John Frandson, managing director for Des Moines-based PrincipalReal Estate Investors, tells GlobeSt.com that the fund is openingwith "four or five" projects or acquisitions in its sights,including a three-city portfolio buy. Due diligence is under wayfor deals in Dallas, Houston, San Antonio, Austin and Phoenix."We're really hitting the ground running," he says.

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Frandson says CalSTRS' equity, which will be 35% leveraged, isup to $210 million and can be increased. "The plan is this is notjust a one-time shot," he stresses. "We want to create asignificant portfolio beyond the $600 million." He estimates itwill take "two or three years" to exhaust the initial round offunding.

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Principal has overseen other CalSTRS-funded joint ventures forother property types, but this is the first time it's taken thepurse strings for one of its industrial programs. Frandson says thethree-way alliance has been four to six months in the making.

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Frandson says the JV expects 75% of the pool will be spent onexisting buildings and 25% will fund ground-up development. Whetherone-offs or portfolios, the JV is favoring functional, low-finishbuildings--class A, class B and value-adds in the southeastern,south central and southwestern regions of the US. The spotlight ispointed at all four Texas metros, Atlanta, Nashville andJacksonville, Tampa and Orlando, FL.

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Although he can't discuss the expected return, Frandson did saythat the return margin would be one of the factors in determiningthe length of the hold. The going-in plan, though, is to create aportfolio for a long-term hold.

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Principal is the common thread between the Sacramento-basedglobal institutional investor and Sealy, an entrepreneurial realestate company. Frandson points out its dealings with Sealy havebeen as a lender--until now. "It's a nice marriage and it's gothuge potential," Frandson says.

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