SACRAMENTO—The nation's largest public pension fund has brought on a partner to help it manage its multifamily investments. The California Public Employees' Retirement System has tapped Invesco Real Estate to oversee its Multifamily Real Estate Program.
Under the multiyear program, dubbed Institutional Core Multifamily Investors, the firms will look to build a stable, income-oriented portfolio of institutional-quality core apartment assets. The fund, which will target select markets in the West and Midwest, will have an initial allocation of $250 million.
According to CalPERS's chief investment officer, Joe Dear, Invesco's “extensive experience and proven track record in multifamily investing make them a great fit for this program. We're excited to work with them as we identify and acquire multifamily assets with both strong returns and the potential for future appreciation.”
The pension fund has some $260 billion in total assets, including $24.5 billion in real estate. Of that figure, the multifamily program accounts for $2 billion.
“Adding a measured allocation to high-quality apartment assets will enhance the overall risk and return profile for CalPERS investment portfolio,” says Ted Eliopoulos, senior onvestment officer for the fund's real estate program.
After experiencing significant losses between the summers of 2008 and 2009, CalPERS readjusted its strategy to a more conservative approach. During that period the firm's real estate portfolio lost almost half its value, more than $10 billion, thanks to blockbuster failed investments like Stuyvesant Town and Peter Cooper Village in New York and California's LandSource, a land ownership company.
In early 2011, CalPERS adopted a “back-to-basics” strategic plan that focused its real estate program on income-generating properties, restraints on risk and debt and separate accounts with partners (rather than investing in private equity funds). The portfolio was shifted so that three-quarters of it went into core properties that produced lower, but more reliable, yields, and most of the commitments went to five to 10 strategic long-term partners managing the fund's real estate accounts. The plan also resulted in strategic dispositions and the removal of several of its investment managers including BlackRock, Jones Lang LaSalle and Hines Interests.
Invesco, which is approved to make investment decisions on behalf of the partnership, expects to acquire three to five properties with the initial allocation. Managing director Max Swango told Investments & Pensions Europe that Institutional Core Multifamily Investors is targeting assets in the 10 largest apartment markets in the western portion of the country, including Seattle, Portland, OR, the San Francisco Bay Area, Southern California, Denver and Minneapolis. He added that the JV has its first transaction, a property in San Francisco, already under contract and expected to close soon.
“The markets we are going to be buying in have cap rates in the range of 4% to 5%," Swango told IPE. "We plan on being a player in that range.” As of the end of the first quarter, Invesco's US direct real estate holdings totaled about $18 billion, nearly a third of which is comprised of multifamily.
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Sule Aygoren
Aygoren oversees the editorial direction and content for ALM’s Real Estate Media Group, including Real Estate Forum and GlobeSt.com. In her tenure with ALM, she’s held roles of increasing responsibility, including Managing Editor. Aygoren has received several awards for her coverage including Best Trade Magazine Report from the National Association of Real Estate Editors and the James D. Carper Award for Young Journalists. Under her direction, Forum has received four national NAREE awards for Best Commercial Real Estate Trade Magazine.
