CalPERS Study Notes $6.5 Billion Invested in California Real Estate

Northern California, San Mateo, Peninsula Office Park, 2180 Sand Hill, Embarcadero Place, Palo Alto, Menlo Park, Hudson Pacific Properties


By Robert Carlsen

Though economic activity generated by retirement benefits paid by the California Public Employees Retirement System remained flat compared to the last CalPERS Economic Impact study—$30.4 billion in fiscal 2011-12 vs. $30.9 billion in fiscal 2013-14 — the real estate investment segment is recovering nicely from the economic downturn and getting more investment interest from the pension fund’s current administrators.

The new study “highlights the vital role CalPERS plays in the state economy,” according to a statement from the pension fund, and “demonstrates how CalPERS benefits and investments generate significant economic activity in the state, to stimulate business growth and increased tax revenues, and to support and create jobs for Californians.”

According to the study, benefits (retirees spending their pensions) returned $9.64 in economic activity to California for each taxpayer dollar (public funds) contributed to the system. In the previous fiscal 2011-12 study, the benefits returned measured $10.85 for every dollar. In the new study, CalPERS benefit payments supported 104,974 jobs in the state compared to 113,664 jobs in the previous study. And investments in California accounted for $25.7 billion in the new study, or approximately 8.5 percent of the system’s portfolio, compared to $20.7 billion and 8.9 percent.

The study also looked at regional impacts of benefit payments in certain counties, noting that the overall impact of the benefit payments is not geographically uniform. “CalPERS benefits provide greater impact in regions with less robust economies,” the pension fund said. In Lassen County, for example, CalPERS’ $52.8 million annual benefit payments represent 4.7 percent of personal income and contribute to the county’s $1 billion gross regional product. In San Francisco County, however, the $143 million annual benefit payments represent 0.2 percent of personal income and contribute to the county’s $107 billion gross regional product.

As of June 30, 2014, CalPERS said its investment portfolio in California totaled $300 billion via five asset classes—public equities, fixed income, private equity, real estate and infrastructure. The largest asset class was public equities at $13.6 billion or 53 percent of dollars invested by CalPERS. Coming in second is real estate with $6.5 billion and 25 percent.

CalPERS said its diverse real estate assets provide additional benefits to the local economy, including construction job creation, construction-related economic activity, new retail/industrial/commercial opportunities and new and significantly rehabilitated buildings that improve communities. The pension fund said real estate investments support an estimated 129,000 jobs in California.

As with the other asset classes, the real estate investment programs are managed by external investment managers that typically invest alongside CalPERS capital and are focused on a particular strategy, geography, industry sector or property type. Operating as fiduciaries to CalPERS, the external managers are granted discretion to acquire, manage and dispose of the pension fund’s assets. Current external managers for the apartment segment, for example, are General Investment and Development Advisors of Boston, Invesco of San Francisco and Atlanta, and Pacific Urban Residential of Palo Alto.

CalPERS selected Pacific Urban Residential as manager of its multifamily real estate program in January 2014 and the initial allocation from the pension fund was $200 million. The partnership is named Pacific Multifamily Investors and it has invested, so far, in 10 older “vintage” multifamily properties in the western U.S.

Pacific Urban Residential recently received a new $387 million equity allocation from CalPERS for further apartment investments in northern and southern California, Portland, Seattle and Denver. According to Al Pace, co-founder, president and CEO of Pacific Urban, the investment strategy is to buy existing apartment assets for long-term cash flow. “These are not value assets,” said Pace. “Rather, we are investing in the vintage sector in order to benefit from long-term cash flow and appreciation.”

One of the criteria that Pacific Urban uses for its vintage assets is age, according to Pace, and this typically means a property that is no less than 11 years old.

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