Poba’s new Calstrs JV offers shortcut to US property alts

The latest multifamily housing investment with California pension fund brings desired diversification to the Korean asset owner’s real estate portfolio, its CIO says.
Poba’s new Calstrs JV offers shortcut to US property alts

There are multifaceted gains in the latest property investment commitment from Korea’s Public Officials Benefit Association (Poba).

Poba and California State Teachers’ Retirement System (Calstrs) agreed on January 16 to set up a $312.5 million joint venture (JV) into equities in US multifamily residential real estate.

For Jang Dong-Hun, Poba’s chief investment officer, the JV investment will bring more diversification to the asset owner’s real estate portfolio. Until recently it had invested up to 90% of the portfolio in offices, but that share is falling as it targets multifamily residential and logistics assets.

Jang Dong-Hun

“Our around 90% office exposure was more exposed to market cycles which we don’t like,” Jang told AsianInvestor.

“Based on our research, [the] multifamily sector was the fastest recovering sector during and after the global financial crisis [of 2008-2009]. We of course don’t know if there will be another global financial crisis, but we still think that a market-resilient sector is an attractive place to expand our real estate exposure.”

Jang’s approach is backed by Mike DiRe, director of real estate at Calstrs. “Multifamily housing units are attractive for investors in general because they provide a stable cash flow and low volatility,” DiRe told AsianInvestor.

As of end-November 2019, Poba had W7.5 trillion ($6.34 billion) or 54% of its W13.9 trillion in assets under management invested in alternative assets.

Poba held real estate assets worth W3.48 trillion at the end of last year, including equity and debt. Of the total, 58% was overseas, with North America representing 19.9% of the property portfolio.


The supply of US multifamily real estate is relatively constrained, as construction and labour costs are soaring. Poba's research suggests supply is insufficient to meet demand, so it's an attractive time to enter the market, Jang said.

Mike DiRe, Calstrs

Poba seems to be on point. The overall multifamily vacancy rate in the US fell to 4.1% in the fourth quarter (Q4) of 2019, down 40 basis points year-on-year and the lowest Q4 level since 2000, according to global real estate broker CBRE.

Furthermore, the net absorption of multifamily units continued to outpace completions in 2019, when 299,400 units were absorbed. That happened despite 71,600 units being developed and delivered in the fourth quarter, slightly above the four-year quarterly average of 66,800 units. However, the 254,600-unit total for 2019 was 7% down from 2018.

The strong demand is in large part down to the changing demographic structure of the US multifamily market. Americans younger than 35 often prefer or have no choice but to consider multifamily residential. Around 64% of this age group have multifamily as their preferred or chosen accomodation. At the same time, the number of American adults aged under 35 is growing, Jang pointed out. 

“We see that as long-term, structural trend. US college students are challenged by tuition costs and take loans that they then have to pay off. They don’t have a large buying power during the following years, so the multifamily sector is more attractive to that generation,” he added.


The new JV will invest in equities in core-plus multifamily real estates located in 29 cities across the US. Poba and Calstrs will contribute $150 million each towards the JV to begin with, while apartment manager Fairfield Residential – which is majority owned by Calstrs – will commit $12.5 million as the JV's operating partner.

“Both we and Calstrs seek long-term investments, so by maintaining a handheld approach to this core residential sector we can pursue a likeminded strategy,” Jang said.

Gaining the right asset manager partner in the form of Fairfield was a key element for the JV, he noted. Based on market research, he believes the US multifamily sector is not mature enough to directly provide services to institutional investors. The competitive GPs in the US market do not cover the whole country, only regional markets, making them primarily regional players, the research revealed.

In contrast, “we believe Fairfield can cover the entire market, and they cover both investments and operations. Based on our research, they are the only GP who provides one-stop service for North America for investments and operations altogether,” Jang said.

The venture will become Poba's third 50:50 JV to invest in US real estate debt, following two $400 million ventures that it launched in 2018 and 2019, respectively. It has also established a similar real estate debt $400 million partnership with the Teacher Retirement System of Texas. 

“As we did with our real estate debt JV previously, we saw an ability to source best-quality in that segment, and with a decent level of cost. We see an opportunity to save financing and investment costs with our US institutional partners,” Jang said.

The JV will target a net internal rate of return of about 7%. That comfortably meets Poba’s 5% target return for real estate investments, both overseas and domestic. 

“We increased our exposure to US real estate debt, and the risk profile there is generally higher, depending on the project. We believe the risk is lower in multifamily residential compared to real estate debt, so we are trying to create a more diversified real estate equity portfolio, composed of office, residential and logistics,” Jang said.

Poba has also been expanding in the European real estate market, and in December 2019 it co-invested W870 billion in a logistics portfolio with Danish pension fund PFA and German asset manager Patrizia. The investment was the result of a partnership that Poba established with PFA in October 2019.

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