CalSTRS boosts 3650 REIT, PCCP mandates in broader $2.3bn commitment spree

Keystone Borrows $66M in NJ Office Refi

The $241.3bn retirement system allocated capital to 12 investments in the latter half of last year

By Peter Benson

REPRINTED WITH PERMISSION BY REAL ESTATE FUND INTELLIGENCE

The California State Teachers Retirement System committed $2.3bn to real estate strategies in the second half of 2019, with major allocations to a pair of debt managers — 3650 REIT and Pacific Coast Capital Partners.

The $241.3bn retirement system allocated capital to 12 investments in the latter half of last year, spreading capital across office, residential and debt funds, joint ventures, separately managed accounts and direct investments, according to documents obtained by REFI US.

With its newly announced commitments, CalSTRS invested $2.8bn into real estate in 2019. This represents the lowest total commitment to the asset class since 2013, when CalSTRS committed $2.4bn to real estate, per the documents. The retirement system is around $2.5bn overweight to the asset class sitting at 14% of the fund, versus a target of 13%.

Debt

3650 REIT and a Pacific Coast Capital Partners debt fund independently formed JVs with the West Sacramento-based investor, with 3650 receiv- ing a $300m follow-on commitment and PacificCal Debt III forming a new $189m venture. CalSTRS’ other major debt investment was a $150m follow-on commitment in CrossHarbor Debt Fund.

The interest in debt is not surprising, given wide-spread concerns that the commercial real estate market is in the latter part of the current cycle and the current low interest rate environment.

All three strategies are focused on core real estate debt investments, per the documents. 3650 REIT is a multi-platform lender, offering short- and long-term options to clients. Both Pacific Coast and CrossHarbor are focused on the mezzanine and senior loan space, per the respective firm websites.

Office

CalSTRS committed $629m to office strategies, mainly in real estate funds or more direct investment. DivcoWest’s Fund VI received the lions’ share of funds, garnering $325m in a new commitment. A Beacon Capital Part- ners joint venture and CI also received a $300m follow-on commitment and $4m new commitment respectively.

While both Beacon commitments added to CalSTRS’ value-added portfo- lio, the DivcoWest commitment is a core offering. Generally speaking, the retirement system’s portfolio leans core. CalSTRS targets a 60% exposure to core properties with the remaining 40% split between value-added and opportunistic strategies.

Residential

Multifamily and residential commitments were the smallest of the three targeted property type commitment tranches, with $343m invested in liva- ble real estate. StradaCal, a joint venture targeting apartments in San Francisco and the Bay Area, received $300m of that in a new commitment.

The remainder of the residential commitments were smaller, more niche strategies, including two increases of $18m to Post Pointe, a separate account, and $25m to HVP IV Homes for Rent, a CI.

Other

The remainder of CalSTRS’ commitments went to larger, multi-strategy managers running closed-end funds and separate accounts. The Blackstone Group snagged $400m for its separate account, while Partners Group USA’s Golden Coast account gained the last $250m.

This year, Partners Group have made purchases in Europe across the office, industrial and energy sectors, continuing the office thesis for CalSTRS while providing diversification both in property type and geography. Blackstone’s recent purchases have skewed industrial and hospitality related, highlighted by its recent hostile run at Unizo Holdings, the Japanese hotel provider.