SDCERS commits $100m to Mesa West, MetLife

The southern California pension’s $687m real estate portfolio was slightly underweight in Q1.

The San Diego City Employees Retirement System has committed a combined total of $100 million to two real estate lending funds, Private Debt Investor has learned.

The Southern California pension plan board approved a $50 million commitment to the Mesa West Core Lending Fund and an additional $50 million to the MetLife Commercial Mortgage Income Fund during its board meeting on Friday, according to a source familiar with the matter.

“Given that the current real estate cycle is mature, we believe that an appropriate exposure to risk mitigating investments in the form of real estate debt is warranted,” Liza Crisafi, chief investment officer at SDCERS, said in an email.

The Mesa West Core Lending Fund is an open-ended vehicle that originates first mortgages on US commercial properties and had $1.2 billion in capital commitments as of 13 July, according to meeting agenda materials. The fund had completed $3.7 billion of loan originations to that date and had shown a 7.2 percent net cash-on-cash return since inception in December 2012.

Similarly, the MetLife Commercial Mortgage Income Fund is an open-end fund that originates loans backed by institutionally-owned properties, the agenda showed. The fund carries a 4.09 percent coupon, and it showed total net returns of 1.18 percent and 7.42 percent in the first quarter and the period from its inception in September 2015 to 31 March, respectively. The strategy had $1.04 billion in commitments as of 31 March, the agenda showed.

The San Diego pension plan’s roughly $687 million real estate portfolio, which invests in both equity and debt strategies, was slightly underweight in the first quarter, according to its latest investment report. That allocation amounted to 9.3 percent of SDCERS’ $7.39 billion portfolio as of 31 March, compared to its 11 percent allocation target.

The total real estate allocation showed a return of 3 percent over the first quarter, more than double its goal of 1.3 percent over that period, and showed a return of 9.9 percent for the year ending 31 March, above its one-year target of 8.1 percent.

SDCERS’ total portfolio grew over the first quarter from $7.19 billion at the beginning of the year to $7.39 billion as of 31 March.