LACERA eyes 35% return on Clarion's build-to-core investment

Clarion Partners is considering further development projects in the US following the success of its development strategy with Los Angeles County Employees Retirement Association (LACERA).

As part of its build-to-core strategy, Clarion developed two industrial properties in Compton, California, on behalf of LACERA.

According to LACERA’s board meeting report, the properties, which have recently been valued at $232m, were built for a total cost of $158m. The investment is expected produce an unrealised internal rate of return of 35%.

The 500,000sqft assets, leased to UPS and Best Buy, were financed with a $105m seven-year loan at a fixed interest rate of 3.46%.

LACERA is now expected to hold the asset and place it within its core portfolio.

The projected levered annual cash flow from the stabilised investment is 10% on LACERA’s cost basis and 4.3% on market value.

Eric Bergwall, managing director at Clarion, said the project in Compton was the company’s first build-to-core project with LACERA.

“We have used this strategy as a company in the past with commingled funds that we manage. We will consider doing this more down the road.”

Clarion expects to consider the build-to-core strategy for industrial and apartment properties in the future.

“There are only a few markets in the US that we would consider doing this for industrial going forward,” Bergwall said.

“If you can find the right project, we would like to find opportunities in Southern and Northern California, Seattle and South Florida.”

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