REAL ESTATE - The California State Teachers Retirement System has established a $1bn apartment fund to invest in value-added transactions.
The Waterton Residential Property Fund IX will be run through Chicago-based Waterton Associates LLC. There is a total of $330 million of equity in the partnership.
There is a 90/10 split for the equity commitment with CalSTRS investing the 90%.
David Schwartz, managing member at Waterton, said: "We think that the 75 basis point increase for interest rates will affect the leveraged buyers and be good news for us. We also see a mass cooling of the condo buying market. This should open up some more opportunities in markets like Florida, Las Vegas San Diego and Phoenix."
Residential Property Fund IX will be buying B- to A- quality apartments. Schwartz said: "There are some assets on which owners have let the rents fall below market values because they haven’t spent the time marketing the right way. We think we can improve this."
The first asset in the partnership is a good example. The property is the 312-unit Balmoral Village in Peachtree City, Georgia. It cost $27 m and is 97% leased. The property has current rents that are $50 to $75 below market rents. There also is a chance to improve on the management of the complex.
These factors and a projected rent growth of 8% to 9% in the market over the next few years should significantly improve the value of the property. The cap rate on the acquisition was 5.75%. This return factored in rents for the previous 12 months. Schwartz expects this could be improved by 200 basis points over the next few years.