REAL ESTATE - The General Electric Pension Trust has put together a new $55m joint venture with Master Development Corporation to invest in industrial properties in Southern California.
GE put in $50m, with the balance coming from Master Development. The ownership split of any properties in the venture will follow the same percentages as the equity contributions.
Master Development setup this venture on a direct basis with the pension fund. The GE Pension Trust is one of a just a handful of pension funds in the United States that invests in real estate directly, without the aid of any real estate managers.
It was about a year ago that Master Development had first started the process of finding an institutional partner for a joint venture. Its Executive Vice President Bryan Bentrott said, "Our problem in the past was that it would take us a total of 90 days to close a deal while we found an equity source. We wanted to create a venture that would allow us to close in 30 days."
Bentrott thinks that its market expertise will make a big difference. He said," We have more than 2.5m s.f. of industrial space under management and it’s all space in Southern California. This region is a very competitive marketplace and investors need the local experience to find transactions."
The total capitalization in the venture is in the range of $180m to $190m. Master Development has full investment discretion on the venture. This allows the real estate manager to make the final investment decisions on its own, without the aid of the pension fund. This is contingent on it staying within the investment parameters of the venture.
The investment strategy is to invest in industrial properties in Southern California. This could be properties from the Inland Empire in Los Angeles area to the San Diego border. The properties could be anything from warehouse-distribution to light industrial.
Transactions for the venture are expected to produce a leveraged IRR of 18%. This yield assumes a two- to four-year holding period. The total life of the venture is seven years. There is a two-year time-frame to find all of the transactions for the venture.
There are no assets in the JV now. The deals can be the purchase of existing industrial assets that can be improved or investing equity in new development projects. A typical size transaction for the venture would be in the range of $10m to $30m.
Master Development does have a history investing with institutional real estate managers. These would include companies like Aetna Realty Investors, GE Capital, Lincoln National Life and Buchanan Street Partners.