REAL ESTATE - The Orange County Employees Retirement System has approved commitments of $60m into two real estate commingled funds.
The pension fund chose to allocate $30m each to AEW Value Investors II, L.P. and Fidelity Real Estate Growth Fund III, L.P. The pension made these choices at its board meeting last month, assisted by Callan Associates.
The pension fund did consider two other commingled fund managers before making a final decision. These were Angelo Gordon & Co. and LaSalle Investment Management.
Orange County has Keith Bozarth as its Chief Executive Officer. He said, “These commitments will give us diversification by deal size, portfolio concentration and research process.”
The fund manager for Value Investors II, L.P. is AEW Capital Management. The real estate manager is hoping for a total raise of around $500 m. It will be looking for value-added transactions in the four main property types of office, industrial, retail and apartments.
Orange County is projecting that it will get a 10% to 12% net IRR return. This yield assumes a seven-year holding period.
The pension fund is hoping that it will get a 18% gross IRR on the Fidelity Real Estate Growth III commitment. This yield factors in an eight-year holding period. This commingled fund will invest in a variety of assets including the four main property types.
Orange County has issued a forward commitment to be part of a commingled fund in 2007. This is for the CB Richard Ellis Strategic Partners US V, L.P. The actual amount to be committed has not been determined. This will happened when the investment product becomes available.
A forward commitment to a future closed-ended commingled fund does not happen that much in the pension fund real estate industry. A reason for doing this would be a way to assure that the investor gets into a commingled fund.
CB Richard Ellis Investors is the fund manager of its Strategic Partners series of funds. They are a domestic US oriented fund. Its strategy has included investing in development projects and buying existing properties.
The recent developments have included industrial projects in the Los Angeles basin and selective projects with apartments and office buildings. The purchase of existing assets has involved acquiring better quality assets and using company affiliates to improve management and leasing.
Orange County Employees has total assets of $6.4bn as of the end of June. It has invested 8.2% of its total assets in real estate for the same time frame. The pension fund has a targeted real estate allocation of 10%.