CalPERS Board Split On Pension Fund’s Investment In Planned Tallest Skyscraper In California Capital

Pension fund giant California Public Employees Retirement System, or CalPERS, and its long-standing development partner CIM Group, are planning to go ahead with a major mixed-use development in Sacramento near the California state Capitol.

The vote by CalPERS' board of administration to approve the project, which would be the tallest building in the city, reportedly wasn't unanimous.

The development, 301 Capitol Mall, would rise 550 feet and include about 100 apartments and 737K SF of office space. There would also be an elevated public park and some retail space.

Three of the 13 members on the pension fund's board voted against the project because of the risk, the Wall Street Journal reports, citing anonymous sources.

The majority supported the project — provided it yields a 5.8% return and 40% of its office space is pre-leased. Now CalPERS and CIM need to find an anchor office tenant to make the project a reality.

"Now we have a commitment for the investment, we can advance on the drawings and launch our leasing efforts. Before it was conceptual without the capital commitment to move forward,” CIM principal Avi Shemesh told the Sacramento Bee. 

The CalPERS board majority is thus betting that the Sacramento real estate market, which has been very strong in recent years, will remain that way. Much of the recent growth of the city has been fueled by workers and companies relocating there to ditch much higher costs in the Bay Area.

Earlier this year, Ten-X reported that Sacramento is among the top five markets where investors should consider buying office properties.

Overall, CalPERS is an aggressive U.S. real estate investor, though its real estate focuses on U.S. core assets with moderate leverage. Last year, for instance, the fund committed to invest a total of $1.9B in U.S. multifamily and office assets through two partnerships, as part of its Real Assets Program.

The 301 Capitol Mall project isn't the first development planned by CalPERS for the long-vacant Sacramento site. Back before the recession, previous plans called for development there, but CalPERS canceled the plans in 2007.