REAL ESTATE – The Pennsylvania Public School Employees Retirement System has allocated capital to three new REIT managers and made a commitment to a new office building investment fund.
One of the new REIT managers was hired for a non-US publicly traded real estate securities strategy. This firm is European Investors. It was awarded an account of around $200m.
There were two managers that were picked for a global public real estate securities strategy. These firms were Cohen & Steers Capital Management and LaSalle Investment Management. Each company was given an allocation of approximately $100m.
The scheme funded the REIT program by shifting allocation for REITs and private real estate.
The allocation of public REITs was moved from 1.4% to 1.75% of the pension fund’s total assets. Private real estate was moved from 5.6% to 5.25% of total assets. This will become effective on October 1.
The pension fund took these actions at its board meeting on August 3. It chose to create a global REIT program because it believes that the non-US market is currently less securitized than the US market. This will allow for more room for growth and greater potential for alpha than in the US markets. The end result for this global diversification is the potential for greater returns with reduced risk.
Pennsylvania Public School will be looking at investing in a variety of publicly traded REITs around the world. It does have some specific requirements. Not more than 50% of the equity portfolio’s assets at market value can be invested in any single property type. At least 80% of the securities must have been listed on the country exchanges for a minimum of three years.
The pension fund made a decision to invest up to $125 million into the Broadway Partners Real Estate Fund II, L.P. This allocation will not exceed 25% of the committed capital to the fund.
The investment strategy for the fund is to pursue the acquisition of office buildings that have a value-added component. Both A and B quality assets will be considered. The properties need to have an identifiable leasing advantage over competing properties and/or are inefficiently priced by the market with respect to the asset’s perceived versus actual risk profile.