New York State Common Retirement Fund, the third largest pension plan in the US, has executed its first transaction under its $300 million real estate emerging manager programme with Artemis Real Estate Partners, the Maryland-based real estate investment management firm that is overseeing the separate account. The two parties acquired a 227,240-square-foot office building in Emeryville, California in a joint venture with Ellis Partners, a San Francisco-based commercial real estate developer and investor. The building, which is known as Emery Tech, is fully occupied by seven tenants and serves as the corporate headquarters for energy bar maker Clif Bar.
Ellis was approved earlier this year as one of the first operating partners in NY Common’s emerging manager programme, which initially is targeting six to 10 emerging managers. Under the programme, NY Common will acquire assets in partnership with Artemis, and the joint venture typically will invest the majority of the equity in each transaction. The separate account targets a core-plus return and focuses on buying stabilised assets that require $10 million to $30 million in equity and modest leverage.
“We seek to generate attractive risk-adjusted returns with this institutional-quality asset and look forward to adding other talented emerging managers, including minority- and women-owned businesses, to this transformative programme,” said Deborah Harmon, chief executive of Artemis.
The property originally was constructed in 1903 as a stockyard and later operated as a manufacturing plant from the 1940s until 1996. Through a joint venture with another capital partner, Ellis repositioned the building into creative office space between 1998 and 2000.
Emery Tech was acquired by NY Common and Artemis with equity and a five-year, fixed-rate non-recourse mortgage, which represented 50 percent leverage. According to data provider Real Capital Analytics, Principal Life Insurance provided the $31.6 million loan, which resolved a troubled loan situation dating back to 2009.
In October 2011, NY Common allocated $300 million to Artemis as its initial investment in a new real estate segment of the pension plan’s emerging manager portfolio. The separate account – through which Artemis seeks to generate core-plus returns by making equity and debt investments – invests directly in real estate through joint ventures with emerging managers, rather than investing in the emerging manager itself.
Under the programme, a qualifying emerging manager would have no more than $1 billion of equity under management and possess extensive knowledge of a local market and property type. The firm also is required to have been in business in its current form for 12 years or less and have less than three institutional funds.
Ellis Partners originally was founded by Hal Ellis in 1993, with daughter Melinda Ellis Evers and son Jim Ellis. The firm has existed under its current ownership structure for three years, after Melinda and Jim recapitalized and took over management of the company upon Hal’s death in 2009.