CalPERS has set a more conservative course for its real estate investments, but the Sacramento-based pension giant apparently is still willing to make big, splashy deals.
The California Public Employees’ Retirement System is negotiating to buy a New York office tower for $1.9 billion sometime in the first quarter of 2016, according to recent reports by Bloomberg and the New York Post. The purchase of the 54-story building in midtown Manhattan, built in 1985, would be among the most expensive real estate deals in New York history.
While the deal would take up only a small portion of CalPERS’ overall portfolio of $290.5 billion, it would represent 7 percent of the pension fund’s real estate holdings.
CalPERS has declined comment on the report. A spokesman for AXA Financial Inc., an insurance conglomerate that owns the building, also declined comment Thursday.
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Despite the sheer amount of money involved, the purchase would be in line with CalPERS’ focus on conservative real estate investing. After losing billions of dollars on speculative development deals during the market crash, CalPERS is concentrating on leased-up, income-producing properties. According to the Real Deal, a New York real estate publication, the Manhattan building is nearly completely occupied.
CalPERS’ last big foray in New York real estate ended badly. It lost $500 million on a rent-controlled Manhattan apartment complex in 2009.
That deal was predicated on raising rents when older tenants moved out and new occupants moved in. But the deal imploded and cost a host of investors billions, including the Church of England. The California State Teachers’ Retirement System, or CalSTRS, lost $100 million on the project.