The California State Teachers’ Retirement System (CSTRS) is the second largest public pension fund in the nation, providing retirement, disability and survivor benefits to California schools educators. Over 776,000 kindergarten through community college educators are members of the CSTRS, which currently has an investment portfolio of $142 billion.
Keeping quality educators in the California schools is of primary concern to everyone in the state. Without well-educated California schools youth, the city, businesses and economy of the state will suffer. Thus, when Lionstone Group, a research-based real estate investment firm, announced last month they and CSTRS had formed a discretionary $100 million real estate investment fund, the news was well received by everyone. As with any organization, good benefits will attract and keep quality educators in the California schools.
What makes the announcement so exciting is Lionstone’s track record with another fund it created with the Oregon Public Employees Retirement Fund (OPERF). Called the Cash Flow Office One, the fund has consistently exceeded expectations since its inception in December 2002. At that time, OPERF committed $75 million to the fund, expecting Lionstone to invest the capital within 24 months. Lionstone invested over 80 percent of OPERF’s capital within 12 months with excellent returns. OPERF expanded its funding commitment in 2004 and now has over $200 million of equity and owns 20 office buildings around the country that are valued at $550 million.
Like OPERF’s fund, the California schools educators’ fund, known as the Cash Flow Office Two, will target high occupancy office buildings in permanent locations across the United States.
CSTRS has committed $100 million to the fund, which can grow to over $500 million over time. Lionstone contributes one percent of the fund’s total equity. With the combined equity added to debt of up to 50 percent loan-to-value (LTV), the total buying power of the fund is approximately $1 billion.
The Lionstone Group was formed in 2001. It creates national investment strategies using primary research. Dedicated teams execute each investment strategy, including the fund for the California schools educators. Before creating the fund with the California schools educators’ retirement system, Lionstone refined their investment process to target locations that produce buildings with lower risk factors, according to Lionstone Principal Dan Dubrowski.
The California schools CSTRS Portfolio Manager Michael Thompson stated that the Lionstone management team over the Cash Flow Office Two fund is very entrepreneurial. He added that their skill set will enable CSTRS to continue to grow their core real estate portfolio.
This news gives all California schools educators hope for a better future, knowing they have an excellent resource during their tenure with the California schools and in retirement.