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CalSTRS buys LCOR from Lehman

The $154 billion state pension has purchased a controlling stake in US multifamily developer LCOR from the estate of the former Wall Street banking giant for $820 million.


As a means of enhancing its real estate portfolio, the California State Teachers' Retirement System (CalSTRS) is buying a controlling stake in a US real estate development firm owned by the estate of Lehman Brothers Holdings.

The Wall Street Journal is reporting that CalSTRS is finalising a deal to buy a majority stake in LCOR from the estate of the former Wall Street banking giant. The $154 billion state pension plans to pay more than $820 million for a stake of more than 90 percent in LCOR, including 14 apartment properties comprising nearly 5,000 apartments. Lehman acquired LCOR in 1999. 

As part of the deal, which closed today, LCOR will retain the remaining stake, which will be less than 10 percent. Peter DiLullo, LCOR’s president and chief executive officer, said: “LCOR has enjoyed a longstanding relationship with CalSTRS in an existing multifamily partnership, and we are looking forward to furthering our business together in this new venture. Our partnership with CalSTRS provides a solid foundation for growing our portfolio and executing on well-positioned development opportunities.” 

CalSTRS has been looking to not only invest in more stable, income-producing properties, but also to develop its own core assets. The pension has set a goal to have roughly half of its $19 billion in real estate allocated to core investments. Documents from its April board meeting reveal that, as of fall 2011, that figure was at 31 percent. This acquisition theoretically will enable the pension plan to develop its own core properties. 

Timothy Works, the portfolio manager at CalSTRS who is overseeing the new venture, added: “We look forward to capitalising on the substantial growth potential of this enterprise.”

LCOR has a pipeline of approximately 16 million square feet of planned multifamily, mixed-use and office projects, including developments in cities such as Hoboken, New Jersey; Tysons Corner, Virginia; and Montgomery County, Maryland. Past projects by LCOR include the 2.5 million-square-foot headquarters of the US Patent and Trademark Office in Alexandria, Virginia and the development of Terminal 4 at John F. Kennedy International Airport in New York. In addition, the developer is in the process of constructing Aurora, a planned 341-unit apartment building in North Bethesda, Maryland.

Lehman emerged from bankruptcy protection earlier this year with a plan to liquidate assets. “This is an excellent outcome for these properties and for all of the constituents who will benefit, including our creditors,” said Jeff Fitts, Lehman's head of real estate. Last year, the firm valued its real estate assets at more than $13 billion.