FROM: Don Pierce, Chief Investment Officer
SUBJECT: 2026 Real Estate Pacing Plan
RECOMMENDATION:
title
Recommend that the Board approve the 2026 Real Estate Pacing Plan.
body
BACKGROUND:
Each calendar year, investment staff and NEPC propose target commitment levels to real estate strategies for the upcoming year. For calendar year 2026, NEPC and staff are recommending a commitment target of up to $155 million.
Within the real estate program, SBCERA currently holds assets of approximately $642 million, equal to 3.8% of total plan assets, and has an additional $218 million, 1.3% of total plan assets, in existing uncalled capital commitments to real estate funds. The top sector exposures across the portfolio are residential (40%), industrial (19%), office (18.5%), and retail (4%). Most of the exposure is in North America at 84%, Europe makes up 8% and Asia accounts for 8% of the real estate exposure.
In 2025, SBCERA committed a total of about $165 million across three real estate investments. This exceeded the pacing plan target of $145 million. The recommendation for the 2026 pacing plan incorporates the commitments above target for 2025.
Under our existing MCA, SBCERA committed $75 million to the Kayne Anderson Real Estate Partners VII Fund. About 80% of the fund is expected to be deployed in medical office and student housing and the remaining capital is expected to be invested in senior housing and light industrial properties. In addition, SBCERA committed $20 million to a medical office co-investment alongside the fund. The third commitment was about $70 million dollars (£ 50 million) to the PGIM PRECap VIII Fund. This fund makes debt investments in real estate projects in the UK and Europe.
The recommended 2026 commitment pacing plan of up to $155 million is designed to build real estate exposure to the plan’s long-term strategic target allocation of 5%. The recommendation aims to achieve the asset allocation target over a multi-year period to maintain strategy and vintage year diversification. NEPC and staff will recommend necessary adjustments to the yearly commitment pacing to maintain and manage the real estate program with respect to SBCERA’s asset allocation target. The year-over-year increase in the pacing plan amount is largely driven by growth of the overall SBCERA portfolio and the underperformance of the real estate portfolio relative to the total plan.
SBCERA's real estate investment policy contemplates investments in private core (which includes real estate debt) and non-core real estate and in public core real estate securities, with ranges to allow sufficient flexibility to allocate capital to the most attractive opportunities based on market conditions and available manager opportunities. SBCERA’s policy requires that the real estate portfolio be managed to a long-term composition of at least 50% private core (which includes real estate debt), at least 30% private non-core, and no more than 20% public core real estate investments.
The proposed real estate pacing plan will be implemented primarily through investments in both open-end and closed-end funds, and potentially co-investments alongside such funds. Preference will be given to existing manager relationships in which staff and NEPC have a high level of confidence including, where possible, strategic long-term partnerships established by SBCERA utilizing the MCA structure. The benefits of these structures include favorable economic terms, greater transparency, and enhanced information flows between SBCERA and its investment managers.
Potential Real Estate Investments for 2026:
|
Manager |
Relationship |
Opportunity |
Indicative Size |
|
TPG Angelo Gordon |
Existing Manager |
Essential Housing Fund IV |
$150 million |
BUDGET IMPACT:
Investment costs are deducted from Net Asset Value.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Jacob Abbott
ATTACHMENTS:
Exhibit A: NEPC 2026 Real Estate Pacing Plan