CalPers Take a Bath – In New York!

The California Public Employees Retirement System lost a whopping $500 million on one transaction alone in New York City. It is the biggest deal ever in the United States for a single piece of residential property

According to the Los Angeles Times:

The owners of Stuyvesant Town and Peter Cooper Village, a complex of 56 buildings with 11,000 rental units near the East River in Manahattan, have agreed to turn the property over to creditors after defaulting on $4.4 billion in debt.

CalPERS had committed 26.5% of the partnership led by Tishman Speyer Properties and Black Rock Inc., one of the fund’s real estate investment advisors. “This was one of our investments when the real estate market was peaking during 2005 and 2006,” said Clark McKinley, a CalPERS spokesman. “Performance was negatively affected by the aftershock of the market collapse.”

The loss in the New York City apartment market was the most spectacular blowup in what had been a horrendous 2009 for the $200-billion CalPERS. The fund’s real estate portfolio dropped by 47.5%, spurring CalPERS to terminate its relationships with some real estate advisors and to write down many of its holdings to market values.

CalPERS had originally projected that the $5.4-billion deal would net it a 13.5% return over seven years.

Perhaps CalPers should stick closer to home, where conceivably, they have a better handle on market conditions. This is what happens when you buy high and can’t sell low. Ouch! It is also another example of a commerical enterprise (which I consider CalPers to be) showing no hesitancy in defaulting on underwater properties.