In our previous articles that can be read, HereHere – Here and Here – we have mentioned the problems faced by Calpers and other pension funds as they search for yield to justify their high assumptions.

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Calpers, the giant California pension fund, is dumping one of its last major housing investments at a big loss.

In a major step toward winding down a two-decade program as the pension world’s biggest player in the U.S. housing market, Calpers is selling a portfolio of 28 housing communities to a partnership between San Diego-based developer Newland Real Estate Group LLC and an affiliate of Japan’s largest home-building company, Sekisui House Ltd.

The portfolio, which includes 16,300 unbuilt home sites and thousands of acres of additional undeveloped land in 11 states, represents about one-fifth of Calpers’ residential land portfolio.

People familiar with the terms said the portfolio sold for between $500 million and $600 million.

At that price range, the deal values each home site at about $35,000, at most. During the housing boom, big builders would typically buy the land underneath new homes for $75,000 to $150,000, depending on location and state of infrastructure completion. This means that Calpers, which bought the property over about five years starting in 2002, is likely suffering a loss of as much as 30% to 50%, the people said.

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Michal Czerwonka for The Wall Street JournalNewhall Ranch, Calif.

Calpers move comes after three years of distressed-land sales by other major owners, including builders and banks that have driven down values by as much as 75% in some markets. Calpers has resisted a major liquidation of its holdings until recently.

During the past decade, Calpers was the biggest U.S. public pension fund investing in residential housing and land deals, in certain deals using debt to finance up to 80% of the purchases. That boosted returns, but also risks.

Currently Calpers has about 9% of its $226 billion in assets invested in real estate. Up until the crash, the pension fund used the proceeds from its housing investments to make payments to over 1.5 million state retirees.

But now, Calpers officials say they are looking to real estate for stability rather than high yields. “The plan calls for real estate to be a diversifier…to provide stable cash yields and to act as a partial inflation hedge,” says Calpers spokesman Wayne Davis.

After the bubble burst, Calpers began suffering losses on a number of deals—losing more than $900 million on one deal alone. Last year, the pension giant started overhauling its real-estate-investment program and since then, it has put in place a plan to sell down its portfolio and concentrate on safer, income-producing commercial property.

Read More: http://online.wsj.com/article/SB10001424052970203735304577167273567069942.html?mod=WSJ_hp_LEFTWhatsNewsCollection