State Teachers Retirement System of Ohio has approved a real estate investment plan for fiscal 2008 which should see the pension fund maintain its annual allocation and move into global Reits.
Ohio State Teachers figures on being a player in both the United States and international real estate markets and currently has an international real estate portfolio valued at $318m but this, in reality, makes up less than 6% of the pension fund’s total real estate portfolio.
Ohio State Teachers is now in the middle of selling off $500m real estate portfolio in one transaction. The deal has not yet closed but should it go through, it will give the pension fund more capital to re-invest in real estate.
Total allocation for fiscal 2008 will be from $300m to $500m but public real estate could be a part of this action as pension fund investment staff are evaluating the possibility of placing some capital into a global REIT strategy.
This would be a new sector for the pension fund to invest in and the exact amount has not been determined at this time, but the European and Asian Reits markets are growing, presenting investors with the possibility of achieving more diversification in more companies and in different countries.
Ohio State Teachers is expected to place at least $100m into international real estate through commingled funds, particularly as both corporations and the governments are still selling real estate in Europe along with strong growth in China and an economic recovery in Japan.
Its international assets are currently split to allocate 60% in Europe and 40% in Asia through 14 different commingled funds and 10 real estate managers.
That said, there is $195m worth of outstanding commitments as five of the commingled funds are still investing capital and nine funds have made all of there investments and are now selling assets.
Its remaining capital is invested directly in US real estate without the aid of external managers and is focused on buying retail and apartment properties in major metropolitan areas, as Ohio State Teachers believes this is necessary to achieve a critical mass of properties in the areas for efficient asset management and benefit from the increased liquidity in those markets.
Retail has had strong growth the path few years, according to the pension fund, but officials believe future growth will be limited so buying opportunities are created once retail property moves down the priority list for many investors.
By Jon Peterson, IPE Real Estate