CalPERS Eyeballs Bay Area Industrial Assets

industrial property The Registry real estate

By Jon Peterson

San Francisco Bay Area industrial properties are among those targeted for a new industrial investment partnership funded by the California Public Employees’ Retirement System, starting with not quite $500 million in purchasing power based on a $250 million equity investment.

The allocation is expected to be the first annual set aside made by the pension fund to the newly formed endeavor.

“We plan to look for properties that are within a one-hour drive of the port in San Francisco. We consider this region to be a major industrial market,” said Mike McKee, chief executive of the U.S. region for Seattle-based Bentall Kennedy. The real estate investment firm will manage the joint venture, Institutional Logistics Partners.

They also will be looking at properties in Southern California, Dallas, Houston and the East Coast in places such as New York and New Jersey, he said.

The deals are expected to produce total returns ranging from about 7 percent to 9 percent, after fees.

The investment strategy is to acquire existing stabilized warehouse and distribution properties with the possibility of some manufacturing buildings as well. “We will buy high-end, top-quality properties, and we will not be taking any leasing or operational risk,” said McKee. That means only core assets, a descriptor that usually implies properties that are 10-years-old or newer and have an occupancy rate of 80 percent or more.

The partnership will be considered part of the pension fund’s base portfolio, Joe DeAnda, CalPERS information officer, wrote in an email. The objective for these properties is to create stable cash flows and to concentrate on the income component of the total return.

The pension fund holds a 99.5 percent stake in Institutional Logistics Partners. The remaining ownership belongs to Bentall Kennedy.

“The plan is that depending on how successful we are placing the capital in the first year, we will be getting an annual commitment from CalPERS for the partnership. At this time, I’m not sure how much that will be. We are planning this to be a very long-term relationship,” McKee said.

CalPERS made the initial commitment to Institutional Logistics Partners based on a “prudent-person report” prepared by Crosswater Realty Advisors, a Los Angeles firm that provides independent evaluations of real estate managers, according to its Web site. Crosswater did not comment for this story. CalPERS requires such reports when it plans to invest more than $50 million with a manager.

The pension fund made the investment without board approval under a policy that allows investments up to $1.5 billion under delegated board authority.

CalPERS has some history with Bentall Kennedy and Crosswater. In June, it approved a $100 million investment to buy a 33 percent ownership position in Bentall Kennedy itself. Crosswater wrote a report for this investment as well.

CalPERS’ real estate portfolio is valued at $21.4 billion, according to its net performance summary for the end of January. The real estate investments make up 8.4 percent of its $254.9 billion of total plan assets. The targeted allocation for real estate is 10 percent.

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