The Massachusetts Pension Reserves Investment Management (PRIM) Board has approved a $100 million commitment to a new industrial development program with real estate investment manager AEW Global. The partnership will invest the capital in three to four transactions throughout 2014 and will begin sourcing opportunities immediately in such markets as Atlanta, Chicago, Miami and Seattle and throughout Southern California and Texas.
Documents from Mass PRIM’s February 4 board meeting describe the joint venture as “an attractive non-core strategy and a source for core industrial properties.” The JV will be structured with a 95 percent investment from Mass PRIM and a 5 percent co-investment from AEW, and pension staff will perform all transaction reviews and have control over major asset level decisions. Documents noted that Mass PRIM expects return premiums of 150 to 200 basis points over the unlevered core assets.
Tim Schlitzer, a senior investment officer and director of real estate and timberland at Mass PRIM, told PERE that the pension currently has core industrial holdings with AEW and other managers. “We’re looking to build up that portfolio, and we’ve found that industrial has been harder to acquire at times,” he said. “The drivers in the property type right now are attractive, and there’s an acceptable premium for the risk of development.”
Separately, Mass PRIM’s 2014 Objectives and Initiatives also included a $616 million allocation to core acquisitions, which it will make through commitments to existing separate account advisors. The pension will be targeting core properties in the US across the four major property types.
The pension also revealed that it will be issuing a request for proposals for a real estate and timberland consultant in April, when its contract with current consultant The Townsend Group expires. Schlitzer noted that Mass PRIM will consider hiring a separate consultant for each asset class or one consultant for both. Currently, Townsend advises the pension for both real estate and timberland.
The $57.2 billion pension has a real estate target of 10 percent, with a current allocation of 8.6 percent to the asset class. Within its real estate target, Mass PRIM allocates 70 percent to core strategies, 10 percent to non-core strategies and 20 percent to real estate investment trusts. In December, PERE reported on the historically core-focused pension’s $100 million commitment to DivcoWest’s latest value-added offering, DivcoWest Fund IV.