REAL ESTATE - The Pennsylvania Public School Employees Retirement System has decided to invest $300m (€250.8m) into two new commingled funds.
The fund has made a $200m commitment to the ProLogis North American Industrial Fund (a real estate investment trust or REIT).
Staff felt ProLogis was one of the top managers of industrial assets and ProLogis will also be a significant co-investor, committing at least 20% of the total equity raised. The target for total equity is $1.5bn.
The commingled fund will also allow Pennsylvania Public School to increase its industrial component. This is hard to do for many large pension funds. Most single industrial purchases can be at $10m or less and portfolio deals for high quality industrial assets are few and far between.
ProLogis has already seeded the fund with $810m of its own assets. These properties are located in 23 markets across the US. The assets have an average leasing of nearly 96% and have an average lease term of seven years.
ProLogis is projecting that investors will achieve a 6% to 6.5% average cash yield and a leveraged IRR of 10%. The manager will receive an incentive participation fee after investors achieve a 9% leveraged IRR, measured every three years.
The industrial fund will be built up with two kinds of transactions. One will be properties developed by ProLogis after they have reached stabilization. The second will be unrelated acquisitions.
Pennsylvania Public School has also approved a commitment of up to $100m to the Lubert-Adler Real Estate Fund V. This vehicle pursues distressed assets such as bankruptcy cases or vacant buildings for redevelopment.
Lubert-Adler is looking at innovative deals such as changing office buildings into apartments, the provision of student housing, the consolidation of retail assets and the redevelopment of hotels.
The principals and affiliates of the manager have committed to invest $80m into the fund. Investors should achieve a compounded annual return of 20%. The total equity raise should be around $1.5bn.