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LA Pension Fund Focuses on Property Sales, Citing Slower Appreciation

The Los Angeles County Employees Retirement Association is planning to sell a lot more commercial properties than it buys in the next couple of years, a major sign of U.S. investors expecting lower appreciation.


The association, known as Lacera, approved an update to its real estate investment strategy this month that calls for it to invest only $1 in real estate for every $2 it sells, according to documents from the association's latest Real Estate Committee meeting.


The updated strategy addresses the market environment, according to Lacera documents. Townsend Group is advising the pension fund on its real estate strategies for a market that's following a U.S. economy approaching its longest stretch in history, a point it is poised to reach in July if conditions hold. The nearing record has investors, owners and lenders seeking indicators of changes in property return fundamentals to set strategy.


"In 2018, U.S. private real estate markets continued their positive run for the ninth straight year," Townsend reported, but added, "midrange return expectations for real estate have decreased since last year."


The NCREIF Property Index total return has significantly declined since 2015, almost entirely because of lower appreciation. Further declines in the return are forecast in 2019-2021, according to Townsend.


In such a market environment, Townsend recommends Lacera consider direct asset sales and portfolio sales.


The pension fund, which manages about $56 billion in assets, has already put at least 10 U.S. properties up for sale, which they have not specifically identified. However, the list includes: two apartment properties - one each in the South and West - valued at a combined $228 million; three office properties in the South and West valued at about $60 million combined; four industrial properties in the West valued at about $36.2 million; and one retail property in the Midwest valued at about $6.6 million.


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