AMERICAS NEWS: A milestone offering

Last month, the New Jersey Division of Investments announced that it was considering putting a quarter of its $4 billion real estate portfolio up for sale through the secondary market. “We’ve been investing in private real estate funds since 2005, and myself, our consultant and our board believe it’s an appropriate time for portfolio rebalancing and repositioning,” Timothy Walsh, director at the state pension, told PERE.

The potential $1 billion offering would include a mix of both underperforming and redundant fund investments that are part of New Jersey’s legacy real estate portfolio, which consists of investments made prior to Walsh joining in 2010. About 75 percent of that portfolio was allocated to opportunistic strategies, and 25 percent to core funds.

Walsh said New Jersey expects to make a final decision on whether or not to go forward with a sale over the next few months. If it does greenlight the offering, the $70.8 billion pension plan intends to redeploy the sales proceeds into a new investment strategy with revised opportunistic, core and international targets, which New Jersey has not disclosed.

With the redeployment of capital, New Jersey also is expected to do less fund investing and make more of its investments through strategic relationships and separate accounts, which would offer the pension more control over investments and the ability to negotiate lower fees – two advantages New Jersey currently doesn’t enjoy with its fund investments.

Josh Cleveland, a partner at Clairvue Capital Partners, a firm that focuses on recapitalizations and secondaries, said it would be a “watershed event” and a “very significant milestone” for the marketplace if New Jersey did proceed with the sale.

According to market players, the real estate secondaries market has seen several trades of more than $100 million, but no $1 billion real estate secondaries sale has ever occurred. In contrast, more than a dozen $1 billion offerings have come to market in the private equity space, including New Jersey’s own sale last year.

The Garden State’s possible offering indicates a maturing of the real estate secondaries market, reflected in part by a continued increase in global volume to $2 billion in 2011. If New Jersey succeeds in its sale, annual volume could be halfway to that level in one fell swoop.