It may still be a couple of years down the road, but a CalPERS bailout is coming.
The Wall Street Journal reports An Apartment Complex Teeters
One of the biggest, most high-profile deals of the commercial real-estate boom is in danger of imminent default, say people familiar with the matter, signaling the beginning of what is expected to be a wave of commercial-property failures.
The sprawling Manhattan apartment complex known as Peter Cooper Village and Stuyvesant Town — acquired for $5.4 billion in 2006 by a venture of Tishman Speyer Properties and a unit of BlackRock Inc. — is running out of cash. As of the end of September, it had $33.7 million left of the $400 million in interest reserves set up to service its debt, according to the people familiar with the matter. At its current burn rate of about $16 million per month, the reserve could be depleted before the end of the year, the people said. Others have said the venture could avoid default until February.
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Investors who bought into the deal were confident that real-estate manager Tishman Speyer would be able to greatly boost profits by raising rents in Manhattan’s sizzling apartment market. But today, the 56-building, 11,000-apartment property is suffering from a slowing New York economy, a lawsuit that has hindered the owner’s ability to convert rent-controlled units to market rentals, and the debt load.
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Realpoint estimates that the property is worth only $2.1 billion now, less than half of the purchase price.
Consider Pension Fund Losses: To Infinity And Beyond!
Public Employee Pension Funds will need to cut benefits in the near future. They are bleeding billions of dollars and are left with few options other than doubling-down commercial real estate and other bad bets that they’ve already made. Make no mistake, pension funds are throwing a “hail-mary” passes to avoid either a taxpayer bailout or massively cutting benefits.
This story will get much more interesting in a few years, when direct bailouts are needed to maintain benefits.
The Sacramento Bee adds:
Clark McKinley, a spokesman for the California Public Employees’ Retirement System, confirmed that the fund put $500 million into the project in November 2006.
He declined to say whether CalPERS has written off any of the investment but added that it has declined to increase its investment.
“We’re not putting any more money in (the project) at this time,” he said.
The California State Teachers’ Retirement System wrote off its investment in the fiscal year that ended June 30, said spokeswoman Sherry Reser.
The two funds lost a combined $100 billion during the latest fiscal year. Much of the loss was in stocks and other financial instruments, but both funds have suffered hits to their real estate portfolios as well.
CalSTRS’ real estate holdings fell 43 percent during the year. Meanwhile, CalPERS lost nearly $1 billion on one real estate deal alone, a massive housing investment known as LandSource, which went into bankruptcy reorganization.
