New Jersey earmarks $600m to Blackstone, TGM

The $79.7 billion pension plan’s real estate commitments at its first board meeting of the year represent one of its largest-ever allocations to the asset class.

 The New Jersey Division of Investment (NJDOI) made one of its largest-ever allocations to real estate at its board meeting last week. The state pension plan pledged a total of $600 million to two managers for non-core and core-plus strategies, which was larger than all of its real estate commitments in 2014 combined.

New Jersey agreed to invest up to $300 million to a separate account with TGM Associates, a New York-based investment advisory firm focused on multifamily properties.  TGM is a new relationship for NJDOI, which currently is underweight in its exposure to the property type.  

In a memorandum to the New Jersey State Investment Council, which oversees NJDOI’s investments, Director Christopher McDonough noted that the average multifamily exposure across the NCREIF-ODCE Fund Index is approximately 25 percent, while New Jersey’s real estate portfolio was only 16 percent allocated to the sector. “This new mandate will allow the division to add exposure to an underweight property type, while doing so with a much more attractive fee and governance structure than a traditional commingled fund.” 

With the TGM separate account, NJDOI will pay a management fee of 0.75 percent on invested capital and a 3.875 percent property management fee on collected revenue. Terms also will include a 15 percent carry and nine percent hurdle rate, according to the pension plan’s documents. 

Meanwhile, the state also designated $300 million to real estate strategies with The Blackstone Group, with which NJDOI has been investing for nearly 10 years. One third of that allocation will go to the firm’s latest global opportunistic real estate fund, Blackstone Real Estate Partners (BREP) VIII. The vehicle will pursue an investment strategy of acquiring distressed, out-of-favor or undermanaged properties at below-market prices, creating value through aggressive asset management and eventually selling the stabilized properties. BREP VIII, which will primarily be focused on the US, will target large, complicated situations where competition is limited. 

With its BREP VIII investment, NJDOI will pay a management fee of 1.5 percent, and be subject to a 20 percent carry and eight percent hurdle rate. Additionally, the pension plan will pay a 30 basis points acquisition fee. Blackstone will commit at least $300 million to BREP VIII and up to an additional 10 percent of each investment, based on an annual election. 

The state also has committed $200 million to Blackstone’s global core-plus strategy, consisting of $50 million to its open-end commingled fund, Blackstone Property Partners, which will focus on investing in core-plus assets in the US, and $150 million to a separate account that will focus on investing in core-plus assets outside of the US. The core-plus strategy will target high-quality properties that are located in gateway markets in the US, Europe, Asia and Latin America and require modest repositioning or upgrades to become fully stabilized. BPP will have a net internal rate of return of nine to 11 percent, with approximately half of the total return generated through current income.

New Jersey will pay a management fee of one percent of net asset value with BPP and 0.85 percent of net asset value with the core-plus separate account. The terms of both vehicles will include a 10 percent carry and a seven percent hurdle rate.  

The pension plan’s real estate commitments were part of an overall allocation of $1.05 billion to Blackstone at its board meeting. NJDOI also agreed to invest up to $250 million to Blackstone’s tactical opportunities strategy, including additional commitments to Blackstone Tactical Opportunities Fund and a new separate account vehicle for real estate tactical opportunities; a $200 million additional commitment to existing GSO Credit Partners; up to $100 million to Blackstone Energy Partners II; and $50 million to Blackstone Capital Partners VII.