REAL ESTATE - The San Diego City Employees’ Retirement System has approved a commitment of $40m (€30.1m) into the INVESCO Real Estate Fund II.
Dawne Clark, assistance chief investment officer for the pension fund said: “We invested a similar amount with INVESCO in their first fund and we pleased with the performance.” San Diego City also has an ongoing successful separate account relationship with the manager. The value of assets in the core separate account is $60m. The properties have produced a net return of 16%, which nearly doubles the return of 8.4% of the NCREIF Property Index.
The pension fund made its commitment to the commingled fund recently advice from its real estate consultant, The Townsend Group, with Matt Johnson, a principal, working on the account.
INVESCO Real Estate, manager of Real Estate Fund II, is hoping for a total equity raise of $500m. The total raise could have a maximum of $750m.
INVESCO and its affiliates will make a $10m co-investment to the commingled fund. A final closing on the fund is projected to happen around the end of June.
Real Estate Fund II has an enhanced return strategy. Investors in the commingled fund are projected to achieve an IRR of 10% to 14%, net of fees and an equity multiple of 1.5 to 2 times.
If the raise is $500m, the total capitalisation would be $1.4bn, using 65% leverage on the fund.
There are no pre-specified assets in the fund. The fund will be investing in the main property types of office, industrial, retail and apartments, all within the US. Deals will be considered in the major metropolitan markets across the country
Many of the transactions for the fund will be buying existing properties and improving them through a recapitalisation, redevelopment, new lease up or repositioning.
The commingled fund will be investing some equity into development transactions. This could end up being anywhere from 25% to 50% of the fund.
INVESCO will be investing $20m to $25m of equity on average for deals for Real Estate Fund II. The gross asset value of the properties in the fund will vary from $50m to $75m. The real estate manager expects that there will be a total of 15 to 20 deals for the fund, over the three-year investment period to find assets for the fund.
San Diego City is not done for this year investing in real estate. Clark commented, “We will be looking at placing some capital into international commingled funds. This would be a new strategy for us. We think there are some good investment opportunities in this sector.”
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