AEW Looks to Grow Bay Area Portfolio

By Jon Peterson


A Boston-based pension-fund manager that paid all cash late last year to buy a San Jose neighborhood shopping center says the deal is but the first of many it is looking to do in the Bay Area in the next year.

AEW Capital Management has $1 billion in equity and debt to invest in real estate on a nationwide basis in 2010, and the San Francisco region is one of its target markets, said Tom Mullahey, West Coast acquisitions director for the company. AEW is eyeballing retail and industrial properties as well as apartments and senior housing, he said.

The money manager also is seeking opportunity in other major metropolitan markets along the East and West Coasts, where it believes economic growth will return sooner than in other parts of the country. AEW also believes that on a long-term basis the Bay Area is a place where it makes sense to own assets.

AEW paid $52 million for the nearly 200,000 square-foot Stevens Creek Shopping Center in San Jose in the all-cash purchase late last year. It was the only Bay Area acquisition that the company completed in 2009.

“For us, this property was attractive given that it has strong tenants, is an infill location and is situated at a major intersection near Interstate 280. Newer and highly leased properties are hard to come by,” Mullahey said.

Safeway leases roughly 60,000 square feet at the center and is one of three anchors. The others are Sports Authority, which has nearly 42,500 square feet, and Marshall’s department store, which leases 36,000 square feet. The property is nearly 10-years-old and was fully leased at the time of the sale. AEW declined to disclose the terms of the leases, other than to say that they are long-term. It also would not disclose the capitalization rate, a measure of a property’s initial yield bases on net operating income and purchase price.

The real estate manager bought the property for a core commingled fund that it manages. The seller was Hart Advisers, a pension fund real estate manager based in Simsbury, Conn. The seller was represented in the transaction by Bay Area brokerage Terranomics Retail Services.

AEW is looking at holding the asset for three to seven years, a long time in the world of pension fund investing, Mullahey said.

AEW’s $1 billion in dry powder is held by a combination of commingled funds and separate accounts. The money manager will seek properties across the risk spectrum including core and value-added opportunities. One of its capital sources will be AEW Value Investors II. This is a closed-ended, commingled fund for which AEW has raised $650 million in equity.

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