San Francisco Pension Weighs Larger Emphasis on Local Real Estate

Golden Gate Bridge

The San Francisco Employees Retirement System is deciding whether to increase its allocation to real estate in the San Francisco Bay Area.

Specifically, the board is weighing whether to begin allocating up to 3 percent of its assets toward such investments.

However, the area’s high real estate prices warrant caution, according to the fund’s advisors.

From Investments & Pensions Europe:

A 3% target allocation to real estate in the nine-county San Francisco Bay Area – first mooted by the retirement board in 2013 – is still being mulled by the pension fund.

No plans were approved at a meeting this month. Its advisers, Angeles Investment Advisors and Cambridge Associates, warned against over-concentration in its real estate porfolio at a time when the pension fund is looking more broadly at real assets.

A recent board meeting document stated: “SFERS private markets team and Cambridge Associates recommend maintaining a broad allocation to real assets rather than carving the category into several pieces such as infrastructure, natural resources, or San Francisco-based real estate.”

[…]

Investment staff will approach managers active in local real estate and evaluate the merits of entering into local co-investments with them.

The staff will also explore whether there are further efforts it can undertake to source and evaluate San Francisco-based real estate investment opportunities with attractive valuations and good prospective returns.

The San Francisco Employees Retirement System manages $20 billion in assets.

 

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CalPERS Invests $211 Million in U.S. Apartments

California

CalPERS has committed an additional $211 million to a partnership that invests in apartments in the Western half of the United States.

More details from IP Real Estate:

California Public Employees Retirement System (CalPERS) has made a new $211m (€186.7m) allocation to the Pacific Multifamily Investors partnership.

[…]

Pacific will buy apartment properties at least 11 years old west of the Mississippi. Core assets are typically thought to be less than 10 years old, putting the strategy outide what most funds consider core.

Pacific Urban believes that the properties it will buy still have core attributes and be able to achieve durability of income. A mixture of teachers, firemen, police officers and nurses, are typical tenants of the assets it invests in.

No more than 25% leverage will be used in the portfolio.

Acquisitions to date have been on the West Coast, from Southern California up to Seattle. The partnership can also consider Texas, Salt Lake City and Las Vegas.

The partnership now includes seven properties totaling more than 2,000 units.

CalPERS manages $296 billion in assets as of October 31, 2014.

New Jersey Pension to Invest $300 Million in U.S. Apartments

New Jersey

The New Jersey Division of Investment, the entity that invests the state’s pension assets, has committed $300 million to be invested in the U.S. apartment sector.

More from Investments & Pensions Real Estate:

The New Jersey Division of Investment has formed a $303m (€267.8m) separate account relationship with TGM Associates to invest in US apartments.

The pension fund allocated $300m for its 99% ownership of the account, in which TGM will hold $3m (1%).

The account, the pension fund’s first with TGM, will pursue a non-core strategy.

New Jersey is currently under-allocated to the apartment sector, with 16% of its portfolio invested in the property type.

Average multifamily exposure across the NCREIF-ODCE Fund Index is around 25%.

TGM’s investments in apartments for previous separate account relationships was a decisive factor for New Jersey.

A separate account for a large public fund delivered a 10.5% net IRR and a 1.9x multiple of invested capital since inception.

The Division of Investment managed $81.22 billion in pension assets as of July 2014.

Texas Teachers Pension Commits $465 Million to Three Real Estate Funds

small model house

The Teacher Retirement System of Texas has committed $465 million to three real estate funds, which will invest in a gamut of sectors including residential, industrial, hotel, retail and offices.

More from IPE Real Estate:

The pension fund is committing $200m to Westbrook Real Estate Fund X, $200m to Carlyle Realty Partners VII and $65m as a co-investment with Starwood Capital Group.

Westbrook Partners is seeking to raise $2.5bn for its latest global opportunity fund, which will be targeting gross returns of 15% (12% net).

It will invest in the major markets in Europe and coastal gateway cities in the US, focusing on distressed situations in the office, retail, apartment and industrial sectors.

Carlyle is targeting a $3bn equity raise for its latest US opportunity fund, which will invest in developments and existing assets that need to be improved.

It will target relatively small investments – in the range of $10m to $30m – in the office, industrial, retail, residential, hotel and senior-housing sectors.

Texas Teachers is co-investing in Starwood’s SCG TMI Co-Invest entity, which invests in opportunistic real estate.

TRS Texas manages $124 billion in assets.

 

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CalPERS Taps SIO for Real Assets From Morgan Stanley

Calpers

CalPERS has hired Paul Mouchakkaa to be its senior investment officer for real assets.

