REAL ESTATE - The California Public Employees Retirement System (CalPERS) has acquired a controlling interest in the first investment of its sustainable real estate fund.

The Green Development fund, a joint venture with real estate firm Hines, focuses on office project development across the US. Announcing the fund’s first closure with $120m of committed equity, Hines said it expected completion of Tower 333, a 20-story Washington office block, in the fourth quarter of 2007.

In a press statement, fund manager Dan Rashin said: “The real estate industry is finally ready for green.” Yet he acknowledged to IPE Real Estate that “you can’t point to specific investment in green and tie specific returns to that investment”.

“This is a development fund, so we control the design process, allowing us to incorporate green concepts into the building from the outset,” he added. “In that sense, the real difficulty is the one we always face, which is finding opportunities in those markets where development will be profitable.”

The fund has no target allocation for sustainable real estate and any target “may be premature,” according to CalPERS spokesman Clark McKinley.

“Generally, investments that have a strong environmental component certainly are more scarce than the usual opportunities,” McKinley said. “We have found in our other asset classes that it's one thing to earmark funds for [green] investments, and another to find actual projects.”

The fund’s aim to diversify up to 50% of its real estate investment into global markets is unlikely to spur its efforts to meet an energy reduction target of 20% within five years.

“There could be some lag time as international markets, particularly in developing countries, catch on to the need for sustainable buildings,” said McKinley.