The California State Teachers' Retirement System (CalSTRS) has designated $1.25 billion in its latest round of commitments to real estate. The $186.4 billion pension plan will deploy most of the capital in non-core commingled funds, according to its investment report for the quarter ended December 31.
The $1.25 billion allocation represents one of the largest amounts of capital that CalSTRS has earmarked to real estate in a single quarter. The last time the pension plan had agreed to invest more than $1 billion to property was during the quarter ended on June 30, 2012, when it committed $1.17 billion to the asset class. During the third quarter of 2007, CalSTRS made slightly more than $2 billion in commitments to real estate.
More than half of the $1.25 billion will be designated for value-add strategies, including $150 million to Beacon Capital Partners' Beacon Capital Partners VII, plus an additional $100 million in co-investment capital. The vehicle, which has a $1.25 billion equity goal, will acquire high-quality value-add office properties in US markets, with the intention of creating value through capital improvements, repositioning and leasing. CalSTRS also agreed to invest $300 million to The Blackstone Group's open-ended fund, Blackstone Property Partners, which will target a core-plus strategy focused on assets and portfolios in US gateway markets.
In its sole commitment to a new manager, CalSTRS pledged $100 million to AEW Management's AEW Value Investment Asia II. The new value-add fund, which is targeting $500 million to $750 million, will pursue diversified property investments, predominantly in the major gateway cities of Hong Kong, Singapore, Taipei, Taiwan, Seoul and Shanghai.
Meanwhile, the pension plan made a follow-on commitment to Crossharbor Capital Partners' opportunistic fund, Crossharbor Institutional Partners 2014. The $500 million fund will focus on both real estate equity and debt investment opportunities where “exceptional” risk-adjusted returns could be generated over a short- or medium-term hold period, the investment report said.
CalSTRS' only non-fund commitments were in core strategies. Continuing its search for core international property investments, the pension system committed $200 million to an Asia-focused joint venture with LaSalle Investment Management. The partnership will seek to build a diversified property portfolio in the major urban centers of Japan and Australia.
Additionally, CalSTRS plans to invest up to $200 million to GI Partners for its existing LCOR project platform. The follow-on commitment will consist of a $100 million allocation increase to the joint venture, and the recycling of up to $100 million in capital distributions from the partnership, which was formed in 2013. The venture is centered on opportunities in US East Coast markets with high barriers to entry, strong supply and demand drivers and projected rent growth.
At year-end 2014, CalSTRS held a total of $22.72 billion, or 12.18 percent of its total portfolio, in real estate, slightly below its 13 percent allocation target for the asset class. Within its property portfolio, $10.91 billion was allocated to core real estate, $2.96 billion to value-add and $8.82 billion to opportunistic.