real estate investment | Pension360

Contra Costa Pension Commits $240 Million to Real Estate

It’s been a busy week for real estate investments at the Contra Costa County Employees’ Retirement Association (CCCERA) – the system has committed $240 million to four funds.

From IPE Real Estate:

The fund made commitments of $75m to Torchlight’s Debt Opportunity Fund V, alongside two $65m allocations to Angelo Gordon’s Realty Fund IX and Oaktree’s Real Estate Opportunities Fund VII and a $35m commitment to Invesco’s US Value-Add Fund IV.

Torchlight is looking to raise $1bn for the fund, which will be focused on the commercial mortgage-backed securities (CMBS) market and target a net 13-15% IRR.

[…]

Angelo Gordon’s IX opportunity fund typically buys distressed and/or under-performing assets from owners that lack the capital or expertise to improve the assets, grow cash flows or create value.

The vast majority of the transactions for the fund will be in the US, with a 25% allowance for deals in Europe or Asia.

Oaktree is looking to raise $3.5bn for Fund VII, to which it will commit $20m, or 2.5% of total commitments.

The fund is looking to invest in distressed real estate assets in the US and Europe.

CCCERA said borrower recapitalisation was one strategy for the fund, particularly in the UK.

The strategy may result in a greater percentage of non-US investments – though still operating within similar non-US allowances as those of previous Oaktree funds.

Invesco Real Estate is seeking a $500m capital raise for Fund IV.

The manager will make a $10m co-investment in the fund, which has a targeted 13-15% gross IRR and 9% preferred return.

The manager will invest in broken core assets in primary markets and inefficiently priced commodity assets in non-core US markets, across all major property sectors.

CCCERA manages $6.4 billion in assets.

Report: Canada Pension Board Maintains Two Dozen Shell Companies To Avoid Taxes

Canada’s Public Sector Pension Investment Board (PSP), the entity that manages pension assets for the Public Service Pension Plan, the Canadian Forces Pension system and others, maintains a complex arrangement of offshore companies for the purpose of avoiding taxes on investments in Europe.

CBC reported the story Wednesday:

The federal agency that invests civil servants’ pensions set up a complex scheme of European shell companies and exploited loopholes that helped it avoid paying foreign taxes — a move that could undermine Canada’s standing internationally as its allies try to mount a crackdown on corporate tax avoidance.

The arrangement involved two dozen entities, half of them based in the financial secrecy haven of Luxembourg, and all of them set up in order to invest money in real estate in Berlin by a Crown corporation called the Public Sector Pension Investment Board.

The blueprint for the tax-avoidance plan was obtained by the Washington-based International Consortium of Investigative Journalists and shared with CBC News as part of a larger leak of records exposing hundreds of corporate offshore schemes set up to capitalize on advantageous tax and secrecy rules in Luxembourg.

[…]

While the Canadian government corporation’s transactions were not illegal, a senior German tax official who reviewed them said the pension investment board had used “a very aggressive way to avoid taxes.”

“The only goal is to avoid taxes,” Juergen Kentenich, director of the regional tax office in Trier, Germany, said of the tangle of Luxembourg companies.

The scheme is legal, but was used to avoid paying taxes on German real estate owned by PSP. CBC reports that the fund successfully managed to avoid paying $20 million in German taxes:

The documents — which consist of a tax plan devised for the pension board by global accounting firm PricewaterhouseCoopers — show that the pension fund acquired 69 mixed residential and commercial buildings, totalling nearly 4,500 suites and units, in Berlin in 2008.

CBC News has learned the buildings were acquired for close to $390 million. But as a result of the way the transaction was structured, the pension investment board would have avoided paying $20 million in German taxes.

The purchase exploited a loophole in Germany’s land transfer tax, which is normally levied on any entity that acquires 95 per cent or more of the shares of a real-estate holding company.

Instead, the pension board bought a direct 94.4 per cent interest in a number of Luxembourg-based property holding companies, and then obtained an indirect interest by taking a large majority position in entities that held the remaining 5.6 per cent.

