CalSTRS Announces Real Estate Partnership to Serve Urban Markets
The first project will include a Southern California shopping center.
WEST SACRAMENTO, CA – The California State Teachers’ Retirement System (CalSTRS) today announced the launch of a real estate joint venture focused on urban retail properties in underserved communities. The partnership has the potential of reaching $250 million in commitments.
CalSTRS partnered with Dallas-based Sarofim Realty Advisors (External link) in 2004 to form the Community Retail Development Fund (CRDF), which seeks to invest with local and regional partners on retail properties in underserved communities. Sarofim has served institutional investors with long-term investment horizons since 1982.
The fund has identified Primestor Development, Inc. (External link), a prominent Los Angeles developer and operator, to develop, redevelop and acquire retail properties with an eye toward establishing a stable portfolio of core assets over time. CalSTRS’ commitment includes the development of a community shopping center in South Gate, about seven miles southeast of downtown Los Angeles. The strategy for the South Gate project is to build a high quality retail asset to attract national and major regional retailers.
“We see our partnership with Sarofim and the CRDF commitment to Primestor as an excellent opportunity to develop a number of income-producing assets while also helping us achieve our goal in rebalancing the portfolio,” said CalSTRS Chief Investment Officer Christopher Ailman. “By building toward core, we also avoid the often overheated core buying market.”
“The fact that this project involves a prominent real estate emerging manager with expertise in urban areas and specifically within Latino communities is a real strength,” Ailman said. “This relationship advances our effective efforts to search for investment opportunities in the underserved urban markets throughout California and specifically in retail.”
CalSTRS has been seeking quality California investments to realign its real estate portfolio toward a more conservative, or core, emphasis. Assets defined as core are frequently existing, substantially leased, income producing properties, in prime metropolitan markets. They typically include office, retail, industrial and multi-family residential assets. However, CalSTRS has had success in developing and leasing assets to be included in its core portfolio.
CalSTRS reviewed its real estate program in 2010 at which time core comprised roughly 30 percent of its portfolio. CalSTRS Real Estate Policy was updated with a goal to increase core assets to encompass 40 percent to 60 percent of the portfolio, generating expected returns of between 7 percent and 9 percent before fees.
The California State Teachers’ Retirement System, with a portfolio valued at $154.8 billion as of October 31, 2012, is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans, as well as disability and survivor benefits. CalSTRS serves California’s 856,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.