UNITED STATES - Massachusetts Pension Reserves Investment Management Board has closed the deal on its first two direct property acquisitions in 2008 and paid a total of $177.1m (€118.6m) for the assets.
The pension fund had a hard time finding assets to buy this year, according to officials involved in the deals, but this is reflective of many pension funds in the United States as uncertainty in the markets is causing both buyers and sellers to be very selective in their activity.
The bigger of the two deals was the $150.3m acquisition of the 230-unit known as The Wimbledon apartment complex in New York City for its separate account managed by JP Morgan, and is the second-largest in the pension fund's entire $5.5bn real estate portfolio.
Mass PRIM figures views this property is a core investment as they asset is now free and clear of any debt and was 100% leased at the time of the purchase.
The stabilised income in the property is projected to be 5.4% in year three while the 10-year net IRR is anticipated to be 8.3%.
The other acquisition was for 117,458 s.f. (10.8696m2) Town and Country office building in Miami, Florida, priced at $26.8m as the leverage on this asset is 60%.
Mass PRIM made this purchase with the assistance of its separate account real estate manager RREEF and intends to place the asset in its value-added real estate portfolio as the building is currently only 72% leased.
The pension fund would like to rent out the empty space as soon as possible so CB Richard Ellis has been hired to help with the leasing efforts.
Its strategy is then to hold onto the asset for a three- to five-year period before a possible sale is considered.
The acquisition price per square foot cost was $228 which the pension fund says represents a 37% discount to replacement cost.
As a result, the unleveraged stabilised income in the property is anticipated to be 7.29% with an unleveraged IRR of 9.43% while the three-year unleveraged IRR is projected to be 12.23%.
Both deals are part of $300m which has been allocated for separate account acquisitions in 2008 by Mass PRIM.
The arrangement calls for $100m to be invested in value-added deals through RREEF. The other $100m-$200m will be placed in core purchases through real estate managers JP Morgan, TA Associates, INVESCO Real Estate and LaSalle Investment Management.