The board thus obtained a 96.4 per cent overall stake in the Berlin buildings, but the German loophole meant the indirect holdings weren’t counted toward the real-estate transfer tax — so it didn’t pay any.

The Public Sector Pension Investment Board manages $93.7 billion in assets.

New York Teachers Pension Invests $140 Million in Retail, Office Properties

The New York State Teachers Retirement System (NYSTRS) has committed a total of $140 million to three real estate funds that invest in retail, office and apartment properties.

From IPE Real Estate:

The [New York State Teachers Retirement System] has committed $40m to the Edens Investment Trust alongside $50m allocations to Madison Realty Capital’s Debt Fund III and Rockpoint’s Core Plus Real Estate Fund.

The pension fund said Edens, which invests in retail properties in US Southeast and East Coast regions, is attractive due to its focus on grocery-anchored necessity retail, a sub-sector more economically resistant to market conditions.

“Our decision to provide additional growth capital is a reflection of Edens’ deep, seasoned development/redevelopment team with a proven track record over multiple cycles,” NYSTRS said.

The pension fund has now invested $447m in Edens, in which it holds a 30% stake.

Madison Realty Capital, meanwhile, is targeting a total equity raise of $600m for its Debt Fund III, with a hard cap of $700m.

The real estate manager will co-invest up to $5m in the fund, which has a targeted 16% net IRR.

Debt Fund III will seek to originate and acquire senior-secured loans, mezzanine loans and preferred equity investments collateralised by commercial real estate.

NYSTERS was one of the last investors to go into Rockpoint’s Core Plus Fund, for which $965m was raised.

[…]

NYSTRS said its previous experience with Rockpoint was one of several reasons for going into the fund.

The Core Plus Fund, focused on office and apartment properties in the East and West Coasts of the US, is targeting a 9-10% net IRR, with a significant component from current cash flow.

The NYSTRS has $95 billion in assets.

New Mexico Pension Commits Additional $50 Million To Real Estate

The New Mexico Educational Retirement Board will make a $25 million commitment to a vehicle that invests in distressed Western European properties, and will commit an additional $25 million to another fund that invests in healthcare properties in the U.S.

From IPE Real Estate:

The New Mexico Educational Retirement Board is to make an additional $25m (€19.6m) commitment to Kildare European Partners I.

The pension fund also made a $125m investment in April of this year.

Mark Canavan, head of real assets at the pension fund, said New Mexico had concluded the manager of the fund was “best in class”.

European Partners I could have a total equity raise of as much as $2bn for opportunistic real estate, with a 13% potential IRR.

The vehicle will invest in individual and entity-level assets with operating companies in Western Europe.

New Mexico is also making a $25m commitment to Hammes Partners II, having approved an initial $25m commitment late last year.

The fund is investing in a variety of US healthcare-related properties, with a projected $300m total equity raise.

Hammes II is the first fund product offered by Hammes – all previous investments were invested on behalf of high net worth individuals, family office and publicly traded healthcare REITs on a deal-by-deal arrangement.

Capital for the two funds comes from New Mexico’s increased targeted allocation to real estate – up from 5% to 7% earlier this year.

The Retirement Board isn’t the only pension fund putting more money in the Kildare fund. In September, CalSTRS committed $100 million to European Partners I; the fund now has committed a total of $200 million to the vehicle.

Kentucky Bill Aims To Increase Transparency, Accountability In Retirement System

Kentucky State Rep. Jim Wayne has introduced legislation that would infuse a ray of transparency into the state’s retirement systems, including KRS, a system oft criticized for its opaque practices.

From the Independent:

The legislation, Bill Request 91, would require state-administered retirement systems to operate under the state procurement laws, which includes making contracts public. It would also prohibit the use of placement agents, intermediaries who have been involved in pay to play scandals in other states.

The legislation also seeks to tighten requirements for KRS board members appointed by the governor to ensure they have appropriate investment expertise. The current low-qualified “investment experts” on the board refused to comment on any investment issues for the Kentucky Center for Investigative Reporting story, Wayne said. He added the two investment experts on the board need to be knowledgeable, independent and willing to be accountable to the public.

