Investor to Put $87 Million Into State Housing : Construction: Hearthstone Advisers of San Francisco raised the money from pension funds and other sources.

California’s struggling construction industry received a needed boost Thursday when a San Francisco investment house announced that it has raised $87 million from pension funds and other sources to finance construction of single-family homes.

Two projects in Southern California, expected to result in 334 homes, will be among the first to receive loans from the fund.

Hearthstone Advisors’ commitment to provide financing for new home construction comes in the wake of the credit crunch caused by federal regulatory pressure to tighten lending standards. Regulators have increased their scrutiny of lenders in an effort to shore up the ailing financial system in the aftermath of the savings and loan debacle.

As traditional lenders have cut back, some political and business leaders have been looking for new ways to finance home construction.

The California Public Employees Retirement System (Calpers) pension fund, which earlier this year promised to invest more than $225 million in California housing development in an effort to help the state’s economy, contributed $75 million to Hearthstone’s fund. The remainder came from individual investors, said James Z. Pugash, executive vice president of Hearthstone, which specializes in managing money invested by pension funds and other institutional investors in single-family housing.

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Hearthstone said it is moving aggressively to direct its share of Calpers money to home builders. If fully leveraged, the $87 million could finance the construction of 1,500 homes, Hearthstone said.

“In an environment where almost all of the economic and job news is bad, this news is excellent,” said Richard Werner, president of Hearthstone. “Our program will build affordable homes and create jobs for California workers.”

Yearly lending to residential real estate developers has fallen by an estimated $8 billion to $10 billion in the last two years. And experts say the California home building industry has shrunk almost 50% in the last two years, in part because of lack of capital available to real estate developers.

Although the federal government estimated this week that new home construction jumped 15.2% in the West last month, the latest California figures show the number of new home building permits issued in the state dropping 13% in July to an annual rate of 88,000.

Housing demand is down especially sharply in Southern California, according to TRW REDI Property Data. In the five-county region, the number of homes sold dropped 14.6% in the first eight months of the year to 118,007.

Orange and Los Angeles counties, where the average price of a home is 13% to 17% higher than the region’s average, were the hardest hit by the weakening demand. Both counties posted a sales drop of 17% in the first eight months of the year.

Hearthstone is braving the chilly sales climate and funding its first two Southern California projects in the Sanibelle community in Chula Vista just south of San Diego and the Fiesta development in Palmdale, about 70 miles northwest of Los Angeles.

Despite slow demand overall in the region, many builders maintain that demand is strong for entry-level homes of the type being constructed in these projects.

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The 230-home Sanibelle project is being developed by Mission Valley-based Brehm Communities of San Diego, a privately held company that has been building homes for 30 years.

Homes at Sanibelle are expected to range from $125,000 to $165,000. Hearthstone will loan $25 million to the Sanibelle developer.

It will contribute $10 million to the Fiesta project, a community of 104 single-family homes being developed by Epic Properties of Mission Hills. The homes are expected to be priced from $99,000 to $129,000.