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CalSTRS backs Fortress, Blackstone

The $191.20 billion pension system’s latest commitments were part of an overall $855 million allocation made to real estate during the first quarter.

The California State Teachers’ Retirement System has made another round of real estate commitments, earmarking a total of $855 million to the asset class during the first quarter, according to its latest quarterly activity report. All seven of the planned investments are in the value-add and opportunistic end of the risk/return spectrum.

The largest of the commitments went to Fortress Investment Group, which received $200 million for FCO MA IV, which will invest in a wide range of distressed and undervalued credit and real estate opportunities with the purpose of generating significant current income and long-term capital appreciation. CalSTRS, which will own a 47.96 percent stake in the fund, previously formed three similar vehicles with Fortress, and also was a limited partner in the firm’s Fortress Investment Fund III, IV and V, among others.

In other opportunistic investments, the pension system also pledged $150 million to The Blackstone Group’s Blackstone Real Estate Partners VIII, which is focused on larger investments in markets or situations where the New York-based private equity firm has a dominant position and a competitive advantage. BREP VIII is the firm’s latest global property fund that recently raised $15.8 billion in institutional and high-net-worth capital. CalSTRS was one of the backers of BREP VII, the predecessor to the fund.

Additionally, the pension system made a follow investment of $100 million to a 50-50 joint venture with Brookfield Asset Management. The venture, to which CalSTRS previously committed $240 million, will continue to target residential housing and land opportunities. The public institution also added $50 million to its existing joint venture with IHP Capital Partners. 

CalSTRS earlier had provided $200 million to the partnership, will remain focused on single-family housing projects, residential land and entity-level investments in operators and builders.

In the value-add space, the pension plan’s sole fund commitment was $100 million to JP Morgan Asset Management’s JP Morgan Special Situations Property Fund, an open-ended fund that targets property investments that generate a moderate amount of current income and high residual appreciation. “The fund’s portfolio provides investment stage diversification as it includes both an income-generating component as well as a non-core enhanced return component,” CalSTRS noted in its report.

Other value-add investments involved single-asset transactions, such as $115 million for the acquisition of The Pen Factory, a vacant industrial property in southern California that will be repositioned into a creative office property, and $140 million for the purchase of 180 Maiden Lane, a 41-story Class A office tower in New York City’s Manhattan borough. Both deals were executed through a separate account and joint venture, respectively, with Clarion Partners.

As of March 31, real estate represented $23.43 billion, or 12.25 percent, of CalSTRS’ total $191.20 billion portfolio. Of its property holdings, $11.56 billion was in core, $3.27 billion in value-add and $8.57 billion in opportunistic.