[…]

“The current model smacks of the good ol’ boy system,” said Wayne, D-Louisville. “The system is closed. A small group decides behind closed doors who gets to manage billions of dollars in public money and what they’ll get paid for it, no questions allowed. That’s just way to chummy for my tastes.”

The urgency for such legislation was illustrated after two journalism organizations investigating the pension plans during the summer were denied information on fees and even the names of individual managers, Wayne said.

The Lexington Herald-Leader reported June 14 that KRS spent at least $31 million on managers of hedge funds, private equity, real estate and other “alternative investments” that hold just one-fourth of the system’s $15 million in assets and produced its lowest returns.

A July 24 report by the Kentucky Center for Investigative Reporting in Louisville found KRS potentially spent $156 million in mostly undisclosed fees to these “alternative investments.”

Wayne added one more comment:

“The health and well-being of public employee retirement systems should not be shrouded in mystery,” said Wayne. “No one should be required to invest their hard-earned money in a system that is not fully transparent. Not only should public employees know if the systems are financially stable, the taxpayers should also know.”

The Kentucky Retirement Systems holds $16 billion in assets and is about 45 percent funded, although certain parts of the system are unhealthier.

KRS allocates about 35 percent of its assets toward alternative investments, including real estate; the nationwide average is 25 percent, according to data from Cliffwater LLC.

Virginia Pension Commits $200 Million To Industrial Properties

The Virginia Retirement System (VRS) is committing $200 million to a joint venture with LaSalle Investment Management that seeks to build industrial warehouses in the United States.

From IPE Real Estate:

The pension fund told IP Real Estate it was committing $200m in equity to the LaSalle VA Industrial JV.

The partnership will develop industrial warehouses in select US markets. Virginia would not comment on which markets the venture would focus on.

LaSalle said it would focus on opportunities to develop and lease large, modern distribution buildings in major population centres with strong transportation infrastructure.

LaSalle recently announced it had been awarded a mandate from a large US public pension fund, an existing client.

Jason Kern, chief executive of Americas at LaSalle, said end-user demand for industrial real estate is “very strong”, driven by growing GDP and global trade, as well as the need for “modern buildings part of an efficient supply chain”.

According to the firm’s research and strategy team, the availability rate for industrial supply has dropped 2.2% since the end of 2012 and 4.2% since 2010. LaSalle is forecasting annual rental growth of 3%. Internet retailing and larger multinational retailers’ focus on improving supply-chain efficiencies are also improving demand.

Virginia has existing exposure to industrial real estate, with 15.6% of its private real estate portfolio invested in the sector at June this year.

Real estate assets make up 10.5 percent of the VRS portfolio. The fund manages $65 billion of assets.

Arizona Pension Commits $150 Million To Real Estate Funds

The Arizona State Retirement System (ASRS) has committed a total of $150 million to two real estate funds: Blackstone Property Partners and Related Companies’ Energy Housing Fund.

The first fund will invest in industrial, retail and office buildings. The second fund will focus on residential apartments.

From IPE Real Estate:

The pension fund approved the $100m commitment to Blackstone Property Partners, as well as a $50m commitment to the Related Companies’ Energy Housing Fund.

Arizona is the second major US institutional investor to place capital with Blackstone Property Partners, following a $100m commitment last month by the Texas Permanent School Fund.

Blackstone, which is looking at a $1bn initial capital raise for the fund, will co-invest $75m of its own capital.

The open-ended fund, will invest in larger properties and portfolios. US office, industrial, retail apartments are being targeted by the fund, which is projected to achieve between 9% and 11% returns and be leveraged at 50%.

Arizona said Related’s Energy Housing Fund will invest in residential properties – primarily apartments – in areas of energy development and tight housing conditions. The pension fund will classify the investment as a niche and tactical investment within its real estate portfolio.

