New Jersey explores real estate secondaries

The $70.8bn pension system is considering a sale of up to $1bn worth of real estate holdings in a continuing effort to cull underperforming or redundant investments.

The New Jersey Division of Investment is considering selling its interests in a number of real estate funds through the secondary market, said Timothy Walsh, director, at the state pension’s board meeting last week.

“These are real estate funds that have by and large underperformed,” said Walsh. “We did not do a good job with real estate, timing and manager selection.”

The offering could include some 20 funds totalling up to $1 billion in real estate holdings, Walsh told PERE. New Jersey does not plan on hiring a broker for the sale, but the pension will be working with its real estate consultant, RV Kuhns, on the potential offering, he said.

These are real estate funds that have by and large underperformed. We did not do a good job with real estate, timing and manager selection.

Timothy Walsh

While Walsh declined to specify which funds could be included in the offering, PERE understands that the real estate secondaries sale would include a number of fund investments that were made prior to the downturn and have delivered poor returns to New Jersey. According to the pension’s website, some of the state’s most significant losses on real estate fund investments have included BlackRock’s BlackRock Diamond Property Fund, to which the pension committed $50 million in November 2005. The current market value of that investment was $19.68 million as October 31.

The possible offering would follow New Jersey’s sale of private equity stakes through the secondary market last year, continuing an initiative to offload poorly performing or redundant investments from the pension’s portfolio.

New Jersey began investing in real estate in 2005. Its portfolio in the asset class was valued at $4 billion and included commitments to more than 40 commingled funds as of 31 October, according to the pension’s website. For fiscal year 2013, which began on 1 July, the pension plan increased its allocation target for real estate to 5.5 percent from 5 percent in fiscal year 2012, with a long-term target of 7.1 percent.

Recent real estate investments include a $350 million commitment to a real estate separate account with TPG Capital, a $200 million commitment to a real estate separate account with Och-Ziff Capital Management and a $120 million commitment to SC Management’s Real Estate Capital Asia Partners III and related co-investment vehicles.