The Contra Costa County Employees Retirement Association (CCCERA) has approved a $25 million commitment to Paulson Real Estate Fund II in its last allocation to distressed real estate for the current fiscal year cycle.
In documents from the board’s September 11 meeting, CCCERA cited its reasons for committing to Fund II, the chief among them being the vehicle’s connection with another of CCCERA’s investments, fund of funds Siguler Guff Distressed Real Estate Opportunities Fund (DREOF). The first offering of the Paulson Real Estate Fund (PREF) is one of the investments in DREOF, to which CCCERA committed $75 million. As a result, the pension plan has an indirect exposure to PREF of approximately $4 million.
In July, CCCERA also made a $70 million commitment to Siguler Guff’s DREOF II. As DREOF II is likely to make a follow-on investment of around $40 million to PREF II, CCCERA will have an indirect exposure of $4 million to that fund as well. With the new $25 million direct commitment to PREF II, CCCERA’s exposure to the new Paulson real estate fund will total around $33 million.
CCCERA also found PREF II attractive because the value-added fund already has committed $170 million to eight investments, representing 40 percent of its $400 million equity target. Board documents described PREF II as “one of the more visible deals CCCERA recently has considered” and applauded Fund II’s robust pipeline, which has “four deals worth of $70 million likely to be closed at the Paulson team’s discretion in the next two quarters and another seven deals worth of $200 million in negotiations.”
However, CCCERA did note drawbacks to investing in PREF II. Pension documents explained that, due to strong demand, Paulson may cut back its allocations to certain investors. If CCCERA’s $25 million investment is cut below $20 million, the board will withdraw its commitment intent “due to the lack of scale for CCCERA.”
Managed by New York-based investment manager Paulson & Co. and run by hedge fund billionaire John Paulson, PREF II invests in residential lots throughout the US. The fund’s eight current investments have focused on the Denver, Los Angeles, San Diego, Tampa, Phoenix and Las Vegas markets. The fund, which is expected to hold a final close on November 8, is targeting $400 million in commitments, with a hard cap of $450 million. PREF II held its first close in May on $330 million in equity.