October 15, 2016

If You Were Underfunded You’d Want To Roll The Dice

A report from the Tennessean. “Nashville’s public pension system invested city workers’ retirement funds in the nation’s largest share of risky, high-priced investments among its peers. The city has placed 57 percent of its $2.8 billion fund into alternative investments, including real estate. Among its peers, Nashville had the highest share in fiscal year 2015, according a Tennessean analysis of National Association of State Retirement Administrators data for funds with $1 billion to $5 billion in assets. The national average among all public funds, by contrast, is 17 percent.”

“Only the Dallas Police and Fire Pension System had a higher share of alternative investments in fiscal 2014. Today, the Dallas system is staving off insolvency, retirees are concerned they won’t be paid, and fund managers are dumping alternative assets. Dallas managers bet heavily on real estate, in particular. They bought undeveloped land in the Arizona desert and luxury resort housing in Hawaii, said Keith Brainard, the research director for the National Association of State Retirement Administrators, tying up about 35 percent of its portfolio with real estate. Nashville has allocated about 8 percent to real estate.”

“In Dallas, managers overstated the value of the properties, and, once the actual value was revealed, the pension was precariously underfunded. Alternative investments aren’t typically traded on open markets like stocks and bonds, with values that can be easily tracked. One of the reasons public officials might chose alternative investments is because a pension system is underfunded. But Nashville is 92 percent funded, higher than the vast majority of the nation’s pension systems. ‘You think that if you were underfunded you’d want to roll the dice,’ said Charles Jeszeck, director of education, workforce and income security issues from the U.S. Government Accountability Office.”

From Finance & Commerce in Minnesota. “The stock of affordable apartments in the Twin Cities region is shrinking as investors turn around older properties and hike rents, according to a new Minnesota Housing Partnership report. Apartment sales in the seven-county metro increased 165 percent between 2010 and 2015, according to the report. Many units – often in Class B or Class C buildings – are being refurbished, rebranded and leased for more than the average renter can afford. The average purchase price per unit in those sales increased 56 percent from $56,088 in 2010 to nearly $88,000 per unit in 2015.”

“The Twin Cities area has seen a sharp increase in residential construction in recent years. The Metropolitan Council in 2014 tallied more than 11,000 units built that year, but just 759 of those or 7 percent were affordable. The trend also comes as more people making more than $50,000 annually are opting to rent and they’re looking for amenity-rich units. Even so, the average metro area renter makes a little more than $36,000 a year, according to a recent report by the National Low Income Housing Coalition.”

The Chicago Tribune in Illinois. “Rents in the Chicago Loop have begun to fall, suggesting relief may be at hand as a record number of new apartments continue to come on the market. Meanwhile, a building spree of luxury apartment high-rises continues. This year and in 2017 a record number of new apartment units will enter the Chicago downtown market, according to Ron DeVries of Appraisal Research Counselors.”

“‘We’re in the stage where you might see some softening,’ said DeVries. This year there will be 4,000 new apartments downtown, and next year a record 5,000, he said. Already apartment managers are offering concessions, sometimes waiving move-in fees or offering a month or two of free rent, he said.”

The Columbus Dispatch in Ohio. “In a rare sign that the Columbus rental market may be cooling, a study released today showed rent for a one-bedroom Columbus apartment dropping this fall. The report suggests for the first time that the rocketing Columbus apartment market may be returning to earth. ABODO spokesman Sam Radbil said the construction of new apartments over the past few years in Columbus is finally starting to soften rent increases. ‘We anticipate that the rent price boom might begin to slow in large cities like Columbus, because of the large increase in multifamily construction,’ he said.”

From Bloomberg on New York. “Manhattan apartment rents fell last month as landlords’ pricing power was hurt by a wave of new listings and tenants who shopped around for better deals. A surge of construction is adding thousands of new apartments in Manhattan, slowing momentum for landlords, who had pushed up rents as much as 20 percent since the end of the recession in June 2009. Price-weary renters now have the power to push back and search for more attractive leases, and landlords are working harder to offer them.”

“The inventory of available listings at the end of September climbed 35 percent from a year earlier to 7,392, Miller Samuel and Douglas Elliman said. It was the biggest increase for the month since the firms began tracking the measure in 2009. The boroughwide vacancy rate rose to 1.8 percent, the highest for any September since 2009, Citi Habitats said. Concessions were included in 28 percent of new leases the firm brokered last month. ‘Many building owners have to rely on incentives to give tenants the sense of ‘value’ they seek,’ Gary Malin, president of Citi Habitats, said in the report. ‘Savvy owners will do what it takes to move their available inventory as fall progresses.’”

From Silicon Beat in California. “For the second month in a row, rents have fallen in San Jose and San Francisco. Mind you, renting still costs a fortune, but any hint of a downward trend in the Bay Area rental market is news. According to new data from Abodo, the apartment search web site, rents dropped 7 percent between September and October in San Jose — from $2,455 to $2,293 for a one-bedroom apartment. Percentage-wise, that was the fifth largest drop in the nation.”

“During the same period, San Francisco rents fell 6 percent for one-bedroom flats, from $3,698 to $3,483. That decline was the sixth largest among the nation’s markets.”