Koin Center, Calpers, Dubai And Risk

This picture shows the height of the Burj Dubai in relation to other famous buildings. More about that in a minute.

It turns out that the Koin Center in Portland is--or was--partly owned by the California Public Employee' Retirement System (Calpers). Calpers keeps a good part of our economy moving, either through its business deals or by paying California retirees relatively good pensions. Lots of these retired folks move up to Oregon and make a home here. They get unfairly criticized for jacking up property prices. We should be blaming the realtors and banks instead.

Calpers is walking away from the Koin Center. This is one of the state's tallest buildings and contains 19 floors for businesses and 11 floors used for residential condos. Portland's office vacancy rate is about half of what the national vacancy rate is, but investors suddenly seem nervous about putting money in even apparently healthy real estate markets. Last month a partnership that included Calpers defaulted on the building's mortgage. The June Calpers report on investments showed a 23% loss in the value of its investments for the 2008-2009 fiscal year. Calpers has lost quite a bit of property that it once owned over the past year. The Koin building itself may have a 26% office vacancy rate by this winter.

Matters could be worse, I suppose. The world's tallest skyscraper is the newly-built Burj Dubai in Dubai. A one-bedroom apartment there cost $3.5 million one or two years ago; today the value of a home there may have dropped by as much as 60%. The building's opening is being delayed to some unspecified future date. One story is that investors are nervous about the slow pace of sales of space in the building and recouping their investments. Certainly someone who paid $3.5 million for a one-bedroom apartment is likely to be upset that their neighbor, with a similar or bigger apartment, paid 60% less than they did. Both buyers are likely to be disappointed that living in the world's largest building will be more of a pain than a joy given the property's loss of value before it is even fully occupied. And it may not open or be fully occupied any time soon.

Companies involved in this potential disaster are Emaar, Samsung Engineering and Construction and Besix SA. Emaar owns John Laing Homes in the US. If this project falls apart, we will feel it here in the US.

Imagine the world's tallest building empty, or nearly so, and the Koin Center largely empty as well.