San Francisco-based Bristol Group has received $120 million in new capital commitments from pension funds for two of its commingled investment vehicles.
The Wisconsin State Investment Board has made a $100 million commitment to Bristol Industrial II, and the Los Angeles City Employees’ Retirement System has approved a $20 million allocation to Bristol Value II.
The Bristol value fund will buy nationwide in the main property types, excluding industrial. This means offices, shopping centers and apartments. The deals could involve development, redevelopment, repositioning and recapitalization.
The investment strategy for the industrial fund involves putting capital into existing warehouse and distribution properties where there is a potential redevelopment play. The deals will be focused in four major markets across the country: Southern California, Chicago, Northern New Jersey and Southeast Florida.
Los Angeles approved its investment in the value fund at its April 26 board meeting, becoming at least the second public-pension fund in California to make an investment in the vehicle. The San Francisco City and County Employees’ Retirement System made a $25 million allocation to the fund last summer.
Investors in the fund are projected to achieve a net internal rate of return of 14 percent to 18 percent.
Los Angeles allocated the money based on a recommendation from its real estate consultant Cleveland-based Courtland Partners. In a memo to the pension fund’s board, Courtland identified multiple reasons that weighed in favor of the investment. Debt maturities in the commercial real estate sector are estimated at more than $1.5 trillion in the next several years. This dynamic, coupled with the attractive value investments that have begun to emerge, should lead to good opportunity, Courtland said.
Courtland also said that Bristol has demonstrated investment discipline in acquiring and disposing of properties, according to its memo. This discipline is based on an emphasis on property income, rather than projected property appreciation. The efficacy has been demonstrated through a Bristol separate account with another of Courtland’s clients. The relationship began in 1993 and has generated a 7.9 percent income return and a 14.1 percent gross total return since inception.
The two Bristol accounts are the company’s first foray into the commingled fund structure. All of its previous $2.5 billion in assets under management were acquired through separate-account relationships with a single co-investor such as a pension fund or foundation. Bristol’s client list includes the Ohio Public Employees Retirement System, Wisconsin State Investment Board and the Honeywell International Master Pension Trust.
According to the board meeting memo, the Investment Committee of Los Angeles City did voice some concerns about Bristol’s wherewithal to transition from a separate-account to a fund manager. The single biggest concern centered on its allocation of staff time and its internal resources to effectively manage large-scale projects.
Courtland wrote in its memo that it believes that the manager has the resources to focus on the most important elements of its value-add strategy, including the acquisition price, redevelopment, repositioning and time of a sale. It also said that Bristol can use third-party firms to manage development and construction activity to the extent needed as well as leasing and property management.
Wisconsin is the lead investor for Britol’s newest industrial fund. Jim Curtis, managing partner and co-founder of Bristol, said he expected to raise $250 million for the fund. He expects to use 40 percent leverage to magnify its buying power.
The going-in cap rates on these industrial deals will range from 7.5 percent to 9.25 percent. “We have two different ways of looking at cap rates,” Curtis said. “In some cases the returns are based on the net-operating income in the properties today. In others it will be a pro forma as to where rents might be over the next 18 to 24 months.”
