In this week's issue of CoStar Lead Street, while it seemingly goes contrary to flat and declining U.S. property values, CalPERS plans to boost its real estate allocation and will go overseas to do it. Meantime, one U.S. land company is getting overseas money to spend in California. And Australia-based ING Office Funds is getting record rents for its properties on the East Coast. Plus, we tell you where corporations have decided to grow, including Kimberly-Clark's locking in 1.6 million square feet in the Atlanta area, and tell you of the latest major properties to come under contract for purchase.
CalPERS Targets $5 Billion More for Real Estate
CalPERS (California Public Employees' Retirement System) adopted a new investment asset allocation this week for its investment portfolio. As part of that plan, it is upping its real estate asset allocation from 8% to 10% -- a potential boost of $5 billion.
CalPERS investment officers will use the new targets to deploy capital during the next two to three years, when the board tentatively is scheduled to again review and revise the allocation mix, based on dynamic market trends.
"We have achieved strong results for the last four years, but that is not a guarantee that we would be as successful with the existing allocation," said Rob Feckner, CalPERS board president. "This new asset allocation - with its emphasis on international stocks, venture capital, commodities, real estate and infrastructure - is the right mix to help us provide for our retirees and minimize the need for taxpayer dollars."
Ironically, CalPERS is upping its allocation at a time when commercial property values could be edging down. CalPERS hopes to offset that trend by expanding its reach. CalPERS currently has invested allocation in real estate is 7.8% on a cash basis.
The fund's real estate staff has proposed a new strategic plan with an emphasis on further diversification through a value-add centric approach in terms of strategies and an increased international allocation. CalPERS said that this approach would allow for additional deployment of assets.
CalPERS said capitalization rates have reached low levels due to higher valuations of real estate assets over the recent period. A slowdown in the U.S. economy may pose risks to current valuations, but could present new opportunities in the future.
It said it is confident that new international opportunities combined with potential U.S. opportunities will enable new targets to be reached within a two-year period.
Overall, CalPERS will continue to target two thirds (66%) of its portfolio to public and private equities combined. Fixed income and inflation-linked assets combined will be 24%.
Global publicly traded stocks, which were 60% of the total portfolio, will move downward to 56% and will be evenly split between U.S. stocks and international stocks.
Private equity, which was 6%, will gain assets as it moves to 10%, offsetting the decrease in publicly traded equities. Similarly, Fixed Income's target will decrease from 26% to 19%; the new inflation linked assets will have a 5% allocation.
There is no timeline for deploying funds under the new allocations since investments will depend partly on market trends and opportunities. Most new targets will be reached within two to three years.
"These revised allocation markers reflect the promise of our private equity, real estate, and asset-linked investment classes," said Charles P. Valdes, Investment Committee chair. "By hitting the reset button every few years, we keep our portfolio balanced and diversified in a fluid market that never stands still."
Bixby Gets Persian Gulf Money To Invest in Silicon Valley
By: Randyl Drummer
Irvine, CA-based commercial developer Bixby Land Co. has formed a joint venture with an international firm financed by capital from Persian Gulf countries to acquire office and R&D properties in the Silicon Valley.
The JV with Bixby is the second major transaction on the West Coast for the real estate division of Investcorp, which opened an investment office this summer in Los Angeles.
The partnership's inaugural acquisition is the Airport Technology Park in Santa Clara, a five-building, 300,000-square-foot complex on 17 acres acquired by Bixby in September for $85.4 million, and recapitalized by the Bixby/Investcorp JV at the same price.
It's the first of what Brian Kelley, principal with Investcorp's real estate group, hopes will be many transactions in the Silicon Valley. The frothy market has enjoyed 11 consecutive quarters of declining vacancy rates and seven straight quarters of increasing rental rates, Kelly noted.
The Silicon Valley is becoming a supply-constrained market, with heightened demand for office and R&D and limited new construction forcing upward pressure on rents, added Bill Halford, president and CEO of Bixby Land Company.
ING Records New High Rents in NY, DC
ING Office Fund in Sydney, Australia, racked up total additional annual income of $3.4 million from its U.S. portfolio in the quarter ended Sept. 30.
In New York, at 900 Third Ave., new leases were struck at $72 per square foot gross on the 10th floor and at $85.50/square foot on the 25th and 26th floors, representing new rental benchmarks for the property and an average uplift on prior in-place rents of 47%.
Lowenberg Capital Management signed for 1,500 square feet on the 10th floor through December 2014. Permal signed for 17,000 square feet on the 25th and 26th floor through December 2017.
In addition, ING recorded 43,034 square feet of leasing at the Homer Building in Washington, DC, during the period, with rents ranging from $39 to $43/square foot net.
The law firm of Brown Rudnick signed for 27,000 square feet on the 6th floor of the Homer Building through March 2018.
source: costar.com
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