The Texas Municipal Retirement System has ended talks with Mesa West Capital, a Los Angeles-based real estate investment manager focused on first mortgage originations, relating to a contract for a $100 million commitment to the firm’s open-end core debt fund, Mesa West Core Lending Fund. The planned investment would have been the pension system’s first to a real estate debt vehicle.
Texas Municipal had approved the Mesa West commitment at its December meeting as a part of a real estate manager search in accordance with its 2012 real estate implementation plan, which called for up to $600 million in core, value-added and opportunistic property investments. The pension plan conducted negotiations with Mesa West over a roughly six-month period before moving to terminate negotiations, which the pension plan’s board ratified at its meeting last month. Both Texas Municipal and Mesa West declined to comment on the contract negotiations.
The pulling of the Mesa West commitment marks the second time in about a year that Texas Municipal has ended talks with a real estate manager. In June 2012, the pension system also terminated discussions with H/2 Capital Partners, a Stamford, Connecticut-based alternative investment manager, over a $100 million commitment to that firm’s core real estate debt fund. At that time, a Texas Municipal spokesman said the two parties had failed to reach an agreement on contract terms involving the Texas Public Information Act, whereby managers hired by US pension plans often are required to publicly disclose information such as performance, investments and management fees.
Texas Municipal would not confirm whether or not the Public Information Act was a factor in terminating contract negotiations with Mesa West. However, PERE understands that the pension and Mesa West failed to agree on multiple aspects of their contract. Texas Municipal said the capital that had been committed to Mesa West would likely be reallocated to another real estate manager at its September board meeting.
To date, the Mesa West Core Lending Fund, which originates fixed- and variable-rate loans on core-like properties in the US, has attracted $360 million in commitments, not including the Texas Municipal investment, according to a source familiar with the fund. The vehicle is anticipated to hit its initial cap of $500 million by the end of the year.
Formed in 1948, Texas Municipal’s investments were focused almost entirely on bonds until 2008, when it adopted a new policy that included a 10 percent target allocation to real estate. Two years later, the public pension hired ORG Portfolio Management to assist with its entry into the asset class and, in March 2011, selected its first real estate managers. As of April 30, Texas Municipal had allocated $1.2 billion to real estate funds and closed on $800 million of that amount, including $400 million in core, $325 million in value-added and $75 million in opportunistic. Earlier this year, the pension system committed $250 million to funds managed by Invesco Real Estate, Abacus Capital Group and Lubert-Adler Partners.