KAP’s insights on private equity investor relations and fundraising

News from the Real Estate Private Equity Marketplace (Oct. 18, 2017)



Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates have recently published findings of their fifth annual Institutional Real Estate Allocations Monitor. The report focuses on the role of real estate in institutional portfolios and analyzes trends in allocations by region, type and size of institution.

Some key findings making headlines include the increase in average target allocation to real estate rising to 10.1% from 9.9% in 2016. And, although investor confidence is dropping amid concerns of too much capital pushing valuations ahead of fundamentals, the risk of rising interest rates, global capital markets volatility and geopolitical risks, 92% of institutions are still actively investing in real estate.

Unfortunately, not all real estate managers benefit equally from this trend. Institutions continue to favor allocating capital to existing managers – approximately 64% of new allocations are expected to be awarded to existing relationships – and less than 20% of all institutions are willing to invest with first-time fund managers.

The survey also found real estate portfolios’ average investment returns declined from 11% in 2015 to 8.6% in 2016, which is prompting some managers to consider lowering their return expectations when they launch their next fund.


St. Louis Public School Retirement System committed $8 million to Elm Street U.S. Net Lease Fund III, a value-added real estate fund. According to the board materials, St. Louis was also considering a commitment to Green Oak Real Estate Advisors’ third U.S. fund, which ultimately did not provide the immediate fixed income flow plus total return offered by Elm Street. As of July 2017, the $866 million pension fund’s actual allocation to real estate is 6.2% falling short of its 7% target.

Employees’ Retirement System of Texas (Texas ERS) committed $100 million to Latitude Management Real Estate Capital IV. The fund will build a diversified portfolio of single loans on smaller sized assets located in primary and secondary markets across the United States. Texas ERS also made a second real estate commitment of $10 million for a co-investment to an undisclosed manager. As of August 2017, the $27 billion public pension fund had a 9.65% allocation to real estate, below its 12% target.

Teachers’ Retirement System of Louisiana (TRSL) committed $200 million to each of two REITS through Brookfield Investment Management and Dimensional Fund Advisors (DFA). As of August, the $19 billion pension was 9% allocated to the asset class, meeting its target.

Municipal Fire and Police Retirement System of Iowa agreed to commit $25 million to InfraRed Active Real Estate IV at its June 29 meeting. The pension fund is currently over-allocated to the asset class by 1.4% with a target allocation of 10%.

District of Columbia Retirement Board (DCRB) has agreed to commit up to $30 million to Centerbridge Real Estate Fund. With $7.3 billion of AUM the pension maintains a 6% target allocation to the asset class.


KKR closed its $1.1bn Real Estate Credit Opportunity Partners fund, which will be used to purchase junior tranches of commercial mortgage-backed securities. The fund has closed on six transactions representing about $225 million of invested equity. KKR’s Real Estate Credit business was established two years ago to invest across the commercial real estate debt spectrum and offer financing services to commercial property owners.

Oak Street Real Estate Capital held a final close on $1.25 billion for its latest value-added fund. The Chicago-based private equity real estate firm launched Oak Street Real Estate Capital Fund IV in the first quarter of 2017 with a $750 million target. The manager more than doubled the size of its predecessor value-added fund, which closed in March 2016 on $515 million.