REAL ESTATE – The $30bn (€23.3bn) Pennsylvania State Employees Retirement System will be looking at investing capital into three structured finance commingled funds at in next board meeting on September 13.
One of the commitments will be a second investment made to an existing fund. This would be a $15m commitment made to the Fillmore East Fund managed by Fillmore Capital Partners. The pension fund had originally invested $25m.
The other two investments will be to new funds. The commingled funds being considered are the Fidelity Real Estate Opportunity Income Fund and Rockpoint Finance Fund I. The commitments will be in the range of $35m to $50m for each fund.
Pennsylvania State is looking at this kind of real estate investment strategy with its real estate consultant, The Townsend Group.
The person working on the Pennsylvania account for Townsend is Principal Rob Kochis. He said, “Structured real estate investment funds are giving pension funds a way to invest in properties with strong cash flows and not have the risk of low cap rates as is the case with direct real estate investments. Many direct acquisitions are priced at 5% to 6% cap rates with the hopes of appreciation increasing the return in the future. The structured funds can produce double digit returns with less risk. They typically involve taking the second position in a deal behind the primary investor.”
Fidelity Investments is looking at raising $1 billion of equity for its Real Estate Opportunity Income Fund. It’s been projected that investors in the fund will achieve leverage IRRs in the 10% to 12% range. The commingled fund will be looking at investing in a variety of property types across the country.
The Rockpoint Group LLC is the fund manager of Rockpoint Finance Fund I. The total equity raised for the fund is around $600m. Most of the investors in the fund figure to be state pension funds.
Anticipated investor returns for the fund are a 15% to 18% leveraged IRR. The investment strategy in the fund is to invest in land for land banking for the single-family developers nationwide.
The pension fund has a real estate allocation of 8%. This would give it $2.4 billion to invest in the assets class. The institutional investor has now invested $2.2 billion of the allocation.
