Fascinating article in yesterday’s WSJ about real estate investments by former CALPERS advisor, Victor MacFarlane, formerly one of the “lead real-estate advisers to the California Public Employees’ Retirement System, the giant pension fund.”
A few nuggets:
—“One of Mr. MacFarlane’s ventures became associated with a failed southern California land deal that ultimately cost Calpers nearly $1 billion and led to Mr. MacFarlane’s 2009 resignation as a real-estate adviser to the pension fund.”
—“His once-grand plans have been scaled back considerably. The firm’s assets under management are about $4 billion, down from a peak of $20 billion. Mr. MacFarlane also must try to raise money in the face of his recent performance for Calpers. His urban fund had a negative 50% annualized three-year return through the third quarter of 2009, according to Calpers.”
We suspected that most, if not all, public employees’ pension funds have suffered similar losses in both real estate and stocks and sure enough, the estimable New York Times had a big piece on the subject on Jan. 5, 2011.
A few nuggets:
—“…steep investment losses of pension funds proved to be an even bigger drain on state coffers than recession-battered tax collections, according to census data released Wednesday.”
—“The biggest loss recorded — the $477 billion decline in revenues earned by the pension funds and other social insurance trust funds — had little immediate impact on state budgets. But its effects are likely to be felt for years.”
Note the word “revenues” — that’s not “assets.” We believe the assets have declined even more than revenues. And there is supposed to be enough money to take care of ALL retired state employees forever until they die!
The WSJ item on Calpers caught our eye because we covered land-buying projects this agency has undertaken in Oregon and Washington for one of our clients. Sorry we can’t give you the link since the company blocks non-subscribers. But if you are a subscriber, you can find it in this list of our articles.
Here is the start of one of the articles we wrote back in 2009:
Institutional investors look to long term
Development of Northwest vineyard properties continues
By JO McINTYRE
For the Capital Press
Despite the flagging economy, the California Public Employees Retirement System is sticking with its $200 million worth of vineyard properties in Oregon and Washington.
William Hill, CEO of AltaTech Viti …
Thursday, September 24, 2009 10:00 AM
Read the rest of this article after the jump:
… culture, of Napa, Calif., manages those investments, plus two other $200 million worth of vineyard property for the Commonfund, a national university endowment fund.
Hill said no vineyard properties have been sold except an in-house sale of some properties from CalPERS to the Commonfund. “We don’t have anything for sale,” he said. “I wouldn’t do it in this market anyway.”
AltaTech is a vineyard investment company which manages all the assets for Premier Pacific Vineyards and Meriwether Farms, companies established and held for two CalPERS funds, as well as two funds in the Commonfund.
AltaTech invests 10 percent of the value of each vineyard company while CalPERS and the Commonfund invest 90 percent. The two AltaTech funds are valued at about $100 million in each fund.
Hill said some Oregon properties are already producing income. Premier Pacific Vineyards, which also owns vineyards in California, currently owns about 4,000 acres of vineyards in all three states.
PPV bought the first vineyard acreage for CalPERS in the Eola Hills northwest of Salem in 1999. That land is now providing positive cashflow, although the entire portfolio is not, Hill said.
Hill expects to receive close to the 15 percent internal rate of return he had originally projected, in spite of five to ten percent declines in property values in the past two years, according to the most recent CalPERS report.
CalPERS’ Oregon vineyard properties are in the Eola Hills and Yamhill-Carlton in Yamhill County. The Commonfund investment currently has three properties with a combined acreage of 500 acres under development in the Monmouth area in Polk County.
In Washington state, long-time vintner Allen Shoup and other members of an investing group called Premier Vineyard Estates bought the Wallula Vineyard in the Horse Heaven Hills AVA from the Den Hoed family in May 2008.
The family had planted 650 acres on the property overlooking the Columbia River since they bought it in 1997.
AltaTech companies also have developed 200 acres in Washington state in the Horse Heaven Hills, Hill said. That land had been planted in potato and onion row crop circles and cherry orchards. “Allen Shoup runs it,” he said.
AltaTech leases out undeveloped properties in Washington, but expects eventually to have up to 2000 planted acres there.
“Vineyards are much more profitable than orchards,” Hill said. He likes Horse Heaven Hills because the maritime influence coming up the Columbia River moderates the weather more than other Washington state vineyards.
Hill said costs to develop vineyard properties have gone down, compared to two to three years ago, when steel for pipe and plastic for trellis prices were higher. Also, fuel prices have dropped a bit and contractors are a bit more aggressive in their bidding, he said.
Currently, CalPERS has real estate properties with a total value of $18 billion, including $7.8 billion in California real estate investments, in a total portfolio valued at about $181 billion.
Total assets of Commonfund and its subsidiary organizations were more than $26 billion. It has no public reporting requirements or regulations.
It is exempt from registration under the Investment Company Act of 1940, the Investment Advisors Act of 1940 and from Federal income tax. Units of the Educational Endowment Funds are not registered under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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