The Los Angeles County Employees Retirement Association (LACERA) has agreed to invest $100 million to become the sole limited partner in CityView Bay Area (CVBA) II, a new vehicle sponsored by Los Angeles-based real estate investment manager CityView. Similar to the firm’s predecessor fund, CVBA I, the new vehicle will develop and redevelop multifamily rental properties in the San Francisco Bay Area.
In a recommendation to LACERA’s board of investments, John McClelland, principal investment officer of real estate, and Trina Sanders, investment officer of real estate, wrote: “The structure will result in LACERA having significant control rights, such as limiting the amount of leverage that can be used and retaining approval authority for any variance in investment parameters or manager termination. Importantly, LACERA also would retain the ability to acquire 100 percent interest in completed assets as long-term core holdings.”
The pension plan will have a 99 percent interest in CVBA II, while CityView will co-invest one percent of the total amount committed by LACERA.
CVBA II represents LACERA’s second such investment with CityView. The pension plan previously committed $100 million to CVBA I, which is expected to be fully invested by the end of the year. To date, the predecessor vehicle has made three investments totaling $51 million and has committed an additional $24 million. At its board meeting last month, LACERA approved a co-investment of $29.4 million to a multifamily project with CVBA I, marking the pension plan’s first real estate co-investment.
The new vehicle, which is targeting net returns of 13 percent to 15 percent, will invest in projects that will consist of 60 to 250 units and require $10 million to $25 million of equity. Investments primarily will be executed via joint ventures with local builders. Projects may include multifamily and mixed-use properties and will utilize up to 65 percent leverage.
CVBA II is expected to benefit from high demand and limited supply of rental apartments in the Bay Area. The market is expected to add an additional 65,000 renters annually, and the new supply of multifamily properties as of 31 March was only 1,817 units – the lowest level since the late 1990s, according to LACERA.
LACERA initially began investing with CityView in 2007, committing $50 million to the firm’s first commingled real estate fund, CityView Los Angeles, alongside the California Public Employees’ Retirement System, the Los Angeles City Employees’ Retirement System and the Los Angeles Fire and Police Pensions.