Insights

KAP’s insights on private equity investor relations and fundraising

Welcome back to the weekly Re-KAP where we round up market and LP news from the RE PE marketplace (Nov. 1, 2017)!

 

MARKET NEWS

Real Estate Investors Say Bye to Houston, Hello to Salt Lake. Houston, battered by the oil slump and Hurricane Harvey, is taking another hit. The city is now 60th on a list of desirable U.S. markets for real estate investment, tumbling from the No. 1 spot it held just three years ago. Salt Lake City and Fort Lauderdale, Florida, cracked the top 10 for the first time in the annual ranking by PricewaterhouseCoopers LLP and the Urban Land Institute. Seattle topped the list, thanks to its job opportunities, diverse economy and young, educated workforce, the researchers said in a report today. Manhattan dropped to 46th, from 13th last year, because of its high costs and oversaturation of construction. The poll of more than 1,600 real estate experts was conducted before Hurricanes Harvey and Irma.

Rent Growth Slows Down in the SFR Sector. Following several years in which rents rose significantly faster than inflation, it’s becoming more difficult to push steep rent increases onto residents in the single-family rental (SFR) market. Some residents may not be able to afford another rent increase and may consider moving, even though the vacancy rate for SFRs continues to be low, with little competition from for-sale homes and rental apartments. In many large markets, SFR rents have risen more than 3% on average over the last 12 months. That’s higher than the long-term average rate of 2% per year. The single-family rental sector may be entering a more normalized phase of the cycle. Additional information about the Single-Family Rental Market can be found in the 2017 HomeUnion Research Report.

LIMITED PARTNER NEWS

  1. Stanislaus County Employees Retirement Association (StanCERA) will be evaluating new real estate funds for both value-added and debt strategies. According to the recent Real Assets Outlook presentation from Verus, their consultant is bearish on opportunistic funds at this point in the cycle and remains cautious about broad development strategies. The board plans to review consultant recommendations during their November 2017 meeting and announce finalists in January 2018. StanCERA’s long-term asset allocation includes a 5% target to value add real estate (~$100 million) and a 5% target allocation to core real estate (~$100 million). At the end of August, the fund had allocations to core (1.6%), value-add (1.1%), and REIT (4.2%) strategies totaling approximately $138 million.

  2. Fresno City Retirement System seeks to make new real estate commitments. Following NEPC’s presentation of their 2017 Real Estate Investment Plan, the $2.7 billion public pension plans to reach its real estate target allocation (15%) over the next 12 months. It targets private and listed funds focused on core, value-added and opportunistic strategies in North America.

  3. Texas Municipal Retirement System has committed a total of $200 million to two real estate funds. The $26.7 billion fund committed up to $100 million each to Madison Realty Capital Debt Fund IV and TPG Real Estate Partners III.  Madison Realty Capital Debt Fund IV is a closed-end, value-added real estate fund that will invest in debt secured by properties throughout the United States. The fund is targeting $1 billion in equity commitments and has raised $255 million so far. TPG Real Estate Partners III, is focused on opportunistic platform real estate investments in the U.S. and Europe. The fund will implement a buy and build strategy, acquiring assets in inefficient and fragmented markets. The TPG commitment is a re-up for Texas Municipal, who also committed $100 million to the fund’s predecessor (TPG Real Estate Partners II) in 2015. As of June 30th Texas Municipal’s real estate investments comprised approximately 8.4% of its ottal portfolio. It has a target allocation to real estate of 10%.

  4. CalPERS expands relationship with Canyon Partners Real Estate. CalPERS has allocated $350 million of new capital to the Canyon Catalyst Fund (CCF), its real estate emerging manager program. The cumulative capital committed by CalPERS since 2012 now equals $1 billion. CCF’s mission is to identify high-performing emerging managers who specialize in specific asset classes and, through mentorship by Canyon investment professionals, guide them through the corporate lifecycle. CCF’s first fund has realized all 16 of its investments at returns exceeding its target. CCF currently invests in office, retail, industrial, multifamily, and mixed-use projects in urban markets across California, with investments in 27 assets across the state. While remaining committed to investing in California, CCF will expand its geographic focus to the Phoenix, Seattle and Portland metro areas, and expects to add investments in the self-storage and student housing sectors. According to Maria Stamolis, co-head of real estate investments at Canyon, “CalPERS is a leader in sponsoring emerging manager programs.”