UNITED STATES - The California State Teachers Retirement System is planning to take a cautious approach to real estate investment for its fiscal year in 2009.

The pension fund will be considering any new initiatives on a very limited basis over the next 12 months as officials are worried about the uncertain nature of the real estate markets in the United States.

Most of its activity is likely to be in follow-on investments with existing managers that have proven to be successful, according to comments expressed at CalSTRS' board meeting on July 10 where it approved the scheme's annual investment plan for fiscal 2009.

An example of such a follow-on commitment can be seen in a recent deal to extend the partnership with Waterton Associates.

The two organizations recently formed Waterton Residential Property Fund X but this represents the fourth partnership that they have done together, and all have involved investing in apartments.

The total amount of equity in this latest partnership is $222m (€140.1m), giving CalSTRS the 90/10 equity split for its $200m

That said, there are unlikely to be a sucession of rapid deals signed with these funds, according to David Schwartz, managing member of the partnership at Waterton.

"We are going to be in no hurry to place the capital," said Schwartz.

"The apartment investment market is now difficult to find assets that are priced correctly. We have not made any investments since the fall of 2007 for our Fund IX with CalSTRS.  But we set up the next fund so we could respond quickly to some investment opportunities," he added.

The total capitalisation of the fund will be around $635m as a result of 65% leverage applied to the fund.

Projected returns for the fund are a mid teens leveraged IRR, albeit this yield assumes a five- to seven-year holding period.

The vast majority of deals for Fund X will be value-added apartment acquisitions of existing properties in major markets across the US, however, 10-20% could be used to purchase existing debt secured by apartments.