Washington commits $500 million to M3 partnership

Washington State Investment Board (WSIB) has approved an additional $500 million investment to Evergreen Real Estate Partners, its investment partnership with Chicago-based M3 Capital Partners.

The pension plan formed Evergreen with M3 in March 2005 and now has committed $3 billion to the partnership, which invests in controlling interests of private real estate operating companies. To date, Evergreen, which is managed by M3 subsidiary Evergreen Investment Advisors, has invested in 10 real estate operating companies globally, including Kitson & Partners, a residential and commercial builder based in Florida, and Raintree Partners, a multifamily developer in California.

Evergreen made its most recent investment this month, with a £250 million (€314.4 million; $294.7 million) capital outlay to Essential Living, a company run by UK residential property developer Essential Land. Essential Living will target the development of more than 3,500 homes in central London over the next 10 years.

WSIB’s commitment to Evergreen marks its most recent investment in real estate operating companies. In April, the pension system committed a total of $750 million to real estate intermediaries Principal Enterprise Capital (PEC) and Aevitas Property Partners. PEC, which is a separate but related entity from Principal Financial Group’s real estate investment management business, Principal Real Estate Investors, typically invests in real estate operating companies that focus on primary property types in gateway cities. Amsterdam-based Aevitas is a newly-formed investment group that initially will target firms in southern Europe, Turkey, and India. 

Of WSIB’s 16 real estate partners, M3 has the second-largest total allocation of capital, accounting for 14.2 percent of the pension system’s portfolio in the asset class as of 31 March, according to the WSIB website. PEC, which was created as WSIB’s first real estate intermediary in 1998, has the largest allocation, making up 17 percent of the portfolio. As of 30 June, the pension held nearly $8.5 billion in real estate, roughly 10 percent of its total portfolio.

The ownership of controlling entity-level interests in private real estate operating companies represents WSIB’s primary real estate investment strategy, comprising more than 85 percent of its active investments in the asset class. The pension system has said it prefers to invest in real estate operating companies rather than through funds or other strategies because of what it considers to be a better alignment of interests with its partners, and the desire to have a local partner making the day-to-day property-level decisions.