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Seattle City Employees’ to Invest Capital in Value-add Real Estate

By Jon Peterson

The Seattle City Employees’ Retirement System is planning to increase its exposure to real estate with a new commingled fund manager search for value-add investments, according to industry sources.

Jason Malinowski, the chief investment officer for the pension fund, did not respond to several phone calls and an e-mail seeking comment for this story.

Seattle City Employees are considering spending up to $35 million of capital on this endeavor. This is based on the fact that its existing real estate portfolio is approximately $254 million or 10.6 percent of the pension fund’s $2.4 billion of total plan assets. Its targeted allocation for real estate is 12 percent or $289 million.

The pension fund will be conducting the new manager search along with its investment consultant, Boston-based NEPC. This search will not be a full-blown Request for Proposal search, instead it will be made by invitation only. The NEPC will recommend to the pension fund a number of managers it believes will be the best suited for this search based on its research and analysis.

The value-add strategy could entail the investment of existing properties that could be improved through a renovation or expansion or participating in new development projects. This could include investing in the four main property types of office, industrial, retail and apartments or in specialty property types like hotels or student housing.

The ultimate goal of this exercise would be to achieve more diversification in its real estate portfolio. Seattle City Employees has an existing real estate portfolio that is split with 87 percent in core assets and 13 percent in non-core. On a long-term basis it is striving to align the portfolio toward a larger non-core allocation, a split with 70 percent core and 30 percent non-core.

According to its Web site, Seattle City Employees has three existing core commingled fund managers. These are New York City-based J.P. Morgan Asset Management for its Strategic Property Fund, Chicago-based Heitman for its Heitman America Real Estate Trust and Boston-based AEW Capital Management for its AEW Core Property Fund.