US - The Teachers' Retirement System for the State of Illinois has added to its exposure of core office buildings with a $100m (€85.4m) commitment to the Hines-Sumisei US Core Office Fund.
The teachers' pension made the investment to address the low amount of core office within its portfolio. Before the commitment its exposure to this sub-sector was 25% but it has a long-term goal to reach 35%. It anticipates that this will take several years to achieve due to the scarcity of opportunities offering good value.
Illinois Teachers has had some difficulty finding core office deals through its existing separate account managers. These include the likes of Commonwealth Realty Advisors and Capri Capital Advisors.
It hopes this will change as a result of the investment with Hines. Mike Bartletti, director of real estate for the fund, said: "In our opinion Hines was the only core manager out in the marketplace with a credible, open-ended office investment fund. There was no one else that we considered for this investment."
Illinois Teachers made the commitment at its board meeting. Hines made a presentation led by company president Jeff Hines and fund president Charles Hazen. The manager is still trying to attract more investors. One of its most recent backers was a $16 million investment from the Arizona State Retirement System.
Participants in the fund will achieve a projected 10% to 12% IRR and a 7% to 8% cash yield. The size of the fund is now $540 million. Its assets include a mixture of properties in New York, Washington D.C., Houston, San Francisco, San Diego and Chicago.
Hines wants to buy properties in many of the major markets across the US. It favours office assets located in "24-hour" cities. The properties could be downtown or in the suburbs and some buildings in secondary locations will be considered.
Illinois Teachers has a long-term real estate allocation of 14%. Its current target is 12% and it needs to commit another 1.5% of the fund to achieve it.