CalPERS Walks Away

The Wall Street Journal is reporting Calpers Takes Another Property Hit.

The decision by Calpers, the country's largest public pension fund by assets, to walk from its investment in the Koin Center, one of Oregon's tallest buildings at about 509 feet, nicknamed the "mechanical pencil" for its signature shape, also shows that leasing problems are cropping up in even the country's healthier markets.

Large pension funds like Calpers typically have reserves or other means of handling underperforming properties during difficult periods, said Michael Holzgang, senior vice president of corporate services for Colliers in Portland.

"Calpers is the gold standard, and it's surprising that their backup plan is to walk away," Mr. Holzgang said. "It's further indication that the impairment of commercial-property values is very real."

As of March 31, Calpers's $17.6 billion real-estate portfolio, a majority of which is invested in commercial properties while about 5% is invested in residential, reported a one-year decline of about 35% in its value.

Calpers's pinned the troubles at the Koin Center to insufficient cash flow.

Colliers said the building's office vacancy rate is expected to rise from about 7.9% in the second quarter to the 26% range by about October.

Eric Haskins, vice president of Grubb & Ellis estimates the Calpers partnership bought the building expecting the property to fetch rents in the $28-to-$32-a-square-foot range annually. Buildings like the Koin Center are signing leases in the mid-$20 range, Mr. Haskins said.

Question Of Ethics

Is CalPERS...

1) Ethical?
2) Unethical?
3) Making a simple business decision in which ethics plays no part?

Clearly it's door #3, the same as for individual mortgage holders. Indeed, it is preposterous to hold individuals mortgage holders to some idealized standard of "ethics" that does not apply to businesses.

It's All Business!

For more discussion of the ethics issue please see:

Emails from Housing Hypocrites about Ethics

Many Chime In On "Housing Hypocrites" Post

Bright Side of Falling Home Prices

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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