CalPERS' $500 million investment in New York real estate has officially gone by the wayside.

A massive Manhattan apartment complex, partially owned by CalPERS, is being abandoned to its creditors after defaulting on a $4.4 billion mortgage.

The investment had been on the ropes for months.

CalPERS was among the high profile investors that went in on the 2006 deal to buy the Peter Cooper Village and Stuyvesant Town apartment complex for $5.4 billion, the costliest residential real estate deal in U.S. history.

CalSTRS wrote off its $100 million investment in the project months ago.

CalPERS spokesman Clark McKinley said today that his pension fund has written off its $500 million investment.

The deal was masterminded by Tishman Speyer Properties and BlackRock Inc., both of New York. "It has become clear to us through this process that the only viable alternative to bankruptcy would be to transfer control and operation of the property, in an orderly manner, to the lenders and their representatives," Tishman and BlackRock said in a statement to the Wall Street Journal.

The deal was controversial because the complex has long been a middle-class haven in pricey Manhattan, and investors hoped to increase cash flows by liberating the units from New York's rent-control laws. That strategy imploded and a New York court ruled that the partnership had illegally raised rents.