Institutional investors are rediscovering real estate.
So far this year, 14 pension funds have put $4.1 billion into equity real estate, while another 15 are searching for managers to place about $785 million, Pensions & Investments' data on searches and hires show.
Data from the Tracker Database of Mercer Investment Consulting, New York, put the placements even higher — $5.3 billion through Sept. 30. That compares to $4.2 billion for all of 2002.
A lagging economy and a liability bubble expected with the looming retirement of the baby boom generation have combined to make real estate a hot asset class.
Among the plans that have increased or added allocations:
-- Arizona State Retirement System, Phoenix, added a 6% allocation to real estate, the $18.7 billion fund's first move into the asset class. The system is searching for a consultant to help determine the investment strategy;
-- California State Teachers' Retirement System, Sacramento, increased its target allocation to 7% from 5% of the plan's $100 billion in assets, but the fund might take until June 2006 to implement the change. CalSTRS has committed about 4.5% of total assets to real estate;
-- Massachusetts Pension Reserves Investment Management Board, Boston, raised real estate to 10% of the fund's $24.8 billion in assets from 6%;
-- Virginia Retirement System, Richmond, increased real estate to 5% of the $35 billion fund from 4.5% as part of a new asset allocation.
-- New York City Retirement Systems is adding real estate for the first time. The $75 billion system plans a 5% allocation. Officials expect to issue a request for proposals later this month for a manager to run $361 million;
-- San Luis Obispo County (Calif.) is increasing its allocation to real estate by a percentage point to 9.5% and eliminating cash for the $400 million fund;
-- Employees' Retirement System of Rhode Island, with $4.8 billion, created a 5% allocation to real estate (up from 0.4%), and has hired The Townsend Group, Cleveland, to help the Providence-based fund develop a plan and hire manager; and
-- Knoxville (Tenn.) City Employees' Pension Fund hired RREEF to manage the $414 million plan's first foray into real estate, a $24 million core diversified portfolio. The fund has a 10% allocation to real estate.
Several other pension funds — including the $7.8 billion Illinois State Board of Investment, Chicago; the $230 million Springfield (Mass.) Retirement System; and the $60 million salaried employees pension plan at the Regional Transportation District, Denver — are studying whether to add or increase real estate.