Florida eyes first overseas real estate commitments

The $161.8 billion pension plan could commit up to $200 million to its first international property vehicles in the coming year and likely would start with investment strategies targeting Asia.

The Florida State Board of Administration (SBA) could begin making its first investments in non-US-focused real estate funds this year, as part of a broader initiative by the pension plan to increase its international exposure. Such commitments could total as much as $200 million – with individual allocations of approximately $50 million – during its current fiscal year, which began on July 1.

To date, the SBA has not invested in regional or country-specific real estate funds outside the US. Meanwhile, it has allocated less than five percent of its property portfolio to global real estate funds such as The Blackstone Group’s Blackstone Real Estate Partners VI and VII, Rockpoint Group’s Rockpoint Real Estate Fund IV and Starwood Capital Group’s Starwood Distressed Opportunity Fund IX. While all of those funds have some international real estate exposure, the majority of those funds’ investments have been concentrated in the US.

Florida hadn’t invested in dedicated international property funds previously because of a heavy core emphasis in the past. In recent years, however, the pension plan has dialed up its opportunistic allocation target to 15 percent of its real estate holdings, with an investment range that could go up to 30 percent. In addition, “the very tough core pricing environment in the US, in our opinion, is just not making for a lot of attractive opportunities today,” said Steve Spook, senior investment officer for real estate at Florida SBA.

The SBA currently is considering capping its overseas investments at 15 percent of its private real estate portfolio. “We’re obviously going to try to educate ourselves as much as we can before we make any investments, but really one of the best ways to learn about different markets is to actually be invested over there,” Spook said.

Spook anticipates that SBA would make its first non-US international commitment to an Asia-focused vehicle because of the amount of due diligence it already has done on the region. He and a colleague recently returned from a due diligence trip to Asia, where the two met with numerous managers in Japan, China and Hong Kong.

“We’re still in the phase of trying to assess where the opportunities are in Asia,” Spook said. “We do think there’s opportunity in the region.”

For more on this story, check out the full article in the September issue of PERE.