Drought Throws Wrench in CalPERS’ Development Project

CalPERS is one of the chief financial backers of a suburban development called Mountain House, which, at the time of investment, was one of the hottest real estate investments in the area.

But a run of bad luck, including an ongoing drought, has thrown a wrench in the community’s development plans – and in CalPERS’ $1.1 billion investment.

From the Sacramento Bee:

California’s four-year drought has created another crisis for CalPERS and its prized real estate property west of Tracy.

In mid-June, the State Water Resources Control Board issued curtailment notices to dozens of senior water rights holders in the Sacramento and San Joaquin river watersheds, cutting off their ability to pull supplies from rivers and streams. Among those cut off was the Byron-Bethany Irrigation District, which is Mountain House’s sole source of water.

[…]

Housing market analysts agree the water shortage is problematic for CalPERS’s investment. While the community of Mountain House is about one-third built, CalPERS still owns approximately 8,000 residential lots.

“How do you sell any more lots if you’ve got a pending issue with water?” said Stephen Smiley, a senior vice president with market analyst Meyers Research. “It’s got to be an issue for CalPERS.”

The nation’s largest public pension fund is certainly paying attention. Although its Mountain House investment has lost much of its original value, it partially recovered in recent years and was listed at $291 million as of last June, the latest figures available. Ten years after it began putting money into the project, CalPERS still hopes for a payoff some day.

“We are actively monitoring the situation in Mountain House and are working through options with our manager to best protect our investment.” CalPERS said in a statement released by its public affairs office.

CalPERS manages over $300 billion in assets.

Photo by  rocor via Flickr CC License