The Dallas Police and Fire Pension's Big Real Estate Gamble

Museum Tower isn't the only troubled real-estate deal that the pension fund has gone all in on. But so far, only its investment advisers are winning big.

That includes investments in private equity, like the $130 million the fund poured into a company called Huff Energy, which backs oil and gas companies, and $66 million with Pharos Partners, which helped fund the website WebMD. These investments now make up 17 percent of the fund's portfolio, more than twice the national average for public pensions.

But the fund's been especially busy snapping up real estate, which by 2007 made up a full third of its portfolio. That has since dropped to 24 percent, and trustees recently voted to reduce that number to 15 percent. But for now, real-estate holdings still outweigh any other category of investments for the pension fund. And they still include Painted Hills.

Pima County officials had just begun negotiating with the landowner again when the pension fund showed up. It was partnering with a developer, Las Vegas-based Land Baron, that wanted to build 300 luxury homes on the land residents wanted so badly to preserve. And the fund offered a price the landowner apparently couldn't refuse: $27 million, almost seven times its appraised value.

The Police and Fire Pension Fund sunk $200 million into Museum Tower, only to become the museum world's archenemy.
Brandon Thibodeaux
The Police and Fire Pension Fund sunk $200 million into Museum Tower, only to become the museum world's archenemy.
Councilwoman Ann Margolin: "They were expecting they were going to sell the units at $700 a square foot. Their prime competition was the Ritz Carlton, which wasn't even selling at that."
Dylan Hollingsworth
Councilwoman Ann Margolin: "They were expecting they were going to sell the units at $700 a square foot. Their prime competition was the Ritz Carlton, which wasn't even selling at that."

The roadblocks didn't take long to emerge.

Environmentalists, led by the Tucson Mountains Association, were outraged by Land Baron's proposal. And while the developer eventually agreed to build fewer homes, there were still "residual issues," says Edwin Verburg, vice president of the Tucson Mountains Association.

"Some of the buildings obstruct wildlife corridors," he says. "Some of them are too close to ridges, 150 feet from a ridge or so when 300 feet is the rule."

More pressing was the lack of water. Land Baron needed the city of Tucson to annex land from the county and provide it with water service. But the Tucson city council, wary of urban sprawl and environmental impact, voted them down.

So off the pension fund went to court. Along with Land Baron, it sued the city for $45 million in damages. The case was dismissed in Superior Court, then rejected by the Arizona Court of Appeals. So the developers tried approaching a friendly member of the Arizona Legislature, asking him to write a measure that would force the city to extend water service. That bill failed, though it has some chance of being revived next session.

After years of legal wrangling, the city and the developers have recently discussed doing a land swap, with the pension fund trading its prized parcel for something nearer downtown — something with water. Fund officials won't comment on the swap, nor will they say how much they've spent in legal fees on Painted Hills or other projects. They pay about $600,000 a year total to their outside firm, Strasburger Price, internal documents show.

Meanwhile, Painted Hills sits empty.

"I believe they didn't do full due diligence on this plan," Verburg says.

It was around the same time that the fund set its sights on another enticing parcel, this time in California's wine country. Working with a California developer named Bill Criswell, the fund spent more than $35 million on 2,650 acres of land for a development it dubbed Lake Luciana, which it envisioned as a championship golf course and 17 luxury homes in rural Napa Valley. The deal also included Aetna Springs, an older golf course and social club about 10 minutes away that the fund planned to redo.

But while Aetna Springs went ahead as planned, the Napa County Planning Commission turned down the plan proposed for Lake Luciana by Criswell's firm, Criswell Radovan. The land, it turned out, was located in an agricultural preserve whose use was tightly regulated. The developers appealed to the Napa County Board of Supervisors, who also voted against it.

The problem, once again, was water. "They were going to use up 100 million gallons of water a year with the golf course," Supervisor Brad Wagenknecht says. "It's a dry area of our county and you're going to use 100 million gallons of water? What's the agriculture going to do?"

Criswell's firm sued Napa County in both state and federal court, alleging that the permitting process was biased and unfair, and that Aetna Springs couldn't be as successful without Lake Luciana.

"It struck me as odd they wanted to build another golf course less than a mile away," Wagenknecht says. "To me, this was the property that was begging for the loving care that they were going to put into Lake Luciana."

After three years in court, both suits were dismissed last month. The hundreds of acres the developers planned for Lake Luciana are still undeveloped, and still owned by the pension fund.

The Napa project isn't exactly something for Bill Criswell to bold on his résumé. But its struggles didn't seem to bother the pension fund. After buying a $32-million stake in the Museum Tower project in 2007, that project stalled too, sitting idle for more than three years. But instead of folding its hand and licking its $30-million wound, the pension fund went all in, announcing in 2010 that it would finance the entire project. And it named Criswell the lead developer on the project.

