A quintet of New York City pension plans have partnered with a pair of New York fund managers to rebuild areas affected by Superstorm Sandy.
At the end of February, New York City Comptroller John Liu announced that five New York City pension plans had voted to invest $500 million in residential and commercial real estate in areas hit by the super-storm last fall. Liu serves as the investment advisor, custodian and trustee of the New York City Pension Funds, which are composed of the New York City Employees’ Retirement System, the Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System.
Under the program, investments on behalf of the pension plans will be made by the Related Companies and the Hudson Companies, to which the five pensions will provide $300 million and $200 million, respectively. With leverage, it is anticipated that this will result in $1.5 billion of total capital for the potential development or redevelopment of 3,000 housing units and 150,000 to 200,000 square feet of commercial space.
“The $1.5 billion rebuilding program will become the bricks and mortar that neighborhoods need to rebuild from Sandy’s wrath,” said Liu, who officially threw his hat into the ring to become mayor of New York shortly after announcing the initiative.
Because this investment program functions as private investment vehicles, Related and Hudson were unable to comment. Sources familiar with the project, however, told PERE that the respective funds are expected to close sometime this month.
The Related investment fund will focus on the renovation and reconstruction of housing that was damaged or destroyed by Sandy. The developer will use the capital in its vehicle primarily for the city’s outer boroughs and low-lying areas of Manhattan.
In addition, Related will invest across New York to increase the overall availability of housing units to residents displaced by Sandy, with a priority on rental units. The fund additionally will create a loan program for property owners who face shortfalls from insurance proceeds, with that capital designated for the restoration of properties to full function. Related will invest $10 million of its own equity into the program, which is projected to yield net IRRs of 9 percent to 12 percent for the firm.
Meanwhile, Hudson has earmarked 80 percent of its investment fund to create affordable and market-rate housing in coastal areas that were impacted by Sandy. Part of that money will be used to develop properties that incorporate green and flood-prevention design technologies. In addition, the developer will acquire properties in need of repair and retrofitting.
Another portion of the capital that Hudson will invest will go towards retail properties. The firm will invest $8 million of its own equity into the projects, which are projecting net IRRs of 12 percent to 14 percent.
Liu added: “This investment demonstrates the commitment of city employees and retirees to pursue opportunities that are not only expected to deliver strong returns, but also to generate collateral benefits for the communities they call home.”