REAL ESTATE - California State Teachers Retirement System is in the process of expanding its apartment joint venture with BlackRock Realty called BlackRock Cal I, LLC.
The pension fund will be contributing $300m(€231m) of additional equity to the joint venture. This investment should be finalised in the next 45 to 60 days. CalSTRS has already invested $400m of equity to the venture over the past couple of years.
The total capitalisation of the new venture will be around $1 bn. This amount will be available as there will be 70% leveraged employed on the JV.
CalSTRS is the main equity source for the venture, while BlackRock Realty is the real estate manager on the relationship. The person overseeing this account for the manager is managing director Lorenz Menrath.
The investment strategy for the venture will be the same. This is to look for value-added apartment investments in selected markets across the US. Some of the deals will be investing equity in new development projects. Others will involve buying existing properties that need renovation.
The markets that it will be looking in include Texas, Florida, the East Coast and northern and southern California. BlackRock thinks that all of the capital should be invested over the next couple of years.
An example of the deals that BlackRock will be doing was recently completed in Southern California. This was the acquisition of the 245-unit Waterstone at the Grove in Garden Grove, California.
The acquisition price was $46m. There was $11.5m of equity in the deal, amounting to 25%, with the balance was in the form of financing. BlackRock reckons there will be around $6m worth of improvements made to the property. This will include interior work on the individual units, new roofs and some upgrades for the clubhouse.
BlackRock figures that the transaction will produce a first year cap rate of 4%. This yield is based on the existing rent in the complex. The real estate manager expects to improve on this over the next couple of years. By the third year of ownership, it projects that the cap rate will be 6%. Much of this will happen as the result of rents being increased after all of the upgrades are completed.
