Pension Funds Shift Strategy In New York Office Market

A Changing Investment Landscape

For decades, pension funds were some of the most steadfast owners of New York City’s office buildings. But 2025 has seen a pivot. Several high-profile pension-backed sales—including Ohio’s STRS shedding 590 Madison Ave. and CalSTRS offloading 1177 Sixth Ave.—signal a strategic retreat from direct ownership, reports Bisnow.

Selling While Interest Returns

Interest in office assets is beginning to rebound. RXR, in partnership with Elliott Investment Management, purchased 590 Madison Ave. for $1.1B. It marks the largest nonuser office acquisition in New York City since 2018. They acquired it from the Ohio State Teachers Retirement System, which had held the asset since 1994.

Other sales include:

• 1177 Sixth Ave.: Sold by CalSTRS and Silverstein Properties for $572M, down from its previous $1B+ valuation.
  
• 440 Ninth Ave.: Sold by Nuveen and Taconic for $100M, a steep discount from its 2018 purchase price of $269M.
  
• 575 Fifth Ave.: Reportedly marketed by MetLife and Beacon Capital, asking over $400M.
  

Not An Exit—Just A Pivot

While it may look like an exodus, pension funds are not abandoning real estate altogether. A 2023 report from Aon and the National Institute on Retirement Security shows that real estate allocations have grown steadily. Average allocations rose from 4% in 2001 to 9% in 2023. Some pension plans have allocated as much as 18%.

Instead, funds are shifting focus from direct ownership to more diversified vehicles. Managed strategies—like those offered by asset managers and REITs—are gaining traction, providing exposure without the operational risks tied to direct ownership.

Enter RXR’s Gemini Office Venture

To accommodate this shift, RXR launched the Gemini Office Venture, a fund seeded with its stakes in three marquee NYC office properties, including 590 Madison. The platform allows other owners to contribute office assets in exchange for liquidity and professional management. This reduces direct risk while maintaining upside exposure.

RXR is targeting investment from pension funds, sovereign wealth funds, and other institutions. While the Ohio teachers fund isn’t involved in Gemini, other pension players have reportedly shown strong interest.

Alternative Real Estate On The Rise

Traditional real estate types—office, retail, industrial, and multifamily—still dominate institutional portfolios, but that’s changing. Alternative sectors like data centers and healthcare made up 13% of core real estate funds in early 2024, up from just 3% in 2010, according to the Pension Real Estate Association.

Meanwhile, the Nareit property index, which includes REITs, shows alternatives now make up 60% of the market, reflecting a broader institutional appetite for non-traditional property types.

Market Optimism Returns

Buyer interest in office properties is picking up. Over the past year, CBRE tracked nearly 1K unique bidders for US office assets. That’s almost double the number from the previous 12-month period. The average number of bids per deal also rose, from six to 13. Many are specialist investors like RXR, Tishman, and Apollo who see long-term upside in discounted office assets.

Why It Matters

As the office market recalibrates, pension funds are no longer playing landlord but remain critical capital players. Their pivot to managed platforms and alternative real estate signals a new phase in institutional investment strategy—one focused on flexibility, risk mitigation, and long-term positioning.

What’s Next

Expect more office divestitures and growing pension fund participation in REITs, private equity, and structured ventures like Gemini. While the era of pension-backed skyscrapers may be winding down, the funds themselves are far from leaving the real estate game.