By Jon Peterson
San Francisco-based Stockbridge Capital Group has received a $50 million investment commitment from the Austin-based Texas Municipal Retirement System for its Smart Markets Fund, a real estate investment vehicle created in May 2011 and aimed at investment in brainy cities nationwide.
The pension fund board approved the latest action based on the recommendation of its real estate consultant, Cleveland-based ORG Portfolio Management.
The fund targets investments in “smart” employment centers that are home to major universities and highly educated workforces, according to information presented to the board in a document prepared by Ed Schwartz, a principal at ORG; Lynn Kehoe, a senior consultant for ORG; and Holly Macki, the director of real estate for Texas Municipal. These metropolitan areas are centers of innovation in some of the fastest-growing U.S. industries including information technology, biotechnology, health care and energy.
The commingled fund will seek deals in the range of $10 million to $50 million, smaller than is typically the case for core open-ended funds. Many of the larger core open-ended funds focus on much larger transactions.
The goal initially was to target lower-tier major markets with smart, tech-savvy workforces. The first three acquisitions were in the Seattle suburb known as the Eastside, Houston and Atlanta. Jones Lang LaSalle identifies Atlanta as an emerging technology market in its second annual High Technology Office Outlook Report released Nov. 6.
The fund had a portfolio with a gross asset value of $179.6 million through the end of June 2012. The manager for the fund has promised an 8 percent, unleveraged return before fees. The portfolio leverage on the existing assets in the fund is 32 percent. The maximum leverage allowed for the fund is 40 percent, according to the pension fund documents. Stockbridge did not comment for this story.
The Smart Markets Fund is expected to invest actively in Northern California including industrial properties and San Francisco office buildings. Twenty-two percent of the commingled fund’s current portfolio is based in the Pacific Region, which includes the San Francisco area. Overall the fund looks to buy apartments, retail, industrial, office and medical-office buildings.
The Smart Markets Fund has a core investment strategy with an open-ended structure. Core assets are typically existing properties that are less than 10 years old and at least 80 percent occupied. Open-end commingled funds are always open to new capital commitments, compared to closed-end funds that have a set time period when commitments can be accepted.