U.S. public pension retirement funds poured money into commercial real estate at record rates during the first half of 2022, but that has screeched to a halt. Rising interest rates and work-from-home could help push down commercial real estate values by 30 percent to as much as 50 percent in the hardest-hit cities such as San Francisco.

The $306 billion California State Teachers’ Retirement System, or CalSTRS, poured assets into real estate in an effort to diversify away from stocks and bonds and benefit from the higher returns offered to buyers of private assets.

Calstrs provides retirement, disability and survivor benefits to almost 1 million California teachers and employees of the public school system and their families.

The top 200 institutional managers owned about a half-trillion dollars worth of real estate in 2022, trade publication Pensions & Investments reported. Office building appraisal values were down 25 percent in February compared to a year earlier, according to a Goldman Sachs note. Analysts estimate that banks hold about half of the $5.6 trillion outstanding commercial property mortgages with the overwhelming majority of that half in small banks, Axios reported.

“How those real estate portfolios of buildings are doing, will then affect, in the end, returns which these pension funds are getting. And that will also affect households which are dependent on these pension funds,” said Vrinda Mittal, a Ph.D. candidate in finance and economics at Columbia Business School who studies private real estate investments.

Third-quarter pension fund commitments will likely fall in the second half of 2023, according to Scott McIntosh, a director at Ferguson Partners, which tracks the commercial real estate industry.

Some pensions are targeting opportunities involving troubled properties in an economic downturn, Wall Street Journal reported. The Connecticut Retirement Plans and Trust Funds, for example, is looking to “take advantage of the lack of capital in certain areas” as well as “distress in the market,” a spokeswoman said.

“There will be a lot of reductions in equity values over the next couple of years, or sooner. It will be heavily tilted toward office,” said Manus Clancy, a senior managing director at Trepp, a commercial-real-estate-data in a Business Insider report.

Meanwhile, the California Public Employees’ Retirement System or CalPERS, which manages pensions and health benefits for more than 1.5 million California public employees, retirees, and their families, saw a 5.8 percent gain in its latest fiscal year thanks to the stock market rally and private debt, Los Angeles Times reported.

The largest traditional U.S. public pension fund, CalPERS’ return for fiscal 2023 represents “a sharp turnaround for the California Public Employees’ Retirement System, whose 6.1% loss in fiscal 2022 was its worst showing in more than a decade.“

READ MORE: Morgan Stanley: What’s Coming To Commercial Real Estate Will Be Worse Than The 2008 Financial Crisis