California Schools Educators Retirement System and Lionstone Group Create Investment Fund
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 educators. More than 776,000 educators from kindergarten to community college are members of CSTRS, which currently has an investment portfolio of $142 billion.
Keeping quality educators in California’s school system is a primary concern for everyone in the state. Without well-educated California youth, the city, businesses and the state’s economy will suffer. So when Lionstone Group, a research-based real estate investment firm, announced last month that they and CSTRS had formed a $100 million discretionary real estate investment fund, the news was welcomed by all. As with any organization, good benefits will attract and keep quality educators in California.
What makes the announcement so exciting is Lionstone’s history with another fund it created with the Oregon Public Employees Retirement Fund (OPERF). Called Cash Flow Office One, the fund has consistently exceeded expectations since its inception in December 2002. At the time, OPERF committed $75 million to the fund and expected Lionstone to invest the capital within 24 months. Lionstone invested more than 80 percent of OPERF’s capital in 12 months with excellent returns. OPERF expanded its funding commitment in 2004 and now has more than $200 million in capital and owns 20 office buildings across the country that are valued at $550 million.
Like the OPERF fund, the California School Educators Fund, known as Cash Flow Office Two, will focus on high-occupancy office buildings in permanent locations across the United States.
CSTRS has committed $100 million to the fund, which can grow to more than $500 million over time. Lionstone contributes one percent of the fund’s total capital. With combined principal plus debt of up to 50 percent loan-to-value (LTV), the fund’s total buying power 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 California School Educators Fund. Before creating the fund with the educators’ retirement system, Lionstone honed its investment process to target places that produce buildings with lower risk factors, according to Lionstone CEO Dan Dubrowski.
California Schools CSTRS Portfolio Manager Michael Thompson stated that Lionstone’s management team on the Cash Flow Office Two fund is very entrepreneurial. He added that his skill set will allow CSTRS to continue to grow its real estate portfolio.
This news gives all California school educators hope for a brighter future, knowing that they have an excellent resource during their tenure in California schools and in retirement.