Mouchakkaa has previously been a managing director at Morgan Stanley and Pension Consulting Alliance. He’s also worked at CalPERS as a real estate portfolio manager.

More from Globe St.:

As SIO of real assets, the Los Angeles-based Mouchakkaa will manage a 60-member professional staff, with responsibility for implementing and managing investment strategy and policy for the pension fund’s $29.6-billion portfolio in real assets worldwide. He will also contribute as a member of the investment office’s senior management team in developing CalPERS overall investment strategy.

[….]

“Paul is a talented and experienced real estate professional, and we’re thrilled to have him on our team,” Eliopoulos says. “He has a proven track record of success and I’m confident that will continue at CalPERS.”

CalPERS’ real assets arm is made up of the real estate, infrastructure and forestland programs. Largest of these is real estate, which holds more than $25 billion in retail, office, industrial and other property assets. This past October, CalPERS said it planned to increase its commercial real estate allocation by 27% over the next year, upsizing its exposure by as much as $7 billion.

Mouchakkaa will start at CalPERS on March 2.

 

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Kolivakis: 5 Reasons Behind Canada Pensions’ Real Estate Binge

Canada

Canadian companies and pension funds collectively invested $2.75 billion in commercial U.S. real estate in the first month of 2015.

In 2014, that number was a hefty $9.7 billion. What’s behind the binge? Leo Kolivakis of Pension Pulse gives 5 reasons why Canada’s pensions are snapping up real estate in the U.S., and elsewhere.

_______________________________

By Leo Kolivakis, Pension Pulse

Why are they doing this? There are a few reasons. First, real estate has long been heralded as the best asset class among Canada’s large public pension funds which are increasingly shifting assets away from volatile public markets into private markets, especially real estate and infrastructure which offer more predictable yields over the long-run.

Second, Canada’s large pension funds aren’t dumb. They read this blog and many other market sources and I’m sure the most savvy of them agree with me, Canada’s crisis is just beginning. This is why they’re scrambling to snap up as much U.S. and European real estate even though the loonie keeps declining. They know it will fall further but they also know there are better opportunities outside of Canada at this time given their long investment horizon.

Third, some of Canada’s large public pension funds, like bcIMC, are much more exposed to Canada’s commercial real estate market than others. bcIMC recently announced it agreed to sell Delta Hotels and Resorts to Marriott International for $168 million, but it has a lot more work to properly diversify its real estate holdings outside of Canada.

Fourth, in my opinion the Caisse’s real estate division, Ivanhoé Cambridge, is by far the best real estate investment management outfit in Canada. There are excellent teams elsewhere too, like PSP Investments, but Ivanhoe has done a tremendous job investing directly in real estate and they have been very selective, even in the United States where they really scrutinize their deals carefully and aren’t shy of walking away if the deal is too pricey.

Fifth, I don’t see interest rates rising anytime soon. In fact, I see central banks pumping a lot more liquidity into the global financial system. And as I recently explained, I’m not in the camp that the Fed will raise rates in 2015 and risk making a monumental mistake.

Having said all this, the rush into real estate and other illiquid alternatives worries me. Why? Because I’m increasingly worried about global deflation and the long-term effects it will have on all investments, especially illiquid private markets.

Don’t get me wrong, done properly, real estate, infrastructure and private equity are great asset classes. But as global pension funds and sovereign wealth funds topple over each other to find deals, they are significantly bidding up prices, lowering prospective returns on all private market investments, and this will really hurt them if a prolonged period of deflation sets in.

A long time ago I wrote a comment asking whether pensions are taking too much illiquidity risk. I think you should all read that comment again and keep it mind as you plow into U.S. and global real estate. Sure, pensions should take the long, long view, but they also need to be acutely aware of price entry and how a prolonged period of debt deflation impacts all their investments, especially private market investments.

 

 

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Canadian Pensions Bought $2.75 Billion in Commercial U.S. Property in January

skyscraper

Canadian pension funds have collectively invested $2.75 billion in commercial U.S. real estate in 2015, according to a survey conducted by the Financial Post.

Canadian entities, including pension funds, invested $9.7 billion in U.S. real estate in 2014.

More from the Financial Post:

The quick start to 2015 comes on the shiny heels of 2014, in which Canadians dominated the U.S. investment scene, easily doubling the country’s closest foreign rival, Norway, according to real estate research company CBRE.

[…]

While Canadian investment in the U.S. is impressive, it’s still a fraction of the entire investment market in America, which was worth US$434 billion in 2014.

Whether a falling dollar will impact future purchases, Jeanette Rice, Americas Head of Investment Research at CBRE, said, “It could mitigate investment, but there are a lot of other positives to balance each other out.

