After inking a purchase and sale agreement last month, the New Jersey Division of Investment (NJ DOI) has unveiled the names of all of the fund stakes in its nearly $1 billion real estate secondaries offering. The pension plan agreed on June 12 to sell the interests, with a total net asset value of $925 million, to a partnership between NorthStar Realty Finance, the company’s non-traded REIT and secondary funds managed by Goldman Sachs Asset Management.
According to NJ DOI documents, the portfolio encompasses 25 fund investments made through 16 different managers from December 2005 through March 2009, including those in four vehicles sponsored by Walton Street Capital, three funds from CBRE Global Investors and three funds from Hunt Companies.
PERE first reported in January that New Jersey was exploring the sale of up to $1 billion in real estate fund interests as part of an ongoing effort to pare down its overall portfolio by selling off poorly performing and redundant investments. In the board meeting documents, the pension system called the interests “not strategic to the future development of the NJ DOI real estate program.”
The sale frees up capital to allow the pension plan to acquire “assets that we’re eager to own in that portfolio,” said Robert Grady, chair of the New Jersey State Investment Council, which oversees NJ DOI’s investments, at the council’s meeting yesterday. “We’ve tried to orient the portfolio to be really blue chip, top quartile. It’s a favorable repositioning.”
Among the worst-performing property fund interests in the secondaries portfolio are Hunt Companies’ Hunt UK Realty Partners, MacFarlane Partners’ MacFarlane Urban Real Estate Fund II and CBRE Global Investors’ CBRE Strategic Partners IV, all of which had net asset values (NAVs) plus distributions as of September 30 that were less than 25 percent of NJ DOI’s contributed capital to those funds.
Not all of the fund interests in the offering are performing poorly, however. For example, CIM Group’s CIM Urban REIT and CIM Real Estate Fund III and Prudential Real Estate Investors’ Prudential Latin America Residential Fund III had NAVs plus distributions that actually were higher than the pension plan’s contributed capital.
NJ DOI will begin transferring the fund interests to NorthStar and Goldman Sachs, with an initial closing expected this month and subsequent closings to occur periodically thereafter. The pension plan will receive 55 percent of the purchase price for each interest at the closing of each interest, with the remaining balance to be paid over a four-year period.
Interestingly, the NorthStar partnership will be paying below the September 30 NAV for some fund interests, while paying above that NAV for other fund stakes – likely an indication of whether or not the buyers perceive potential upside for those interests going forward. For example, the sale proceeds – NorthStar’s allocation of the total purchase price to the specific fund interest – listed for Walton Street Real Estate Fund VI is $87.74 million against an NAV of $60.5 million, while the proceeds for BlackRock’s BlackRock Diamond Property Fund is $15.96 million against an NAV of $19.7 million.
Separately, New Jersey committed $185 million to Prologis’ European-focused open-ended core fund, Prologis European Properties Fund II. In a recommendation to the council, director Timothy Walsh noted that this was the first time that the fund, which to date has raised approximately €1.963 million, is open to new investment since its 2007 launch.
“The division believes that this investment presents a rare opportunity to buy an existing portfolio of 222 Class A logistics facilities in 40 key European markets,” Walsh wrote. He added that the entry price for the investment would generate a current cash yield of approximately 7 percent to 8 percent, which the pension plan considered high given that the portfolio currently is 96 percent leased.
In addition, “net asset value per unit has yet to recover from the 40 percent drop since 2008, as is the case with most industrial property in Europe,” Walsh said. “Retail and office meanwhile have seen significant recoveries.” New Jersey will pay a 0.75 percent management fee on invested equity for its commitment, which will represent 7 percent of the fund.
The Prologis commitment marks the pension plan’s latest non-US real estate fund investment as part of a larger push to increase the international exposure of its overall portfolio. So far this year, New Jersey has made real estate fund commitments exclusively to international vehicles, including a total of $400 million to Perella Weinberg Partners’ and M&G Investment Management’s European funds in May and $500 million to The Blackstone Group’s Blackstone Real Estate Partners Asia – its largest-ever real estate investment – in March.
Sam Sutton contributed to this story.
Funds in New Jersey's Real Estate Secondaries Offering
1. BlackRock Diamond Property Fund
2. Capri Urban Investors
3. CBRE Strategic Partners European Fund III
4. CBRE Strategic Partners IV
5. CBRE Strategic Partners US Opportunity V
6. CIM Urban REIT
7. CIM Real Estate Fund III
8. CPI Capital Partners Europe
9. Five Mile Capital Partners II
10. Hunt Realty Partners II (fka TRECAP Partners)
11. Hunt Realty Partners III (fka TRECAP Partners)
12. Hunt UK Realty Partners (fka TRECAP Partners)
13. JP Morgan Alternative Property Fund II
14. L&B Diversified Strategy Partners
15. LaSalle Asia Opportunity Fund III
16. MacFarlane Urban Real Estate Fund II
17. Prudential Latin America Residential Fund III
18. RREEF Global Opportunity Fund II
19. Silverpeak Legacy Partners III (fka Lehman)
20. TA Realty Associates Fund IX
21. TA Realty Associates Fund VIII
22. Walton Street Mexico Fund
23. Walton Street Real Estate Fund V
24. Walton Street Real Estate Fund V – Side Car
25. Walton Street Real Estate Fund VI
Source: New Jersey Division of Investment