NORTH AMERICA - The California Public Employees Retirement System (CalPERS) has made a $1.75bn (€1.4bn) equity allocation to its Fifth Street Properties separate account partnership for the 2012-13 fiscal year.
Fifth Street Properties is a separate account partnership with the pension fund and its manager, Los Angeles-based CommonWealth Partners.
The capital will enable the pension fund to nearly double the size of the existing partnership.
Mike Croft, chief executive at CommonWealth, said the value of the assets in Fifth Street was approximately $2bn as at the end of March.
The leverage component permitted for the partnership - which has adopted a core strategy for the most part - is 45%.
Croft said: “We are expecting that around 80% to 85% of the deals for the partnership will be the purchase of core assets. The other 15-20% will be value-added investments.”
The core acquisitions could involve properties that are either in suburban or CBD locations in the US.
Six major markets have been targeted for core deals: Washington DC, Boston, New York City, Southern California, San Francisco and Seattle.
Cap rates on deals in these markets would be at 5% or less and based on the asset’s current net operating income.
The value-added deals for Fifth Street will take two forms. These could be buying properties with high levels of vacancy or some sort of development.
The main markets for these deals are Austin, Denver, Chicago and Salt Lake City.
CommonWealth has full investment discretion on the Fifth Street account, meaning the manager can make investment decisions on its own without CalPERS approval.
Croft said many office properties would be brought to market in the second half of the year.
“There are many properties with right amounts of leverage that will need to be capitalised,” he said.
“There also are many existing commingled funds that are getting to the end of their allowed holding period and will be forced to sell.”
