Alaska permanent fund to step up purchases

Real Estate Alert, May 19, 2004

Alaska Permanent Fund, which has been an active property seller for several years, is setting the stage to do some buying.

The system is well below its 10% real estate allocation, giving it the capacity to increase its holdings by nearly $600 million. But the fund could wind up spending several hundred million dollars more over the next several years, because it appears likely to sell off some of its REIT stocks and plow the proceeds into core properties.

The purchases will be overseen by David Stuart, who was hired last month as manager of real estate investments. He replaced Peter Naoroz, who left late last year. Stuart had been a partner with Guggenheim Partners Real Estate for two years, handling acquisitions and portfolio management for the Boston firm, which is backed by U.S. and European investors. Earlier, Stuart was with GMAC Alaska ... From Page 1 Commercial Mortgage.

The $26.9 billion Alaska fund has 7.9% of its holdings, or about $2.1 billion, invested in real estate. Some $1.3 billion of that amount is invested via a handful of core separate accounts, with the rest in REIT stocks.

The pension fund is working with general consultant Callan Associates on details of its game plan, including whether to add core separate-account advisors or increase allocations to its six existing advisors: CB Richard Ellis Investors, Henderson Global Investors, Kennedy Associates Real Estate Counsel, L&B Realty Advisors, LaSalle Investment Management and Sentinel Realty Advisors. Callan is also helping Alaska Permanent decide how much of its REIT portfolio to sell off.

The fund will continue to target core properties. Although yields for conservative properties have dropped significantly--below 7% for offices and below 6% for malls and high-end apartments--Alaska Permanent doesn't plan to seek higher returns by stretching its definition of core to include properties that have vacancies or near-term lease expirations, or that need renovations.

Given the conservative nature of the current market, there is little chance of a buying spree by Alaska Permanent. More likely, it will buy selectively nationwide as it gradually moves toward its target.

Still, that's a far cry from its recent activity. The pension fund has sold off more than $500 million of properties since midyear 2002, while only making one small apartment purchase. Its most notable sale was Warner Center Plaza in Woodland Hills, Calif. The Alaska fund and its partner, Harvard University, sold the 1.8 million-sf office complex in 2002 to fund operator Douglas Emmett for $335 million.

Alaska Permanent, formed in 1976, invests money received from oil and other natural resources, as well as appropriations from the state legislature. It disburses payments to Alaska residents.