By Jon Peterson
The Los Angeles County Employees Retirement Association has approved the purchase of assets from a commingled fund where it provided 99 percent of the equity. The name of the commingled fund is CityView Bay Area I. Its investment strategy was to build new apartment projects in the Bay Area. In the fund are four properties, two in San Francisco and one each in Berkeley and Foster City.
John McClelland, principal investment officer for real estate for LACERA, stated in a board meeting document that three of the assets in the commingled fund are complete, stabilized and ready for sale. The real estate investment staff of the pension fund has determined that all three of the assets would be excellent additions to LACERA’s core real estate portfolio.
The sale of these properties is projected to produce very high returns for both the pension fund and the manager of CVBA I, Los Angeles-based CityView. This real estate manager declined to comment when contacted for this story. A pension fund document stated that the targeted net IRR for the commingled fund was in the range of 13 percent to 15 percent. The actual return from three assets ready for sale is estimated to be a 35 percent net IRR. This would result in a net IRR to LACERA of 28 percent. The incentive fee payable to CityView will likely be between $5 million and $10 million.
The three properties in CVBA I that are ready for sale are the 196-unit Potrero Launch located at 2335 Third Street in San Francisco, the 94-unit ArcLight at 21 Clarence Avenue in San Francisco and the 143-unit Berkeley Central at 2055 Central Street in Berkeley.
Potrero Launch is now 99 percent occupied. The commingled fund invested $40 million of equity in the project. ArcLight is 94 percent leased and the fund invested $15 million into it. Berkeley Central is 99 percent occupied. The fund first put in $10 million and then an additional $30 million was invested in a sidecar investment by LACERA.
The fourth property in the commingled fund is the 166-unit Triton Pointe located at 5541 Foster City Boulevard in Foster City. This property is still under construction. CVBA I invested $30 million into this asset.
LACERA wrote in a board meeting document that the pension fund has the option to purchase the assets from the commingled fund because it’s the only investor in CVBA I. The pension fund invested $100 million into the commingled fund in September 2011.
The first look option for LACERA is quite valuable for the investor. It could enable them to buy the asset before competitive investors get involved in the process.
To offset any conflict of interest, LACERA is planning to hire an independent real estate fiduciary to determine a fair price on the assets to be sold in CVBA I. The company hired for this is New York City-based Deutsche Asset & Wealth Management, formerly known as RREEF.