The Real Deal New York

Should NYC’s pension funds profit from their real estate?

The city’s pensions invest in property through funds rather than own it directly
June 07, 2018 11:00AM

55 Water Street, 15 Union Square West and 787 Seventh Avenue (Credit: Wikipedia and CommonWealth Partners)

One way pension funds from other countries and states make their profits is by purchasing Manhattan real estate, but the pension funds actually based in the city have not taken up this strategy.

All five of the city’s pension funds are tenants rather than owners of the places where they do business, according to the New York Times. The pension fund of city teachers, for instance, is a tenant at 55 Water Street, where it pays rent to the building’s owner, the Retirement Systems of Alabama.

Additionally, the State Teachers Retirement System of Ohio owns the retail portion of 15 Union Square West, and the CalPERS owns 787 Seventh Avenue.

The city’s five pension funds are worth about $190 billion, but rather than own property directly, they make investments through funds that hold property portfolios. The city thus pays a management fee — rumored to be about 1 or 1.5 percent — and a portion of the profits on those investments, rumored to be about 20 percent.

And these managers did not even hit their targets, underperforming their benchmarks by $2.5 billion, according to Comptroller Scott Stringer.

New York state is not following the city’s lead on this. In 2003, the state teachers fund spent $438 million to acquire a 49 percent interest in 245 Park Avenue. Last year, they sold it for a hefty profit at $2.2 billion. [NYT]  – Eddie Small