NORTH AMERICA – Orange County Employees Retirement System has approved a $50m (€37.3m) commitment to a value-add industrial property fund managed by KTR Capital Partners.
The pension fund, advised by real estate consultant RV Kuhns & Associates, has identified tactical opportunities in the US industrial markets and is backing KTR on the grounds that it has a strong track record in the sector.
KTR has realised a 34.2% gross internal rate of return (IRR) and an equity multiple of 2.2 on $2.1bn of investments.
The $1.2bn KTR Industrial Fund III, which includes a $10-15m co-investment from KTR, is targeted returns of 13-15% (net annual compounded IRR; 16-18% gross annual compounded IRR), 40% of which is expected to be derived from income.
Orange County Employees sees a tactical opportunity in the current market environment as industrial properties are expected benefit from continued economic growth.
The pension fund was also underweight the industrial sector relative to its benchmark. As at March 2013, Orange County Employees had 11.2% invested in industrial compared with 16.7% NCREIF ODCE benchmark for the sector.
KTR Capital has already closed on several deals for the fund, including properties in Chicago, Los Angeles, Atlanta, Northern New Jersey and Seattle, at a total cost of $512m and a projected stabilised yield of 7%.
Fund III will invest mostly in the US, although up to 10% can be deployed in Canada and Mexico. It can invest in new developments as well as improving existing properties, with leverage up to 65%.
A final closing for the fund is expected to happen soon. It will have a 10-year life and a three-year investment.
In other news, New Mexico Educational Retirement Board has approved an investment of $79.5m in a co-investment fund targeting global real assets.
The RAPM-NMERB Co-Investment Fund, managed by Real Asset Portfolio Management, will invest in a variety of assets classes on a global basis, including real estate, timber, agriculture, mitigation banking, water, energy, mining and minerals.
The fund will consider a variety of investment approaches, including buying existing limited partnership interests from institutions that require liquidity.
The co-investment has a six-year term. The structure of the investment gives the pension fund control rights, including full authority with veto control rights and the retention of a no-fault termination provision.