San Diego invests $200m with Amstar

The San Diego County Employees Retirement Association (SDCERA), which oversees an $8.2 billion pension fund, unanimously approved a $200 million commitment to a separate account with Amstar at its monthly board meeting yesterday. The commitment will immediately be allocated for investment, the association said.

The separate account, Amstar-SD Partners, will focus on two investment strategies: the acquisition and restoration of distressed high-quality office assets to core level and the development of core multifamily properties that are expected to yield returns greater than core upon stabilisation.

In documents posted on SDCERA’s website, Amstar said it actively is pursuing more than $400 million in office acquisitions and more than $400 million in multifamily developments. “As employment improves, the office sector will present compelling investment opportunities,” the firm stated. “Hiring will begin to fill existing, under-utilized space prior to filling vacant space as the economy recovers.” The properties being targeted through the separate account are not seeing a high level of demand, and there currently is a limited supply of office product in the pipeline, the investment manager noted.

Office acquisitions will concentrate on select target markets characterised by large populations, a diverse base of office-using employers and growth in office-using industries, such as media, high-tech and defense, among other criteria. Such markets include Austin, Baltimore, Dallas, Denver, Houston, Los Angeles, Nashville, Phoenix, Portland, San Diego, San Jose, Seattle and the Washington DC metro area.

Amstar said it also sees opportunities in the multifamily sector, citing constrained supply, increasing demand from aging Baby Boomers and maturing Echo Boomers, a weak housing market and a 200 to 300 basis point spread between development yields and acquisition cap rates. Select target markets for multifamily development include Austin, Dallas, Denver, Houston, Los Angeles, Nashville, Portland, San Antonio, San Diego, San Francisco, Seattle and Orange and Ventura counties in California.

The separate account will target investments ranging from $30 million to $100 million and will comprise six to 10 properties, with no single investment accounting for more than 25 percent of the portfolio, according to documents posted on SDCERA’s website. The separate account, which is expected to have an investment period of two to three years and hold its assets for a five-year period, is targeting returns of 12 – 13 percent.

Amstar has assigned a 30-person team to work on the SDCERA separate account, including company chief executive Gabe Finke, who will serve as chief strategist. Since 1991, the Denver-based investment manager has invested more than $3 billion in 82 assets across the US and has achieved a realised gross internal rate of return of 17.9 percent on $704 million of invested equity.  Amstar had $1.6 billion in assets under management as of 30 June.