Dallas Pension Overvalued Real Estate Investments by Millions, According to Review

real estate

An audit of the Dallas Police and Fire Pension System has revealed that the fund overvalued a number of risky real estate investments, including a vineyard in California and luxury homes in Hawaii.

The fund invests heavily in real estate but suffered $96 million in real estate losses in 2013 [Read the Pension360 coverage here].

From the Dallas Morning News:

After a year of wrangling and delay, an independent review of the $3.3 billion fund has confirmed what many suspected: accounting problems.

The review, which focused on the fund’s real estate holdings in 2013, estimates that it overvalued some properties by tens of millions of dollars.

The new appraisals and the city’s push for an audit came after The Dallas Morning News flagged problems with the fund’s accounting. The News reported in early 2013 that the fund valued many of its real estate ventures by what it had invested, rather than by appraisals or other methods. This was contrary to widely accepted standards.

“This report shows we need better governance and more transparency into our pension fund so we can address issues as they come up — not years after the damage has been done,” said Mayor Pro Tem Tennell Atkins, reading from a statement at a news conference he called Tuesday.

The specific findings:

[The review] found that $772 million in assets were at risk of being overvalued “because the valuation approaches or methods … appear to have been improperly applied and/or inconsistent with commonly accepted valuation practice.”

From this pool, Deloitte selected nine large assets that the fund had valued collectively at $585 million. The firm estimated the actual value of these assets instead to be between $507 million and $559 million.

Overvaluing assets on a fund’s books can create a falsely optimistic picture of its overall health, leaving police, firefighters and taxpayers on the hook for the future.

Fund officials, in a statement released Tuesday by their public relations firm, called the overvaluation flagged by Deloitte “financially immaterial when measured against DPFP’s entire investment portfolio.”

The Dallas fund allocated nearly 50 percent of its assets towards real estate investments as of 2012.


Photo by  thinkpanama via Flickr CC License

Dallas Fund Loses Nearly $200 Million On Real Estate Ventures

windmill in field

The Dallas Police and Fire Pension System knew that its real estate losses were bad, but they didn’t learn the exact figures until a Thursday board meeting.

Trustees of the $3.3 billion pension fund learned Thursday that it has lost $196 million on real estate investments made in 2005 and later. Those losses were a big reason why the fund’s overall portfolio in 2013 returned just 4.4 percent.

More on the losses, from Dallas News:

The $196 million in losses came from three real estate plays:

– A set of ventures that included tracts of land in Arizona and Idaho ($90 million loss).

– Luxury resort properties in the wine country of Napa County, Calif. ($46 million loss).

– Ultra-luxury homes in Hawaii and elsewhere ($60 million loss).


The losses were reported during a presentation by fund staffers and a fund consultant, William Criswell. The presentation did not specify the losses, but The Dallas Morning News tallied them from numbers that were provided and confirmed them afterward with fund officials. Board members, looking grim, commented little but quizzed the presenters on various details.

Of the losses, $96 million was recognized on the fund’s 2013 books, which were completed late this summer.

It’s interesting to note that the pension fund didn’t outsource the handling of these investments, as is common practice for pension funds, particularly smaller funds. From Dallas News:

[Fund administrator Richard] Tettamant led the fund into these deals with little oversight from outside investment advisers. Instead, he and his staff handled many of them personally. He met developers, who introduced him to other developers.


The ventures prompted the fund’s staffers and board members to travel extensively over the years, trips they said were necessary to scope out and protect the investments. They traveled to the Napa area more than any other out-of-state destination — making 45 trips there from 2009 to 2012.

Dallas attempted to audit the pension fund in 2013, but the fund refused to turn over key documents relating to real estate and private equity investments. For that reason, it wasn’t clear until recently the extent of the losses the fund had sustained.