By Jon Peterson
Baltimore, Md.-based Maryland State Retirement and Pension System is looking at boosting up the real estate portfolio that it owns on the West Coast, as stated in a board meeting document.
The pension fund works on its real estate portfolio along with assistance from its real estate consultant, Cleveland-based The Townsend Group. The consultant wrote in a board meeting document that the pension fund should consider new capital commitments for real estate of approximately $200 million per year, potentially concentrating in West Coast markets.
This could happen as the pension fund is under-allocated for real estate in that region of the country. Maryland’s current real estate portfolio on the Pacific region is at 28.1 percent. This compares to the 35.6 percent for the NFI ODCE Index, which is used as a benchmark for 85 percent of the pension fund’s portfolio. The other benchmark used by the pension fund is the FTSE EPRA NAREIT Global Real Estate Index for 15 percent of the portfolio to invest in public REIT securities.
The capital to be invested in real estate will be done through commingled funds that have a non-core investment strategy. These investment funds will be recommended to the pension fund by Townsend. This type of real estate now makes up 10.7 percent of the pension fund’s real estate portfolio, as of the end of September 2017.
Maryland does have more room for new real estate commitments in its real estate portfolio. The pension fund has total real estate assets valued at $3.97 billion. This asset class makes up 8.2 percent of the pension fund’s total investment portfolio. The targeted allocation for real estate is 10 percent.
The West Coast continues to be of particular interest to pension funds across the country, and they continue to find ways to work with either local operators and advisors. In October of 2017, State of Wisconsin Investment Board (SWIB) has approved two investment allocations for apartment funds with a couple of Bay Area-focused firms. The first allocation of $150 million is with San Mateo-based Essex Properties Trust for a new joint venture to invest in apartments, as stated by the pension fund in a board meeting document. Another $100 million allocation was awarded to FPA Multifamily, which will also focus on the same property type.
Earlier in the year, Texas Municipal Retirement System has approved new real estate commitments totaling $100 million with two real estate firms based in the San Francisco Bay Area, Stockbridge Capital Group and Berkeley Partners.
Houston-based Lionstone Investments, which works with the California State Teachers Retirement System and Oregon Public Employees Retirement Fund, and has recently been purchased by Minneapolis and Boston-based Columbia Threadneedle Investments, manages a portfolio valued at around $6 billion across 17 markets in the United States. It is an active player in Seattle and San Francisco, and it has committed to making these two markets the primary focus of its investment strategy going forward, as well.