Washington pension commits $750m to RE intermediaries

The $80.4 billion pension plan has approved equity commitments to Principal Enterprise Capital and Aevitas Property Partners to help expand its investments in private real estate operating companies.

Washington State Investment Board (WSIB) has committed a total of $750 million to two real estate firms Principal Enterprise Capital and Aevitas Property Partners, which will invest in controlling, entity-level interests in private real estate operating companies. 

WSIB’s $500 million capital outlay to Principal Enterprise Capital (PEC) marks the latest commitment to the Chicago-based Principal Financial Group affiliate. PEC was created as the state’s first real estate intermediary in 1998 and now has received a total of $2.3 billion in commitments from the pension plan. 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.

Aevitas, to which WSIB committed $250 million, is a newly-formed investment group led by Glenn Aaronson, who most recently was chief executive officer of Multi Development, a Dutch shopping centre developer and investor and previously was a managing director with Morgan Stanley Real Estate Funds in Frankfurt. Amsterdam-based Aevitas has a global investment strategy and expects to focus initially on southern Europe, Turkey, and India. 

The ownership of controlling entity-level interests in private real estate operating companies represents WSIB’s primary real estate investment strategy, accounting for more than 85 percent of its actively investing commitments in the asset class. The pension fund 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 expert making the day-to-day property-level decisions.

While the pension directly owns several real estate operating companies, WSIB has said it primarily invests in such entities through intermediaries, given the time- and management-intensive nature of identifying, underwriting, and overseeing this type of investment, and also the pension fund’s limited ability to hire a sufficient number of investment professionals in-house to manage a large global portfolio of such companies.