| IN THE
August
10, 2009 ISSUE |
Tanking Real Estate Values Take Toll on Pension
Funds
Public pension funds are under enormous pressure to claw
back a seemingly endless decline in the value of their real estate
investments. The extent of the damage is revealed in the release of a
few of the larger funds’ annual reports.
The nation’s largest pension fund, the California Public Employees’
Retirement System (CalPERS), has reported a litany of recent troubles.
The bellwether institutional investor reported that the value of total
assets under management at the end of June was $180.9 billion, down from
$237 billion a year earlier, or a drop of 23.6%.
Is the Worst Behind Us?
Despite some signs of stabilization, the second quarter
was another difficult one for U.S. commercial real estate. Total returns
for the NCREIF Property Index (NPI) — a widely used investment
performance benchmark for institutional-quality real estate assets
published by the National Council of Real Estate Investment
Fiduciaries— declined 5.2% in the second quarter after dipping 7.3% in
the first quarter.
Retail was the best performing sector over the past quarter, benefitting
from relatively strong income growth and a smaller capital decline than
other sectors. The office sector was the worst performer as it struggled
with a sharp drop in occupancy, steep rent declines, and considerable
decompression in the capitalization rate.
Slump in Property Values May Be Nearly Over, Says CB Richard
Ellis Investors
The sharp drop in valuations of commercial real estate
properties during the past year may be nearing a bottom, according to
Los Angeles-based CB Richard Ellis Investors, in its recently released
installment of “Investment Research Quarterly”. Although the
bid-ask gap remains wide between buyers and sellers, three indicators
are providing some evidence that pricing will bottom out sooner than
later.
First, the sharp pricing correction that has already taken place will
continue to have a dramatic impact on sellers’ expectations, the
authors of the report conclude. The NCREIF Property Index depreciated by
9.5% in the fourth quarter of 2008 and 8.7% in the first quarter of
2009, the two worst quarters in the history of the index that spans more
than 30 years.
$30 Million Equity Infusion Helps Lillibridge Expand Health Care
Real Estate Venture
Prudential Real Estate Investors has committed another $30
million of equity to Chicago-based Lillibridge for the development and
acquisition of health care real estate. Privately held Lillibridge
currently has an ownership interest in approximately 6 million sq. ft.
of health care real estate in 16 states. These properties include new
developments and repositioned assets.
Prudential Real Estate Investors, based in Parsippany, N.J., has
partnered with Lillibridge on three other equity raises in the past, and
was one of Lillibridge’s initial investors when the company first
began raising equity in April 1999. The real estate investment
manager’s total equity commitment to Lillibridge over the past decade
stands at more than $135 million.
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