After experiencing big losses, the Dallas Police & Fire Pension System is exiting its position in luxury real estate investments, including a piece of Arizona land meant for a golf course that never materialized.
The fund’s luxury real estate investments have dragged down its portfolio’s overall returns since 2011.
From Bloomberg:
The Dallas police and firefighters’ retirement plan has soured on luxury real estate.
The $3.4 billion Dallas Police & Fire Pension System is selling houses in Hawaii, a Napa Valley vineyard and a patch of Arizona desert after losing about $200 million on the deals, according to city council members who serve as board members for the fund. The system plans to put the cash into traditional assets such as stocks and bonds.
The sales mark a shift from an approach that by 2011 left more than 60 percent of the system’s money in real estate, private equity and other alternative investments, only to see returns suffer. The fund’s 4.4 percent gain in 2013 compared with the 16.1 percent average advance for U.S. public pensions as stocks rallied, according to research firm Wilshire.
“It’s a terrible indictment of our strategy,” said Councilman Philip Kingston, who sits on the pension’s board. “Losses have been caused by our exposure to luxury real estate.”
More details on two of the investments: a piece of land in Arizona that was to be developed into a golf course, and a downtown Dallas apartment tower. From Bloomberg:
Land it bought for a golf-course development in Pima County, Arizona, couldn’t be developed because the fund hadn’t secured water rights, Kleinman said. The land later sold for $7.5 million, a fraction of the $34 million invested, the Dallas Morning News reported in September.
Tettamant, who was at the fund for more than 20 years, resigned in June after board members questioned how the real estate investments affected returns. He didn’t respond to a phone call to his home seeking comment on his role.
The city, which has four council members on the fund’s 12-member board, has been exercising more control and has asked the fund to list properties based on market value, Kleinman said. That led to audits that reduced values, depressing returns for 2013.
The fund may face other liabilities from an investment in a $200 million apartment tower in downtown Dallas. The nearby Nasher Sculpture Center says light reflected from the building is damaging art work and plants in its garden. The dispute is unresolved and the pension may be stuck with the expense of reducing the glare.
“We were throwing good money after bad,” Kleinman said. “The board is going to take a more critical look at its investments going forward. We have no business investing directly in real estate.”
Dallas Police & Fire Pension System manages $3.4 billion in assets. Its investments returned 4.4 percent in 2013