UNITED STATES – The Teacher Retirement System of Texas is thinking of investing $550m (€398.1m) into real estate – a move which could include putting money into casinos.
Rob Kochis, a principal with real estate consultant The Townsend Group, said the pension fund discussed increasing its contribution to Colony Investors VIII from $150m to $300m at a board meeting last week and giving the fund greater exposure to casinos as real estate
"The pension fund wanted to reward Colony Capital, as the manager has been one of its better performers," said Kochis.
Texas Teachers is looking at investing with Colony Capital in the acquisition of Station Casinos, a company with a solid position in Las Vegas casino market as well as three new developments underway and 400 acres of land for future development, some of which could be used for an expansion into California.
Total equity needed for the purchase of the casino company is $1bn but Colony Capital does not want all of the equity to come out of its commingled fund, which is expected to deliver a 20% plus net IRR.
"This year, Texas Teachers has approved a real estate allocation that moved the allocation from 3% to 10%," continued Kochis.
"To get to the new allocation, the pension fund needs to look at investing some capital outside of the box. This certainly fits in that category," he added.
Texas Teachers is also considering a $150m commitment to the BlackRock Retail Opportunity fund, a fund with 75% leverage, net IRR of 16% and is expected to have a totally equity raising of $750m.
The retail value fund is looking at a variety of retail investments such as investing equity in new developments and buying existing properties to improve them through new leasings or repositioning.
"BlackRock hired Greg Karlen a year ago as a managing director to startup this retail fund," said Kochin.
"He had a great deal of retail experience while working at Madison Marquette, a major player in the retail investment industry. So this should work out well," he suggested.
There are now four assets in the commingled fund, located in Chicago, Minneapolis, San Antonio and Houston, as a mixture of development and redevelopment opportunities while a fifth property deal is being worked out in White Plans, New York.
The commingled fund will be looking at making large deals in the region of $90m to $100m.
A final allocation of $100m could also be made by Texas Teachers to the L&B Diversified Strategic Partners LP, a commingled fund with a total equity raise of $400m and up to 65% leverage.
Net investor return on the value-added fund is likely to be 12-14% IRR as it invests mostly in the four main property types of office, industrial, retail and apartments.
Assets will be improved through a re-positioning, re-development or new leasing strategy along with some new development as the fund does allow for up to 30% to be in new developments on a discretionary basis providing the building is 50% pre-leased before construction starts.