REAL ESTATE - The $36.8bn (€28.9bn) Teachers’ Retirement System of the State of Illinois has approved an investment into a hotel acquisition fund and will be looking to expand into international real estate investments possibly later this year.
Illinois has a $3.8bn real estate portfolio – or 11.5% of the total assets. The targeted real estate allocation is 14%.
The fund has made a $50m allocation to the RLJ Lodging Fund II. The investment fund has been attracting some of the largest pension funds around the country. These have included California Public Employees Retirement System and the State of New Jersey Investment Council.
Illinois Teachers was impressed by the recent history of the fund manager. Spokeswoman Eva Goltermann said, “We felt the performance of the manager in its first commingled fund was very strong. We believe in the management team that Robert L. Johnson has put together at RLJ Capital Partners.”
Investors in RLJ Lodging Fund II are projected to achieve gross leveraged IRRs of around 17%. The fund manager will make a $22.5m investment in the fund as a co-investment. This equals 3% of the total equity raise for the fund.
Around 91% of the properties for Fund II will be pre-specified. There are 100 hotels that will have been acquired for around $1.7bn.
All of these deals will have been acquired by year-end. The hotels purchased are just below the luxury level. They are located in many markets around the country. A couple of heavy concentrations for the portfolio are in Illinois and New York.
Illinois Teachers is now going to be taking a look at place some capital into international real estate. The pension fund will be doing this in conjunction with its real estate consultant. For now this is Callan & Associates. The deadline for its RFP for a real estate consultant did pass. Callan did respond. A final decision on this search will be made in the near future.
The pension fund looks at international real estate as a way to get another level of diversification. Goltermann said, “This investment strategy will add more diversity to our existing portfolio.”
Illinois Teachers has not established a specific allocation for the international real estate program. This will be done sometime in the future. The investment vehicle that it will use is through a commingled fund structure.
