PCCP, Ohio PERS Launch Mortgage Venture
Submitted August 18, 2010, 6:27 PM
The Ohio Public Employees Retirement System has selected PCCP, a real estate finance and investment management company with offices in San Francisco, to help manage the pension system’s initial foray into the senior commercial mortgage business.
Ohio has allocated $300 million to the venture, according to industry sources. Neither PCCP nor the pension fund would confirm that figure.
Previous to the search, the pension fund had never invested in mortgages. PCCP has originated more than $3.5 billion in floating-rate loans over the last 12 years. “We will be investing in major markets around the country. San Francisco will be one of those markets,” said Adam Zoger, a principal with PCCP in its San Francisco office.
Multiple PCCP offices, including those in New York and El Segundo, will be involved in helping source deals. “Like many separate accounts with pension funds, our venture with Ohio PERS will be us having investment discretion within a box,” said Greg Eberhardt, a PCCP partner in its Southern California office. This means that the real estate manager can make investment decisions on its own so long as it remains true to investment criteria established with the pension fund.
PCCP will be looking at a variety of deals for the relationship. “In some case we will be investing in properties that are producing solid cash flow. In others it will be properties that are not yielding cash flow now, but are in a transition phase,” Eberhardt said. All loans will be against existing assets; no new development projects are contemplated in the investment program.
The real estate manager believes the market is hungry for the loan products it intends to offer. “There is great demand for the floating-rate debt that we will be providing. Banks have traditionally been a big player in this space, but many of them are no longer doing [it],” Eberhardt said.
PCCP has no established timetable as to when the capital from Ohio PERS needs to be invested, unlike a closed-end commingled fund that has a specific investment period during which the capital must be placed in the marketplace. The real estate manager has not closed any deals for the relationship yet. It hopes for its first deal for the venture to be concluded sometime in the third quarter.
PCCP anticipates lending against traditional property types, including a mixture of office buildings, shopping centers, industrial properties and apartments. A typical sized deal for the venture is expected to be in the $25 million to $45 million range.
All of the loans are expected to be floating-rate based on LIBOR, the London Interbank Offered Rate. The coupon rate on the loans is expected to vary from 7 percent to 8 percent. For most of the deals, the loan-to-value ratio will be 65 percent to 75 percent, though in some cases it could be pushed to 85 percent.
PCCP hopes for a net internal rate of return in the high single digits or the low double digits.
