By Muskan Arora
The $257bn Florida State Board of Administration has earmarked
$1.4bn in annual commitments to its real estate sleeve for the current year.
As the system moves towards a 12% target, the current
allocation of the real estate sleeve stands at 9.2%, as of September 30, 2024.
At its recent meeting, Florida SBA indicated allocating new
core capital “through separate accounts and non-core to funds or unique investment
opportunities.”
The system has designed a pacing of $670m to core RE
allocations and $790m to non-core RE allocations.
Within real estate, the core portfolio holds the most
exposure of 83% of the total RE portfolio. The current core allocation target
stands at 10%.
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The non-core sleeve has a target allocation of 2% and holds
17% of the total real estate portfolio. Within non-core bucket, the system
targets allocations in alternate sector including residential, digital
infrastructure and global supply chain.
“Income is primarily driven by core investments, while
appreciation returns tend to come from non-core,” as stated in the meeting materials.
Post the pandemic, as more and more employees move either
towards a hybrid or remote working structure, the demand for office spaces has noticeable
gone done over the past couple of years, which has encouraged the pension plan
to start reducing its allocation
to the safe.
On the contrary, one of the top exposures of real estate
sleeve in 2024 was to office spaces and the topmost allocation to the space in
2018 at 33% of the total RE portfolio.
The reduction comes with an increment to its investments within
the residential sector and alternative property types, allocations to which
have constantly grown in the past five years by the pension plan.
Geographically, the system is now planning to diversify not
just in the US but globally.
The real estate portfolio has returned 3.4% and 6.3% for its
5 and 10-year return, against the benchmark of 2.2% and 5.3%.
