UNITED STATES - Los Angeles Fire and Police Pensions has chosen to make its real estate portfolio more conservative in the near term.

The pension fund has decided to move the mix of its real estate portfolio from 34% core and 66% non-core to 50% core and 50% non-core real estate, as officials feel the portfolio needs to be more conservative, given where the current negative climate of the US real estate sector.

With so much uncertainty in the marketplace on both the buying and selling of real estate, pension fund officials decided at the July 10 board meeting they would prefer to err on the side of caution.

This change in the overall portfolio means LA Fire and Police will have $150m (€94.2m) to invest in core assets for the rest of this year, either through commingled funds or through acquisitions via separate account managers.

The pension fund has subsequently approved its first commitment to a new core commingled fund: a $50m allocation to the $1bn AEW Core Property Trust first established in 2006.

Projected returns on this commingled fund are a net IRR of 7-8% on a long-term basis.
Los Angeles Fire & Police has invested with AEW in the past and is confident about their management capabilities in the core sector as the pension fund has collectively committed $55m to two other AEW-sponsored funds.

There are currently two assets in the Core Property Trust - an apartment complex in New Jersey and an industrial property in California - with a total acquisition price of $132m.
These properties were acquired at cap rates of 4.3-4.7%, based on the property's current net operating income.

AEW also anticipates leverage on the commingled fund will be capped at 30% on the overall portfolio.

The commingled fund is expected to primarily invest in stabilised US assets such as office buildings, retail, apartments and industrial properties.

LA Fire & Police's real estate consultant in the Townsend Group.