REAL ESTATE - The Los Angeles County Employees Retirement Association had two real estate related investment items at its board meeting on November 8.
One of these was to approve a manager investment plan for Tri-Pacific Residential Investors One, LLC. This is not a new manager. Lowe Enterprises Residential Advisors has had a long-term relationship with LACERA. The executives team of this manager lead by President Geoffrey Fearns has decided to buy out Lowe Enterprises Residential Advisors and create a new company.
LACERA has had this relationship for 11 years and expects the strong performance to continue. John McClelland is the principal investment officer for real estate for the pension fund. He said, "We don’t think that the new company will mean any difference to us. They have delivered strong returns for the pension fund for a long time." The returns have been leveraged IRR in the mid 20% range.
The investment strategy with Tri-Pacific Residential is in general to invest in single-family housing across the country. The investment program acts like a revolving line of credit. Capital that is returned to the program then gets reinvested. LACERA has committed $300m of capital to the program.
There will be some different kind of deals considered for the program for the future. Fearns said, The single-family housing market has slowed down and it makes sense for us to consider new kinds of transactions."
One of these would be to invest equity in the development of rental housing. Another is the purchase of entitled land. A third possibility would be model sale-leasebacks. This is where Tri-Pacific Residential would buy the model homes in single-family projects and then lease them back to the builder.
LACERA did make one commitment to a real estate commingled fund at the November meeting. It authorized an investment of up to $30m for the Genesis Workforce Housing Fund II.
McClelland said, "This fund has a niche investment strategy that fills a segment of the housing market that is not being targeted in a specific market. We made this decision based on economics."
Workforce Housing Fund II makes equity investments in a variety of housing projects that target the middle-income owners. The projects are located in the downtown or transportation hub areas of Los Angeles.
The real estate manager on the commingled fund is Phoenix Realty Group. It’s seeking a total equity raise of $150m. Other pension funds investing in the fund include the Los Angeles Fire & Police Pension System and Los Angeles City Employees Retirement System. Returns for investors are projected to be a gross IRR of at least 15%.