CalSTRS to Boost RE Investments

(July 6, 2010) — The California State Teachers Retirement System (CalSTRS) acquired two properties in Los Angeles for $215.5 million (€177 million).

The increased allocation to real estate reflects a slow recovery of the asset class following the financial downturn as institutional investors attempt to gain liquidity and diversification. The attention to real estate also confirms recent findings from a new Russell Investments’ survey on alternative investing. The study shows institutional investors worldwide view alternative investments as an effective way to diversity their portfolios, with plans to boost their exposure to these investments in the years ahead. While real estate, private equity and hedge funds remain the preferred alternative types, commodities and infrastructure are also expected to make meaningful gains, the study reported.

The larger of the two CalSTRS investments was the acquisition of $194.2 million of debt on the City National Plaza office.

The fund said to IPE that its goal was to de-leverage the asset by reducing the debt on the property to less than half while transitioning it to the core sector of its real estate portfolio. Independent fiduciary, Bonuccelli & Associates, assisted the group during the transaction.

CalSTRS also acquired debt on a portfolio of industrial assets in Florida held by Fortress Group. The pension is investing $21.3 million of a total capital raise of $325 million. The Fortress Group will be the manager on the commingled fund.

In recent news, Japan’s Dainippon Ink and Chemicals Incorporated (DIC) pension fund reported plans to invest in real estate at home and abroad for the first time since 2006, when the subprime mortgage crisis was emerging. The plan by the fund, which manages 87 billion yen ($959 million) of assets, comes after Japan’s commercial land prices dropped to the lowest in at least 36 years. Japanese pensions are now adjusting their investment following two decades of waning markets.