By Jon Peterson
Palo Alto-based Pacific Urban Residential has been hired by the California Public Employees Retirement System to buy B-quality apartments in a new separate account relationship.
The real estate manager sees that the relationship will be one that is considered to a core plus strategy from a risk perspective. “For us this means that we will be buying properties that have strong current income and will require a limited amount of capital to improve the property,” says Tricia Peterson, director of capital markets for Pacific Urban.
The separate account relationship between the real estate manager and the pension fund is called Pacific Multifamily Investors. The initial allocation from CalPERS is $200 million. This is expected to be a multi-year investment program where the pension fund makes a new allocation to the manager on an annual basis.
The relationship will have a regional investment strategy. “The plan is to invest in existing apartments that are located in the western region. This would include both Northern and Southern California and Seattle. We have recently decided to add a new market to our target areas. This is Portland,” says Al Pace, co-founder and president of Pacific Urban.
Pacific Urban has its first deal under contact for Pacific Multifamily Investors. This is a property in Northern California that should have a close sometime in late February to early March. There is a potential second deal right behind it located in Orange County.
Pacific Urban does have investment discretion if it stays within the investment guidelines set by CalPERS. This means it will be able to make the final decision on transactions without needing approval from the pension fund.
B-quality apartment assets can have a variety of definitions; age is one of them. “For us we think that age is definitely a factor for a B-level asset. This means properties that are typically 11 years old or more,” said Peterson.
Pace and CalPERS do have some history together. He worked for SSR Realty Advisors, now BlackRock Realty Advisors. Pace’s last position was managing director of national acquisitions. One of the pension funds that he bought properties for was CalPERS.
Pacific Urban is still searching for another capital source to fund its more risky apartment investments. “We are trying to team up with another capital source to invest with us on our more value-added acquisitions. This would be with B-apartments that need a lot more work and a significant amount of capitalization to improve them,” said Peterson.