CalSTRS adds new RE core classification

The $206bn pension system is also looking for a new consultant in the asset class.

The California State Teachers’ Retirement System is forming a new subcategory within its core real estate holdings, according to board documents posted ahead of its Wednesday meeting.

CalSTRS is adding ‘transitional-core’ to differentiate holdings that “are expected to meet all core definitions within a short period of time,” which could include assets that are build-to-core, lease up strategies, forward commitments and those that have higher-than-average leverage ratios, according to meeting materials.

Leverage on the transitional-core portfolio is capped at a 40 percent loan-to-value ratio.

The transitional-core properties are limited to 20 percent of the core portfolio, which comprised 55 percent of CalSTRS’ overall $24.7 billion real estate holdings as of December 31, according to its most recent investment report.

CalSTRS is also launching a search for a real estate consultant, according to board documents. The pension system’s current contract with Cleveland, Ohio-based Townsend Group expires in late February 2018, and CalSTRS is looking to sign a new contract to start in the first quarter of that year.

The pension system will release its full request for proposals in July, with responses due in August. CalSTRS plans to review the RFP responses in September and October, then interview finalists and make its selection in November.

The real estate consultant’s duties include making quarterly investment reports, attending investment committee meetings and advising the pension system on industry trends. The firm must have been in business for at least three years. The lead consultant and primary assistant must also have three years of institutional real estate consulting experience.

CalSTRS plans to score applicants on four levels: the proposal questionnaire on organization, real estate consulting experience and performance reporting services, fee proposal, semi-finalist interview and finalist interview.

The pension system managed $206 billion in overall assets as of April 30.