CORAL GABLES, Fla. -- American Ventures Property Fund, a $75 million closed-end fund that focuses on the office sector, is gearing up to take new investors as it transforms itself into an open-end fund, said Philip F. Blumberg, president and chief executive officer.
"We want to increase our size so we can take advantage of opportunities that are out there," he said.
The real estate manager also plans to start a second fund structured for foreign pension funds. It expects to line up commitments soon, after completing a series of discussions with government officials in Europe and Latin America, particularly Chile, Mr. Blumberg said. Both funds will continue to concentrate on office properties in Florida.
The $900 million pension fund of Knight Ridder Inc., San Jose, Calif., one of the major investors in the American Ventures Property Fund, is likely to allocate more money to American Ventures, once it has changed its status, said Ross Jones, chief financial officer.
Like American Ventures
The company's pension fund invested with American Ventures when Mr. Blumberg started it in 1992, Mr. Jones said, and has been pleased with the investment. Knight Ridder's initial investment of $2.3 million has swelled to $28 million in a little more than six years, returning an annualized average of 24.1% annually over the life of the investment.
"We knew the company from the community, when we were based in Miami," Mr. Jones said. His predecessor at Knight Ridder conducted a search for a real estate manager and selected American Ventures because "we liked what they were doing."
Knight Ridder's real estate allocation is currently 7% of assets, but the board might raise it to 10% when American Ventures becomes an open-end fund, Mr. Jones said. Half of the company's real estate allocation is in American Ventures. The remainder is divided between $6 million in Heitman/JMB Group Trust V and $5 million in a TCW Realty Advisors fund. Both of them are due to start liquidating soon. As they do, the proceeds will be added to the American Ventures fund.
"We don't need to diversify the real estate portfolio, because you can wind up with a lot of dogs when you do. Besides, real estate is just a small part of our overall assets," he said.
The pension fund's asset allocation is currently 61% U.S. equities, 5% international equities, 22% fixed income, 7% real estate and 5% cash.
Stuck with it
Knight Ridder has stayed with American Ventures because, he said, "We like their strategy. They're very selective. They pick good properties, like the office building in downtown Coral Gables they acquired from Travelers in 1993."
Mr. Blumberg said he paid $78 a foot for the 250,000-square-foot property, known as Alhambra International Center. At the time he was criticized for overpaying. But he could see the inherent value and considered it a top location.
"It was where we wanted to be," he said. "We have totally redone it, adding a conference center and fitness center. Just recently a neighboring building sold for $200 a foot. And we have raised rents from $15.50 a square foot when we bought it to $26 a foot today."
Mr. Jones added that American Ventures is a patient investor. "They stay in this sector (office), and their returns are off the real estate charts."
Returns have been impressive. The fund has been ranked No. 1 by Pensions & Investments' Performance Evaluation Report for the two-, three- and five-year periods ended Dec. 31, compared both with all U.S. real estate funds and closed-end real estate funds. Since inception, its annual return has been an annualized average of 41.2%.
But performance slipped in 1998. For the year ended Dec. 31, the fund ranked in the second decile of the PIPER universe, returning 21.9%. For the quarter ended Dec. 31, it ranked in the fifth decile, with a 4.6% return.
Mr. Blumberg said that the lower returns in 1998 reflected the firm's acquisition of a 12-acre site in Tampa Bay, where it is developing a 400,000-square-foot office park.
He attributes the fund's overall strong performance to the fact that his company is a real estate company, not a financial management company. "We are market driven, not deal driven. If you've got a good deal in a bad market, it's still a bad deal. We emphasize research and choose our properties in markets that are strong."