Since last year, officials at the $216.4 billion California Public Employees' Retirement System, Sacramento, has been reviewing its $15 billion real estate portfolio that lost 37% in the fiscal year ended June 30.
After such staggering losses, plan officials are culling the manager roster, keeping the best-performing firms.
“For the past several months and continuing, we're reviewing 24 major real estate partnerships. In some cases, relatively strong performing managers will be retained, while relationships will end with some underperformers,” Clark McKinley, CalPERS spokesman, wrote in an e-mailed response to questions. “The entire real estate portfolio is in a restructuring mode.”
Some partnerships have been ended or will be, some will be wound down and others will be transferred to other real estate managers, he stated in a separate e-mail.
Two weeks ago, the $1 billion managed by BlackRock Realty Advisors and two properties from Legacy Partners' $43 million affordable housing portfolio were moved to Windsor Realty Fund III, managed by Boston-based GID Investment Advisors LLC, an affiliate of The General Investment & Development Co. Mr. McKinley declined to provide details about the properties from the portfolio of Legacy, Foster City, Calif. The Windsor fund now has a $1.1 billion net asset value.
Earlier this year, CalPERS wrote off its $500 million investment through BlackRock in Stuyvesant Town-Peter Cooper Village, a massive New York apartment complex BlackRock bought with Tishman Speyer Properties. The project is being sold at foreclosure auction.
Hines Interests LP, Houston, is winding down National Office Partners LP, a joint venture with CalPERS, and transferring some of the properties to another investment manager, sources say. NOP accounts for 4.5% of the system's $6.9 billion core real estate portfolio. Mr. McKinley stated he could not confirm that NOP is being wound down “since we don't comment on transactions that may or may not be still in the works.”
NOP has nine properties left in its portfolio, confirmed George C. Lancaster, Hines spokesman. The portfolio is the lowest performing among the four in CalPERS' core office subsector, earning an annualized 2.6% since its July 1998 inception. By comparison, another of CalPERS' core office portfolios — Fifth Street Properties, a partnership of CalPERS, CommonWealth Partners LLC and Rockefeller Group International Inc. also begun in July 1998 — has earned an annualized 10% since inception.