Public pension funds looking for more exposure to high-risk real estate

Allocations to opportunistic investments on the rise as funds aim to fill commitment gaps

National /
Nov.November 26, 2018 11:00 AM

Terminal Stores at 271 11th Avenue and California State Teachers’ Retirement System CEO Jack Ehnes (Credit: Curbed NY and CalSTRS)

U.S. public pension funds are pushing for more exposure to riskier, opportunistic real estate investments to help close their funding gaps.

American public plans have increased their allocations to opportunistic investments by a measure of six times between 2006 and 2016, according to an analysis by CEM Benchmarking cited in the Wall Street Journal. During that same time, exposure to core properties has remained flat.

Pension funds are moving toward riskier deals as rising values have made it harder to find attractive investments.

“Five years ago, you really could have thrown darts and had a pretty successful portfolio,” said Shawn Quinn of Wilshire Private Markets, which advises institutional clients.

The California State Teachers’ Retirement System has a target of putting 20 percent of its real estate portfolio, or about $5.7 billion, into opportunistic real estate investments. A spokesperson for the fund said it currently doesn’t meet that target.

An official at CalSTRS said the fund looks to earn 13 percent to 30 percent on opportunistic deals, compared to somewhere between 6 percent and 9 percent on core investments. The fund recently teamed up with L&L Holding Co. and Normandy Real Estate Partners to buy the Terminal Stores warehouse for $900 million.

All told, public and private pension funds had about $135 billion invested in opportunistic vehicles as of 2016, according to CEM Benchmarking research, which was sponsored by Nareit.

Pension funds took huge losses on their real estate investments during the financial crisis, but they’re now under increasing pressure to fill funding gaps. Governments have unfunded commitments estimated by the Boston College Center for Retirement Research totaling $1.6 trillion, while Moody’s Investor Services puts the figure at $4 trillion. [WSJ] – Rich Bockmann


Related Articles

arrow_forward_ios
With a cooling trade war, stocks perform well, including real estate. (Credit: iStock)

Real estate stocks push up this week as U.S.-China trade tensions ease

Real estate stocks push up this week as U.S.-China trade tensions ease
416 West 25th Street and Maverick Real Estate Partners principal David Aviram (Credit: Google Maps and LinkedIn)

Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case

Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Multifamily sector beating the odds

Multifamily sector beating the odds

Multifamily sector beating the odds
The home improvement retailer will stay in it's Flatiron location (Google Maps)

Home Depot extends lease for Flatiron store

Home Depot extends lease for Flatiron store
Hewlett Packard Enterprise Co. CEO Antonio Neri (Unsplash; Hewlett Packard Enterprise)

Hewlett Packard Enterprise leaves Silicon Valley for Texas

Hewlett Packard Enterprise leaves Silicon Valley for Texas
Convention centers are a losing proposition for private developers, but local governments see them as a way to attract business tourism. (iStock)

Convention centers boom despite shows going virtual

Convention centers boom despite shows going virtual
Charlie Kushner and Laurent Morali with Commons at White Marsh Apartments in Maryland (Photos via Sasha Maslov and CommonsatWhiteMarsh)

Kushner looks to unload multifamily properties for $800M

Kushner looks to unload multifamily properties for $800M
Having learned from missed opportunities a decade ago, family offices are strategically looking for distress opportunities in real estate (iStock)

Family offices are gearing up to pounce on distressed real estate

Family offices are gearing up to pounce on distressed real estate
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...