CalSTRS commits $620m to real estate

More than half of the $165.8 billion pension plan’s property allocation during the second quarter was designated for value-added and opportunistic joint ventures.

The California State Teachers’ Retirement System (CalSTRS) agreed to invest a total of $620 million to real estate during the three-month period ending June 30, accounting for nearly half of the more than $1.3 billion that the pension plan committed to the asset class during its fiscal year 2012-13.

Of the $620 million, all of which were follow-on investments to existing managers, $123 million went to value-added strategies, according to CalSTRS’ real estate quarterly activity report. This included $25 million to CSJV InvestCo, an existing joint venture now totaling $100 million with Fairfield Residential, a San Diego-based multifamily developer and asset manager that CalSTRS helped to recapitalize and take out of Chapter 11 bankruptcy protection in 2010. 

The pension plan also committed $98 million to PacificCal IV, a partnership with El Segundo, California-based real estate finance and investment manager PCCP. Considered a “blended strategy,” the joint venture will pursue value-added equity investments that will become part of CalSTRS’ core real estate portfolio in the longer term. 

The sole opportunistic transaction during the quarter was a $75 million investment in ResCal, a $204.1 million joint venture with Resmark, a Los Angeles-based real estate investment advisor focused on residential and retail real estate in the Western US. CalSTRS previously committed $125 million to the joint venture, whose strategy is “to generate strong risk-adjusted returns from residential investments into the housing and land market, which currently is experiencing a vibrant recovery and providing diversification to the real estate portfolio,” the pension system noted in the quarterly report.
Additionally, CalSTRS committed more than $400 million to core real estate strategies, including $20.2 million that was used in purchasing a limited partner’s interest in Fairfield’s CSOV Bouwfonds II at a 17.7 percent discount. The institution previously had committed $75 million to CSOV Bouwfonds in 2007.

The pension system also allocated $198 million to PacificCal PC Core, another joint venture with PCCP, but one that is targeting debt investments for a core real estate portfolio. Meanwhile, CalSTRS agreed to invest $200 million in the LCOR Project Platform, with the intention of developing, renovating and redeveloping a variety of residential real estate projects.

CalSTRS had formed a separate joint venture with LCOR, a Pennsylvania-based real estate development firm, last year following its acquisition of a majority stake in the company from the Lehman Brothers estate in May 2012. That partnership’s strategy is to operate existing multifamily assets as well as pursue opportunities to develop and acquire core assets along the Washington DC and New York City corridor.

At the end of June, CalSTRS held $22.9 billion in real estate, accounting for 13.82 percent of its total portfolio. Despite the fact that the pension system has continued to overweight core strategies, opportunistic real estate still represented the largest portion of its property portfolio, amounting to $10.41 billion in assets, up from $9.83 billion on June 30, 2012. Meanwhile, the institution’s value-added holdings dropped from $3.91 billion on June 30, 2012 to $3.51 billion at the end of its most recent fiscal year. Core real estate rose from $7.63 billion to $8.70 billion during that same period.