Investors - MARCH 3, 2014

StanCERA to add $38 million to real estate portfolio

by Reg Clodfelter

The $1.7 billion Stanislaus County (Calif.) Employees’ Retirement Association has decided to up its real estate allocation from 1.5 percent to 3.5 percent. The change would require additional real estate investments of around $38 million that would be committed to one or more new managers.

Board documents also state that the retirement association may terminate its public market REITs portfolio with BlackRock and instead add approximately $59.2 million to its real estate portfolio, divided among two or three new managers.

The retirement association is also considering three alternative long-term real estate allocations proposed by Strategic Investment Solutions. The first option would be to maintain the retirement association’s public market REITs investments as 33 percent of the portfolio, and add equally weighted core and value-added investments, which would comprise the other two-thirds of the portfolio. This plan has an expected return of 8.32 percent and an expected risk of 12.96 percent.

The second option would be to drop the public market REITs portfolio, and comprise the portfolio of an equal split between core and value-added investments. This would entail commitments of approximately $29.5 million divided among one to two investment managers for each strategy. This option has an expected return of 9.11 percent and an expected risk of 12.35 percent.

The final option would be to again reduce the allocation to public market REITs to 0 percent, but allocate 75 percent of the portfolio to value-added investments and 25 percent to core investments. This would entail a commitment of approximately $15 million to one core manager, and commitments totaling $44 million to two value-added managers. This plan has an expected return of 10.08 percent and an expected risk of 14.07 percent.

SIS recommended that StanCERA choose either option two or three, with a slight preference to option three due to the considerable amount of capital flow into core assets since 2010, which has compressed cap rates. SIS also recommended an initial review of three value-added funds:

  • American Strategic Value Realty Fund, an open-end fund managed by American Realty Capital
  • Greenfield Acquisition Partners VII, a closed-end fund managed by Greenfield Partners
  • JPMCB Strategic Property Fund, an open-end fund managed by JP Morgan Asset Management (though board documents noted that this fund currently has a 12-month queue for new investments)
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