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CalSTRS forms new US housing JV – Exclusive

The $215.3bn pension system is seeking to increase its national exposure to the residential sector through its new partnership with GTIS.

The California State Teachers’ Retirement System has formed a joint venture with New York-based private equity real estate firm GTIS Partners to initially invest $204 million in homebuilding and residential lot development across the US, PERE has learned.

“What’s interesting is it’s the largest asset class and most institutional investors don’t invest in it.”

-Tom Shapiro

The alliance represents the first programmatic JV with an institutional investor for GTIS, which currently manages $4.1 billion in assets, primarily through discretionary funds and some co-investment vehicles.

A commitment from one of the largest US pension plans into single-family homebuilding is significant, given that most other institutions still do not view the sector as an asset class, Tom Shapiro, GTIS’s president and chief investment officer told PERE.

He estimated that the US had 100 million-120 million single-family homes, comprising an approximately $20 trillion market – larger than every other property type combined. “What’s interesting is it’s the largest asset class and most institutional investors don’t invest in it,” Shapiro said.

Public homebuilders took a hit during the global financial crisis and continue to face a capital crunch, he added: “Since the crisis, there’s been more demand for outside capital from homebuilders. Prior to the crisis, these firms went too long on land right before prices collapsed. Now they are deploying a land light model so they can invest their capital in the manufacturing of homes. That has created a capital need.”

CalSTRS already invests in the US residential sector through The Resmark Companies and IHP Capital Partners, both of which focus on land and housing development, but had sought to further increase its housing exposure and had spoken to several firms before selecting GTIS, senior managing director Rob Vahradian said.

To date, the pension system has committed $400 million to the Resmark JV and $250 million to the IHP JV. Both partnerships commenced in the summer of 2010 and target opportunistic returns.

While the Resmark and IHP partnerships have a heavy concentration in California, GTIS’s JV with CalSTRS would exclude California and be about 60 percent focused in the east and south-eastern US, said Vahradian. The partnership could also potentially invest in other markets such as Texas, Seattle and Phoenix. Through the JV, the partners plan to deploy 75 percent of the capital in homebuilding projects and the remainder for residential lot development, and will be seeking opportunistic returns for the investments.

“We will focus on the ‘smile markets’ around the country – Washington, the Carolinas, Florida, Texas, Phoenix, where we’ve seen the most housing growth,” he said. “Housing growth goes in conjunction with household formation and job formation, and those markets have been the beneficiaries of those two things.”

The supply for single-family housing remains very low, Vahradian added. “We’re still under producing compared to peak and historical levels, years when there was lot less population. We like the supply and imbalance and the growth that implies.”

Since the global financial crisis, GTIS has invested in close to 60 homebuilding and land building projects, deploying $600 million of equity across $2.4 billion of project costs.

CalSTRS had nearly $26 billion in real estate assets of September 30, or 12 percent, of an overall $215.3 billion portfolio.