Pension systems' high-end office leases revealed

CALPERS, SDCERS spend millions on rent

SAN DIEGO - San Diego and California's pension systems are locked into long-term office leases that having some raising questions about the quality of the investment.

The San Diego City Employees' Retirement System manages a $7 billion fund. A review of office leases by Team 10 found SDCERS will spend $10.1 million renting office space at 401 West A Street in downtown San Diego. The lease is for 26,000 square feet over 10 years, and an SDCERS spokeswoman said 58 employees use the space -- which breaks down to roughly 450 square feet per employee.

"I have to wonder why more than 20,000 square feet. Forget whether you own or lease it. Why that big a space?" real estate appraiser and San Diego State University lecturer Dana Kahn asked after reviewing the SDCERS lease.

For comparison, the California Public Employees Retirement System rents offices across the state. The San Diego regional office in Mission Valley consists of 8,300 square feet. The five-year lease will cost $1.5 million.

Both CALPERS and SDCERS invest in real estate, including commercial property. CALPERS invests $28 billion, while SDCERS invests $630 million.

"If you believe in real estate, why not put your money where your mouth is and invest in it for your own offices?" Kuhn said." If you're doing it anyway, why not do it in the space you occupy? It's a legitimate question that the agencies should answer."

CALPERS and SDCERS declined requests for on-camera interviews and tours of their publicly paid-for office space.

An SDCERS spokeswoman answered questions via email. Her comments are below.

The anticipated savings from SDCERS most recent lease renewal result in more than $1 million over the next five years. This is achieved through a combination of reductions in square footage, a reduction in the cost per square footage and free rent.

1. Why did SDCERS choose to rent office space?

SDCERS has been renting office space for many years. We've been in the current locating for the past seven, and then rented space in other downtown office building locations for many years before that.
2. Did SDCERS considering buying space?

No. The only investments in real estate done by SDCERS are as part of the fund's real estate holdings in our investments portfolio.

3. How many employees work in the office?

There are 58 budgeted staff positions at SDCERS.

4. How much of SDCERS portfolio consists of real estate?

Real estate holdings in our investments portfolio account for 9.1 percent of the fund, or approximately $630 million.

5. Who negotiated the lease?

The original lease for SDCERS' space at 401 West A Street was signed in April 2007. Signing for SDCERS were its then CEO and Board President. SDCERS was assisted in finding space by broker Irving Hughes. The first amendment to the current lease was signed in October 2013, again by its current CEO and Board President. SDCERS was assisted in negotiating the amendment by broker Hughes Marino.

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