UNITED STATES - San Francisco City and County Employees' Retirement System is planning to invest capital in public REITs and the non-core sector of its real estate portfolio over the next year.
The pension fund's staff and its real estate consultant, The Townsend Group, plan to evaluate the public REIT markets this September and may then recommend an allocation of up to $50m (€36.8m) be invested in a global REIT strategy.
Pension fund officials say the current pricing of real estate securities is attractive with global markets trading at a 9.6% implied cap rate, so existing global REIT managers - European Investors and ING Clarion Real Estate Securities - could benefit.
Both firms were hired in February 2008 and awarded a $75m allocation at that time, to be treated as core real estate investments.
European Investors now manages a REIT portfolio for the pension fund valued at $41.8m while ING Clarion handled a portfolio valued at $42.8m at the end of 2008.
Under the new plan, however, San Francisco City and County wants to selectively allocate up to $200m for non-core investments as pension fund officials say the re-pricing of real estate will create an attractive market into next year and the pension fund is keen to take advantage of the demand for rescue capital and capitalize on distressed sellers.
Going forward, the investment staff of San Francisco City and County and Townsend will jointly present new investment opportunities to the Retirement Board that are both sustainable and fully underwritten with solid market research, based on best-in-class opportunities with excess returns.
San Francisco City and County had a real estate portfolio valued at $1.7b at the end of 2008 so has so far invested 14% of its $11.9bn of total plan assets in the asset class.
The pension fund has a 12% targeted allocation for real estate with a range of 9% to 15%.