The Teacher Retirement System of Texas (TRS) has committed half a billion dollars to real estate in its latest round of commitments.
At its February meeting, TRS committed $300 million to Blackstone Real Estate Partners (BREP) Europe V, The Blackstone Group’s latest opportunistic fund. The pension system invested $250 million in the predecessor vehicle, BREP Europe IV, in the fourth quarter of 2013. Other investors in BREP V include San Francisco Employees’ Retirement System (SFERS), which allocated €100 million ($110 million) and the University of Houston’s endowment, which committed $7.5 million, according to PERE Research & Analytics.
Blackstone is targeting €6.7 billion in capital commitments for the opportunistic fund and plans a first close for the vehicle this quarter, according to materials from a November SFERS board meeting. The firm plans to deploy at least 60 percent of the capital in the UK, Germany and France, countries that Blackstone identifies as having the best transparency and liquidity, according to SFERS. Blackstone plans to assemble sector-specific portfolios and operating platforms, and targets a 15 percent net internal rate of return with a 1.7x net multiple, according to SFERS. BREP Europe IV, which closed in March 2014 at €5.1 billion, had a 21 percent net internal rate of return as of September 30, according to SFERS.
TRS also committed $200 million to Invesco US Value-Add Fund IV. Invesco held a first closing for the $500 million fund in June 2014 on $140 million. Other investors in the fourth fund included Contra Costa County Employees’ Retirement Association (CCCERA), which allocated $35 million, and San Mateo County Employees’ Retirement Association, which committed $30 million, according to PERE Research & Analytics. Invesco held a first closing for the fund in June 2014 on $140 million, according to a filing with the US Securities and Exchange Commission.
According to CCCERA, the firm plans to invest in two types of real estate through the fund: “broken core,” which are core assets in primary markets with problems to be fixed, and “inefficiently priced commodity” properties that are located in non-primary markets. The latter properties are “underpriced to an extent that the stabilizing yield (after the property is repositioned) represents a premium to the exit capitalization rate,” according to CCCERA.
Invesco's third US fund had a gross internal rate of return of over 18 percent and a multiple of 1.8x as of June 2014, according to CCCERA.
As of February 29, TRS has committed a total of $1.7 billion to real estate funds since September 1. The pension fund manages about $17.7 billion in real estate out of a $123.6 billion portfolio as of January 31, according to a spokeswoman.