SamCERA puts RE debt on ice until 2020

The San Mateo retirement plan has made a single $70m commitment to a Prudential Global Investment Management real estate debt vehicle.

The San Mateo County Employees’ Retirement Association (SamCERA) is poised to halt real estate debt commitments until 2020, according to materials from the northern California pension fund’s meeting held last week.

SamCERA may not plan to make any allocations next year, but it will commit $15 million in 2020, 2022, 2024 and 2025, respectively, the real estate pacing plan showed. Projected allocations for year’s end have real estate debt at slightly more than 2 percent of the total portfolio. The retirement plan set a 10 percent target allocation for real estate in October 2016, 2 percent of which goes toward real estate debt.

In June 2017, SamCERA made a $70 million commitment to the open-ended PGIM Real Estate US Debt Fund, which is the pension’s only commitment to the strategy. The fund is targeting a net internal rate of return of 6.25-7.25 percent, according to meeting materials at the time.

PGIM set a $1 billion net asset value target for the vehicle by the end of 2019. It targets a makeup of 60 percent short- to medium-duration senior loans, 20 percent long-duration senior loans and 20 percent medium- to long-duration mezzanine loans, according to SamCERA documents.

The PGIM vehicle beat out Brookfield Asset Management and Invesco Real Estate for SamCERA’s commitment, the June 2017 documents showed. The Brookfield and Invesco vehicles were targeting mainly mezzanine loans.

As real estate debt has grown, North America has been the biggest beneficiary of the trend. Fundraising for the strategy by region – where a firm plans to deploy capital rather than where the vehicle’s investors are – has fluctuated over the past four years, but one constant has been the rise of North America, according to PDI data.

Indeed, managers have taken note and are raising capital accordingly; almost half of all capital being raised for real estate debt will be deployed in North America. In addition, US-based managers are seeking the most capital – some $35.7 billion.

For SamCERA, of its remaining 8 percent real estate allocation, 6 percent is devoted to core funds – the safest real estate equity strategy – and 2 percent to value-add funds, which is a higher-returning equity strategy.

Core commitments would also spread out, with $15 million slated to be committed in 2019 and $30 million in 2021, 2023 and 2025. The value-add bucket, by contrast, would see commitments every year with a $30 million commitment this year, $45 million in 2019, 2020, 2022 and 2025 and $40 million in 2021, 2023 and 2024.