Commercial Real Estate and Pension Funds; Key GGP Ruling; Maguire Walks Away (Recent News & Notes)

Our sister publication NREI posted an excellent report on how tanking real estate values have been hurting pension funds.

Public pension funds are under enormous pressure to claw back a seemingly endless decline in the value of their real estate investments. The extent of the damage is revealed in the release of a few of the larger funds' annual reports.

The nation's largest pension fund, the California Public Employees' Retirement System (CalPERS), has reported a litany of recent troubles.

The bellwether institutional investor reported that the value of total assets under management at the end of June was $180.9 billion, down from $237 billion a year earlier, or a drop of 23.6%.

Real estate values accounted for the biggest chunk of the decline, falling 35.8% during the period, followed by private equity with a 31.4% decline.


Farther east, the Ohio Public Employees Retirement System saw its total assets grow by 3% to $50.2 billion year-to-date through June 30, but real estate was a big drag on its results. The fund's real estate assets, which account for about 8% of the fund's total assets, dropped 12.2% during the same period to approximately $4.2 billion. The decline was beat only by the drop in private equity holdings, which declined 18.22% for the year.

Blog Naked Capitalism features a guest commentary on similar grounds, looking at whether commercial real estate will sink pensions.

Now that private markets have entered into a deep freeze, these pension fund managers are in deep trouble and they know it (unless they can tinker with their benchmarks). Some Canadian pension funds are now betting on emerging markets, investing in Brazilian commercial real estate. Again, does the benchmark accurately reflect the risks of these investments?

What was that comment Tom Barrack said, "There's too much money chasing too few good deals, with too much debt and too few brains." That is the understatement of the century and unfortunately we are all going to end up paying for these brainless decisions.

Here are some other recent news and notes on retail and retail real estate.

  • General Growth won a key ruling in its bankruptcy case that could have big implications for how special purpose entities are treated. The ruling denied a request by lenders to remove properties from the filing. According to the story, "The judge ruled Tuesday that the so-called SPE structure doesn't preclude an entity in danger of financial difficulty such as a loan default from being included in such a filing. He added, however, that the ruling has no bearing on the question of substantive consolidation, which entails combining separate entities of the same corporate parent in a bankruptcy case."
  • In another move with potentially large implications for commercial real estate, Maguire Properties opted to walk way from seven office properties and turned the keys over to the lender. This is exactly the kind of thing brokerage firms and owners and managers have been waiting for as they've built up distressed asset and receivership businesses.
  • Barron's has a nice rebuttal to all the recent doom and gloom stories about commercial real estate. The story argues that the "shoe is not dropping." The story looks at recovering REIT stocks as a sign for optimism.
  • Barnes & Noble is paying $596 million to acquire Barnes & Noble College Booksellers. The two companies once operated together but split in 1986.
  • Wal-Mart is reportedly once again contemplating entering New York City.
  • Reuters reported that Sears is looking to get back into selling toys. With the demise of KB Toys and relative weakness in the field in the face of Wal-Mart's dominance, Sears sees an opportunity.
  • Calculted Risk highlighted new data from CBRE showing that retail cap rates have increased sharply. According to the broker's research, cap rates jumped 55 basis points
  • Brookfield Properties has raised $4 billion to target distressed assets.
  • Forbes has an interesting roundtable discussion on the state of residential real estate. Panelists included Pat Lashinsky, Spencer Rascoff, Donald Trump Jr. and Michael Feder.
  • Bill Ackman appears to be losing interest in Target.
  • The New York Times has a story looking at the state of the retail leasing in New Jersey.
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