CalPERS to sell $3bn of real estate

The $300 billion pension plan’s offering would be the largest ever on the real estate secondary market.

The California Public Employees’ Retirement System (CalPERS) said today that it is planning to put up to $3 billion of its real estate investments on the secondary market. The pension has hired Park Hill Group to assist with the sale.

“The sale of these assets represents the continued effort to reduce costs, risk and complexity across the CalPERS fund,” said Paul Mouchakkaa, CalPERS’ senior investment officer for real assets, in a statement. “For the Real Estate Program it will enable us to invest in assets and managers that are more aligned with our current strategy.”

The pension system previously has sold real estate interests on the secondary market, including a small private sale in 2012. However, “this is the first time we’ve looked to sell at this scale,” said a CalPERS spokesman in an email to PERE. “Everything in the Legacy Portfolio, ex housing, is open.”

CalPERS’ real estate legacy portfolio, which predominantly consists of fund interests, comprises more than 50 external managers, according to a CIO performance report for the quarter ended December 31. Among the largest non-housing investments in the legacy portfolio are interests in GI Partners’ GI Partners Fund III and Starwood Capital Group’s Starwood Hospitality Fund II Global.

The secondaries portfolio would include assets that no longer fit with the real estate program’s current strategic goals, and would be split between international and domestic investments. CalPERS primarily invests in core assets in traditional property types such as office, industrial, multifamily and retail in the US and international growth markets.

The sale of the real estate interests represents CalPERS’ first step under a new plan to cull the number of external investment managers in its overall portfolio from approximately 200 currently to some 100 by 2020. Within real estate, the system currently has 51 external managers, and intends to reduce that number to 15 in five years. The pension plan would invest in the remaining managers through larger and more strategic relationships.

CalPERS’ offering is the largest ever on the real estate secondary market. Earlier this year, Harvard Management Company put approximately $1.3 billion of real estate fund interests up for sale, but the CalPERS deal, if successful, would be more than double that amount.

Park Hill will immediately seek offers from potential buyers on the secondary market. The CalPERS secondaries sale is anticipated to be completed by the end of the year. The pension plan currently holds approximately $25.5 billion in commercial, industrial and residential assets.