UNITED STATES - Teacher Retirement System of Texas is looking at making new real estate commitments totaling $600m (€402.8m), the bulk of which will tap into the demand for institutional debt support.
Most significant of these commitments is a $150m investment in the Morgan Stanley Real Estate Mezzanine Partners Fund, which managed to raise $1bn in one month, and shows there are many pension funds and other institutional investors who believe there is a major short-term investment opportunity to be had in the structured finance arena.
Some of the traditional routes to structured finance capital have now been knocked out of the marketplace since the changes in the debt market almost six months, but this gives new sources of capital such as pension fund assets an investment opportunity to fill in the gaps.
Texas Teachers anticipate its investment will achieve a gross IRR of 15% and a net IRR of 12% on the commingled fund, but the Mezzanine Partners fund only deals with transactions in the United States and which are related to the traditional property types of office, industrial, retail and apartments.
At the same time, Texas Teachers is looking at making an investment in another structured finance fund with its $200m commitment to the $1.75bn Five Mile Opportunity Fund II.
The remaining assets pension fund considered two other commitments to international commingled funds, the first of which is a $150m commitment to the Prudential Latin America Residential Fund III - a $1bn fund being raised by Pramerica Real Estate Investors to invest in high-end residential projects in Mexico, built either as single-family homes or luxury condos as part of a resort.
The final installment of $100m has been committed to the £1.3bn ARA Asia Dragon Fund which is expected to invest in properties in mainland China, Hong Kong, Singapore and Southeast Asia.
ARA's investment strategy calls for 50% of the deals to be development plans while the other 50% will be used to buy existing properties that are underperforming.