By Jon Peterson
Palo Alto-based Pacific Urban Residential has received a new $387 million equity allocation from the California Public Employees Retirement System to invest in apartments, according to a pension fund document from the investor.
“This new capital allocation will give us the opportunity to invest up to $700 million worth of new transactions for the relationship through the use of leverage,” says Al Pace, co-founder and president of Pacific Urban.
CalPERS made the investment for its partnership Pacific Multifamily Investors. This is a separate account between the pension fund and the real estate manager.
Most of the transactions for the partnership will be done on the West Coast. “The markets that we will be looking at include Northern and Southern California, Portland, Seattle and Denver,” said Pace.
The investment strategy is to buy B quality apartment assets that the manager can improve on over time. One of the criteria that Pacific Urban uses for a B asset is age and this is typically a property that is no less than 11 years old. All of the investments would involve the purchase of existing assets.
Pacific Urban has been active this year in many different markets. This has included buying properties in San Jose and San Diego. It will be closing on a purchase of its first asset in the Portland metropolitan region. This is a complex in Lake Oswego. “We feel very fortunate about this deal as the Lake Oswego sub market is one where there are only a total of 8 or 9 apartment complexes in the entire region and you might have one property sell every three to four years. This market is also very hard to get new projects approved, which makes the existing assets there very valuable,” said Pace.
Seattle is a market that the Pacific Urban is taking a cautious look at. “We have made some offers in Seattle, but have not done a deal there yet. “We want to make sure that all of the units under construction in Seattle are getting absorbed in a timely manner,” said Pace.
CalPERS and Pacific Urban first started their partnership in January of 2014. The initial allocation from the pension fund was $200 million. The pension fund stated in a board meeting document that the market value of the existing portfolio is $375 million, through March of this year. The net rate of return on the portfolio for the quarter was 5.47 percent and the net rate of return for the fiscal year to date was 8.89 percent.
This new allocation with Pacific Urban fits in with CalPERS’ long-range plans for investing in real estate. This is to have fewer but larger separate account relationships with real estate managers.