Proposed Investment in DivcoWest Fund VI-A, LP

Memorandum to: State Investment Council
From: Corey Amon, Director
Subject: Proposed Investment in DivcoWest Fund VI-A, LP

The Division of Investment (the “Division”) is proposing an investment of up to $100 million in DivcoWest Fund VI-A, LP (the “Fund”). The Fund is being sponsored by Divco West Real Estate Services, LLC (“DivcoWest” or the “Firm”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

The Division is recommending this investment based on the following factors:

  • Differentiated strategy that focuses on real estate investments that serve tenants in technology and life-sciences industries: DivcoWest has established long-standing relationships with tech and life-science companies and venture capital firms which provides a unique advantage for gaining market intelligence on real estate trends and the movement and growth of tenants to drive investment strategy.
  • Long-tenured management team with extensive experience: The Firm’s senior team is stable. Members of the management team have worked together through multiple market cycles and have an average of 20 years relevant industry experience. The Firm’s relationships extend to a network of real estate leaders that provide the means to directly source opportunities on a direct and joint venture basis.
  • Vertically integrated platform with alignment of interest: DivcoWest has grown to be a vertically-integrated, nationwide real estate platform with approximately 140 employees having extensive in-house experience in sourcing, structuring, acquiring, developing, repositioning, managing, leasing and selling assets. From acquisition to disposition, each asset is managed by a team of professionals across acquisitions, asset management, finance, and accounting. Performance allocation is expected to be distributed widely across members of the Firm.
  • Strong performance through multiple market cycles: The Firm’s strong performance and limited write-down ratio across prior funds demonstrates DivcoWest’s focus on capital preservation and ability to invest through market cycles. The Firm generated top-quartile performance across Funds I, II, III, and IV. Particularly noteworthy is Fund II, a 2006-vintage fund that performed well in the midst of the Global Financial Crisis.
  • Environmental, Social and Governance (ESG) Policy: DivcoWest has embraced ESG and made it an integral part of company culture with a formal ESG Policy. The Firm is a member of the Global Real Estate Sustainability Benchmark (GRESB), and DivcoWest has established specific goals and targets for reducing energy consumption, utilizing renewable energy, reducing water consumption, and increasing recycling. The Firm strives to engage in fair, ethical, and effective business practices and has adopted a Corporate Sustainability Policy addressing operational efficiency (energy, water, and waste), climate impact, environment (natural ecosystem, air quality, and land usage) and people & communities (local, community, tenants, and supply chain).

A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.

Division Staff and its real estate consultant, Hamilton Lane, undertook extensive due diligence on the proposed investment in accordance with the Division’s Alternative Investment Due Diligence Procedures.

As part of its due diligence process, staff determined that the Fund has engaged a third-party solicitor (“placement agent”) in the fundraising of the Fund but no placement agent was engaged or paid in connection with the Pension Fund’s potential investment.
Staff will work with representatives of the Division of Law and outside counsel to review and negotiate specific terms of the legal documents to govern the investment. A preliminary Disclosure Report of Political Contributions has been obtained in accordance with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4) and no political contributions have been disclosed. An updated Disclosure Report will be obtained at the time of closing.

Note that the investment is authorized pursuant to Articles 69 and 71 of the Council’s regulations. DivcoWest Fund VI-A, L.P. is considered a non-core real estate investment, as defined under N.J.A.C. 17:16-71.1.

A formal written due diligence report for the proposed investment was sent to each member of the IPC and a meeting of the Committee was held on January 15, 2020. In addition to the formal written due diligence report, all other information obtained by the Division on the investment was made available to the IPC.

We look forward to discussing the proposed investment at the Council’s January 29, 2020 meeting.

Source: State of New Jersey State Investment Council