UNITED STATES - California Public Employees Retirement System and MacFarlane Partners have formed a venture which could build a real estate portfolio worth $10bn (€7.3bn) in the greater Washington DC region.

This is the expected value of all the properties held through the newly-created joint venture called JBG Urban, once the assets have been developed and reached stabilization.

JGB Urban - which is linked to developer and property owner JGB Companies - will seek to develop and redevelop a portfolio of institutional quality properties in the Washington DC metropolitan area.

CalPERS has invested $412m in the project through an investment partnership it has with MacFarlane to invest in urban properties around the US.

The pension fund is expecting to achieve at least a low double digit IRR return on its equity investment but specifically likes the mature Washington DC market.

That said, it is an expensive market to do business in and requires large amounts of capital, however, a housing shortage in the region does create a development opportunity. 

Similarly, CalPERS believes the area continues to be a very strong office market as acancies for office space in Washington DC are in single digits - currently making it one of the best-performing office markets in the US.

MacFarlane Partners is, in turn, investing in the project through its commingled fund MacFarlane Urban Real Estate Fund II, which is expected to close fundraising within 60 days.

Total equity in the commingled fund is likely to reach over $1bn, $300m of this coming from CalPERS, according to chief executive Victor MacFarlane.

"On a long-term basis, we think that the greater DC market is one of the top three real estate markets in the country. This is both from a demand and tenant perspective," he added.

Assets in the venture amount to 93 building and renovation developments on 42 separate sites in DC and its suburbs in both Maryland and northern Virginia and are a combination of mixed-use, office buildings and hotels. Work on some of these sites is now underway and is expected to be completed by 2013.