UNITED STATES - New York State Teachers Retirement System has expanded its real estate portfolio with a commitment to several mortgaged transactions and a commingled fund.

NYSTRS has also made several debt investments as the pension fund believes there is a major shortage in the marketplace for mortgage debt, allowing investors like pension funds to invest capital in very high quality real estate.

One of these investments was a $165m first mortgage on the 64-story office building Williams Tower in Houston, Texas, and it gives the pension fund 5.49% net interest as gross interest rate for the five-year loan is 5.5%.

NYSTRS has also provided a loan on a major retail property in Southern California. This was a $75m construction loan on the Promenade at Temecula Mall in Temecula, Calif.  The interest rate on the loan is 6.35% and it lasts for eight years.

The existing one million s.f. (0.092903m2) regional mall is anchored by Macy's, JC Penney and Sears but the construction loan covers a 126,000 s.f. expansion which should be completed by March of 2009 to deliver new space inhabited by a mixture of shopping and entertainment-related tenants.

NYSTRS took action on these real estate investments at its board meeting on July 30, where it also approved an investment of $50m (€32.2m) into the Lone Star Fund VI.

One such requirement on the Lone Star deal is the commitment must not amount to more that 20% of the commingled fund's total capital commitments.

That is unlikely to be a problem as Lone Star is looking to raise $5bn for the opportunity fund and the fund manager has already received other major commitments from other US-based pension funds this year, including a $600m commitment from Washington State Investment Board in April and $500m from Oregon Public Employees Retirement Fund in January.

Investors in the fund are projected to achieve gross IRRs of 25% and net IRRs of 19% on the opportunity fund, as potential deals could include distressed debt, buying existing properties that are either underperforming or could be improved through a redevelopment, as well as the development of new properties.

Transactions will be considered in the United States, Japan and Germany and could contain single assets, entire portfolios or make entity-level investments in real estate operating companies.