Misjudging the landscape

"It would probably be viewed by some people as an embarrassment because any time you make an investment and it goes into default, it's not good news," he said. The deep-pocketed pension fund has made a number of lucrative real estate investments in California and across the country over the last decade, but this year, "real estate has gone bad with a vengeance."

Real estate, at $23.4 billion, accounts for about one-tenth of CalPERS' holdings, reflecting a drive by the pension fund to diversify its traditionally equity-based portfolio. Data for the most recent quarter, though, show that CalPERS' real estate profit has slowed to a trickle. Overall, the fund has returned a cumulative 24% in the last five years.

CalPERS' LandSource investment is likely to pay off in the long run as continued growth in the Southern California economy increases pressure to build north of the San Fernando Valley, said Alonzo Pedrin of Alfred Gobar Associates, a real estate research firm in Anaheim.

"The long-term vision may be worthwhile, but clearly they're grappling with short-term issues as relates to financing," he said. "The credit markets and the slowdown in housing create a challenge."

CalPERS' potential problems with developing Newhall Ranch could reach beyond current difficulties with tight credit and an economic slowdown, said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate. Because of escalating gasoline prices and longer commute times, Newhall Ranch might be too far from central Los Angeles to function as a traditional bedroom community, Gabriel said.

"Residential development in the future is going to look different than in the past. We're in a new energy price environment," he said. "The emphasis is going to be on reducing commutes and carbon emissions."

marc.lifsher@latimes.com