Pension Funds Gravitating to Real Estate
Douglas Snyder, John Kuhl and Amy Wells were quoted in an article in the Daily Journal's Special Report on Real Estate, published August 15, 2012, about how, with the economy improving, public pension funds had begun to look again to real estate investments.
According to the article, in April the California State Teachers Retirement System invested heavily in a major real estate investment and development company as well as a portfolio of multifamily projects owned by Lehman Brothers. Snyder told the paper the transaction was unique because the fund jointly invested with the real estate and investment company on projects and “also became majority owner of the development company itself.”
Snyder also said that, as a result of the relationship, the retirement system would be in a position “not only to acquire projects but to develop projects from the ground.” Kuhl added that property acquisitions with opportunities for development allow pension funds to "realize a much greater return but also get a higher level of risk."
Wells told the paper that while the funds Cox Castle represents generally dedicate a small, 10-to-15 percent, of their overall investment to real estate, “it's a large volume of dollars.” Most funds tend to be conservative when it comes to their real estate portfolios, she said, although some have been looking to other types of investments, like emerging international markets. Wells noted that one client, the Washington State Investment Board, had recently made $400 million in investments to real estate in Asia, Latin America and Africa.
“Now that recovery is occurring, I think there's a continued belief in real estate investments,” Wells said. “I think it's a matter of adjusting the approach and learning lessons of the last five years or so ... to address potential downsides.”