The fund will invest in US apartments as well as new developments, focusing on deals in Texas and North Dakota for their links to the energy sector.

[…]

The pension fund said it is also conducting due diligence on two more potential investments: a joint venture with Red Mill Capital to invest in US retail, and a co-investment with the CIM Group on a New York residential and retail project.

ASRS allocated $500 million for real estate investments in 2014.

The pension fund manages $30 billion in assets.

Florida Pension Invests $63 Million In European Real Estate

The Florida State Board of Administration, the entity that manages assets for the Florida Retirement Systems, announced a $63.76 million commitment to a JP Morgan fund that invests in real estate in France, the UK and Germany.

Reported by I&P Real Estate:

Florida State Board of Administration has approved a €50m (€39.1m) commitment to JP Morgan Asset Management’s opportunistic European IP Fund III fund.

The fund has also approved a $100m allocation to Prologis’ Targeted US Logistics fund.

As revealed by IP Real Estate last week, JP Morgan’s opportunistic fund is aimed at assets in the UK, Germany and France.

The fund manager can raise as much as €750m for the fund, which will invest in office, industrial, retail and residential properties, according to Florida SBA. Buildings with low vacancy and in need of refurbishment and redevelopment are being targeted by the fund.

As reported, the fund is currently investing in office properties in Berlin and Paris. With leverage, the fund could invest as much as €3bn across Europe.

Florida said it would continue to identify international pooled fund opportunities as part of its plan for the current fiscal year.

[…]

Florida has also recently sold two office buildings for $202m. The Nyala Farms office asset in Westport, Connecticut was sold for Florida by L&B Realty, while One Boca Place was sold through Invesco Real Estate.

The pension fund has allocated $900m for new real estate investment opportunities, split into $500m for core and $400m for non-core. Capital will be invested via both funds and direct ownership through separate account managers.

Florida’s long-term real estate allocation target is 10 percent. It currently invests 7.5 percent of assets in real estate.

CalPERS Weighs Foray Into Riskier Loan Securities

The CalPers Building in West Sacramento California. — The CalPERS building in West Sacramento, California.

CalPERS is considering investing in collateralized loan obligations (CLOs), or securities backed by a pool of (sometimes low-grade) corporate loans.

From the Wall Street Journal:

Fixed-income executives for the nation’s largest public pension fund told their investment board committee Monday they want to buy riskier versions of “collateralized loan obligations,” which are securities backed by corporate loans. The plan already invests in triple-A rated slices of these securities.

“We think we have expertise in this area,” said fixed-income head Curtis Ishii. He added: “You get more spread if you take more risk.”

Mr. Ishii did not disclose how much the system, which is known by its abbreviation Calpers, would like to invest in the riskier loan-based securities. The move still needs to be approved by an investment strategy group comprised of the fund’s top investment officers.

Any shift it makes will likely influence others because of its size and history as an early adopter of alternatives to traditional stocks and bonds.

CalPERS announced last week that it is increasing its real estate holdings by 27 percent.

Photo by Stephen Curtin

CalPERS Chooses Firm to Manage $200 Million Private Equity Commitment

CalPERS announced Wednesday that it had chosen a firm to run its new $200 million private equity emerging manager commitment. The firm: GCM Grosvenor.

From Reuters:

Calpers said the new program would launch by the end of the year via a fund-of-funds vehicle. The pension fund would also invest $100 million in AGI Resmark Housing Fund, LLC, a San Francisco Bay Area-focused multi-family residential apartment development fund.

Calpers considers itself a leader in developing and implementing newly formed firms or firms raising first- or second-time funds, called emerging manager programs. Since 2010, the pension fund has committed $900 million to these types of funds.

Grosvenor, a large independent alternative asset management firm, manages approximately $47 billion in assets and multiple emerging manager programs for large institutional investors, including public pension plans and corporate plans.

San Francisco-based AGI Capital is an emerging manager-led real estate investment company that focuses on enhancing communities while delivering strong market returns for investors and partners.

CalPERS has invested $12 billion with emerging managers since 1991.

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