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

The portfolio deal includes the sale of 470 Park Avenue South and 475 Fifth Avenue, among other buildings in the region.

TIAA-CREF sold more real estate properties in 2012 than in previous years, according to data from Real Capital Analytics. “In my mind, that tells me they are keeping an eye on the cycle and where values are,” said Mr. Fasulo. “As value levels continue to increase, TIAA is likely to look at their real estate investment gains and recycle the capital in other areas.”

“You want to sell when you have gains locked in an asset and you want to realize them for your constituents,” Mr. Fasulo added. “This deal is great. You get to take chips off the table and still remain invested.”

Executives at TIAA-CREF believe real estate markets in Washington, D.C., Boston and New York are strong and will continue to be fertile ground for future acquisitions. Market analysis indicates New York is both a growing and diversified economy, said Mr. McAndrews.

“When we are looking at New York, it’s important to understand New York is gateway city,” said Mr. McAndrews. “It has strategic importance from a U.S. perspective and a global perspective.”

The deal with Norges Bank is beneficial in many ways, not least of which is the fund’s similar investment philosophy. “The Norwegians won’t make a phone call and say ‘I want my money back,’” Mr. Fasulo said.

Perhaps most interesting among the transaction’s components is the property at 475 Fifth Avenue. “It’s very much a transitional asset; it was basically bought as a vacant building, and they’re in the process of refurbishing it,” Mr. Fasulo said. “Understanding how they valued that property will be interesting—that might be the upside for Norges in the entire deal.”

Experts indicated that Norges Bank likely did not have the ability to take a full interest in the U.S. properties. “It’s not always fun being a foreign investor in this country,” Mr. Fasulo said.

TIAA-CREF has a history of working with other sovereign wealth funds, including APG of the Netherlands and the Future Fund of Australia. “Our asset management business includes other sovereign wealth clients, which was important to Norges,” Mr. McAndrews said.

“Based on the size and girth of TIAA-CREF and the years and tenure of expertise, these sovereign wealth clients have gravitated toward us in a large way,” Mr. McAndrews added.

With negative interest rates on offer for U.S. government bonds, funds cannot meet their obligations by simply buying traditional conservative assets. For that reason, more pension and insurance money has come into the real estate and equity markets.

The low rate environment is an issue impacting the entire insurance and pension industry, said Stefan Kahandaliyanage, an analyst at Moody’s.

“Real estate has, in the mind of pension funds, become a relative value play in comparison to some of the other investment types, especially when you consider that these pension funds have a mandate to deliver yield on an annual basis,” said Mr. Fasulo.

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