The Florida State Administration Board, which manages the pension fund for local teachers and state employees, has earmarked a further $1bn for new real estate investments. Michael Lester speaks to the new senior investment officer Steve Spook
Florida, Spanish for ‘flowery land', is the fourth most populated state in the US. The state capital is Tallahassee, headquarters of the State Board of Administration (SBA), which manages pension funds for nearly one million current and retired Florida teachers, public employees and their families. The SBA also invests money for more than 800 school districts and regional governments.
The $145bn (€110.5bn) SBA manages 37 different funds, including the Florida Hurricane Catastrophe Fund and the local government investment pool known as Florida PRIME. Asset classes currently managed for the Florida Retirement System are global equities, fixed income, private equity, strategic investments and real estate.
The agency is governed by a three-member board of trustees, which includes Florida's elected governor, CIO and attorney general. The current trustees are Governor Rick Scott, CFO Jeff Atwater, and Attorney General Pam Bondi. But day-to-day operations at the SBA are handled by financial specialists like Steve Spook, the new senior investment officer for real estate.
Spook joined the SBA in 1998 and most recently held the position of senior portfolio manager for principal investments. Prior to arriving at SBA, he spent 10 years with John Alden Life Insurance Company in Miami where he served as a senior commercial mortgage loan officer.
You have only been Florida's senior investment officer for real estate since late last year. But you are very familiar with the portfolio.
Yes, I have been with the SBA for 13 years.
What is the size of the real estate portfolio?
As of 30 September 2011, the net asset value of our portfolio was $8.6bn. Real estate's target allocation is 7% of the total pension fund, but we have a range of 2-12%.
That is a large range.
There are times when we want to take advantage of opportunities, but real estate is not the most liquid asset class. So we don't want to be forced to liquidate just because we're above our target allocation. We also have targets for our private and our public real estate portfolios: 90% private and 10% public. By ‘public' I mean REITs and listed securities. Our actual allocations are very close to our targets.
Where do you invest privately?
Our private investments are a combination of direct owned, where we have about $4bn invested, and commingled funds, where we have $2.44bn. The foundation of our portfolio is core, always has been. We have limitations on that, with a range of private core investments being 70-100% of the portfolio. A target of 85% of the private portfolio is core.
Most of our direct investments are wholly owned; for example, we own a 100% interest in that skyscraper over there. We have some joint ventures where we have operating partners, but usually we put in most of the equity.
You are not pointing to an actual skyscraper outside your window?
No, there are not many skyscrapers in Tallahassee, Florida.
Florida is planning to invest another $1bn in real estate over the next year or two. Where do you think it will go?
Given where core pricing is right now, probably the majority of this new investment will go to value-added and opportunistic strategies in joint ventures or commingled funds. We'd like to do more core investing and we will do more core investing, but we believe that core real estate is richly priced right now.
Do you have a geographical focus?
No. We don't have a Florida mandate. Our current domestic focus is on primary markets; we don't have any international investments right now, but one of our goals for the year is to investigate and potentially enter that arena.
What markets would you look to enter?
Nothing is off the table but the three obvious targets are Europe, Asia and Latin America.
Who at SBA makes these investment decisions?
We currently have 10 members on the real estate team, but we should have 11 by year's end. We also have a consultant: the Townsend Group. Our executive director and CIO has the authority to approve all new transactions.
We have principal investments - the portfolio where staff retains key discretions over asset acquisition and disposition, annual business plans and financing, major leases, etc.; 95% of this portfolio is core, and it's headed up by a senior portfolio manager. We also have an externally managed portfolio, also headed up by a senior manager, which includes commingled funds, REITs and certain joint ventures where we let our separate account managers make certain decisions on our behalf. Incidentally, as of 1 July 2011, we transitioned from a domestic to a global REIT portfolio - publicly traded securities around the world. This ties in with our goal of entering the international arena.
How has your role in the real estate section changed since you became its senior officer?
I now report to Kevin SigRist, the deputy executive director, who has primary oversight of the asset class investments. I'm very much enjoying what I'm doing. It's more responsibility and I've taken on a lot more administrative duties. Fortunately, I have a very good team here that allow me to focus more on the broader portfolio than I used to.