CalPERS make first investments for emerging manager program

Through its venture with Canyon Capital, the $260 billion state pension system has made its first two investments in early-stage real estate managers, which are expected to result in $60 million to $100 million in acquisitions by each firm.

The California Public Employees’ Retirement System (CalPERS) has made its first two investments in early-stage real estate managers through the Canyon Catalyst Fund, its $200 million emerging manager venture with Canyon Capital Realty Advisors. The $260 billion state pension system made its first investment through the program with Rubicon Point Partners late last week and quickly followed that up with an investment with Paragon Commercial Group this week.

In its first partnership through the emerging manager venture, CalPERS entered into a joint venture with private equity firm Rubicon Point Partners, a San Francisco-based private equity real estate firm focused on value-added acquisitions in northern California. With the backing of the Canyon Catalyst Fund, managing partner Ani Vartanian-Boladian and her team will focus on pursuing office, R&D and data center properties and invest a total of $60 million to $100 million, including leverage. In fact, Rubicon already has closed on its first joint real estate acquisition, purchasing a two-story office building with ground-floor retail space in Mountain View, California.

“It is critically important to cultivate the next generation of fund managers that will be deploying capital in California’s urban real estate markets,” said Bobby Turner, chief executive of Canyon Capital, in a statement. “The Canyon Catalyst Fund is a unique program, and we at Canyon appreciate the opportunity to share our expertise with firms like Rubicon Point Partners to help develop a talented group of emerging fund managers.”

Maria Stamolis, managing director at Canyon Capital, added: “Ani’s track record of success in the financial industry and her depth of expertise in the San Francisco Bay Area market make her an excellent first partner for the Canyon Catalyst Fund. We look forward to providing support for Rubicon Point Partners and empowering Ani’s team to grow their operating platform and capabilities within the northern California market.”

In its second partnership through the Canyon Catalyst Fund, CalPERS has entered into a joint venture with Paragon Commercial Group that will result in $60 million to $100 million of retail property acquisitions in urban markets throughout California. Founded by Mark Harrigian, Erwin Bucy and Jim Dillavou, the Los Angeles-based firm specializes in developing and redeveloping retail properties with a focus on underutilized assets in infill and high barrier-to-entry submarkets. Specifically, the firm targets grocery and other community-based assets, as well as the redevelopment of existing centers.

 “Mark, Erwin and Jim have developed outstanding relationships with retail tenants and have a great sense of how to optimize property layouts, improve operations and plug into the local market,” said Stamolis. “We are hopeful this new partnership will translate to unique acquisition opportunities and broaden Paragon’s commercial investment platform,” added Turner.

The $200 million Canyon Catalyst Fund, which will facilitate some $400 million of investment, is designed to identify early-stage real estate managers with strong potential for success and access to unique investment opportunities, thereby cultivating the next generation of real estate investment managers. Canyon provides direct oversight of investment sourcing, selection and deal structuring and oversees asset management through to final realization.

As reported by PERE in late September, the Canyon Catalyst Fund will seek up to six managers with less than $1 billion in assets under management and no more than three prior commingled funds or separate account investment vehicles. The program will focus on managers and assets in urban California markets and, once the managers are selected, Canyon Capital will mentor them through the fundraising process.

CalPERS follows in the footsteps of other state pension plans that have adopted programs for emerging real estate managers, including the Employees Retirement System of Texas and the Teacher Retirement System of Texas. In particular, it is similar to a program implemented by the New York State Common Retirement Fund, which selected Artemis Real Estate Partners to oversee its emerging manager investments.