Texas Municipal Retirement System (TMRS) committed $375 million to two real estate funds at its meeting last week, according to documents from the Austin-based pension system.
The commitments are part of a plan instituted last year to weight the Texas pension’s portfolio more heavily toward real estate. In March 2015, TMRS hired Courtland Partners as its real estate consultant. Before the end of 2016, Courtland will recommend allocations to up to three more real estate funds for a total of $600 million in commitments. These allocations will fulfill TMRS’ goal of increasing its real estate holdings to comprise 10 percent of its overall portfolio. As of December 31, TMRS had about 6 percent, or $1.4 billion, of its portfolio invested in real estate, according to its quarterly report.
In the first phase of Courtland’s plan, the consultant recommended that the pension fund increase its allocations to core funds, which TMRS did through a $300 million commitment to The Blackstone Group last week. TMRS wrote the check to the private equity giant’s first core-plus fund, Blackstone Property Partners (BPP). Blackstone said the fund, which was launched in July 2014, was at $11 billion in its fourth-quarter earnings call on January 28.
Other investors in BPP have included the California State Teachers’ Retirement System, which allocated a total of $500 million between 2014 and 2015, and the New Jersey Division of Investment, which committed $50 million in January 2015, according to the respective pensions’ meeting materials.
Blackstone plans to invest in stabilized and well-leased assets across property types in major US markets that need some repositioning, according to TMRS documents. The vehicle’s acquisitions include the October purchase of Manhattan’s 80-acre Stuyvesant Town for $5.3 billion, an investment the firm said it plans to hold for years. Blackstone is targeting a net internal rate of return of more than 8 percent, with about half of the projected return generated through income, according to TMRS meeting materials.
TMRS also wrote a $75 million check to DivcoWest’s DivcoWest Fund V, which will invest in office and research and development properties throughout the US, with an emphasis on the western part of the country. The value-added fund, which launched in October, is targeting $1.5 billion, a significant increase from its predecessor vehicle, which had a $750 million target and attracted a total of $976 million in May 2014. The fund is targeting a net internal rate of return between 10 and 13 percent, according to media reports.
DivcoWest’s latest publicly-disclosed acquisition was the December purchase of Fairmont Office Plaza, an 18-story office building at 50 West San Fernando Street in San Jose, California for $165.5 million, according to real estate data provider Real Capital Analytics. The firm teamed up with private equity real estate firm Rockpoint Group to buy the property from CBRE Global Investors.