The San Francisco Employees Retirement System (SFERS) has approved a $50 million commitment to DivcoWest’s fourth value-added offering, DivcoWest Fund IV, marking its first investment with the San Francisco-based real estate investment firm.
In its reasons for making the commitment, SFERS cited that Fund IV would “provide office exposure to attractive US growth markets, including San Francisco and the surrounding Bay Area.” Also, a memorandum to the board from consultant The Townsend Group noted that the investment will help the pension reach its 40 percent value-added target. That sub-allocation currently is underweight, with just 23 percent of funded and committed exposure. Additionally, Townsend described the fund as “best in class.”
Fund IV, which is targeting $750 million in equity and has an $888 million hard cap, held a first close on $125 million in commitments in September. SFERS documents noted that “total subscriptions for Fund IV are expected to exceed the hard cap of $888 million due to significant investor demand” and that DivcoWest expects to hold a final close on the vehicle as early as the first quarter.
Current commitments to the fund include $148 million from the New York City Employees Retirement System and $100 million each from the California State Teachers Retirement System and the Massachusetts Pension Reserves Investment Management Board. Additionally, DivcoWest has kicked in $15 million of its own capital. SFERS documents added that, “depending on the amount of oversubscription and the timing of close, SFERS’ requested commitment amount may be subject to reduction.”
Fund IV’s investment strategy will focus on office and research & development properties for technology industry companies in markets such as the San Francisco Bay Area, Southern California, greater Boston, New York City, Washington DC, Austin, Seattle, Portland, Denver and Raleigh-Durham, North Carolina. Fund IV will enhance the value of the assets through repositioning, re-tenanting, capital improvement and development and will seek net returns of 11 percent to 15 percent.
SFERS documents also noted that DivcoWest is using placement agent Greenhill & Co. to solicit interests for Fund IV. The firm used the placement agent for its last vehicle, DivcoWest Fund III, as well. In January 2012, PERE reported on the close of Fund III, which, along with its co-investment vehicle, raised $871 million in equity commitments in just over six months.