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EMERYVILLE, CA-A joint venture of Hines and CalPERS has defaulted on a $152-million mortgage secured by three office buildings here totaling 814,000 square feet. The buildings sit within the four-building, 1.2 million square-foot Watergate office complex. The development is located on Powell Street, adjacent to Interstate 80 in Emervyville.

CalPERS is California’s retirement system for public employees. Hines is a Houston based investor-developer. The JV they led, NOP Watergate LLC, paid $335 million for the 1.2-million square-foot Watergate office complex as well as a separate restaurant building in late 2006, just as rents and valuations were peaking. The notice of default was filed by Pacific National Bank with Alameda County on Wednesday, July 15, according to online property records.

A source in a position to know tells GlobeSt.com that the Hines-CalPERS JV is exercising its rights under the loan to give the property back to the lender. CalPERS declined comment. Hines could not immediately be reached for comment.

The Watergate office buildings in default are located at 1900, 2000 and 2200 Powell. The fourth building, owned by Hines REIT, is 100% leased to Oracle and Novartis, according to published reports.

Watergate appears to be one of two Hines-affiliated properties in Northern California that have been in distress. Hines previously lost through the 455,000-square-foot Marin Commons office complex in San Rafael, CA. That asset went back to the lender, Cigna.

CalPERS doesn’t comment on the performance of ventures involving partners and its first quarter report on real estate investments won’t be made public until mid-August. CalPERS released its performance report for 2008 in May 2009.

The pension fund’s core real estate portfolio lost 5.2% in the fourth quarter of 2008 and 6.2% for the full year. Its non-core portfolio lost 13.6% in the fourth quarter of 2008 and 38.7% for the full year.

The core portfolio’s performance was pulled down by office, retail and the AFL-CIO Building Investment Trust. During 2008, the value of the assets in the three categories fell by 13.1%, 22.1% and 10.1%, respectively. None of the other core investment categories–apartment, industrial and CIM Urban REIT–increased or decreased by more than 1%.

The non-core portfolio was pulled down by housing investments, which 106.7% of their value over the past year. Other non-core portfolio investment categories that fell by double digits during 2008 are Opportunistic Funds (-33.3%), International (16.4%) and Senior Housing (-11.1%).

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