Building income.

While other pension funds around the nation have been retreating from real estate, the $11 billion Los Angeles Fire and Police Pension System is in the process of boosting y its real estate portfolio by' nearly 50 percent.

The board of the city's Department of Fire and Police Pensions, which manages the pension fund, decided in June to pour another $355 million into real estate.

On Nov. 6, the board tact with four real estate firms to choose an investment vehicle for a $125 million portion of the targeted increase. Those included L.A.-based developer Lowe Enterprises and Chicago-based real estate investor and fund manager Heitman LLC.

Lowe and Heitman already handle portions of the fund's existing $755 million real estate portfolio, according to Police and Fire Chief Investment Officer Torn Lopez. A final decision on where to place the new investment isn't expected this month, Lopez said.

The system's investment strategy goes counter to a national trend among pension funds to reduce their real estate holdings, largely because they have exceeded their expected percentage. Pensions held $90.4 billion in real estate in 2002, down 5.9 percent from the prior year, according to trade weekly Real Estate Alert.

But Fire and Police has remained below its own targets. The pension fund currently has less than 7 percent of its assets in real estate versus its present target of 10 percent.

The fund's goal is to boost its income potential. Its real estate investments have been returning at least 7 percent annually, far higher than the 1 percent return yielded by dividends from its stock holdings, according to Lopez. The five funds under consideration have projected returns of between 11 percent and 18 percent.

"We're a mature fund, so we're looking for the income instead of just unrealized gains. So real estate is the better investment," Lopez said.