FROM: Don Pierce, Chief Investment Officer
SUBJECT: Informational: 2026 Real Estate Pacing Plan Update
RECOMMENDATION:
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2026 Real Estate Pacing Plan Update.
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BACKGROUND:
In January 2026, the Board approved a pacing plan of $155 million for Real Estate commitments for the year. The objective of the pacing plan process is to set a pace for deployment to implement the Board approved asset allocation targets over time. Pacing plan recommendations are made annually based on the target weight, actual commitments, current weight in the portfolio, and projected contributions/distributions of existing investments. As of May 31, 2026, the full amount of the pacing plan has been committed for the year.
Real Estate markets continue to improve but liquidity remains a headwind. While fundamentals have been solid, especially at higher quality properties, there is a dearth of investor interest. Most sectors remain supply constrained, which is helping to support performance as demand returns. The ODCE index was down about -2% annualized for the three-year period ending March 30, 2026. Over ten years this index of core real estate has gained just 4.7% annualized. As a result, institutional investors have kept real estate allocations flat or decreased slightly on average. There has also been a shift towards capital flowing into strategies with higher return targets. The recovery in real estate remains mixed, which we believe offers pockets of opportunity.
Two commitments account for the full pacing amount for 2026. In April the Board approved a $150 million commitment to the TPG Angelo Gordon Essential Housing Fund IV. This strategy provides homebuilders in the United States with off-balance sheet financing for land inventory. The fund focuses on land that is typically in development or held for near-term construction. This is SBCERA’s second commitment to this strategy. The other commitment for 2026 was a $5 million increase to the $75 million commitment to the Kayne Anderson Real Estate Partners VII Fund SBCERA made last year. This fund makes equity investments with 80% of capital focusing on medical office and student housing sectors, and 20% of capital expected to be invested in seniors housing and light industrial properties. In total, SBCERA has committed $100 million to the strategy under the MCA with Kayne Anderson: $75 million 2025 fund commitment + $20 million 2025 medical office co-investment + $5 million 2026 fund commitment.
Total exposure to Real Estate remained flat at 3.9% of plan assets as of April 2026 relative to the start of the year. The exposure remains below the Board’s approved target of 5% for Real Estate, but within the range of 0-10%. Returns for SBCERA’s real estate investments have remained a drag on the total plan with a 4.65% net return over the ten-year period ending April 30, 2026.
The NEPC pacing plan presentation is included as Exhibit A for ease of reference; however, the same report was provided to the Board in January.
BUDGET IMPACT:
None.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Jacob Abbott
ATTACHMENTS:
Exhibit A: NEPC 2026 Real Estate Pacing Plan