SACRAMENTO — The value of residential real estate investments owned by the country's largest public pension fund has plummeted 35% -- a paper loss of $3.3 billion for current workers, retirees and their state and local government employers.
The California Public Employees' Retirement System reported Wednesday that in the year ended June 30 its real estate portfolio declined to $6.08 billion from $9.36 billion, based on 461 independent appraisals of its investments in 288,000 housing units across the country.
The decline in real estate represents a portion of CalPERS losses since the fund hit a high of $247.7 billion on June 30, 2007. It fell to $239.2 billion a year later and since then has plunged a further 23%, to $184.2 billion as of Monday.
CalPERS provides pension benefits for 1.6 million current and former employees of the state and many local governments and school districts. Those employers, which are suffering from strained budgets, could be forced to increase their contributions to the pension fund if CalPERS' investment performance does not turn around in the next couple of years.
"It's certainly frightening for those who look forward to getting their pensions from the California system," said Gary Painter, director of research at the Lusk Center for Real Estate at USC.
The loss in investment value, though significant, is not surprising given the meltdown in the real estate market, said Ted Eliopoulos, a senior investment officer for real estate at CalPERS.
"No one escaped the housing fall, not CalPERS, not the rest of the country, not the prognosticators nor the Federal Reserve," he said.
According to the report produced for CalPERS by Le Plastrier Development Consulting of Irvine, the loss in value was amplified by CalPERS' reliance on loans to ramp up housing investments to a peak of about 20% of its real estate portfolio. The investments were over-concentrated by age, geography and product type and lacked safeguards against a market decline, Le Plastrier said.
Within CalPERS' portfolio, 80% of the properties are in distressed markets in California, Arizona, Florida and Texas. Along with that of other investors, CalPERS' stake in housing "expanded greatly between 2004 and 2006," CalPERS staff said in a briefing for the board's investment committee. The committee is scheduled to meet Monday.
