By Jon Peterson
CityView Real Estate Partners, with offices in San Francisco and Los Angeles, is planning to allocate as much as 70 percent of the capital for CityView Multifamily Fund III in California, as stated in a board meeting document from the Los Angeles County Employees Retirement Association.
The pension fund has approved a $150 million commitment to be the only investor in CityView’s fund III, according to an e-mail received from the pension fund. The targeted markets for the fund in California are San Francisco, Oakland, San Jose, Los Angeles and San Diego. The fund will also consider investing some capital in Seattle, Portland, Denver and Dallas.
CityView declined to comment when contacted for this story. The real estate manager will be co-investing one percent of the aggregate commitment amount of the limited partners, according to a board meeting document.
Fund III wants to invest in workforce housing to cater to the large unmet need for rental housing affordable to middle income households in the target markets. According to the Housing Opportunity Index put together by the National Association of Home Builders and Wells Fargo, San Francisco, Los Angeles County, Orange County and San Jose are the four least affordable large metro areas in the country, each with less than 20 percent of housing stock affordable to families earning the medium income. San Diego is in 7th place, while Seattle, Portland and Denver all have less than 60 percent affordability.
The target markets are projected to have very strong population and job growth as spelled out in a board meeting document from LACERA. Those areas are anticipated to have population growth at a rate that is 79 percent faster than the US average, job growth at a rate that is 68 percent higher than the rest of the country, and personal income growth that is 23 percent higher than the US average.
The commingled fund will be looking at two different kinds of investments. The ground-up development activity for the fund will be done in the California markets. The other targeted markets are where the fund would buy existing assets that have a value-add component.
The targeted returns for Fund III are a 13 percent to 15 percent net IRR. The commingled fund has a three-year investment period and an eight-year life. It is projected to have leveraged capped at 65 percent of gross asset value or cost, whichever is greater.
The commitment from LACERA did change the amount of capital raised for the commingled fund, as stated by the pension fund in a board meeting document. The original plan for CityView was to raise $400 million for Fund II. LACERA would not want to be more than 25 percent of the fund, which meant that CityView would need to raise an additional $300 million from other investors. The pension fund investment staff deemed this unlikely.
With LACERA being the only investor, the pension fund will have more control over the allocations the fund makes, according to a board meeting document. The pension fund will only allow the manager to draw down $75 million of the commitment during the first 12 months from the date of capital raise being close. Another benefit to the pension fund is that it will retain the option to acquire 100 percent interests in the completed assets as long-term core holdings. LACERA would not have to get into a bidding war with other investors to buy these assets.