US Roundup: San Francisco Employees', Virginia Retirement System

NORTH AMERICA – San Francisco City and County Employees’ Retirement System (SFERS) has approved $90m (€67.3m) in new real estate fund commitments.

AEW Partners VII, which will receive up to $40m of capital from SFERS, targets opportunistic investments and is aiming to raise $500m in capital, of which up to $15m could come from AEW itself.

The company said investors could hope to achieve annualised returns of 16-18% from the fund, which has a target leverage of up to 75%.

Lindsey Adams, senior portfolio manager for real estate at SFERS, wrote in a document presented at the fund’s recent board meeting that AEW’s experience and capabilities in sourcing and executing opportunistic real estate investments were a strong match for both the current and expected dislocations in the real estate and capital markets.

The vast majority of Partners VII’s investments will be in North America, as the asset manager only has permission to allocate 15% of the portfolio to holdings outside the region.  

AEW said it would consider buying non-performing and defaulted loans where title to the underlying property could be obtained, as well as acquiring high-quality, well-located assets at significant discounts to replacement cost from lenders selling as a result of balance sheet or regulatory pressure.  

SFERS has also approved commitment of up to $50m into Harrison Street Real Estate Partners IV, a $600m fund managed by Harrison Street.  

The fund will target niche property types such as senior and student housing, medical office buildings and self-storage properties in the US.

SFERS said that Harrison Street would leverage the fund up to 70%, targeting a 16% internal rate of return (IRR).

Meanwhile, the $50bn Virginia Retirement System has approved a $50m commitment to the Fortress Japan Opportunity Fund II, a $1.2bn fund managed by the Fortress Group.

The fund will invest in cash flow-generating assets held by overleveraged owners and aim for a 20% gross IRR, hoping to benefit from Japanese owners unable to refinance their properties.