Hines, NY Common Retirement Fund To JV on $1 Bil. in Offices

Hines, a Houston-based international real estate firm, arranged a major joint venture with New York State Common Retirement Fund (NYSCRF), to invest in more than $1 billion of office and medical office projects in the U.S. 

The newly formed venture, called Hines Corporate Properties II (HCP II), capitalized with $500 million of equity, will seek to develop, acquire, own and manage buildings primarily occupied by single-tenant users. Targeted assets will include Class A office projects and, to a lesser extent, medical office projects, located in major cities and primarily occupied by single-tenant users. 

The new Hines JV comes just six months after The California Public Employees’ Retirement System (CalPERS) replaced Hines as manager of its National Office Partners (NOP) real estate portfolio. 

“We believe the timing is right to reconstitute this venture and strategy to pursue development opportunities driven by major tenants,” said Hines president and CEO Jeff Hines. 

The new NYSCRF venture will follow a similar strategy as the successful Hines Corporate Properties I, which was executed from 1997-2004 by the same venture partners. HCP I developed six built-to-suit office projects and acquired three single-tenant buildings resulting in a portfolio of approximately 3 million square feet. 

Under terms of the joint venture deal, Hines can to invest up to 30% of the required equity in all projects with a projected project cost in excess of $100 million, or “co-investment projects” but has no right to invest in projects with a projected cost of less than $100 million. If it elects not to invest in any co-investment project, it will lose our co-investment rights for any and all future projects under the HCP II JV agreement. 

Two years after the new projects such time that at least 90% of the net rentable area in a co-investment project is occupied by rent-paying tenants and the 12-month anniversary of the date of substantial completion, the joint venture or NYSCRF may initiate a “forced sale” of the project. The venture then must market the project for sale to a third party if the non-initiating party does not exercise its right of first opportunity to buy the property at the price proposed by the initiating party. 

Unless terminated earlier by NYSCRF, the investment period for the HCP II joint venture will terminate on the earlier of July 20, 2014, or the date as of which substantially all of NYSCRF’s allocated capital ($450 million) has been committed. 

“Hines can be a great resource to corporate tenants that choose not to commit a large portion of their capital to real estate, as well as to those who want more flexibility in determining their long-term space needs,” said Doug Donovan, the Hines vice president who will manage the venture. “Hines’ development and management experience will further mitigate the risk associated with developing their own facilities and provide tenants with the highest quality product for the price.” 

Hines Corporate Properties II will contract with the Hines firm to provide a full range of real estate services including site selection, development management, conceptual construction, construction management, property management and operations. Hines’ development and management expertise, coupled with its in-depth knowledge of more than 65 key domestic markets, will benefit Hines Corporate Properties II clients. 

With approximately $146.5 billion of assets under management, NYSCRF is the third largest public pension plan in the U.S.

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