PSERS commits up to $100m to Prudential

The $50.8 billion pension plan will allocate up to $100 million to Prudential’s $500 million value-added fund focusing on senior housing investments.

Pennsylvania’s Public School Employees’ Retirement System (PSERS) has approved a commitment of up to $100 million to the Senior Housing Partnership (SHP) Fund IV, the fourth in a series of commingled value-added real estate funds focused on direct and joint venture acquisitions of for-profit independent living and assisted-living rental communities. Prudential Investment Management will make a $50 million co-investment and manage the fund through its Prudential Real Estate Investors (PREI) division.

While the fund, which is targeting $500 million in commitments, will invest mainly in the US, up to 20 percent of capital may be invested in Canada, whose senior housing market is similar to the US in demographics and operators. SHP IV, which held its first close during the second quarter, has a return target of 10 to 13 percent, with no more than 50 percent leverage. The fund made its first investment in October, when it purchased the 176-unit Woodland Terrace in Cary, North Carolina through a joint venture with Kisco Senior Living.

In a board presentation to PSERS, Prudential cited the opportunity in the senior housing market, as the population of US seniors over the age of 75 – currently numbering around 19 million – is expected to grow rapidly in the next decade. Market supply also is limited, as senior housing construction starts have sharply declined since 2007 from a lack of available financing. In addition, “fundamentals in the senior housing industry reflected resilience during the crisis, with effective rents remaining positive throughout the recession,” the firm noted.

The commitment will be PSERS’ first to Senior Housing Partners, which Prudential launched in 1998 with SHP Fund I and SHP Fund II in 2001. Those funds produced an IRR of 16.4 percent and 29.8 percent, respectively, exceeding performance expectations, and all three prior funds in the series ranked in the top quartile of value-added funds in terms of performance, according to documents from PSERS.