“We know that since September, 2012, the dollar has [gained] 20%, so it has been significant,” she added.

Proximity and similar customs factor into Canada’s U.S. interest, but the limited ability to grow domestically has also created a need for pension funds to invest abroad, Ms. Rice, the author of the study, pointed out.

“If you want to invest in China, it takes a lot of homework. It’s a lot easier to come visit a property, talk to professionals and so on [in the United States],” she said.

The Canadian invasion has been led by pension players who are heavily weighted in real estate compared to their American peers. Canada’s five largest pensions funds by asset size hold on average 12.7% of their investments in real estate compared to an average of 8.7% for 11 similar U.S. pension funds, according to CBRE.

Read more Pension360 coverage of Canadian pension investments here.

 

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Ontario Municipal Pension Buys $227 Million Paris Office Building

Paris

Oxford Properties Group, the real estate arm of the Ontario Municipal Employees Retirement System (OMERS), has completed the $227 million purchase of Paris office building, according to the Wall Street Journal.

The pension fund is make nearly $800 million worth of investments in Paris over the next three years.

More from the Wall Street Journal:

Oxford, the real-estate arm of Canadian pension fund OMERS Worldwide Group of Companies, told The Wall Street Journal it purchased 92 Avenue de France from a joint venture between German companies GLL Real Estate and Union Investment Real Estate GmbH.

Oxford made its first Paris acquisition in September. With its second deal the group is almost halfway to its €1 billion, three-year target for the city.

[…]

Over the last year, “London has become more expensive than Paris,” said Michel Vauclair, an executive at Oxford. He also noted that rates for long-term debt in euros are more favorable than in sterling.

[…]

With London’s property market booming, it has been challenging to acquire high-quality assets preferred by pension funds, Mr. Brundage said. “Not impossible, but challenging,” he said, noting as demand pushes up prices, “it’s harder to meet total return expectations” in the U.K. capital.

[…]

92 Avenue de France is a 235,000 square foot office located just over a mile from the Gare de Lyon train station. It is entirely leased to Réseau Ferré de France, the state-controlled manager of France’s railways.

OMERS managed $65.1 billion in assets as of December 31, 2013.

 

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Ontario Health Pension Buys Two Malls From Quebec Pension

mall

The Healthcare of Ontario Pension Plan has bought large stakes in two shopping malls from fellow Canadian pension fund Caisse de depot et placement du Quebec.

From Reuters:

Ivanhoé Cambridge, the real estate arm of Canada’s second-largest pension fund, said on Friday it had sold its 50 percent interest in two Ontario shopping centers to a rival pension plan manager in Canada for C$240 million ($190 million) as part of a move to reposition its retail portfolio.

Ivanhoé, a subsidiary of the Caisse de depot et placement du Quebec, said the properties sold to HOOPP, or the Healthcare of Ontario Pension Plan, were the Quinte Mall in Belleville and the Devonshire Mall in Windsor.

“This transaction completes the repositioning of our retail portfolio in Canada,” Arthur Lloyd, Ivanhoe’s head of global Investments, said in a statement. “We are now focused on expanding our Canadian retail platform through organic growth in key properties across the country.”

The Healthcare of Ontario Pension Plan manages $51.6 billion in assets.

Caisse de depot et placement du Quebec manages $214 billion in assets.

 

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San Diego County Pension May Ramp Up Real Estate Investment As it Looks to Reach Target Allocation

one dollar bill

To reach its target real estate allocation, the San Diego County Employees Retirement Association (SDCERA) could invest $500 million in real estate over the next two years, according to an Investments & Pensions Europe report.

The fund’s target real estate allocation is 10 percent.

More details from IPE Real Estate:

According to board meeting documents, San Diego is considering placing this capital with existing and new real estate managers.

The pension fund, advised by consultant The Townsend Group, is considering hiring a manager for a new separate account.

It is also considering investing in commingled funds to gain access to niche investment strategies, as well as real estate investment trusts (REITs).

The fund has previously placed capital with CBRE Global Investors, Blackstone, Cornerstone Real Estate Advisers, JP Morgan Asset Management, Pramerica Real Estate Investors and Deutsche Asset & Wealth Management.

San Diego will look to rebalance its portfolio, moving from an even split between core and non-core investments to a 70-30 weighting, a move that will be aided by some of its existing opportunity fund investments coming to an end.

The expected return for the new portfolio weighting is around 7.5%, with a standard deviation of 10.8%, according to Townsend.

SDCERA manages approximately $10 billion in pension assets.

 

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