UNITED STATES - California State Teachers Retirement System has established a new joint venture with Urban Retail Properties Company to invest in retail properties.
Known as UrbanCal, the venture has an initial investment from CalSTRS of $200m (€138.8m), although this could be expanded in the future by another $300m, to buy traditional shopping centres across the US alongside mixed-use developments in urban locations with retail components.
The proposition has a potential total capitalization of $1.5bn thanks to the 65% leverage, and gives CalSTRS a 98% ownership interest in the venture, according to Ross Glickman chief executive of Urban Retail Properties.
"CalSTRS was looking to find a partner to expand its ownership of retail properties and our company was looking for a financial partner so it's a good marriage," said Glickman.
In return for its equity investment, the pension fund is expecting to achieve an 11% IRR, as existing assets are expected to generate a 9% cash-on-cash return while value-added deals would bring leveraged IRRs of 16-18% over a 5-7-year holding period.
While this is the first joint venture between CalSTRS and Urban, CalPERS already has a similar arrangement with URB.
CalPERS and its real estate manager Principal Real Estate Investors are thought to be investigating the prospect of another such program, focused specifically on industrial properties. Details are expected to be finalised over the next couple of months.