UNITED STATES - Pension funds in the United States are still choosing to invest in core strategy real estate, despite evidence over recent months suggesting many funds are turning to wider diversification.
The New Jersey Division of Investment has made a $100m (€68m) commitment into the AEW core open-ended fund as it understands the commingled fund will be buying properties at current market prices over the next two years and may benefit from by purchasing assets in a soft market environment.
With the cap rate compression era now over, pricing on even core assets is starting to drop a little, making it a more attractive time for pension funds to buy properties, according to officials.
As a result, New Jersey has extended its commitment to AEW's $800m of seed capital, having been one of the original investors in 2007 with a $100m commitment.
The pension fund decided at its board meeting on December 21, with the assistance of real estate consultant The Townsend Group to make this new commitment as it falls in line with the pension fund's strategy for core investing to either expand an existing relationship with a core manager or find new ones to invest with.
The core open-ended fund will focus on the acquisition of the four main property types -office, industrial, retail and apartments and restrictions means no more than 15% of the portfolio can be value-added.
Leverage on the commingled fund will also be capped at 30% and only properties in the United States will be considered.
Similarly, Los Angeles Fire & Police Pension System is putting some capital into core assets as pension fund has given its separate account manager, Urdang Capital Management, approval to pursue the purchase of The Shops at Blue Bell in Blue Bell, Pennsylvania
Urdang is proposing a purchase price of $22m, with 47% leverage, giving projected cash-on-cash return of 5.73% on the deal.
The shopping centre is 100% leased and totals 9,569m2.
But Los Angeles Fire & Police still has a way to go before it reaches its 30% core allocation with the real estate portfolio. Its current core assets allocation now stand at 22% so even with the addition of the Blue Bell property this would still leave it short of the allocation.