The Massachusetts Pension Reserves Investment Management (PRIM) Board has approved a commitment of up to $100 million to DivcoWest’s latest value-added offering, marking the first non-core real estate investment the Boston-based pension plan has made since it increased its non-core allocation in August.
The commitment recommendation, presented at the board’s December 3 meeting, cited DivcoWest Fund IV as an attractive opportunity for PRIM’s non-core program due to its focus on markets that will “benefit from growth in the technology sector over the next several years.” In August, the PRIM board approved a doubling of its non-core target from five percent to 10 percent of its property portfolio, with the option to increase the allocation to 15 percent. The 10 percent allocation provided historically core real estate investor PRIM with an additional $250 million of capital to invest in non-core.
Fund IV, which is targeting $750 million in equity commitments, held a first close in September on $125 million, according to a filing with the Securities and Exchange Commission. The fund is targeting a gross internal rate of return of 14 percent to 18 percent and will invest in high growth markets that provide “attractive opportunities to acquire, redevelop and develop office and R&D properties that are either unique in quality or at discounts to replacement costs,” according to PRIM documents. These markets include the San Francisco Bay Area; Southern California; Seattle; Portland, Oregon and Austin as well as the Boston, New York and Washington, DC metropolitan areas. Fund IV will enhance the value of the assets through repositioning, re-tenanting, capital improvement and development.
PRIM also noted that DivcoWest is using placement agent Greenhill & Co. to solicit interests for Fund IV. However, Greenhill was not involved in PRIM’s process of committing to the fund. PRIM has an existing relationship with the fund manager through its $50 million commitment to predecessor vehicle DivcoWest Fund III, which it made in 2012.
In January 2012, PERE reported on the close of Fund III, which, along with its co-investment vehicle, raised $871 million in equity commitments in just over six months. Other investors in the fund included the Ohio Police & Fire Pension Fund, investment management firms, endowments, foundations and high net worth individuals.