Real Estate Investment Firm Sues Dallas Police and Fire Pension System

One of former Dallas Police and Fire Pension Fund director Richard Tettamant's investments, Museum Tower.
One of former Dallas Police and Fire Pension Fund director Richard Tettamant's investments, Museum Tower.

If the status of the Dallas Police and Fire System weren't so dire, it might be amusing. The retirement plan, facing an unfunded liability somewhere north of $1 billion, faces a lawsuit filed by a group of real estate advisers that was helping the fund pick properties as it dug the hole it's now in.

In a suit filed Wednesday in Dallas County district court, CDK Realty Advisors accuses the fund of stiffing the advisory group out of about $140,000 in fees. The cash reflects the amount the pension fund owed CDK as of September 30 of last year, when CDK pulled out of the fund after it ended CDK's management of much of the fund's portfolio.

Back in 2012, as reported by the Observer's Anna Merlan, CDK was responsible for about $500 million, or 70 percent, of the pension fund's real estate assets. The seven-person firm shared, and co-owned, an office with the fund it's now suing.

In the time since, much of the the pension fund's real estate portfolio, largely amassed under former director Richard Tettamant, has been discovered to be grossly overvalued. The fund, new director Kelly Gottschalk said in December 2015, owns a lot of vacant land in areas with "lots of vacant land" — properties that the fund is stuck with, for now, as long as it doesn't want to sell at a huge loss. It also built downtown's Museum Tower, the now notorious downtown Dallas albatross that reflects harsh sunlight onto the Nasher Sculpture Center.

In its suit, CDK says it's not responsible for Tettamant's mess and should still get paid.

Beginning in 2011 and 2012 and continuing to date, the System has been in some turmoil, relating to public disputes between the System and the Nasher Sculpture Center with respect to a System asset currently known as the Museum Tower in downtown Dallas. CDK was not involved with design or construction of that building, was not involved in management of the building, and was not responsible for anything having to do with the System’s problems, disputes or losses from that asset.

Similarly, the System has suffered significant losses and received adverse publicity relating to certain other real estate investments on projects that were not managed by CDK, including projects in Napa Valley, California, luxury homes in Hawaii, Utah, Arizona and other locations, land transactions in or near Tucson, Arizona, and other locations, and other real estate investments. Upon information and belief, those investments and projects were managed by others and the System, or were self-managed by the System without outside experienced advisors or managers, but they were not within the scope of the IMA [individually managed account] or managed by CDK. CDK was not involved with those projects and assets, was not involved in their acquisition or management, and was not involved in or responsible for anything that caused the significant losses suffered by the System on those projects or assets. Upon information and belief, as a result of the System’s significant losses on those projects and assets, in June 2014, the longtime Executive Director of the System resigned and there have been numerous changes in staff of the System and in the System’s investment strategy and relationships with and use of outside advisors. 

After the pension fund moved to remove many of its properties from CDK management, the fund severed its relationship with the pension fund. When it did so, according to the suit, the pension fund paid only half the remaining expenses left on its contract with CDK. Despite numerous promises to pay, CDK says, the pension fund has failed to do so. When asked for comment, Steven A. Schneider, the lawyer representing CDK in the suit, sent us the following statement: 

CDK’s lawsuit was filed to resolve the payment of contractually obligated fees owed by the Pension System for asset management services in 2015. CDK had been in discussions with the Pension System over this matter and we hope that those discussions will continue.

As one of the Pension System’s real estate management firms, CDK managed specific real estate investments under the direction of the Pension System’s board and management. Other real estate investments by the Pension System were managed by the System directly or by other managers, not CDK.

It is important to note that the CDK-managed assets did not include those investments that are the subject of media coverage. ... Those investments and projects were managed by the Pension System or other investment managers without CDK’s involvement.

No one representing the fund was willing to comment on the lawsuit.


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