SALT LAKE CITY - The Utah State Retirement System, Salt Lake City, has made a tender offer to buy out fellow pension fund investors in the Metric Institutional Apartment Fund, a closed-end real estate limited partnership fund with assets of $80 million to $85 million.
The offer was set to expire Dec. 6.
Utah, which has a 20% stake in the fund, is being advised by IPC Partners, an affiliate of Institutional Property Consultants Inc., San Diego.
One of the 12 other pension fund investors already has accepted the offer - the Employees' Retirement Fund of the City of Fort Worth, Texas. IPC is Fort Worth's consultant.
Utah is seeking control, which under portfolio documents requires two-thirds ownership.
Edward T. Alter, Utah state treasurer and a trustee of the retirement system, confirmed the tender offer but referred additional queries to the fund's investment department. Dee Williams, executive director, did not return calls.
The Pennsylvania State Employes' Retirement System received its tender offer through a letter.
The offer was made about a month ago at a discount to the fund's net asset value as of June 30, according to David Kalman, director of real estate for the $17.5 billion Pennsylvania fund, which is the largest Metric portfolio investor with 28% of the assets.
He would not give the bid amount.
But Ronald E. Zuzack, executive vice president and chief investment officer of Metric, said the bid was 99.2% of net asset value as of June 30. He said the current net asset value is about $85 million.
"The discount to NAV - that's sort of a moving target, yet it's based on the June 30 NAV. A lot's changed between then and now," Mr. Kalman said. "The performance of the fund has been pretty good," and the apartment sector has done well."
Townsend Group is representing the Pennsylvania fund as well as some other investors in analyzing the offer. "We're in the process of reviewing the offer on behalf of our clients to determine its advantages and disadvantages," said Peter Brown, a consultant at Townsend.
"Metric's been extremely cooperative. They've provided all the information (to us) that they've provided to Utah. Metric has not opined on the offer," said Mr. Brown, who added he was confident he would have a recommendation to clients before the deadline.
George Nicolaides, executive director of the Fort Worth fund, which owns 5.6% of the Metric portfolio, said: "I don't think you can say no to (99.2%), to tell you the truth. Sometimes it's best to get your money back and put it in higher yielding situations." But he added he was uncertain whether Utah would go through with the transaction because it might fail to get the controlling interest.
Pennsylvania's Mr. Kalman said in a telephone interview Dec. 4 that a decision had not yet been made. "We're furiously working away trying to determine what course to take. This offer sort of came out of the blue. We're trying to understand the rationale behind Utah's offer," he said.
He is concerned about a number of issues. "It's not just a function of price. I'm a little concerned that this is a non-bid offer," meaning only one bid is on the table. "Apartments are pretty attractive right now. There are a couple of variables out there. I'm probably 50-50 right now."
The Metric fund is nearing the end of its 10-year life and has begun liquidating properties, he said.
The fund has had a return since its May 1988 inception of 6.4% annualized, which is about equal to its return for the year ended June 30. The NCREIF Property Index returned an annualized 3.1% for the eight years ended June 30. The NCREIF Apartment Subindex returned an annualized 7.27% for the same eight-year period.
Mr. Zuzack of Metric said of the offer: "Our reaction is favorable to it. It certainly offers existing investors a liquidity option. It creates some liquidity for them. Overall, Metric feels it's beneficial. We have laid out the pluses and minuses. The decision is up to the individual clients."
Mr. Zuzack said Utah's offer was motivated by its positive outlook on real estate, especially for direct investing. "They do like control, particularly over the disposition process. They also want to increase their commitment to apartments."
Mr. Zuzack said he didn't know if Utah would keep Metric as the investment manager. He was made aware of the offer in September, when Utah hired IPP and began the due diligence process under the direction of Bob Zerbst, an IPC Partners official.
"We were not surprised because we had several discussions with Utah. They had indicated their desire to exit from closed-end commingled funds," he said.
This is the third buy-out offer in a closed-end real estate fund in recent weeks. But this time, the bidder is an investor, not an outsider. Recently, Landmark Partners Inc. reached an agreement to purchase all of the commingled funds of the State of Connecticut Trust Funds (Pensions & Investments, Oct. 28), and Everest Properties offered to purchase interests in an Aetna Life & Casualty Co. limited partnership (P&I, Nov. 25).
Asked about the affiliated firms' dual role as financial adviser to the bidder and consultant to the Fort Worth fund, Barbara Cambon, president of Institutional Property Consultants, said there is a "Chinese wall" between the two entities. "An affiliate of the firm is providing advice to Utah, but Institutional Property Consultants is not involved."