By Jon Peterson
California Public Employees Retirement System will be hiring new separate account real estate managers that will be making the San Francisco Bay Area as one of its two targeted markets for these relationships, as stated by the pension fund in a document on its website.
The other targeted market is the greater New York City region.
The pension fund wants to invest in these two markets for a number of reasons. First, this strategy would complement its current existing office building investment strategy, and at the same time it would meet CalPERS Real Asset Unit’s investment criteria as far as cash yield, diversification and inflation protection.
The transactions for the new separate account managers would involve mixed-use/small-mid size office buildings. The pension fund defines this as deals in the range of $75 million to $100 million of equity that will include a maximum leverage of 50 percent. The idea would be to have two to five properties in each separate account.
The properties that will be acquired will likely be a mixture of core plus and value-add assets. The targeted returns on these deals is projected to be between 9 percent to 11 percent gross IRRs with an investment hold periods of between seven and nine years.
CalPERS very recently issued its Request for Proposal for the search to hire the new managers. The pension fund is calling these firms transitional managers. These would be firms that are raising their fourth, fifth or sixth separate account or institutional fund. The deadline for sending in information to be considered for this search is September 7, 2018. CalPERS has not stated when a final decision on the search will be made.
The allocation made to each manager would be in the range of $200 million to $400 million of equity. The long-term goal of the transitional manager program is to support building successful managers to a size large enough to compete for entry into the CalPERS pool of larger established managers.