The California Public Employees’ Retirement System (CalPERS) has committed more than $3 billion to its $42.1 billion real assets investment class, shows a report to be presented to its investment committee today.
The commitments are new additions to CalPERS’s core real estate investments as of July 31, and were mainly made in the spring of 2019. The original commitments date back as far as 2012.
The report also sheds new light on fees that CalPERS paid to real estate firm CIM since January 2018 as part of a so-far-failed project to construct a 34-story office tower in downtown Sacramento.
CalPERS paid CIM more than $30 million since January 2008, the report shows. It does not detail fees paid CIM from 2008 to 2019, when it took over the abandoned project, which was originally supposed to consist of two 53-story towers.
CalPERS disclosed last week that it had terminated its relationship with CIM and was looking for a new real estate partner.
The site of the planned real estate development has been a vacant lot since 2005, when the building housing the defunct Sacramento Union was torn down. Located in the heart of downtown Sacramento, right by the new arena housing the National Basketball League’s Sacramento Kings, the vacant lot has been an embarrassing eyesore to Sacramento city officials.
CalPERS has lost more than $90 million on the project since construction was halted in 2007 due to construction issues and financial concerns about the project’s viability.
The new real estate commitments are part of CalPERS’s continuing commitment to core real estate assets with moderate leverage, which CalPERS put renewed emphasis on after it lost around $11 billion on real estate during the great financial crisis.
The largest of the new CalPERS commitments is a $750 million commitment to Fifth Street Partners. The commitment is part of a joint venture with CommonWealth Partners for investments in major US office buildings.
The next biggest commitment CalPERS made is $700 million to Institutional Multifamily Partners (IMP), which is working with Global Infrastructure Partners (GIP) as part of a $4 billion investment to buy multi-family units.
The third-largest commitment is $500 million to real estate firm GRE as part of a partnership with First Washington Realty. The partnership invests in shopping centers that are anchored by grocery stores.
CalPERS has committed $400 million to Pacific Urban Residential for residential units. Another $400 million was committed to Institutional Logistics Partners as part of an industrial real estate partnership. The partnership is managed by Bentall Green Oak. CalPERS also entered into an expanded industrial real estate partnership with GI Partners, which was given $350 million.
CalPERS also revealed around a dozen smaller additions to existing real estate partnerships, including more than $3 million to manager QIC. CalPERS is part of a partnership with other institutional investors and QIC that owns the port of Melbourne, Australia. The California pension plan has contributed more than $1.3 billion to the partnership since 2015. The partnership is considered an infrastructure investment within the real assets portfolio.
CalPERS’s real assets portfolio, which is made up primarily of real estate, saw lackluster returns of 3.7% for the one-year period ending March 31, 2019.
Real assets returns lag the overall CalPERS portfolio by a quarter. Overall, CalPERS made 6.7% in the fiscal year ending June 30, including the one-quarter lagged real asset returns.