REAL ESTATE – The California State Teachers Retirement System has established two joint ventures where it will be investing initially $600m.
One of the ventures is being called FirstCal 3, LLC. This is a deal with First Industrial Realty Trust. There is a 90%/10% equity split in the venture. CalSTRS will be investing up to $300 million of equity. First Industrial will be putting in $33 million of equity. The ownership split of any assets of the venture will go along the same lines as the equity contributions.
CalSTRS was advised in this transaction by its real estate manager, CB Richard Ellis Investors. The person working on the account for the manager is Gary Neumeier, senior managing director. He said, “Now is a good time in the cycle to put some capital into land acquisitions. Our strategy here will be to buy entitled and un-entitled land that will be used to develop for the most part large big box distribution industrial space.”
Some deals could be of a mixed-use project. The land would be zoned for both industrial and/or commercial or residential development. The plan would be for the commercial and residential pieces to be sold off to other developers.
FirstCal 3 will be looking for deals in a variety of markets. It wants to buy assets that are in supply chain reconfiguration, international trade, demographic trends and economic expansion. Some of them will be in the major markets that everyone is looking at. These would be places like Dallas, Southern California, Chicago, Northern New Jersey and South Florida.
The venture will also be looking at some smaller markets. One of these is Phoenix. Neumeier said, “We will take advantage of all the contacts that First Industrial has in the 30 markets that they cover across the country.”
The deal size for the venture will vary from $25 million to $200 million. The JV will seek transactions that can produce gross IRRs of at least 20%. This return factors in a three- to 10-year holding period. There is a three-year investment to find all of the assets for the JV. CalSTRS has plans to invest another $200 million to the JV once the initial capital has been invested.
CalSTRS has setup a joint venture with New York-based Silverstein Properties to invest in assets in the New York metro area. This means it will mostly be in the Mid Town or downtown parts of the city. The pension fund has agreed to invest $300 million of equity to start off with. It has the option of placing another $200 million to the venture in the future.
Its been projected that there will be as much as 75% leverage used in the joint venture. Silverstein will be investing equity into each deal for the JV. This will vary from 3% to 30% of the total amount of the transaction. This will vary from one deal to the next.
Neumeier thinks that a local partner is a must when investing in New York City. He said, “We need a company that knows how the development process works in the city and has access to transactions.”
The investment strategy calls for the venture to consider transactions that will range from core to opportunistic. The deals will include property types like office, residential, retail and land parcels for future development.