CalSTRS chief investment officer Christopher Ailman

CalSTRS launches real estate partnership to serve urban markets

The California State Teachers’ Retirement System (CalSTRS) has launched a real estate joint venture focused on urban retail properties in underserved communities.

 

The partnership has the potential of reaching USD250m in commitments.

CalSTRS partnered with Dallas-based Sarofim Realty Advisors 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, a 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 centre 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,” says CalSTRS chief investment officer Christopher Ailman (pictured). “By building toward core, we also avoid the often overheated core buying market.”

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 programme in 2010 at which time core comprised roughly 30 per cent of its portfolio. CalSTRS Real Estate Policy was updated with a goal to increase core assets to encompass 40 per cent to 60 per cent of the portfolio, generating expected returns of between seven per cent and nine per cent before fees.

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