real estate | Pension360

Wisconsin Pension Commits $300 Million to Retail, Office Properties

The State of Wisconsin Investment Board (SWIB), the entity that manages assets for the state’s retirement systems, has made two separate commitments to real estate totaling $300 million.

The Board committed $150 million to one fund that invests in retail, office, and apartment properties. It also made a second commitment of $150 million to another fund that acquires grocery stores.

From IPE Real Estate:

State of Wisconsin Investment Board (SWIB) is increasing its investment in the UBS Trumbull Property Fund and has awarded two separate account mandates.

The $150m commitment is the second made by SWIB to the core open-ended fund in the past three years, having made an initial $125m allocation in 2012. The investment was worth $165m in September.

UBS Trumbull, managed by UBS Realty Investors, invests in US office, industrial, retail and apartment sectors.

SWIB said it invests in core real estate for its stable income return with low leverage. The investor is expecting its commitment to be called by the manager in the next 12 months.

SWIB has also commited $150m to a new separate account managed by AmCap and $158m to a separate account managed by Heitman.

In a new relationship for the pension fund, AmCap’s Wilson AmCap I fund will be looking to acquire core grocery-anchored/necessity-oriented US retail.

Jake Bisenius, chief investment officer for AmCap, said its total assets under management are now over $1bn.

The real estate manager has a large concentration of assets in Colorado, buying off-market in cash.

“Most of our purchases are done with cap rates that come in the high-5% to low-6% range,” Bisenius said.

The SWIB manages over $100 billion in assets for the state’s retirement systems and trust funds.

CalSTRS Sells Stake In Texas Skyscrapers

CalSTRS has sold its stake in two buildings in Austin, Texas.

The first, One Congress Plaza, is the 8^th tallest building in Austin and a city landmark. The second, San Jacinto Center, is a 21-story office building also located in downtown Austin.

From IPE Real Estate:

Parkway Properties said it has unwound its joint venture with CalSTRS in Austin, Texas, taking the latter’s 60% interest in San Jacinto Center and One Congress Plaza.

The deal gives Parkway full control of the two properties.

Parkway also said it has transferred its 40% interest in Frost Bank Tower, 300 West 6th Street and One American Center to CalSTRS.

Overall, the deals resulted in net proceeds of around $43.6m (€34.7m).

CalSTRS could invest up to $2bn in global real estate over the next 12 months, as reported earlier this year.

The US investor is planning to deploy between $1bn and $2bn in core and value-added strategies in the US, Latin America, Western Europe and Asia.

During the same period – the 2014-15 fiscal year – CalSTRS will reduce its exposure to opportunistic real estate investments.

CalSTRS manages $22 billion in real estate assets.

Photo by Stephen Curtin

Arizona Taxpayers To Foot Legal Bills For 4 Ex-Pension Employees

Four ex-employees of the Arizona Public Safety Personnel Retirement System are being sued by a real estate investment firm for “defaming” the firm by raising questions about how it values assets.

The lawsuit is private, but the legal costs incurred defending the ex-employees will be paid with public money, according to the Arizona Republic:

The state Department of Administration has agreed to pay the private legal tabs of four former high-ranking employees of the Public Safety Personnel Retirement System who are being sued by Scottsdale-based Desert Troon, a real estate partner with the trust that manages some pension fund assets.

The four ex-employees have raised questions about the valuation of the real-estate assets managed by Troon. Troon has in turn accused the four former PSPRS employees in a lawsuit of engaging in a post-employment conspiracy to defame and falsely disparage senior management at the company and the pension system.

Jeff Grant, ADOA deputy director, said the state agreed to pay for the legal defenses of the men in response to a request from their attorneys. The four are Andrew Carriker, former PSPRS in-house counsel; and ex-investment managers Anton Orlich, Mark Selfridge and Paul Corens.

Grant said the state is obligated to provide a legal defense for current or former employees when sued for “acts within the course and scope of employment.” He added that state law does not set a financial limit for a legal defense.

Grant said the state can withdraw defense funding if “facts reveal later that it is not obligated” to cover the cost.

[…]

The PSPRS employees targeted in the Desert Troon lawsuit quit last year in protest over how PSPRS was reporting the values of trust real-estate assets managed by Desert Troon. The ex-employees raised questions about whether real-estate investment values were inflated to trigger staff bonuses. Desert Troon and PSPRS have denied any wrongdoing.

The claims of inflated asset values triggered an FBI investigation, but no charges have been filed.

It isn’t the first time the pension fund’s legal costs have come under fire. Pension360 has previously covered how the fund spent nearly $2 million on outside legal advice last year despite having in-house counsel.

Canada Pension Teams With Hermes, Invests in Massive London Real Estate Project

The Canada Pension Plan Investment Board (CPPIB) has teamed up with Hermes Real Estate to invest in a 1.5 million square foot, partially developed London property.

The building, Wellington Place, will include offices, apartments and retail space.

Report: CalPERS’ Strong Real Estate Returns Unlikely To Last

CalPERS has seen strong real estate returns since 2011. But a consultant for the pension fund warns in a new report that the consistent double-digit returns are unlikely to continue.

[The report, from Pension Consulting Alliance, can be read here, or at the bottom of this post.]

More details from Randy Diamond of Pensions & Investments:

The PCA report, which is contained in agenda materials for CalPERS’ Nov. 17 investment committee meeting, said sustaining those returns is unlikely because of a challenging and highly competitive investment market.

