The Pennsylvania Public School Employees’ Retirement System (PSERS) allocated $275 million to existing real estate managers at its Friday board meeting.
The pension system focused largely on industrial real estate with its most recent property commitments, earmarking $200 million to the property type. In a PSERS document, senior portfolio manager Laurann Stepp noted that the growth of e-commerce will continue to drive expansion in the logistics real estate space.
PSERS returned to Exeter Property Group to commit $100 million to the firm’s latest value-added fund, Exeter Industrial Value Fund IV. Exeter has a $1.15 billion hard-cap for the fund and plans to buy industrial and business park assets near cities and logistics hubs, such as airports and ports, in the US and in select Canadian and Mexican markets, according to board materials. The firm, which typically makes equity investments ranging from $2 million to $22 million, plans to buy big box warehouses, last mile assets and light industrial properties.
The pension system previously committed $75 million each to Exeter’s second and third vehicles in the series, according to PERE research. The Conshohocken, Pennsylvania-based firm, which manages about $3.5 billion in equity, invests in industrial real estate in the US and Europe. Exeter launched Exeter Industrial Value Fund III in December 2013 and closed the vehicle on $830.9 million in September 2014, according to filings with the US Securities and Exchange Commission. That vehicle was generating a 16.5 percent net internal rate of return as of March 31, according to PSERS.
Other investors in Exeter Industrial Value Fund IV include the Kansas Public Employees’ Retirement System, which earmarked $60 million, and the San Antonio Fire and Police Pension Fund, which allocated $15 million, according to PERE research. Exeter used Hodes Weill as a placement agent for potential Asian investors, but did not use a placement agent for its existing clients, according to PSERS.
PSERS earmarked the other $100 million to Cabot Industrial Value Fund V, the latest value-added fund from Cabot Properties. PSERS’ relationship with the Boston-based firm started in 1998 when the pension system traded some of its directly held industrial properties for 5.5 million shares of the then publicly-traded Cabot REIT, according to board documents. PSERS then sold its shares in 2001 when the real estate investment trust was sold to an affiliate of CalPERS.
In 2008, PSERS committed $100 million to Cabot Industrial Value Fund III, and in 2013, the pension allocated $75 million to Cabot Industrial Value Fund IV, which closed on $712 million in the first quarter of 2013. The third fund had net IRR of 21.9 percent net IRR and the fourth had an 11.5 percent net IRR as of March 31, according to PSERS documents.
Most recently, PSERS committed $100 million to the firm’s core vehicle, Cabot Industrial Core Fund, in December 2014, according to board documents at the time.
For its most recent fund, Cabot plans to invest largely in the US, but could deploy up to 20 percent of the vehicle’s capital in European assets. PSERS noted in a board document that industrial development is largely concentrated in bigger buildings than Cabot typically buys, representing an opportunity for the firm to build smaller industrial properties of 100,000 square feet to 200,000 square feet, where demand currently outstrips supply. The firm can also invest up to 15 percent of the fund’s capital in mezzanine debt and publicly traded securities.
Cabot, which managed $2.3 billion as of March 31, did not use a placement agent, according to PSERS.
Outside of industrial commitments, PSERS also wrote a $75 million check to Bell Partners for its latest value-added vehicle, Bell Institutional Fund VI. The Greensboro, North Carolina-based firm, which managed $3.2 billion as of June 30, focuses on institutional-quality multifamily investments with 150 to 450 units each across supply-constrained US markets. Bell has a net IRR target of 11 percent to 13 percent.
PSERS previously committed $75 million each to Bell’s fourth and fifth fund and made a $10 million co-investment in 2014. The fourth fund, which closed in 2011, had an 18.8 percent net IRR as of June 30 and the fifth fund, which closed in 2013, had a 15.5 percent net IRR.
Bell’s two placement agents, CBRE Capital Advisors and Atlantic Partners, were not used for PSERS.
PSERS had $5.6 billion invested in real estate and managed $50.2 billion overall as of June 30, according to its latest investment report.