CalPERS Cautious on Real Estate Despite Owning Hot Property


For CalPERS, the empty lot that currently sits at Third and Capitol in downtown Sacramento represents both a past failure and future opportunity.

CalPERS owns the lot, which has sat vacant since the fund lost $60 million on a failed condo development there in 2007.

That’s why CalPERS is being cautious with plans to develop the lot, even if it’s a hot property with the new Sacramento Kings arena being built just a few blocks away.

From the Sacramento Bee:

CalPERS has become more conservative about developing property from the ground up and now says it will take its time before proceeding at the downtown site.

“We plan to be very smart before jumping back into construction,” said Ted Eliopoulos, the newly installed chief investment officer at the California Public Employees’ Retirement System.

That’s not to say the nation’s largest public pension fund is ignoring the site’s potential. With the Kings’ arena set for an October 2016 opening and the downtown market in a state of revival, Eliopoulos said CalPERS and its development partner, CIM Group of Los Angeles, are committed to eventually doing something big at Third and Capitol.

“It deserves a project of scale, an iconic project,” said Eliopoulos, the man who pulled the plug on the original condo and hotel towers in 2007 after construction had begun.

In the most extensive comments the pension fund has made about the site in years, Eliopoulos said CalPERS and CIM are trying to determine “what mix of office, apartment, retail would be most appropriate for the site, from an economic standpoint, from a community standpoint.”

More details on the failed condo development that was originally supposed to occupy the space:

For the past seven years…Third and Capitol has been a humbling reminder, for both CalPERS and the city, of the collapse of the real estate market.

With CalPERS as his major financial backer, Sacramento developer John Saca was going to build twin 53-story condo and hotel towers on the site that once housed the old Sacramento Union newspaper. Along with the Aura condo project proposed a few blocks east, the Saca Towers were going to launch a downtown housing boom.

Neither project materialized, but the Saca project was the more spectacular failure. The fenced-off site, now a ghost town of weeds, trees and concrete pilings, has become known in some quarters as “the hole in the ground.”

Billed as the tallest residential project on the West Coast, the towers got off to a surprisingly strong start.


Eventually, though, the project ran into big problems – namely, $70 million worth of cost overruns caused by troubles with the concrete pilings. After spending $25 million, CalPERS cut off funding in January 2007. The decision was made by Eliopoulos, a private developer who had just joined CalPERS as senior investment officer for real estate.

“That was my first week on the job,” Eliopoulos said. “That was the first decision that I made, to stop the project.”

Months of public wrangling ensued between the two partners, with Saca complaining that he’d been undermined by CalPERS. Eventually, the pension fund got control of the site, but at a cost. On top of the original $25 million, it spent an additional $35 million to satisfy contractors’ liens, repay a mortgage and perform some additional pre-construction work. (The customers’ deposits, parked in an escrow account, were also returned.) CIM Group, which has built several downtown Sacramento buildings and partnered with CalPERS on the Plaza Lofts project on J Street years ago, was brought in to manage the forlorn site and advise the pension fund on possible uses.

CalPERS lost $10 billion on real estate investments between 2008 and 2010. In the years since, its real estate portfolio has seen double-digit returns almost every year.

The fund plans to increase its real estate holdings by 27 percent by 2016.


Photo by Photo by Stephen Curtin

Dallas Fund Loses Nearly $200 Million On Real Estate Ventures

windmill in field

The Dallas Police and Fire Pension System knew that its real estate losses were bad, but they didn’t learn the exact figures until a Thursday board meeting.

Trustees of the $3.3 billion pension fund learned Thursday that it has lost $196 million on real estate investments made in 2005 and later. Those losses were a big reason why the fund’s overall portfolio in 2013 returned just 4.4 percent.

More on the losses, from Dallas News:

The $196 million in losses came from three real estate plays:

– A set of ventures that included tracts of land in Arizona and Idaho ($90 million loss).

– Luxury resort properties in the wine country of Napa County, Calif. ($46 million loss).

– Ultra-luxury homes in Hawaii and elsewhere ($60 million loss).


The losses were reported during a presentation by fund staffers and a fund consultant, William Criswell. The presentation did not specify the losses, but The Dallas Morning News tallied them from numbers that were provided and confirmed them afterward with fund officials. Board members, looking grim, commented little but quizzed the presenters on various details.

Of the losses, $96 million was recognized on the fund’s 2013 books, which were completed late this summer.

It’s interesting to note that the pension fund didn’t outsource the handling of these investments, as is common practice for pension funds, particularly smaller funds. From Dallas News:

[Fund administrator Richard] Tettamant led the fund into these deals with little oversight from outside investment advisers. Instead, he and his staff handled many of them personally. He met developers, who introduced him to other developers.


The ventures prompted the fund’s staffers and board members to travel extensively over the years, trips they said were necessary to scope out and protect the investments. They traveled to the Napa area more than any other out-of-state destination — making 45 trips there from 2009 to 2012.

Dallas attempted to audit the pension fund in 2013, but the fund refused to turn over key documents relating to real estate and private equity investments. For that reason, it wasn’t clear until recently the extent of the losses the fund had sustained.