The report cites increased competition from sovereign wealth funds, high-net-worth investors and other large direct investors in real estate as among the reasons for the potentially declining results. It says persistently low interest rates are fueling the demand for income-producing assets.

In 2011, CalPERS changed the focus of its real estate program to focus on investing in income-producing properties — and away from opportunistic real estate — after suffering massive losses following the crash of the real estate market.

CalPERS spokesman Brad Pacheco said in an e-mail: “We recognize that recent high returns will be difficult to achieve in the current real estate market. Our goals now are to diversify portfolio risk and generate steady, modest gains.”

CalPERS manages $25.6 billion in real estate assets, and is planning to expand its real estate portfolio by 27 percent by 2016.

The report:

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Ontario Proposes Rule Change That Would Let Pension Funds Put Larger Slice of Assets in Infrastructure

Under current rules, Ontario pension funds can only invest up to 30 percent of assets in infrastructure investments.

But the Ontario Ministry of Finance is proposing an amendment to that regulation, which would raise the cap on infrastructure.

The proposed change would exempt Ontario public infrastructure projects from being counted toward the 30 percent infrastructure cap – allowing pension funds to exceed 30 percent as long as they were investing in local infrastructure projects.

From the Financial Post:

The Ontario Ministry of Finance has proposed that pension plans be permitted to take a greater stake in infrastructure projects.

Currently, the Pension Benefits Act limits pension plan investments to a 30% equity stake in the securities of most public companies. Exemptions to the “30% rule” do exist for real estate corporations, resources companies, investment corporations and others. The proposed investments would add “infrastructure corporations” to the list of exemptions.

“Many stakeholders have advocated the elimination of the 30% rule [entirely] over the years,” notes a recent Goodmans Update.

Despite such a recommendation from the Ontario Expert Commission on Pensions in 2008, the federal government, whose rules are incorporated into the PBA, has taken the position that it will not change the 30% rule “for prudential reasons.”

But in the 2013 Ontario Economic Outlook and Finance Review, the provincial government announced that it would modify the Rule by exempting infrastructure projects. The proposed amendment would apply to a host of “physical structures and associated facilities by or through which a public service is provided in Ontario” provided the infrastructure is located exclusively in the province.

[…]

“As with the current exemptions for real estate, resource and investment corporations, a pension plan administrator could only benefit from the exemption to the 30% Rule if it filed with the Superintendent a prescribed form of undertaking by the infrastructure corporation,” Goodmans advises.

The amendment is currently in a comment period, which ends January 9.

It can be found online here.

CalPERS Commits $100 Million to San Francisco Bay Apartment Developments

CalPERS has committed $100 million to the AGI Resmark Housing Fund, which invests in three apartment development sites in the San Francisco Bay area.

More details from IPE Real Estate:

CalPERS, which declined to comment, has now allocated a total of $300m into its emerging manager program for real estate, having previously backed Sack Properties and Rubicon Point Partners in the office and data centre sectors.

[…]

With leverage at 70%, total investment could be as much as $330m.

Development properties are unlikely to be sold to other institutional owners, as was the case with Avant Housing.

Holding apartment developments and transferring them to another CalPERS account once the properties become core is a more likely option, IP Real Estate understands.

AGI Capital and the Resmark Company are serving as the respective emerging and mentoring managers for the fund.

CalPERS has previously worked with AGI in its Avant Housing venture with TMG Partners, to which it made a $100m allocation.

Resmark, which has since replaced TMG, expects three development sites to be placed into the new relationship with AGI.

An existing, 259-unit project, previously under the control of TMG and Avant Housing, has been moved to the new venture.

Ground-breaking is scheduled in the next 30 days, with the project due for completion in 19 months.

CalPERS is in the midst of a plan to increase real estate investments by 27 percent over the next few years.

Hawaii Pension Commits $105 Million to Non-Core Real Estate

The Hawaii Employees’ Retirement System approved three commitments Thursday to three real estate funds, totaling $105 million.

The pension system has worked with all three funds previously, and that familiarity played a role in the new commitments.

From IPE Real Estate:

The pension fund approved follow-on commitments of $40m each to Almanac Realty Investors’ Securities VII and AG’s Core Plus Realty Fund IV, as well as a $25m allocation to Prudential’s Senior Housing Partners V fund.

[…]

Hawaii Employees is one of the first pension funds to commit to Almanac Realty VII.

The fund had previously made a $20m commitment to Almanac Realty VI.

The manager, which declined to comment, is seeking a total capital raise of $1bn for the latest fund, according to industry sources.

Typically unleveraged, the fund will be backed by the manager with a 1% commitment of the total capital raise, or $10m.

With a targeted IRR of 12-14%, all of the capital will be invested in the US.

Almanac will look to provide growth capital for private real estate operating companies and public REITs.

Angelo Gordon will buy existing sub-performing office, retail and industrial assets for its Fund IV, placing a heavy emphasis on the top-15 US markets.

Hawaii had approved a $25m allocation to the manager’s Core Plus Realty Fund III.

Pramerica Real Estate Investors is seeking a $500m capital raise for Senior Housing Fund IV, which will invest in independent and assisted living and memory care.

Hawaii Employees had previously allocated $20m to Prudential Senior Housing Fund III.

Hawaii, which could make additional investments in non-core real estate funds, will be conducting an asset liability study next year, with the help of its investment consultant, Pension Consulting Alliance.

The outcome of this study could change its future target allocation for real estate from its current 7% allocation.

The Hawaii Employees’ Retirement System manages $12.7 billion in assets for 115,000 members.

Photo by grantzprice via Flickr CC License

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.

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