Texas Retirement Systems $100m Commitment with Real Estate - What to Expect

Sun, 09 May 2021 15:31:53 -0500

COVID-19 has claimed hundreds of thousands of lives and changed how we work.

Thankfully, monetary stimuli like the Biden administration’s $1.9 Trillion stimulus plan has kept the U.S. economy relatively healthy.

Real estate has continued to fare well across U.S. and Canada. The demand for housing has grown considerably even during the pandemic. Commercial real estate—one of the most significant victims—showed promising signs near the end of last year.

Now, the TMRS (Texas Municipal Retirement System) allocated $200 million in real estate funding in recent months.

These funds are split into two, which we'll go through in a bit. Each fund received $100 million, and they promise relief for the municipal real estate sector.

The first fund: Transwestern Strategic Partners Fund III

Managed by Transwestern, it's a value-added fund. The partner organization is among TMRS' managers. The fundraiser launched in January, yet it seems like it didn't reach its $450 million purpose.

However, TMRS secured six investors, adding up to $259 million. This capital will provide relief for assets related to multifamily, healthcare, and industrial sectors. It’ll also aid some medical office and retail properties.

The second fund: Platform Ventures Real Estate Strategies V

On the other hand, Platform Investments owns this fund, and it’s a recent TMRS manager. Unlike its counterpart, it targets opportunistic real estate assets. It opened somewhat earlier, in October 2019, and it raised $14 million in its first year.

It might sound like a lot, but it’s far from its $300 target. Nevertheless, COVID-19 took over most of the fundraising period, making the goal harder to reach.

Government's interest in real estate

Governments have always prioritized real estate for its role in developing cities and contributing to virtually all markets. That’s why we have so many government grants.

Essentially, helping the real estate sector yields superior returns for governments. In exchange, startups and established companies can offset many hurdles, like the recent pandemic.

Multiple funds available

Only in the US, that linked article lists 19 real estate funds. They come from government and private entities alike. However, each fund has its eligibility criteria and available capital per company.

Outsourcing city projects

Why are there so many public funds? That’s because real estate is critical for any city’s development. It provides the space necessary for industries, offices, retail businesses, and housing.

Governments can outsource city development to real estate firms. These funds allow said firms to perform more effectively because they can invest in resources, technologies, and logistics.

Governments’ role in the sector

For some experts, the government is among the most influential factors determining a property's value. Whether it's more important than social factors, location, or other aspects, we can't deny the influence.

Additionally, a government’s role in the industry goes beyond public funding for development and management companies.

Financial intervention

Firstly, government intervention is considered crucial for the economy in many cases. The extent of this intervention changes whether it’s good or not. One of the best examples is the Fed bailing out banks during the 2008 crisis.

Is today’s funding similar? In some ways, yes: the government is intervening in the market to aid one industry. That’s the first half of how the government is abiding by its responsibilities.

Infrastructure development

Infrastructure is among the governments' primary responsibilities, with the most common instance being roads. According to experts, these "free goods" that everyone can use can only be provided by the government.

For-profit companies are unlikely to spend resources building a road that won’t generate profits. However, governments can pay construction companies for these developments, benefiting all parties involved.

When intervention gets out of hand

When government intervention aims to control the market, distortions begin to appear. Overinflation and other phenomena become more prevalent, and asset values tend to plummet.

For instance, you can check the prices per square meter for buying apartments in the US compared with other American countries. For reference, the average price per square meter in Caracas—the Venezuelan capital—is around 10% of the median US price.

Is this the current case?

So far, the stimulus provided by the TMRS is solely an example of financial incentives. There's little reason to worry about market distortion. That said, it raises unique concerns about competition and how you can take advantage of the fund.

As such, let’s go through what property managers should expect and how they can prepare.

What can real estate companies expect from these moves?

We can simplify this movement by injecting capital into the real estate sector. Increasing liquidity leads to more investment power for the companies receiving it. That means better investment opportunities for companies in the region.

How does that translate? We can foresee three significant benefits and requirements (simultaneously) for real estate companies.

More flexibility

On the one hand, companies gain financial power. That means better reach into more markets, technologies, and project development.

However, it means companies need a proper methodology to accommodate this liquidity influx. Taking advantage of these benefits still requires effort.

Proper forecasting

Secondly, companies will build better forecast structures and implement the necessary technology to improve their accuracy. AI forecasting is a great example.

Nevertheless, accuracy improvements might become necessary, as companies require better assessments of how the market evolves.

Strategy development

Finally, building a robust investment strategy to leverage these funds will likely prove invaluable.

It could be pretty challenging, though. Average liquidity will increase as companies receive funding. You'll need effective strategy and leadership to overcome stronger competitors.

Finally, we can’t overlook the need for proper technology implementation for real estate companies. As trends like remote work become standard, leveraging cloud ERP solutions can make a significant difference.

How can Assetsoft Help?

Assetsoft have worked with several enterprises, helping manage the medical, dental and hospitality funds. We have helped our clients invest into hotels and build their portfolio, while we took care of the investment accounting.

Talk to us for Yardi consulting or MRI integration, and let us take care of the back-end work. We will help you calculate the distribution amount while avoiding accounting inaccuracies and errors. Our accounting experts are well versed with all popular and complicated accounting methods, from capital call fund accounting to Waterfall calculation.

Some calculations like bridge loans may bring up inaccurate results when done automatically. For these, our team members do it all manually, to ensure accuracy and avoid errors.

Want to use the right technology to do more? Assetsoft offers professional technology selection services to assess the best investments for your company. Know how we can help you choose the right ERP, or help you with everything from back office accounting to robotic process automation.

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