Los Angeles County Employees Retirement Association (LACERA) is committing a further $250m of capital to an existing $500m real estate debt mandate with Cornerstone Real Estate Advisers.
Through the separate account, LACERA has been providing floating-rate bridge loans on high-quality, well-located assets in the US. It currently has $210m committed to loans and $290m in uncalled capital.
Cornerstone will still only be able to call on $500m in capital. The additional $250m will enable LACERA to establish a subscription line of credit, which the pension fund believes will reduce investment costs versus traditional loan-to-loan financing arrangements.
The cost to LACERA of procuring loan-to-loan financing is typically between $50,000 and $100,000 per loan. A subscription line of credit would require no individual loan analysis by the lender because the security for the line is the unused commitment from LACERA.
According to board meeting documents, a loan-to-loan structure would generate an anticipated return of 7.5%, based on March interest rates. The same loan for a subscription line would produce 9.2%.
LACERA also believes that a subscription line would enable Cornerstone to close deals faster, since no property-level underwriting and documentation has to take place for the lender; the manager only has to draw down from the subscription line.
LACERA’s other real estate debt separate account, which is managed by Quadrant Real Estate Advisors, still has $270m with which to invest in long-term, fixed-rate loans on stabilised properties.
LACERA stated that a subscription facility would enable Quadrant to be more competitive in the marketplace. The pension fund is waiting to see whether an increase in allocation to Quadrant is deemed necessary.