The fund will invest in middle-market, transitional real estate assets in the U.S., focusing on the office, multifamily, retail, industrial, parking and hospitality sectors.
Scott Maguire, global head of client service and marketing at CenterSquare in Philadelphia, tells PLANADVISER the key benefit of real estate investments for defined benefit retirement plan sponsors is diversification. Real estate investments have a low correlation with other traditional investments. They historically have an attractive risk-adjusted performance—with a volatility profiled materially lower than that of the broad equity markets, Maguire says.
For plan sponsors looking for inflation protections, real estate investments offer an opportunity to increase cash flow based on the duration of leases—hotels offer a short-term of one day. This allows plan sponsors to tailor asset protection against inflation, Maguire says. “Real estate is an asset class with a wide dispersion of characteristics with different lease rolls,” he notes.
The CenterSquare Value-Added Fund III, which is limited to qualified purchasers, is expected to raise $500 million, with the first closing date anticipated in the second quarter of 2014 and the final closing date anticipated in the second quarter of 2015. CenterSquare said the fund plans to acquire properties with total capitalizations ranging from $25 million to $75 million.
The fund will implement a value-added strategy, focusing on acquiring and improving assets that require physical upgrades or revisions in their capital structures. “We believe that a middle market, value-add real estate strategy represents the most attractive space in the market for creating value and reducing risk,” said P.J. Yeatman, head of private real estate for CenterSquare. “Fund III will be an acquirer of transition and a seller of stability.”
According to Maguire, right now in the U.S., institutional investors have an average of 7.5% invested in real estate, lower than the average target of 8.4%.
CenterSquare is the suburban Philadelphia, Pennsylvania-based real estate specialist for BNY Mellon. More about the fund is here.