The Pennsylvania Public School Employees’ Retirement System (PSERS) has committed a total of $200 million to two different real estate funds, one of which will invest in senior housing and assisted living properties. The other fund will invest in REITs.
Details from IPE Real Estate:
The fund has made $100m commitments to Prudential Real Estate Investors’ Senior Housing Partnership Fund V and Almanac Realty Investors’ Securities VII fund.
Laurann Stepp, senior portfolio manager at Pennsylvania, said the fund was attracted to senior housing in the US, where she said there are 19m 75+ seniors – an age group expected to grow in the next decade.
Stepp said Pennsylvania was also motivated by the fact senior housing construction had stalled since 2007 as a consequence of a lack of financing during the financial crisis.
PREI is targeting a $500m raise for Fund V, which will focus on US for-rent, for-profit, private-pay independent living, assisted living and memory care assets, with up to 20% to be invested in Canada.
The fund will invest mainly in income-producing assets with minimum 50% occupancy.
Some investments may be structured as forward equity commitments on newly constructed properties.
Almanac, which is looking to raise $1bn for Securities VII, has so far received $765m in commitments, according to sources.
The fund, which will provide growth capital for either US real estate operating companies or public REITs, will structure its investments as either convertible debt or preferred equity.
Targeted returns for Securities VII are 12-14% net IRR, with no leverage.
PSERS managed $53.3 billion in assets as of June 30, 2014.
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.
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