The California Public Employees’ Retirement System (CalPERs), the US’s largest public pension fund, will target Europe as part of its plan to invest more than $1bn in technology-related property investments.
The pension fund has allocated $500m for a fund which will be split between technology related property investments and operating companies in the real estate technology sector in the US and Europe. The opportunity fund will seek returns of 20%-plus with the money invested over an 18-month period.
Around $150m of the equity will be invested in venture capitalist-type transactions, backing operating companies which are developing real estate technology infrastructure and services. The remaining $350m of equity will be leveraged by 65% to give $1bn of spending power to invest in property which benefits from providing space and services to new-economy companies.
There is no specific allocation for Europe but Richard Magnuson, executive managing director of CB Richard Ellis Investors, which is advising the fund, said Europe has lots of potential because of the sector’s lag behind the US. “The UK is probably 12 months behind the US and Continental Europe 24 months. We have a lot of expertise here that we can apply to Europe.”
He added that returns would be higher in Europe as, technology-wise, the region was still seeing infrastructure changes. “We can work with US companies as they roll out into Europe. You can get into the major markets in Europe and still be at the cutting edge,” he said.
On the property investment side, the fund is keen to target the carrier hotels market, for example investing in buildings for expanding operators such as Global Crossing. It will also invest in properties which have technology related attributes such as being located on existing fibre lines.
In Europe, the fund will first target the UK, followed by France, Germany and the Netherlands. It has already identified 10 properties in Europe and 10 in the US. In the US, the fund will invest in markets such as Silicon Valley, Boston’s Route 128 and Raleigh/Durham Research Triangle.
Magnuson said there was an opportunity for such a vehicle as there was a gap in the funding market for this sector. Private equity sees the sector as too property-related and real estate investors see it as too risky.
CalPERs has already backed several real estate technology investments including PropertyFirst.com, Allied Riser Corporation and Broadband Communications. CalPERs is also keen to widen the fund to bring in other institutional money.
