Connecticut Retirement Plans and Trust Funds is looking to add $150m (€109.3m) to its real estate portfolio through two fund investments.
The plan is considering a $100m commitment to Clarion Partners’ value-added industrial fund and has approved a $50m commitment to a value-added Cypress retail fund. A final decision on commitment to Clarion’s open-ended Lion Industrial Trust fund, which has $4.6bn assets under management, is likely this summer.
Lee Ann Palladino, chief investment officer for Connecticut, said investments in value-add strategies are timely, with core pricing at pre-2007 levels and investments offering premium returns.
Value-add investments accounted for 13.6% ($177.1m) of Connecticut’s existing real estate portfolio at year-end 2013. The pension fund has a sub-allocation of 25% for value-add real estate in a range of 15% to 35%.
Lion Industrial Trust is looking to achieve an annualised unleveraged rate of return of between 5% and 7% and an enhanced, leveraged real rate of return of 8% to 10% for the fund, which only invests in US industrial properties on a value-added basis. Around 85% of the fund buys existing assets that it can improve through renovation, repositioning or redevelopment. Up to 15% of the fund’s portfolio can be invested in a develop-to-core strategy.
The $400m value-added Cypress Acquisition Partners Retail Fund, which will invest in US retail properties, has a targeted return of at least 13.5%.
San Francisco Employees’ Retirement System has approved a commitment of up to $50m (€36.5m) to Gaw Capital’s US Value Add Fund. The fund is seeking a $300m equity raise with a $500m hard cap. The general partner will be making an investment of 3% of total fund commitments up to a maximum of $10m. Targeted returns for the fund are a 16% to 18% gross IRR, 13% to 15% net IRR with a 2.0x equity multiple.
A variety of investors are committed to the fund, including a Korean institutional investor with $100m. Two US public pension funds are putting $50m each into the fund, which will pursue assets with potential for redesign, redevelopment, repositioning.
Emerging areas of US gateway cities including Boston, Los Angeles, New York City, San Francisco and Washington DC will be targeted by the fund. Select secondary markets will be considered, including Austin, Chicago, Denver, Nashville and Seattle for the fund, with a preference for offices, hotels, apartments and retail.
In around 15-20 deals, the fund is looking to invest $5m to $25m of equity. San Francisco said such deals have been overlooked by most private real estate funds and REITs. The fund will be part of a joint venture platform investing in hotel redevelopment in supply-constrained markets near major university campuses. Other investors include a US institutional investor with $150m and Gaw Capital affiliate Downtown Properties with $10m.
Teachers Retirement System of Louisiana has approved a $75m commitment to Colony Capital’s Distressed Credit Fund III. The $1bn fund, which is targeting returns of around 15% with leverage, will invest in distressed debt in both Europe and the US.