The New Jersey Division of Investment (DOI) has approved a total of $300 million in investments to two non-core real estate funds, Northwood Investors’ Northwood Real Estate Partners (Series IV) and Hammes Company Health Care’s Hammes Partners II.
New Jersey has agreed to invest $200 million in the fourth offering of Northwood’s real estate fund, for which the New York-based firm is seeking to raise $800 million, according to an investment policy committee report to the New Jersey State Investment Council, which oversees the DOI’s investments. In August, the Wyoming State Loan and Investment Board committed $150 million to Series IV.
With its 25 percent stake in the fund, New Jersey will receive a 100 percent offset of management fees, which typically would include 1.5 percent on committed capital during the commitment period and 1 percent on invested capital thereafter, the report noted. The vehicle also will have a carry structure of 75 percent to the limited partner and 25 percent to the fund sponsor.
The state previously made a $75 million commitment in Northwood Real Estate Partners (Series III) and $75 million commitment in Northwood Real Estate Co-Investors in December 2012. The state’s latest commitment to Northwood now brings its total allocation to the firm to $350 million.
Northwood Real Estate Partners was first launched in 2006 and had raised approximately $2.8 billion through its first three offerings, including a $500 million close for its third round of fundraising late last year. The fund has a unique ‘evergreen’ structure, where it can hold assets for up to 15 years and re-invest proceeds back into the vehicle.
Additionally, the firm is allowed to add capital to the fund once each calendar year, which is distinct from open-ended funds that can accept capital on a more frequent basis. The amount of capital that can be raised during each offering depends on the amount of capital currently available.
Meanwhile, New Jersey also earmarked $100 million to Hammes Company Health Care’s first institutional real estate fund, Hammes Partners II, which will focus on investments in outpatient facilities across the US. The Brookfield, Wisconsin-based firm, which was founded in 1991, has developed more than 500 healthcare facilities and manages four million square feet of healthcare real estate.
Although Hammes Partners II is the firm’s first institutional fund, Hammes has invested capital in the past on behalf of third-party investors, including high-net-worth individuals, family offices, and publicly-traded healthcare REITs. It previously raised a non-institutional property vehicle, Hammes Partners, in 2001.
The new fund, which has an equity target of $430 million, is a rare niche property investment for New Jersey. “The Division currently has minimal exposure to healthcare real estate, while the total market for US medical office buildings is estimated by Green Street at $250 billion,” Christopher McDonough, acting director for the DOI, wrote in a recommendation to the State Investment Council.
Limited partners will pay a 1.4 percent management fee both on committed capital during the investment period and on invested capital thereafter. Hammes is using Probitas Partners as placement agent for the fund.
New Jersey’s commitments to Northwood and Hammes represent its sole commitments to US real estate funds this year. The state’s prior investments this year have been to international property vehicles such as Global Logistic Properties’ first China real estate fund and Perella Weinberg’s second pan-European fund.
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