UNITED STATES - San Francisco City and County Employees' Retirement System is extending its relationship with CapMark Financial Group by approving follow-on real estate commitments worth $62.5m (€43.2m).

Pension fund officials say they feel it is now important to focus on the fundamentals and invest with strong local partners who have a long and proven track record, in light of the slowdown in the housing and commercial real estate markets.

San Francisco City and County has been working with executives at CapMark since 2001, including Robert Fabiszewski, now an executive vice president and manager director for CapMark, and the man who initiated the original relationship with the pension fund.

The largest of these new commitments is a $37.5m allocation to the CapMark High Return 50/50 Co-Investment Partnership, structured as a separate account which by the end of March saw total equity of $111.3m invested by San Francisco City and County.

This separate account partnership is designed to deliver 15% net IRR over one to five years by investing in US office, retail, industrial, land, hotels, mixed-use and credit enhancement opportunities where the purchase is either  new developments or repositioning of existing buildings.

The remaining commitment was $25m into the CapMark Value 50/50 Co-Investment Programme, which is a $188.7m project involving only San Francisco City and County and CapMark but is again designed to produce IRR of at least 10% over one to six years.

This CapMark Value programme invests only in US metropolitan residential apartments at present, though officials say some consideration is being given to student housing and condominiums.

Future deals are likely to be sought in "in-fill locations with high barriers to entry" so all transactions will have to have a value-added component, say officials involved in the project.

This latest move is part of the $15bn pension fund's decision to increase its holdings in real estate and raise its real estate allocation to 12%. (See earlier IPE Real Estate story: SanFran City & County ups real estate assets by 2%)