Opposite Views on US Real Estate by Danish Scheme and CalPERS

(August 12, 2011) — Denmark’s largest pension fund, ATP, and America’s biggest scheme, the California Public Employees’ Retirement System (CalPERS), have conflicting views over real estate in the United States.

ATP has made recent commitments to real estate funds in the US. Through its subsidiary ATP Real Estate, the scheme committed $65 million to the UBS Trumbull Property fund, managed by UBS Realty Investors, IPE.com reported. The commitment was signed in June, marking ATP Real Estate’s second investment with UBS. Additionally, the Danish scheme made a commitment of $80 million to the Morgan Stanley Prime Property fund in March — the pension’s first investment with the firm. Also in March, the scheme committed $90 million to a core US real estate fund managed by Invesco Real Estate.

Meanwhile, in the US, CalPERS is looking to temporarily drop its real estate allocation. While its current interim target to real estate is 10%, it plans to drop the target to 8% until December 31, according to agenda materials for the system’s August 15 investment committee meeting.

The $235.9 billion scheme’s new real estate strategic plan is primarily focused on high-demand core, cash-generating properties.

Despite CalPERS’ reduced allocation to the sector, institutional investors have started amping up their allocations to real estate in the US. In June, the CIC reported that as incomes rise in emerging markets with energy demands expected to climb, it is targeting mining, real estate, and infrastructure investments in the Americas.

Similarly, Equity One and New York Common Retirement Fund entered into a joint venture in May to acquire grocery-anchored neighborhood centers.

“This venture provides us with a highly regarded capital partner who shares our long term perspective on the ownership of institutional quality shopping centers,” stated Jeff Olson, Chief Executive Officer of Florida-based Equity One, which has 177 shopping centers, 10 development or redevelopment properties, nine non-retail properties and five land parcels. “This new alliance will enable us to continue our strategy of upgrading and diversifying our portfolio into the most densely populated, supply constrained markets of the country,” he said.

“We had about a 40% drop in property valuations from its peak in 2007 to the bottom of the cycle which occurred in the beginning of 2010,” Mercer’s Allison Yager told aiCIO in March, following the decision by the $13.6 billion Aviva Staff Pension Scheme to up its allocations to real estate-related assets to 15% over the next two years. “Since then, investors have returned to the real estate market and made sizable commitments, but there’s no way to know if we’ll ever return to the pre-crisis peak.”