The decision to sell CalEast's core industrial portfolio to RREEF America II Fund for more than $1.3 billion on June 29 took five months of soul searching.
The primary charge ofCalEast Industrial Investors LLC, Columbus, Ohio — a joint real estate venture of LaSalle Investment Management, Chicago, and the $187 billion California Public Employees' Retirement System, Sacramento — is to deliver investment returns that beat the NCREIF index, said Russ Blackwell, chief executive officer of CalEast and managing director of LaSalle Investment Management.
CalEast executives took the step because they doubted their ability to hold onto real estate portfolios, even income-producing portfolios, and still beat the benchmark. Aggressive selling was affecting the index, he said. This year, the percentage of the NCREIF index that was based on gains from selling the underlying real estate grew to 50% from 10%, with the rest determined by income from holding the property.
"Every quarter we were throwing in only income, and NCREIF was throwing in value and income, and we began to lag the index materially. So it did not look good for long-term annual performance," Mr. Blackwell said. "We had to do something bold."
"We looked at pricing and we felt it was in the client's best interest to be a seller rather than a buyer," he said. And it didn't hurt that RREEF offered an all-cash deal.
CalEast still owns $2.6 billion worth of industrial property, mainly properties owned with other joint ventures or purchased for development.