California State Teachers' Retirement System is building a brand spanking new headquarters in Sacramento, complete with a cafe and workout facilities, but there's a catch — actually, a Catch-22.
State law requires the system to include the headquarters in its real estate investment portfolio, but generally accepted accounting principles, which state law requires the $117.4 billion CalSTRS to follow, mandates the system hold the headquarters on its books as a capital asset.
Until this month, CalSTRS — like the other large California pension fund across town, the $184.6 billion California Public Employees' Retirement System — included the headquarters as part of its $15.8 billion real estate portfolio during construction. This treatment pumped up the real estate portfolio by $158 million, the cost for the headquarters as of June 30, according to a memo to the board for its June 5 meeting.
But CalSTRS external auditors cried foul, advising system officials that they need to move the building out of its investment portfolio, despite the contradictory dictates of state law.
CalPERS had dealt with the problem by slipping its new headquarters onto its books as a capital asset once it was 50% occupied. So, at its June 5 meeting, the CalSTRS board voted to move the headquarters out of its real estate investment portfolio by Oct. 1, when it will have made its last construction payment. And, oh yeah, system officials will try to get the California Legislature to fix the law.
How will this impact CalSTRS' real estate portfolio during the down cycle? No material change, said spokeswoman Sherry Reser. “One investment in a $15.8 billion portfolio.” — Arleen Jacobius
