Oregon Public Employees Retirement Fund (OPERF) has expanded its US office investment programme with Lionstone Partners.

The pension fund has allocated $200m (€149m) in new capital to the Houston-based fund manager to take a 99% stake in the newly formed Lionstone OPERF Real Estate One (LORE One).

Lionstone will own the remaining 1%. OPERF began investing with Lionstone in 2002 when it committed $75m to the Cash Flow Office One (CFO One), a programme that was expanded through an additional $50m commitment in 2005.

Assets in CFO One will be transferred to the new vehicle, which will be split into two tranches. The first tranche will comprise value-added investments, including all new acquisitions and three assets transferred from CFO One.

The second tranche will comprise core assets and will be seeded with nine assets from CFO One, worth approximately $100m in total. It will also be able to accept the transfer of assets from the first tranche in the future.

The existing assets in the first tranche – office buildings in Santa Monica, Boston and Austin worth approximately $155m – will be held in the short term.

The target returns for the first tranche are a gross unlevered IRR of 8.8% and a net levered IRR of 11.25%. Tranche two will target gross unlevered returns between 7% and 8% on a net levered basis.

New investments will be made mainly in value-add office buildings, although there is flexibility to look at mixed-use projects that include apartments and retail.

There will be a focus on markets where there are tight limits on new development and areas with highly educated workforces, such as San Francisco, Austin, Boston and Southern California.

Tony Breault, senior investment officer for real estate for Oregon, said: “I still think that there are some growth opportunities to take advantage of in some markets around the country.

“Our transactions will target assets with gross asset values at $40m or less. This means we will be buying properties that will be receiving less competition from the major institutional investors.”