REAL ESTATE - The California Public Employees Retirement System (CalPERS) is to invest between $200 million and $400m in a joint venture to develop industrial properties in Europe.
Portfolio manager Jose McNeill said: "We think that this kind of development really hasn’t been done in the past in Europe. Construction of industrial has been more about getting the leases done first and then starting the building."
A driving force behind this strategy is higher returns. He said: "We believe there is a 200 to 400 basis point difference in returns from buying an existing property to developing a brand new one. Instead of buying existing properties at 5% cap rates, we can get a 7% to 9% return on speculative development. Other main factors are the opportunity that exists there and the diversification."
CalPERS will be developing these properties through its CalEast Industrial Investors joint venture. This is a venture with its real estate manager, LaSalle Investment Management.
The properties that will be developed will be very similar to the kind of industrial properties that the joint venture owns in the US. They will be leased to similar kinds of companies.
Warehouse/distribution and logistics will be targeted. The preferred size range would be in the neighbourhood of 100,000 to 300,000 sq ft.
The properties could be constructed for either single- or multi-tenant buildings. The markets targeted for the program are France, England and central Europe.
The speculative development program is part of CalPERS’ decision to shift CalEast to a more value-added strategy. Its long-range goal is to have the portfolio in CalEast 80% value-added and 20% core. The original structure was 50% core and 50% value-added.