REAL ESTATE - San Diego City Employees’ Retirement System has approved a $20m (€15.5m) commitment to the Cornerstone Apartment Venture III, LLC. This is a commingled fund that is managed by Cornerstone Real Estate Advisers.
The real estate manager is hoping for a total equity raise of $400m. The projected return for investors in the fund is 14.3% net of fees. The loan to value ratio for the commingled fund’s portfolio is 65%.
San Diego City made this commitment with the assistance of its real estate consultant, The Townsend Group. The person working on this account for the consultant is principal Matt Johnson.
Townsend believes in investing in apartments now. Vacancy rates for apartments have dropped to 5.6% from 6.9% from a year earlier. More demand for apartments is coming due to interest rates rising for the purchase of single-family homes. This has allowed apartment owners to increase rental rates. These factors should continue to happen with increasing job growth projected for the future.
Cornerstone’s parent company is the Mass Mutual Life Insurance Company. It will be making at least a $25m co-investment to the fund.
Apartment Venture III is a high return investment fund. The strategy is to invest equity in new development projects or buy existing assets that have the potential for development or redevelopment. Only apartments will be considered.
The deals will involve forming joint ventures with development partners. Some of the markets it will be investing in include New York, Washington, DC, Boston, Los Angeles and Seattle.
There are some pre-specified assets in the fund. One of these is the 430-unit Pacific Place complex in Los Angeles. This is a new development project. It will be finished in 2008. The total cost of the project is $118.5m. The equity commitment from the fund is $47.4m. The stabilized return on cost is 5.9%. The leveraged IRR on the transaction is 17.4%.
The other property is the Summit Apartments in Methuane, Mass. This is a 280-unit complex that will be completed by this March. The total cost of the facility is $44.6m. The equity investment from the fund is $18.2m. The stabilised return on cost is 7.5%, with a leveraged IRR of 18.4%.
Cornerstone has two other assets in the pipeline. One is the 146-unit Glenview House Apartments in Stamford, Conn. The anticipated cost to build the property is $60m. The other is the 104-unit Tuscany Apartments in Alexandria, Va. The total cost of this project is $33m.
Cornerstone is hoping for a final close on Apartment Venture III sometime this month. There is a 24-month investment period to find all of the deals for the fund. The real estate manager has the right to extent this by one year.