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Changes to TIAA’s Core Open-Ended Fund Could Impact San Francisco and Seattle Markets

Granite, Gary Merlino Construction Company, Seattle, Alaskan Way Project, Ethisphere Institute,

By Jon Peterson

TH Real Estate, an operating division of New York City-based TIAA Global Asset Management, has announced a re-launch of its Core Property Fund into its U.S. Cities Fund series. The previous setup of the fund had been one where all of its assets were held under the one umbrella. Now investors already in the fund and those coming in the future will have the option of keeping the status quo or investing some or all of its capital into a series of funds that are focused on a single property type of office, industrial, retail and apartments.

TH Real Estate is looking to expand and is going through a major growth initiative with the U.S. Fund series. “The assets under management that we have at this time is $2 billion. Our goal over the next five years is to grow this part of our business to $10 billion,” says Randy Giraldo, managing director and portfolio manager for the U.S. Cities Funds.

The markets of San Francisco and Seattle will certainly be part of the growth of the business for TH Real Estate. The Core Property Fund currently has around 7 percent of its assets in the San Francisco Bay Area and approximately 10 percent of the portfolio in Seattle. “We will definitely be looking to invest more capital in both of those markets going forward. Both of those regions have the characteristics that we look for including being in growth markets that have high barriers to entry,” said Giraldo. Some of the other markets in which the funds will be investing include New York City, Boston, Washington, D.C., Miami, San Diego and Los Angeles.

Two of the property types that will likely get the most attention by investors would be industrial and retail. “I think the issue for many large investors is that’s it’s difficult to build up a sizable portfolio for industrial as many transactions when buying industrial assets are at $10 million or less. Retail is also difficult as there just aren’t many commingled fund offerings that focus exclusively on retail properties. Many investors have become over allocated to office buildings as this property type can produce very large transactions,” said Giraldo.

The vast majority of the assets in the U.S. Fund Series will be buying existing core assets. For each fund that focuses on the single property type and the master fund, at least 80 percent of the capital will be invested in existing core assets. Each of them will have up to a 20 percent allocation for non-core investing. “I would think that this would not include development but would more likely be value-add investing on an existing asset,” said Giraldo.