REAL ESTATE- The California Public Employees Retirement System has recently committed $300m (€233m) to three real estate investments.
One of the investments was a $100m commitment to the PRECO III. This is a closed-ended commingled fund that is managed by Pramerica Real Estate Investors. The pension fund’s commitment represents about 14.3% of the $700m of equity raised for the fund. CalPERS is looking at achieving a 15% to 17% net IRR on this investment.
Pramerica made a significant co-investment to the fund. The total amount invested was $48m. Around 25% of this investment came from the principals of Pramerica Real Estate Investors. The vast majority of the commitment was from the Prudential Insurance Company in the United States.
PRECO III was marketed as an opportunity fund. The real estate manager had 1/3 of the deals for the funded when the commingled fund finished its capital raise. More deals are on the way. Robert Falzon is the head and managing director of Pramerica Real Estate Investors’ merchant banking team.
He said: “In September we expect to close on the three more deals for the fund that will have a total investment of $100m. Right now we have identified around 80% of the deals for the fund.”
The commingled fund will use several investment structures. These would include private equity, direct property, mezzanine and preferred equity opportunities. Several property types are considered like office buildings, medical office and a variety of residential properties. Around 60% to 2/3 of the deals for the fund will be in the United States. Some in Mexico will be included in this. The rest of the transactions will be in Europe.
CalPERS made a $100m investment into the Next Block Medical Fund I. This is a commingled fund that will invest in real estate that is located near medical centers or major hospitals around the country. All the major property types would be considered. These could be office buildings, residential and mixed-use kind of properties.
CalPERS figures it will be getting a 18% net IRR on its investment. The real estate manager on the commingled fund is Valencia Capital Management. The company will be raising $250 m of equity for the fund. Leverage will be up to 65%. This will give the fund a total capitalization of $700 m.
The investment strategy is to invest in development projects or buy existing properties that can be improved. Mike Romo is the managing principal of Valencia Capital. He said, “It’s our belief that locations near hospitals and medical centers are of interest to many businesses and people.”
The first deal for the fund hasn’t closed yet. This will be a $60 m transaction in the Southwest.
CalPERS has decided to invest $100m of equity into the Sacramento Towers mixed-use project in Sacramento, Calif. The pension fund is anticipating that it will achieve a 21% net IRR return on its investment.
