Tuesday, April 24, 2012

Dallas, We Have a Problem

There's a great piece up in a Dallas city magazine about the new high-rise and how it--well, boils--the garden next door.  And just generally seems to be mucking up what passes in Dallas for (if you can get your mind around it) a chichi neighborhood.  The topic might seem to offer limited appeal to out-of-towners, but there's lot here to entertain anyone who ever banged their head against the schemes and follies of local governments anywhere.  Here's the fun part:
An announced 2007 groundbreaking had to be quietly canceled when the country plunged into the Great Recession and traditional construction loans dried up—especially for a condo project in an area (downtown, Uptown, Victory Park) that had already spawned nearly 1,800 condo units in the previous decade. But then, seemingly out of nowhere, a savior came to the rescue. The Dallas Police and Fire Pension System, which had earlier made a small investment in the Museum Tower project, announced that it would jump in with both feet and finance the entire thing, all $200 million of it.

The police and fire fund is a $3.24 billion juggernaut that makes all manner of investments all over the world. It has approximately 9,000 participants, meaning cops and firefighters, 3,500 of whom are retired and drawing benefits. The fund’s 12-member board includes four city councilmen, but otherwise the fund’s managers operate independently of the city of Dallas, which every year contributes to the fund 27.5 percent of every cop and firefighter’s salary. In 2010, that amounted to $108 million in taxpayer funds. ...

The police and fire fund’s investment in Museum Tower raised eyebrows across the country, and in June 2010, the Wall Street Journal ran a lengthy story about it. Jim Neil, a real estate investment banker with Churchill Capital Company, worked on behalf of the police and fire fund to find a bank brave enough to make the loan. Asked to describe that loan, Neil says: “It was a very unusual deal at a very unusual time.”

No one is in a better position than Richard Tettamant to explain how the deal got done. He has worked at the Dallas Police and Fire Pension System for 30 years, rising to administrator, the fund’s top executive. Tettamant is a large, affable man with a mustache that’s going gray. When I ask about the $200 million investment, he wants to know where I got the dollar figure. I tell him I saw it in the paper.

“They don’t have a clue,” he says, leaning back in his chair at a large conference table in the police and fire fund’s modern office. “Okay, the total construction budget for the tower is about $200 million, but we haven’t invested $200 million. The Morning News has had it wrong every time they’ve reported it.”

When I ask how much the fund does have invested, he says $100,000. I repeat the figure to make sure I heard it correctly.

“That’s all we have spent,” he says slowly, deliberately. “The bank that we borrowed the money from is financing the tower.”

For a second, I become disoriented and feel like I’m in a scene from Nineteen Eighty-Four. Tettamant is duckspeaking doubleplusgood about how the fund borrowed money and yet still got the bank to pay for the building. So I ask him: who is on the hook if the project fails?

“Oh, the Dallas Police and Fire Pension System,” he says.
 Kudos to the reporter for asking the right question (who is on the hook if the project fails?), and a special gasp of wonderment for the pension fund minder who was thoughtless enough to answer it.  Note the numbers: $3.24 billion and 12,500 participants.  That pencils out to a bit under $260,000 per worker.  It's a bogus computation because most of those participants aren't retired yet and I haven't any idea how many more years they may have to work and save.  But in an arena where a private-market annuity might easily cost a couple of million, $260,000 doesn't sound like a lot.  I asked my friend Ignoto how Dallas compares with CalPers, the California Public Employee fund. "Our plan has 1.6 million current and retired employees (100 times as many) and $238B of assets (75 times as much)," Ignoto said, "so that sounds like a decent ratio." Um, really? But I don't suppose I understand this business very well.

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