The San Francisco Employees’ Retirement System (SFERS) has approved a commitment of up to $50 million to Gaw Capital Partners’ Gaw Capital US Value Add Fund. Documents from the $18 billion pension plan cite the opportunity to partner with an “entrepreneurial, visionary and innovative manager with specialization in property types (creative office and hospitality) that are underrepresented in SFERS’ real estate portfolio” as reasons for committing to the fund.
Gaw is targeting $300 million for the offering, with a $500 million hard cap, and expects to hold a first close on $200 million to $250 million in equity by the end of this month, according to SFERS documents. The Hong Kong-based private equity real estate firm will make a GP commitment of 3 percent of the total fund, or up to $10 million. The firm is not using a placement agent for the vehicle.
The fund will pursue a value-added strategy of redesigning, redeveloping and repositioning mismanaged and undercapitalized creative office and hospitality assets, with a secondary focus on the multifamily and retail sectors. Geographically, fund investments will be made across the US with a focus on emerging areas of key gateway cities such as Boston, Los Angeles, New York, San Francisco and Washington DC, as well as select secondary markets including Austin, Denver, Nashville, Seattle, Portland, Oregon and Raleigh-Durham, North Carolina.
The fund’s portfolio will amount to approximately 15 to 20 investments requiring $5 million to $25 million of equity each, with the occasional larger investment. Gaw is pursuing a 12 percent to 18 percent gross internal rate of return (13 percent to 15 percent net) and a 2x equity multiple for the vehicle.
In addition, the commingled fund will participate in a joint venture platform dedicated to the acquisition and development of hospitality assets in supply-constrained markets near major US university campuses. SFERS documents note that at least one US institutional investor has committed up to $150 million to the joint venture, alongside a $40 million commitment to the fund.
For SFERS, the Gaw commitment marks its second investment with the fund manager in the past year. In August, the pension committed $52 million to Gaw’s Gateway Real Estate Fund IV in order to gain more exposure to Asian markets.
In January, SFERS committed to another fund focused on office assets in US growth markets, DivcoWest’s fourth value-added offering, DivcoWest Fund IV. The fund held its final close last month on $976.1 million in equity commitments.