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CalPERS Might Purchase Stake in AOL Time Warner Center

Real estate: The big pension fund is in early discussions with the builders to invest in the $1.7-billion complex.


The California Public Employees' Retirement System may buy a stake in one of the biggest real estate projects under construction in the U.S.: New York's AOL Time Warner Center.

Builders of the $1.7-billion complex at the southwest corner of Central Park are looking for permanent financing for the project and have had discussions with CalPERS and other investors, said Stephen Ross, a partner in the development and chairman and chief executive of New York-based Related Cos.

CalPERS spokesman Brad Pacheco confirmed that the managers of the nation's largest public pension fund were considering investing in the new AOL Time Warner headquarters, but he described the talks as being at an early stage. He declined to say how much of the project CalPERS was considering financing.

CalPERS manages $135 billion and provides health and retirement benefits to 1.3 million state workers and their families.

The New York project offers CalPERS "a superior asset, a superior market and the ability to put a large investment into one asset," said Scott Latham, a senior director of Cushman & Wakefield, a real estate services company. "That offers efficiencies to funds like CalPERS that they can't find in other places."

The complex, with 2.8 million square feet, is slated to open next fall. It will include office space for rent, 191 condominiums, a 251-room Mandarin Oriental hotel, 338,000 square feet of retail space, production studios for AOL Time Warner's CNN, a concert hall and a 500-car garage.

Related Cos. is developing the property in partnership with a real estate fund managed by financier Leon Black's Apollo Real Estate Advisors. Ross said his team would retain a controlling interest in the project but was looking for investors to take as much as a 50% stake in the retail space and 325,000 square feet of non-AOL office space. Ross did not say how much that portion of the project will cost.

CalPERS, which has about $13 billion invested in real estate, may soon buy more. The investment staff has recommended to the board of directors that CalPERS increase the percentage of its portfolio invested in real estate to 9% from 8% by reducing its fixed-income investments, such as corporate bonds and U.S. Treasury securities. The value of CalPERS' asset base has declined in the last three years.

San Francisco-based MacFarlane Partners would be CalPERS' advisor in the AOL Time Warner deal.

Bloomberg News was used in compiling this report.

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