The Florida State Board of Administration (SBA) has unveiled its real estate plan for the 2014-2015 fiscal year, which began on July 1. As part of that plan, SBA, which manages the assets of the $149.1 billion Florida Retirement System (FRS) pension plan, is aiming to deploy $900 million in real estate over the 12-month period.
Of the $900 million, SBA is targeting $500 million in core investments and $400 million in non-core investments. To date, it has committed $100 million to a core industrial commingled fund and $50 million to a non-core pan-European commingled fund.
The SBA is preparing to make the sizable capital outlay in real estate as it strives to achieve its new 10 percent target allocation in the asset class, which was approved in December. Its current real estate allocation is 7.5 percent. “We have a target of 10 percent that we need to reach,” said Steve Spook, senior investment officer for real estate. “We are not trying to compete with the sovereign wealth funds, so we’re not going after the trophy New York City or trophy San Francisco assets because those buyers have different return targets than we do. They don’t have a 10-year underwriting horizon like we do, they have may have a 50-year horizon.”
Within core, the state has been looking heavily at industrial and multifamily assets, Spook noted during the SBA’s investment advisory council meeting this week. “We always have a hard time hitting targets in industrial because those assets are smaller,” he said. In the new fiscal year, the state plans to pursue attractive new development opportunities within its build-to-core program and convert completed and stabilized projects to core.
Additionally, SBA has been pursuing a number of niche strategies in real estate in an effort to generate total returns that are higher than 6 percent. One such strategy is retail aggregation, which involves buying individual retail assets that can be assembled or aggregated into a large portfolio. SBA recently acquired one new asset for the strategy for $7.5 million. “We wouldn’t mind having a little more retail, although build to core is extremely difficult in that category,” he said.
Within non-core, SBA plans to continue to invest in international pooled funds. The state made its first international real estate fund investment during the fourth quarter of last year, committing $200 million to The Blackstone Group’s Blackstone Real Estate Partners Asia. Since then, SBA has gone on to make additional international investments, including the equivalent of $75 million in Tristan Capital Partners’ European Property Investors Special Opportunities 3 and $100 million to Europa Capital’s Europa Fund IV this year.
SBA serves as the investment manager for more than 30 mandates in the State of Florida and oversaw a total of $180.97 billion in assets as of June 30. The FRS pension plan accounted for 82.39 percent of SBA’s total assets at the end of its last fiscal year.