UNITED STATES - California State Teachers Retirement System (CalSTRS) has sold one of its largest industrial portfolios to ProLogis, in a transaction worth $1.85bn (€1.34bn).
ProLogis made the purchase, financed by cash and $100m of assumed debt, through its North American Properties Fund III - an entity which is 80% owned by affiliates of Lehman Brothers and 20% by ProLogis.
CalSTRS had owned the portfolio through a joint venture with Dermody Properties based in Reno, Nevada but created it with real estate manager CB Richard Ellis Investors.
The pension fund made the decision to sell the portfolio at the beginning of the year, according to Gary Neumeier senior managing director at CB Richard Ellis, and will be reinvesting proceeds from the sale in other real estate-related activities.
"It was our opinion as well as CalSTRS that it made sense to start the selling process at that time. We felt there would be plenty of capital that would be interested in the portfolio," said Neumeier.
"We have owned the assets in the portfolio for four years. We felt along with our pension fund client that it was time to take some chips off the table and take advantage of all the capital that is in the marketplace."
Neumeier said the cap rate was in the sub 6% range, based on the net operating income in the portfolio for the next 12 months, and is reflective of the amount of capital looking for industrial product. He believes the return might have been lower if there were more properties available in California.
There are 114 industrial properties in the ProLogis-owned portfolio, totaling 24.7m s.f. (0.185806m2), located in Reno, Las Vegas, eastern Pennsylvania, Chicago and Tejon Ranch in Southern California.
At the same time, there is 1.2 million s.f. of property under development while the transaction also included 518 acres of land for future development with the potential to support the construction of another 9.3 million s.f.
Stabilized properties in the portfolio have a total occupancy of 95%. All assets in the portfolio are 91% occupied.
Lehman Brothers will now be trying to bring other institutional investors into the industrial portfolio by syndicating its 80% ownership interest to a combination of other investors – a move which shouldn’t be too difficult, according to Neumeier, as it involves a pre-specified industrial portfolio and there is a shortage of high-quality large industrial portfolios to invest in.