Pension Fund Tags Santa Clara Industrial For Sale

By Jon Peterson

A Santa Clara warehouse and distribution facility owned by the Kansas Public Employees Retirement System has been slated for sale as part of a larger disposition program that involves multiple properties nationwide.

The pension fund estimated that the 134,000 square-foot Kan Mac building at 2940 Mead Ave. had a net asset value of $28.5 million through the end of 2011. It anticipates disposition proceeds of $29.4 million and has targeted a final sale date for the first quarter of next year, according to public records presented to the pension fund’s board.

The property’s value is buoyed by a dearth of new development of like assets in the region, said Sutton Roley, a partner with Cassidy Turley Commercial Real Estate Services in its San Jose office. He discounted any expectation that a buyer might look to redevelop.

“It is a high-quality, institutional-grade warehouse-distribution property,” Roley said. “This is an area where very little if any new development is happening with this property type.” Consequently, the value of the existing properties has increased, he said.

The neighborhood is a mixture of similar warehouse-distribution facilities leavened with recreational-retail type uses such as a go-cart riding outlet and a rock-climbing facility, Roley said.

The pension fund expects to sell nine properties nationwide over the next four years for total estimated proceeds of $296.4 million. The Kan Mac asset is the only Bay Area property on the list. Others are in Florida, New Jersey, Southern California, Texas, Hawaii, Minnesota, Maryland and North Carolina. The assets are a mix of office, industrial, retail and apartments.

The sale of the Santa Clara property is part of a separate account real estate liquidation plan that Kansas PERS approved at its March 15 board meeting. The pension fund board approved the sales based on the recommendation of The Townsend Group, its Cleveland-based real estate investment consultant, and Boston-based AEW Capital Management. The pension fund acquired the property through AEW, its real estate manager on the account.

Townsend has a regional office in San Francisco. AEW has a regional office in Los Angeles.

The pension fund wants to move away from investing in real estate via separate accounts toward open-ended commingled funds focused on core, or presumably lower-risk properties. Its goal is to reduce the risk in its portfolio by achieving a higher level of diversification.

Kansas PERS bought the Santa Clara property for $16.9 million and has invested an additional $7.9 million of equity. It anticipates a net internal rate of return of 9.3 percent with an equity multiple of 1.78. The property was built in 1974.

The board report did not say when the pension fund acquired the Santa Clara building or its occupancy status. Pension fund staff declined to provide additional information about the property above that presented to the board.

As part of its plans to reinvest its sales proceeds in core open-ended commingled funds, Kansas has made a commitment to the Heitman America Realty Trust, which is managed by Chicago-based Heitman LLC.

The pension fund had total plan assets of $12.8 billion at the end of last year. Its real estate portfolio constitutes 8 percent of that total value, or $1.03 billion. Its long-term target for real estate is 12 percent.

West Coast Commercial Real Estate News