The largest U.S. sovereign wealth fund plans to trim its global real estate holdings to reduce its exposure in the office and retail sectors.
The Alaska Permanent Fund's industrial and multifamily properties are performing better, according to board of trustees meeting minutes. By selling off retail and office properties, the fund would increase its proportion of industrial and multifamily real estate, the portfolio balance it prefers. The fund is also looking to reduce its focus on single properties in favor of investing in real estate funds.
The plans by the fund, established in 1976 to preserve and convert Alaska's oil and mineral wealth into a financial resource for all state residents, signals that investors are looking closely at properties that are aging and those overseas that are harder to keep under close watch. It also reflects concern about a lack of office property demand.
With $65 billion in total assets, including about $9.6 billion in real estate property and debt holdings, the fund disclosed it has identified eight assets in the United States and Europe it wants to sell in the next fiscal year, starting in July. In addition, it expects to identify additional properties to sell over the next 24 months.
The fund's one-year total return was 7.03%, but its real estate segment lagged at 0.56%, according to an April monthly performance report.
"Our focus has always been on building a resilient portfolio that performs over time, not chasing short-term trends or looking backwards with the benefit of hindsight," Marcus Frampton, the fund's chief investment officer, said in a statement.
The fund did not immediately respond to a request for additional comment from CoStar News.
Trustees debated the advantages of direct property ownership versus real estate fund investments, according to the meeting minutes. They raised concerns about the long-term viability of individual assets, particularly aging properties requiring substantial capital expenditure.
Spain, Portugal, UK properties
A key point of discussion was the fund's European mall investments in Spain, Portugal and the United Kingdom. Though they didn't disclose names of properties, trustees expressed worry about managing foreign assets without a physical presence.
Additionally, the board explored the feasibility of converting office properties into residential units where market conditions were favorable, according to the minutes.
In a report to the board, the fund specifically identified two properties it would like to sell: Tysons Corner Center, a shopping mall in a Washington, D.C., suburb; and 299 Park Ave., an office building in New York City.
In naming these two properties, the report said the objective was to reduce individual property concentration risk.
Alaska Permanent Fund is a 50% joint venture partner in both properties. They were both refinanced in the past year with commercial mortgage-backed securities debt for five-year terms.
Tysons Corner Center is a 1.8 million-square-foot mall in McLean that the fund owns in a joint venture with retail landlord Macerich. The property is collateral for a $710 million CMBS loan originated in December 2023 with a maturity date in December 2028. The center is currently fully leased, according to CoStar data.
The New York City property is a 44-story tower with 1.3 million rentable square feet. Along with partner Fisher Brothers, the fund secured a $500 million, 10-year, fixed-rate interest-only loan earlier this year. 299 Park is currently 98.5% leased, CoStar data shows. The property has a seven-year average historical occupancy of 89.9%.