The Catellus Derailment : Ouster of CEO is Latest Chapter in Saga of Struggle
The
news last week that the top executive at Catellus Development Corp. in
San Francisco will resign is the latest twist in a long struggle by
California's largest private landowner to turn nearly 1 million
acres--once owned by the nation's railroad barons--into a vast real
estate empire.
The expected departure of Catellus Chief Executive Vernon B. Schwartz was engineered by the California Public Employees Retirement System (CalPERS), officials close to the company and pension fund say privately. CalPERS owns more than 40% of the company's stock.
Schwartz declined to be interviewed. So did senior officials at CalPERS, the giant pension fund in Sacramento that invests the retirement money of more than 800,000 of the state's current and retired workers.
CalPERS officials had been lobbying for drastic changes at Catellus because they were tired of seeing the company's stock go nowhere and of listening to management blame the firm's misfortunes on California's weak real estate market.
The expected departure of Catellus Chief Executive Vernon B. Schwartz was engineered by the California Public Employees Retirement System (CalPERS), officials close to the company and pension fund say privately. CalPERS owns more than 40% of the company's stock.
Schwartz declined to be interviewed. So did senior officials at CalPERS, the giant pension fund in Sacramento that invests the retirement money of more than 800,000 of the state's current and retired workers.
CalPERS officials had been lobbying for drastic changes at Catellus because they were tired of seeing the company's stock go nowhere and of listening to management blame the firm's misfortunes on California's weak real estate market.
The
pension fund has seen the value of its initial $473-million investment
in Catellus cut in half in recent years. Even its financial adviser, who
initially recommended that CalPERS buy the stock, now doubts that the
fund can recoup these losses any time this century.
"This whole thing has turned out to be a catastrophe for investors, especially CalPERS," said Burland East, an analyst who follows Catellus for Kemper Securities in Chicago. "It's not all Catellus' fault--there's plenty of blame to be spread around."
(The losses represent no danger to the health of the fund itself, East noted. CalPERS has assets that exceed $80 billion, making it the largest public pension fund in the nation.)
Catellus--which transportation giant Santa Fe Pacific Corp. established as an independent, publicly traded company in 1990--is involved in about a dozen megaprojects from San Francisco to San Diego. It also owns more than 900,000 acres of land across the state--an amount twice the size of Orange County.
While Catellus' once-bright prospects have certainly been dimmed by California's real estate recession, it has also been hurt by forces ranging from slow-growth advocates to toxic waste.
Catellus' joint-venture in the once-thriving Pacific Design Center in West Hollywood is suffering, as its wealthy clients have cut back their spending. A plan to build a massive mixed-use complex at downtown Los Angeles' Union Station has been caught up in controversy and legal disputes. So has another proposal to develop a 16-acre site in downtown San Diego.
And then there is Mission Bay in San Francisco, the company's most ambitious project--and perhaps its most problem-plagued.
The 313-acre, $2-billion development would front the bay about a mile south of downtown and would be the largest in the city's history. Plans call for 8,700 homes and more than 6 million square feet of offices, shops and light-industrial space.
But the project has languished on the drawing boards for years, as first Santa Fe and then Catellus wrangled with everyone from local no-growth advocates to government environmental officials.
Conservationists wanted the company to build fewer offices and preserve more of its wetlands. Housing advocates pushed for lower rents and cheaper selling prices. Environmental agencies wanted Catellus to clean up the toxic-laced site, which was previously used as a dump for everything from 1906 earthquake rubble to parts from old locomotives.
Catellus worked out a compromise with each of the groups and received the city's conditional approval for the project in 1991. But the permission came with so many strings attached that Catellus does not expect to break ground until next year at the earliest.
"This whole thing has turned out to be a catastrophe for investors, especially CalPERS," said Burland East, an analyst who follows Catellus for Kemper Securities in Chicago. "It's not all Catellus' fault--there's plenty of blame to be spread around."
(The losses represent no danger to the health of the fund itself, East noted. CalPERS has assets that exceed $80 billion, making it the largest public pension fund in the nation.)
Catellus--which transportation giant Santa Fe Pacific Corp. established as an independent, publicly traded company in 1990--is involved in about a dozen megaprojects from San Francisco to San Diego. It also owns more than 900,000 acres of land across the state--an amount twice the size of Orange County.
While Catellus' once-bright prospects have certainly been dimmed by California's real estate recession, it has also been hurt by forces ranging from slow-growth advocates to toxic waste.
Catellus' joint-venture in the once-thriving Pacific Design Center in West Hollywood is suffering, as its wealthy clients have cut back their spending. A plan to build a massive mixed-use complex at downtown Los Angeles' Union Station has been caught up in controversy and legal disputes. So has another proposal to develop a 16-acre site in downtown San Diego.
And then there is Mission Bay in San Francisco, the company's most ambitious project--and perhaps its most problem-plagued.
The 313-acre, $2-billion development would front the bay about a mile south of downtown and would be the largest in the city's history. Plans call for 8,700 homes and more than 6 million square feet of offices, shops and light-industrial space.
But the project has languished on the drawing boards for years, as first Santa Fe and then Catellus wrangled with everyone from local no-growth advocates to government environmental officials.
Conservationists wanted the company to build fewer offices and preserve more of its wetlands. Housing advocates pushed for lower rents and cheaper selling prices. Environmental agencies wanted Catellus to clean up the toxic-laced site, which was previously used as a dump for everything from 1906 earthquake rubble to parts from old locomotives.
Catellus worked out a compromise with each of the groups and received the city's conditional approval for the project in 1991. But the permission came with so many strings attached that Catellus does not expect to break ground until next year at the earliest.
"Mission
Bay is a great project, but it has just taken too long to get it off
the ground," said John Lutzius, an analyst who follows Catellus for
Newport Beach-based Green Street Advisors. "And all the while the land
just sits there, it's eating up cash without generating any income."
No one expected delays this long back in the 1980s, when Santa Fe started mulling the plan to establish Catellus as an investor-owned company to develop vast real estate holdings acquired in the previous 100 years.
Much of the property stood in the middle of key transportation hubs, bustling commercial areas or fast-growing suburbs. Raw-land prices for less desirable parcels were rising as much as 20% a year.
CalPERS first got involved in 1989 when, in a private sale of stock, it bought a 20% stake in Catellus at the urging of advisers at Chicago-based JMB Realty Corp.
The pension fund paid $398 million for about 10.5 million shares--or nearly $38 a share--and also invested another $75 million in a convertible security. CalPERS felt the move was a smart long term investment that would pay off when the properties were developed.
But by late 1990, when shares in Catellus began trading publicly for the first time, California real estate prices had already begun their steep descent.
No one expected delays this long back in the 1980s, when Santa Fe started mulling the plan to establish Catellus as an investor-owned company to develop vast real estate holdings acquired in the previous 100 years.
Much of the property stood in the middle of key transportation hubs, bustling commercial areas or fast-growing suburbs. Raw-land prices for less desirable parcels were rising as much as 20% a year.
CalPERS first got involved in 1989 when, in a private sale of stock, it bought a 20% stake in Catellus at the urging of advisers at Chicago-based JMB Realty Corp.
The pension fund paid $398 million for about 10.5 million shares--or nearly $38 a share--and also invested another $75 million in a convertible security. CalPERS felt the move was a smart long term investment that would pay off when the properties were developed.
But by late 1990, when shares in Catellus began trading publicly for the first time, California real estate prices had already begun their steep descent.
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