The California Public Employees' Retirement System (CalPERS), plans to offload about 12 percent of its $25.5 billion real estate holdings. A move that is part of the U.S. pension giant's strategy to reduce costs and simplify its portfolio.
CalPERS made the announcement via a news release Tuesday, as reported Bloomberg, stating that it won't include residential properties in the sale. The $303 billion pension fund is also open to offering the nearly $3 billion real estate properties individually or as a package, said spokesman Joe DeAnda.
The move may prove profitable for CalPERS given that U.S. commercial property prices are nearing all-time high values. According to the Green Street Commercial Property Price Index, which measures institutional-quality properties, commercial property prices have risen to 12 percent in May from previous year. Mike Kirby, chairman and director of research at Green Street Advisors LLC, also said: "There is a wall of capital looking to invest in high-quality real estate right now, and barring any macroeconomic surprises, it is tough to envision a material decline in property values. As yet, there is no sign that the recent increase in interest rates has had an adverse impact, and there is a good chance that it won't."
CalPERS decision to divest its $3 billion real estate properties is also a step toward the fund's plan to reduce the number of external money managers. The Wall Street Journal reported earlier in June, that the U.S. pension announced it intends to sever ties with roughly half of the outside firms handling its money. CalPERS latest news release confirms this intention, mentioning that the sale is the "first move" under that plan. The fund reportedly is targeting the reduction of roughly 100 external investment managers by 2020.
Currently, the fund has around $6 billion worth of real estate investments that are still in the hands of external managers. Majority of these are investments were purchased before the last financial crisis, and CalPERS intends to sell about half of those holdings.
The properties potentially up for sale, reports the Wall Street Journal, include funds managed by CBRE Group Inc., BlackRock Inc. and GI Partners LP. According to the CalPERS news release, New York based Park Hill Group, a unit of Blackstone Group LP, will assist in finding buyers.
