Eighty-five hundred employees in 24 countries were not enough to allow asset-management behemoth BlackRock Inc. to hang on at the California Public Employees’ Retirement System.
CalPERS announced Oct. 4 that it had dismissed BlackRock Realty Advisors as a core, separate-account apartment manager and handed over its $1 billion Western Multifamily LLC portfolio to General Investment & Development Cos., a Boston-based asset manager with a small office in Larkspur.
New York-based BlackRock has a regional office in San Francisco.
CalPERS established both separate-account relationships with GID and BlackRock in January 1998.
The move is part of CalPERS’ overall restructuring of its real estate investment program. It concentrates the huge public pension fund’s entire core apartment portfolio with GID’s Investment Advisers LLC.
“By consolidating our core multifamily portfolio under a single partner/manager, we anticipate lower costs, improved efficiency and enhanced performance as we reposition our real estate program for long-term growth,” Ted Eliopoulos, CalPERS senior investment officer for real estate, said in a prepared statement.
CalPERS made some less-than-stellar investments in apartments with BlackRock. The largest was the $500 million it lost on New York’s Peter Cooper Village and Stuyvesant Town, made in 2006. Also involved in this investment was Tishman Speyer Properties. The apartments have gone into foreclosure.
Western Multifamily’s assets represented 14.7 percent of CalPERS’s $6.9 billion core real estate portfolio. The nominal returns before fees were 3.2 percent since inception. The portfolio value dropped 36.1 percent in the past year and 12.3 percent over the last five years.
The portfolio now run by GID totals 57 properties in 13 states with 14,574 units.
The existing portfolio managed by GID was small in comparison to BlackRock’s because of a 2005 sale that generated $587.6 million in gross realized profits for CalPERS. The remaining apartments that GID ran for CalPERS had a fair-market, net-asset-value of $74.8 million through the end of the first quarter. It made up 1.1 percent of the core real estate portfolio held by the pension fund and has returned 11.7 percent since inception, despite a 34.1 percent decline in the last year and a 20.3 percent drop in the last three years.
A BlackRock spokesperson said it is the publicly traded company’s policy not to comment on client activity.
CalPERS refused to say specifically how much it would be saving in fees by having one manager instead of two. The pension fund also would not reveal the specific amount co-invested by GID as part of managing the former BlackRock portfolio.
In most separate-account relationships, CalPERS contributes 90 percent of the capital and the other 10 percent is supplied by the manager. Because the Western Multifamily portfolio is so large, that will not be the case here. “The size of the portfolio in the account will not allow us to invest 10 percent, but it will be a significant amount,” said Brian O’Herlihy, chief financial officer for GID.
Right now there is no additional capital for GID to invest in new properties for the Western Multifamily account, but that is expected to change, O’Herlihy said. “CalPERS has cut back on allocating any new capital to its separate account managers for right now,” he said.
GID held ownership in two apartment complexes in the San Francisco Bay Area before taking on the BlackRock portfolio. In the summer of 2006 it bought the 232-unit Windsor at Redwood Creek complex in Rohnert Park for a separate account relationship with the Oregon Public Employees Retirement Fund, paying $36.7 million. The other property is the 284-unit Bay Street Apartments by Windsor in Emeryville, acquired in December 2007.
With the additional CalPERS allocation, GID has now increased its apartment portfolio in the San Francisco Bay Area by eight properties, including one asset that is not part of the BlackRock portfolio, the 600-unit Mission Pointe Complex at 1063 Morse Ave. in Sunnyvale. This asset had been owned by the Legacy Partners Affordable Housing Fund run by Foster City-based Legacy Partners.
The former BlackRock assets are in Oakland, San Jose, Vacaville, Fremont, Walnut Creek, Pleasanton and Pleasant Hill. Collectively they have 2,700 apartment units and a gross asset value of $500 million.
With the takeover of the BlackRock assets, GID will have ownership interests in 93 apartment communities with 25,002 units. Including its commercial properties, it manages 127 properties across the United States worth an estimated $5.3 billion.
CalPERS has $212 billion in assets and administers retirement benefits for more than 1.6 million active and retired state, public-school and local public-agency employees and their families.