Before the fund bought Museum Tower, the project had to be approved by its board of trustees. The fund is overseen by a 12-member board: eight current and retired police and firefighters, who are elected by the membership, and four city council members, appointed by the rest of the council.

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Yes We are lucky that they are back in the "private sector" where as the pension stuck in bad decision.. 


Ms. Merlan missed a wonderful opportunity to show how this plan could bridge disparate groups and find common ground, in that both NWA and the GOP would love what is going on here.

primi_timpano topcommenter

The City's contribution rate seems extremely high.  I think if you look at other public and private defined benefit plans you will find the Dallas percentage of contributions relative to salaries to be about twice the norm.


Wylie H has quite accurately mentioned the high fees for stocks and quoted 0.25% for index funds.  Actually, Vanguard even offers the riff raff of the investment world (me and you) funds with fees below 0.10%.


Last, the concentration of alternative assets in a handful of managers is just plain stupid.  So stupid one wonders whether there is a lot of pay to play going on.


It would be interesting to see what the ratings agencies have to say about these liabilities.


Remember the late former city mgr. John Ware had all the employee pension funds deep in the red probably 10 years ago.  He then was aligned with Tom Hicks.  I wonder if Hicks is still collecting commissions from the poor police and fire pension funds?  Follow the money trail, $34 million pays a lot of people.  The police and fire should hire their own actuary and CPA firms and get a real accounting of this mess or they will be like Stockton, CA, San Bernadino, CA and Scranton, PA.  Sorry you don't have a pension anymore, we tried!


Anna, Thanks for an outstanding article. At best, the Trustees seem to be breaching their fiduciary duties to the Fund's beneficiaries; at worst, one or more crimes may have been committed. I really hope you continue to dig deeper into the Fund's operations-- my sense is that you have just revealed the tip of the iceberg. A "deeper dive" may well end up yielding some far more fascinating and disturbing information. One thing is certain-- the Fund's condition will become much worse over the next five years; mark my words.

holmantx topcommenter

Just so long as the Dallas taxpayer does not have to underwrite (insure) the pensions out of tax revenues should the Fund not be able to meet its obligations.  In other words, if the fund managers so mismanage the Fund to where it becomes insolvent (under-funded), the citizen must be held harmless.  Paying for pensions cannot come out of current tax revenues.  We've already paid in 27% of salaries.  That has to be the cap on our exposure.  


Or as Groucho Marx is want to say,


"I refuse to pay for a retirement system that will not have me as a member."


The retirees can only look to the remaining assets held by the Fund for their retirement.

mavdog topcommenter

the realtionship with CDK is way too close. the amount of fees being paid to the fund's advisor's is way too high, especially when looking at the fund's performance


Either the board is either not paying attention or they are failing in their fiduciary duty to the pensioners.


As for the decision to put the money in Museum Tower, it's flat wrong. no pension fund should take that much risk by going solo on an investment of that size.


In 2010, the $3 billion pension fund borrowed $160 million — the equivalent of more than 5 percent of the fund's entire portfolio — to purchase and revive the stalled development. "This is an investment in Dallas by the people that protect and serve this community," Richard Tettamant, the pension fund's administrator, said at the time.

Somehow this does not strike me as a prudent investment.    It strikes me as a city that is so hell bent on doing what ever it takes to create a so called arts district regardless of if it is needed, wanted or sustainable that it would risk the retirement funds of the police and fire fighters.


Again it is yet another example of how short the attention span is of our elected officials (and their staffs et. al. that never seem to change despite elections) and their inability to connect the dots to see the bigger picture.


Well not to worry the tax payers are there to bail this mess out when the whole mess goes belly up.  


tell nasher's people to move his gallery! the high rise is gorgeous and created jobs for dallas,

commissions for realtors, tax money for dallas county, utility bills for power companies.

sales of home furnishings, security jobs and maintenance jobs.

grocery, restaurant, parking and so many other revenues to so many different vendors.

what does the nasher bring?

Did not think so. Move it to fair park. That are is bereft of culture! Or move it frisco.



 @MisterMean As you may recall, Leppert was an enthusiastic backer of Museum Tower...his closest ally on City Council, Dave Neumann, cast a vote in favor of this project while sitting on the Pension Fund board.




A high-quality sculpture garden in Frisco... funny.  How long would it take before they turned it into a paintball field?


 @jameshairston maybe you should move to frisco and the the glass monstrosity with you...

mavdog topcommenter


 cocktail hour must have started a little early and bit heavy...


 @WylieH We are lucky that they are back in the "private sector" where they belong.  Regretfully we (and the pension) are stuck with the bad decision.