UNITED STATES- Contra Costa County Employees Retirement System is looking to make some big moves into the opportunity fund sector of real estate.
The pension fund has now committed $75m (€51.2m) into the Morgan Stanley Real Estate Fund VII Global commingled fund and is also getting ready to commit capital to the BlackRock Residential Opportunity Fund and the CityView Development Investors Fund I.
Contra Costa County officials are thought to be drawn to these investments by the possibility of diversification and higher returns and, like many pension funds in the United States, think this can happen given the high level of dislocation that now exists in many markets around the country.
The pension fund was particularly attracted to investing through Morgan Stanley as the asset manager been able to produce strong returns in its global real estate fund series - a 33% IRR, which is 8% higher than the projected yield for Fund VII.
Morgan Stanley is close to meeting its $10bn target for raising capital and is likely to do ahead of its targeted final close at the end of September.
The real estate manager will make a co-investment to the fund worth up to 10% of the total capital raised, capped at $500m and the assets raised will then be invested in four regions of the world.
Asset allocation will be split as 25% in the US, 25% in developed Asian markets with a focus on Japan, 25% in Western Europe (mainly Germany) and 25% in emerging markets, led by Japan.
In contrast, the BlackRock Realty Residential Opportunity commingled fund will take advantage of the distress in the residential capital markets and invest in land acquisition, partially completed residential developments, ‘residential mortgage-backed debt.
The real estate manager is expected to focus its investments inside the major city limits, where recovery of the real estate market is predicted to be seen earliest and assets will then be sold as the economic recovery happens and add value by completing entitlement and development as needed.
The final investment to be considered at this stage is Development Investors Fund I - a $400m commingled fund managed CityView which is projected to achieve gross IRRs of 18-20%.
Its strategy is to invest in urban workforce housing by acquiring land and maximising its value through the entitlement process by exercising the option of lot development or home building.