facing Weak 2015: Survey

A survey of investment managers conducted by Mercer reveals that Canadian pension funds could be looking at a weak 2015.

From the Globe and Mail:

Canadian pension plans are facing another weak year in 2015 with interest rates forecast to remain low and Canadian economic growth expected to trail global gross domestic product expansion.

A survey of investment managers by consulting firm Mercer shows most are expecting modest increases in interest rates this year and low investment returns, combining to create slow growth in pension plan funding in 2015.

[…]

Mercer said its Pension Health Index, which tracks the solvency position of a hypothetical pension plan with typical asset allocations, fell from a surplus position of 106 per cent at the end of 2013 to a shortfall position of 95 per cent by the end of 2014.

Mercer partner Mathieu Tanguay said most pension plans saw their funded status drop in 2014 because long-term interest rates fell, undermining investment returns for the year. Pension plans determine the size of their long-term funding liability using long-term interest rate levels, so falling interest rates mean a greater cost to fund pensions for plan members.

“Last year wasn’t too bad from an asset-return perspective only,” Mr. Tanguay said. “If you look at financial markets, a typical investor would have earned in the area of 10 to 12 per cent. So it’s not bad. But what hurt pension plans was the fact that interest rates dropped. Assets went up, but liabilities went up higher.”

The weakening was especially acute in the final quarter of 2014 as long-term interest rates fell toward 60-year lows. Long-term government of Canada bonds closed the year at 2.3 per cent, a drop from 3.2 per cent at the start of 2014.

Mercer’s Mathieu Tangua said the survey results paint a picture that pension funds are unlikely to see a funding improvement in 2015.

Indiana Pension Commits $100 Million to Real Estate Fund

The Indiana Public Retirement System has committed $100 million to a Blackstone fund that invests in real estate.

From IPE Real Estate:

The US pension fund, which has had limited exposure to core-plus funds, said it was unconcerned by Blackstone’s move into core-plus property and its branching out into opportunistic strategies.

Most of Indiana’s fund investments in real estate – totalling approximately $2bn – have been in core and opportunity funds.

The pension fund has made three previous investments with Blackstone, totalling $216m, including a co-investment and two investments in the fund manager’s opportunity funds VI and VII.

With the new investment, Indiana joins several other public pension funds in the Property Partners fund.

The Virginia Retirement System and the Texas Permanent School Fund each made $100m commitments to the fund last year, while the Arizona State Retirement System committed $50m.

Blackstone is looking to raise $1bn for the fund, which is open-ended and leveraged at around 50%.

The fund manager is co-investing $35m.

Limited partners are projected to achieve 9-11% returns from the fund, focused solely on US multifamily, office, retail and industrial real estate.

The fund will buy single properties, as well as make entity-level investments in real estate operating companies.

The Indiana PRS manages $30 billion in assets.

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Maine PERS Commits $185 Million to Infrastructure, Real Estate

The Maine Public Employees Retirement System has made $185 million in commitments to several funds that will invest in real estate and infrastructure in Europe and the U.S.

Details from IPE Real Estate:

A $50m commitment was made to Westbrook Partners’ Real Estate Fund X, an opportunistic fund with an anticipated $2.5bn capital raise.

The fund is targeting major markets in Europe and the US, including London, Paris, Munich, Berlin and Frankfurt.

In the US, the fund is targeting New York, Boston, Washington DC, San Francisco and Los Angeles.

Fund X, which is aiming for 15% gross and 12% net IRRs, is using a “conservative” amount of leverage.

Since 2009, Westbrook has an average of 25% loan-to-value on all of its investments.

The fund will invest in the office, retail, industrial and apartment sectors, targeting assets with distressed capital structures and in need of repositioning.

Maine PERS also approved a $75m commitment to the IFM Global Infrastructure Fund.

The fund has an ex-Australian investment mandate to avoid IFM Investors competing on deals it pursues for a fund it runs that only invests in Australian infrastructure.

The fund will invest in the UK and Poland as part of a focus on Europe and the US.

IFM, which will buy assets that produce a 10% net investment return, will be looking at utilities, transportation systems and telecommunication operations.

Main PERS also approved a commitment of $60m to KKR’s Special Situations Fund II.

The fund will invest in a various levels of the capital stack, including distressed debt in the US, Europe and Asia.

Maine PERS manages approximately $12 billion in assets.

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Ohio School Pension Makes $350 Million in Real Estate Commitments; Hires REIT Portfolio Manager

The Ohio School Employees Retirement System has committed $350 million to three real estate funds, as well as hired BlackRock to manage a $100 million REIT portfolio.

Reported by Pensions & Investments:

[Ohio SERS] committed $200 million to CBRE U.S. Core Partners fund, a core real estate fund managed by CBRE Global Investors; and $75 million each to Almanac Realty Securities VII, a value-added real estate fund managed by Almanac Realty Investors, and Mesa West Core Lending Fund, an open-end, direct lending real estate fund managed by Mesa West Capital.

The BlackRock hire and the three commitments fall within the pension fund’s 15% global real assets target, which was created in June 2013 to reflect greater investment flexibility than the previous 10% target to real estate.

As of Sept. 30, the actual allocation to global real assets was 10.6%.

The Ohio School Employees Retirement System manages $12.6 billion in assets.

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