According to a statement by LandSource, it had attempted to reach agreement with its lenders to restructure more than $1.2 billion in debt to avoid filing for bankruptcy. The company said that it expects "not only to survive the current real estate downturn and credit crunch, but to flourish once the market stabilizes."

CalPERS invested about $900 million in LandSource through MacFarlane Partners, who along with Weyerhaeuser took a 68% interest in LandSource. Other partners of LandSource are Lennar and LNR, each with a 16% stake.

The CalPERS investment in LandSource represents less than a half of 1% of its overall investment portfolio, the pension fund points out. The CalPERS fund, which includes stocks, bonds, real estate, private equity and other assets, is valued at approximately $245.4 billion.

MacFarlane Partners, in its statement, said it agrees with LandSource that, "in the long term, this investment will be seen as a good one." CalPERS observed that LandSource, "with heavy investments in Southern California land, fell victim to the housing industry downturn."

The LandSource Santa Clarita holdings were once valued at $2.6 billion, but subprime industry woes and the Southern California housing industry downturn have caused land prices to plummet. According to the Hoffman Co., an Irvine, CA-based land brokerage firm, land values in Riverside, San Bernardino and North Los Angeles counties have dropped as much as 65%.

LandSource said that it has received commitments for debtor in possession (DIP) financing from a group of lenders led by Barclay's Bank, including a $135-million revolving line of credit that will enable the company to meet post-bankruptcy petition obligations and fund operations during the Chapter 11 period.

LandSource operates in Arizona, California, Florida, New Jersey, Nevada and Texas. The company is involved in the planning and development of master planned communities and transforming undeveloped land into ready-to-build home sites and commercial properties. With the exception of one development project in Marina del Rey, CA, it does not build homes or commercial properties.