The Dallas Police and Fire Pension System owns six ultra-luxury houses in Hawaii, reports the Dallas News.
It has been on the market for five years while the pension fund has paid its taxes and other expenses. No one has been willing to pay the asking price, which was $22 million in 2008.
The pension fund also owns a resort, vineyard and dozens of estate-sized lots in Napa County, Calif., another investment that’s been mired in financial trouble.
Then there’s Museum Tower, the fund’s 42-story luxury condominium building in Dallas, which is locked in a high-profile dispute with its neighbor, the Nasher Sculpture Center, over sunlight reflected by the tower’s exterior.
Together, these investments represent a $400 million bet by the fund on luxury residential real estate. It has been financed mostly with borrowed money. This leverage means that if it pays off, it could pay off big. But it could also lose big.
The fund’s total real estate assets surpassed $1.5 billion in the middle of 2012 — an investment equivalent to about half of the fund’s net worth. The fund bought many of these properties to resell after developing or improving them. Rather than earning regular income, such properties cost the fund money until they are sold.
The strategy is unusual. Among large public pension funds, the median real estate allocation is less than 5 percent. And these investments are more typically in properties such as office and apartment buildings, which produce steady rental income.
Meanwhile, some of the $3.2 billion fund’s real estate ventures — including its luxury residential investments — also have drawn scrutiny for another reason: The fund manages them internally. This is not what pension officials initially planned. Rather, it is one unintended result of their headlong dive into real estate during the height of last decade’s housing bubble.
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