Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
January 06, 1997 12:00 AM

FIRMS TAKE SEPARATE PATHS: RREEF, HEITMAN/JMB RESTRUCTURING IN DIFFERENT WAYS

Marlene Givant Star
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    A year after failing to restructure closed-end commingled real estate funds, RREEF Funds, San Francisco, and Heitman/JMB Advisory Corp., Chicago, are back with very different approaches to their real estate partnerships.

    RREEF has liquidated nearly $500 million this year from funds at or close to their expiration dates, and firm officials are hoping to convince investors to redeploy the proceeds in RREEF America, its new private real estate investment trust.

    Heitman/JMB is again working on a restructuring, seeking input from clients, but this time officials are loath to term it a roll-up. However, sources said that's one of the proposals; officials would then create a new vehicle in the form of a private REIT divided into four subcategories based on property type.

    The roll-up technique - transferring properties from one or more funds and placing them into a new vehicle - was used frequently in 1993 and 1994, when many developers combined limited partnerships into REITs and took them public. RREEF and Heitman worked on their roll-ups for almost two years to no avail.

    At RREEF, partner Stephen Steppe said by letting its funds expire when they're supposed to, RREEF is bucking an industry trend.

    Although in theory closed-end funds can be liquidated when they expire, in practice that doesn't always happen. In fact, many pension fund investors have been frustrated when their investment managers renew partnerships rather than allow them to expire and sell off the properties.

    "Other firms do indeed pull that trick. If they do that, we've basically said we want our money back," said John Krimmel, associate investment officer of the $7.25 billion State Universities' Retirement System of Illinois, Champaign, a RREEF client.

    Still, he concedes, investors "don't have much leverage. . . . Their (the firms') worst enemy is bad publicity.

    "I think a lot (of firms) are trying to set up other funds and shift assets to different funds rather than liquidating anything. Their revenues are tied directly to assets under management. As their asset base shrinks, so do their fees. They certainly have an interest in keeping the properties as well as the investors," said Mr. Krimmel.

    The State Universities' of Illinois, which made a decision in June to exit real estate as an asset class, has been investing the proceeds in a Wilshire 5000 equity index fund run by BZW Barclays Global Investors.

    "We still have about 4% of the fund in real estate, down significantly. We were 10% at one point. We had 5% as of June," Mr. Krimmel said.

    RREEF is the system's largest real estate manager.

    "Their funds have date-certain lives. Several have gone past (those dates). They're actively harvesting that portfolio," he said.

    Russ Flynn, director-pension fund investment at Chrysler Corp., Highland Park, Mich., said his $15 billion fund is in closed-end funds with Heitman/JMB and RREEF. "In terms of being innovative and getting the most value out of the properties they have, I give (both firms) high marks," he said. Prudential Private Asset Management Group-Real Estate - the Chrysler fund's adviser on direct real estate investments - will have a big say in whether Chrysler favors the JMB plan.

    Neil Darling, manager-investment analysis of Chevron Corp., San Francisco, said RREEF's liquidation "has been going on for a number of years."

    For Chevron, "the amount of money is not that large. When those monies come in we just put it into our money account for paying benefits. We don't make an explicit reinvestment. We're not an investor in RREEF America." Mr. Darling declined to provide Chevron's investment.

    RREEF's Mr. Steppe said several have been wound up: West I, II and III. West IV has one property left and West V has a couple left. Properties from Mid-America I, II and III have been liquidated.

    But RREEF didn't undertake the sales until after its unsuccessful roll-up attempt.

    Late last year, RREEF Funds' attempt to start a private REIT by transferring five regional shopping centers from two commingled funds was quashed by pension fund investors in two of its closed-end commingled funds.

    RREEF had wanted to do the roll-up because officials felt in late 1995 it was not a good time to sell regional malls (Pensions & Investments, Nov. 27, 1995).

    Now RREEF is in the process of liquidating USA I and II, West V, Mid America IV and V. All of these sales will be completed by June, Mr. Steppe said.

    He said some of the money returned to investors has been redeployed in separate accounts with RREEF or in the firm's new fund, RREEF America, a private REIT that has raised $400 million.

    Why the sudden rash of property sales? "Values have come back. There are a lot of antiquated structural issues with closed-end funds. We're better off moving on to different vehicles," said Mr. Steppe.

    Heitman is working on a proposal to restructure $3 billion in closed-end commingled funds and group trusts of Heitman/JMB, according to Charles Wurtzebach, chief investment officer of Heitman Capital Management Corp.

    Mr. Wurtzebach said plans are still preliminary: "We are working with clients and their consultants. We have not presented a detailed proposal yet."

    The proposal, which might involve establishing a private REIT or a real estate operating company, won't be ready until the first quarter of 1997.

    "The gist of it is to take a look at '80s-style commingled vehicles, analyze their characteristics and come up with a proposal that addresses the disadvantages that those present to current investors," Mr. Wurtzebach said.

    He said many of the funds have five to eight years left before they expire and "are not the kind of vehicle, in retrospect, (plan sponsors) would have selected."

    "There's a much longer list of issues beyond the (lack of) liquidity of the vehicles," he said.

    While many real estate managers also are wrestling with clients' disenchantment with commingled funds, Mr. Wurtzebach said: "I don't know anyone who's tried to do (the restructuring)."

    One pension consultant said Heitman is trying to roll up properties from the commingled funds into a private REIT and later take it public. The REIT would be broken down into four specific property types.

    He wasn't sure investors would like the idea - especially those that invested in a closed-end fund to achieve diversification. "If they get shares in all four private REITs, maybe. We're waiting for more to happen before we'll really comment. We haven't really told them much. We have four or five clients in their funds."

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit