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New Gerding Edlen Fund Plans $450MM Capital Raise and Target Assets in San Francisco and Seattle

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By Jon Peterson

Portland-based Gerding Edlen is planning a $450 million capital raise of its latest commingled fund that is known as Gerding Edlen Green Cities IV, as stated in a board meeting document from the Connecticut Retirement Plans and Trust Funds. This pension fund is looking at making a $75 million commitment to this fund.

Two of the targeted markets for the commingled fund will be the San Francisco Bay Area and Seattle. Its other primary markets are Portland, Los Angeles, Chicago, Boston, New York City and Washington, D.C.

Gerding Edlen targets these cities for a number of reasons, as written in a board meeting document from Connecticut. One is that they have experienced high population growth and strong job growth compared to other markets specifically with knowledge-based jobs in high-tech and health care. Another factor is that each of the cities is a supply-constrained market due to regulatory and geographic barriers and have been top performing markets in terms of consistency of valuations and cap rates even during recessions and downturns.

Gerding Edlen has acquired assets in its previous commingled funds in both the Bay Area and Seattle. The assets in the Bay Area were located in San Francisco and Oakland.

The overall investment strategy for Cities IV is to make value-add and opportunistic investments in apartment and office properties where there is a chance to re-tenant, redevelop and retrofit the assets with high-energy efficiency standards. The targeted returns for the fund are at least a 13 percent net IRR while assuming a maximum 60 percent leverage portfolio wide.

Most of the capital for the commingled funds will be with apartments. This is the property type where 80 percent of the deals for the fund will be invested.

There will be three types of deals when buying apartments.

One is to purchase well-located but under-managed or distressed apartments where the new owner can increase building performance, management, marketing and leasing activities. It will also buy existing suburban-urban properties strategically located in neighborhoods bordering urban target markets that require improvements to amenities, property programming and/or units in order to compete as a more affordable option for urban renters. Some deals could also be buying entitled or nearly entitled multifamily land sites in targeted urban infill locations in markets with growing rental demand and limited supply for the development of new, modern and sustainably built apartments.

The other 20 percent of Cities IV will be allocated for investment in office assets. These would be well-located but under-managed office properties that are currently not leased fully or leased below market averages in areas with job growth and limited supply. The goal would be to reposition the properties with capital improvements, better amenities, sustainable features and superior marketing and leasing.