WILMINGTON, Del. - The $14 billion pension fund of E.I. du Pont de Nemours & Co. is betting the real estate recovery has reached suburban office and research and development properties.
The Du Pont pension fund - together with its co-investment partners Boston-based GID Advisors Inc. and Spaulding & Slye - formed Windsor Realty Fund II. The fund will acquire in excess of $400 million of suburban office and research and development properties nationwide. Buildings in excess of 100,000 square feet and less than 10 years old will be targeted. The fund also has the ability to acquire property portfolios.
"The market is pricing slightly off the bottom," said Vincent Costantini, senior vice president with GID. "We think we are ahead of the window of capital that typically follows opportunity."
The deal is part of Du Pont's strategy of making real estate investments only on a co-investment basis, said Tom Croft, Du Pont's director of fixed-income investments.
Neither Mr. Croft nor Mr. Costantini would specify the pension fund's return expectations.
"Real estate is part of venture investments (at Du Pont), and we apply the same discipline: to be opportunistic and to seek alignment of interest with our managers," said Mr. Croft.
"Return expectations are based on the perceived risk of a specific transaction," said Mr. Costantini. "Each deal is unique.
"Do we have hurdles?" he asked. "Of course we do."
Discussing return expectations would compromise the partnership's ability make purchases, according to Mr. Costantini.
Mr. Costantini did say some of the properties likely will be purchased from institutional lenders.
"Most of the assets are in the hands of institutional owners that have taken them back (from borrowers)," said Mr. Costantini. "A modest uptick in values has allowed insurance companies to recover some of their investment.
But additional money has to be spent to attract new tenants and reposition the buildings, and institutional owners may not be willing or have the financial ability to undertake such efforts.
"The future is bright but not bright enough for them (institutional lenders) to hold (buildings) for the long term," said Mr. Costantini.
The property types targeted by Windsor II are also attractive because of the absence of new construction since the late 1980s, said Mr. Costantini.
The fund will also consider acquisitions of property debt with the intent of acquiring the building, as well as joint ventures with existing owners.
The partnership will have a 10-year life, of which the first three years will be used to make acquisitions, said Mr. Costantini. GID will have discretion over the investments, and Spaulding & Slye, a full-service real estate company, will serve as co-adviser.
"Spaulding & Slye will help source acquisition opportunities, and if they (properties) come in the area they have a business in, they will probably directly manage and lease these assets," said Mr. Costantini.
GID is a subsidiary of General Investment & Development Co. Last year, GID and Du Pont started Windsor Realty Partners I to acquire apartment portfolios and single properties from troubled lenders, in excess of $350 million.