Oct. 9, 2003 - Situated on an island in San Diego, the Hotel del Coronado is considered one of America's most beautiful resorts. 

Valued at nearly $225 million, the hotel has an unusual landlord: the Ohio Public Employees Retirement System, one of Ohio's public pension funds. 

The state's five pension systems for public-sector employees have stakes in about $10 billion worth of real estate across the country, from office towers in New York to industrial parks in California. 

"Real estate is a relatively small but important part of our investment strategy,'' said Neil Toth, director of investments for OPERS, which is Ohio's largest retirement system with $53 billion in assets. 

Employers and workers contribute to pension funds, which invest the money to pay for retirement benefits that will be paid out in years to come. 

Steven Mitchell, director of investments for the state's second-largest pension fund, the State Teachers Retirement System, said real estate is important "in the interest of diversification.'' Most investment professionals say any financial portfolio needs to have different types of assets to lower its risk and help even out price swings. 

During the past few years, the value of real estate has risen while stocks, the biggest chunk of most pension funds' investments, dropped. 

Real-estate investors make money from rent payments. In addition, they hope to see the properties increase in value. 

In the commercial real-estate world, there are five major investment segments: apartments, offices, shopping centers, warehouses and specialty properties such as hotels, gas stations and restaurants. 

OPERS owns properties in each of those sectors as part of its $4.1 billion real-estate portfolio. The biggest chunk -- 25 percent -- is in apartments. 

But the fund's most-valuable single real-estate holding is the Hotel del Coronado, a Victorian-era, 400-room hotel. Built in 1888 on what experts call one of America's best beaches, it was designated a National Historic Landmark in 1977. 

The pension system's most-expensive properties also include three other luxury hotels -- the Argent Hotel in San Francisco, Vail Cascade Hotel and Club in Vail, Colo., and Tempe Mission Palms in Tempe, Ariz. 

Toth said the retirement system bought a number of hotels in the early '90s when they were relatively inexpensive. In the past few years, however, it has sold some hotels as their value increased. 

OPERS has a more-unusual investment holding: a chunk of the Los Angeles Center Studios in downtown Los Angeles. Movies shot at its six studios in the past few years have included Terminator 3 and Legally Blond 2. 

The studio, now worth $47.9 million, opened in 1999. 

While STRS isn't invested in motion pictures, it does control some picturesque property: more than $500 million in timberland in the Northwest and Southeast and millions more in farmland. 

The state's smallest pension fund, the Ohio State Highway Patrol Retirement System, also owns about $20 million in timberland. 

STRS has investments of $4.8 billion in real estate, nearly half of it in office buildings. 

Unlike OPERS, the teachers' pension fund manages most of its real-estate portfolio in-house. That internal management has kept the system's costs relatively low at 0.4 cents for every $1 in property value. 

OPERS, on the other hand, spent 0.7 cents per $1 in property value on management, most of the money going to outside property managers. 

The cost factor for the state's two mid-size funds is even higher -- about 1 cent per $1 in real-estate value -- at the Ohio Police and Fire Pension Fund and School Employees Retirement System. 

Although real estate in general has increased in value of late, the state's public pension funds have been reducing their real-estate holdings. 

STRS has sold off more than $800 million in real estate and bought $200 million in the past year to bring its real-estate portion of its total holdings to less than 10 percent. 

Most of the other Ohio public pension funds have about 8 percent of their holdings in real estate; the highway patrol system is an exception, with 12 percent. 

Among the properties STRS has sold were three shopping malls, including Kenwood Towne Center in Cincinnati, for $500 million. 

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(c) 2003, The Columbus Dispatch, Ohio. Distributed by Knight Ridder/Tribune Business News.