Feature

Head of the Class: Teachers Retirement Fund TIAA-CREF Making Waves in New York

Among the most dramatic failings in the world of retirement fund managers involved Stuyvesant Town and Peter Cooper Village, a large residential complex on the East Side of Manhattan that was handed over to creditors in 2010, four years after it was acquired by Tishman Speyer and BlackRock’s real estate unit for $5.4 billion, the largest deal of its type in U.S. history. California pension giant CalPERS lost the $500 million it invested in the deal, while CalSTRS lost a further $100 million.

At the time, it looked like a sound investment,” Clark McKinley, a spokesman for CalPERS, told The New York Times in 2010. “When the market tanked, we got caught.”

As reported by Bloomberg, CalPERS instituted a new policy stating that the fund cannot invest in projects that would eliminate rent-controlled apartments or convert them to market rate.

The deal at 8 Spruce Street was completed with original partners Forest City Ratner and National Real Estate Advisors in a transaction that allowed them to retain 26 and 25 percent shares in the property, respectively. It was because of TIAA-CREF’s increasingly well-known reputation as a long-term institutional investor that Forest City and NREA agreed to the terms.

“[They] know real estate and are the pre-eminent long-term institutional investor for an iconic asset like New York by Gehry,” said Susi Yu, senior vice president of residential development at Forest City Ratner. “TIAA-CREF has wisely noted the continued growth of Manhattan rental rates, the strength of the city’s economy and the volume of rental sales transactions, all of which prove that New York City rental developments are the best type for investment.”

As executives were finalizing the 8 Spruce Street transaction in December, TIAA-CREF was also in the midst of acquiring a 70 percent stake in MiMA, a mixed-use building with over 800 apartment units and approximately 18,000 square feet of retail space, for nearly $550 million.

It was yet another signal that while the firm has historically focused on commercial properties, it has found comfort in casting a wider net across residential properties. “We’ve had an interest in the apartment sector, but the opportunity is infrequent,” Mr. McAndrews said.

Still, even as TIAA-CREF eyes big investment opportunities across Manhattan, executives at the firm have steadily balanced the budget by unloading key properties, a strategy that Mr. McAndrews said will allow the firm to invest elsewhere across the New York City metropolitan area.

Indeed, earlier this month, the firm sold a 49.9 percent interest in a $1.2 billion real estate portfolio composed of assets in New York, Washington, D.C., and Boston to Norges Bank Investment Management, manager of the Norwegian Government Pension Fund – Global. As part of the deal, TIAA-CREF will manage the buildings.

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