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

Things have gotten so bad, someone went and made a sticker out of it.

One of the biggest feuds Dallas has seen in years has everything except sex: art, money, power, police and the looming threat of litigation. That's why people have been hanging on every detail of the dispute between the Nasher Sculpture Center, the downtown sculpture museum built by the late developer Ray Nasher, and its neighbor, Museum Tower, a $200-million condo development whose mirrored glass is, according to the Nasher, directing damaging light, blistering heat and awkward, art-muddying shadows into the museum's garden and galleries.

Museum Tower's developers admit nothing of the kind, and the two sides have been in mediation since mid-April. Then, last month, the stickers showed up. They emerged first at Anvil Pub in Deep Ellum: a cowering stone sculpture of a man, engulfed in flames shooting from a teetering building.

"Museum Tower," the text read. "Setting the art world on fire!"

The stickers were quickly, gleefully snapped up by patrons, evidence of how this story has seeped into lives of everyday Dallasites. And as the story has spread, more attention has been focused on the owners of the tower, who previously were barely mentioned at all: the Dallas Police and Fire Pension System, which collects and invests the retirement savings of the city's 9,000 retired and active police officers and fire fighters.

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.

But that bright optimism has given way to arguments over literal brightness and the question of whether the project can survive the PR nightmare of owning a building whose target demo is now its mortal enemy. In the process, some of the tower's light and heat has been turned on the fund's overall investment strategy, which is heavily focused on "alternative investments" — higher-risk plays that include private equity, natural resources and real estate.

Museum Tower, it turns out, is just one of a few shaky real estate projects the fund has invested in over the past decade, throughout which the fund has increased by millions of dollars the amount it pays in fees to advisers. It's done all of this while entrusting a whopping 70 percent of its real-estate investments to just one company, with whom the fund happens to share an office building. Meanwhile, the fund recently slashed benefits for new hires to levels unseen since the 1970s.

There will be no sticker for any of that. The dispute over Museum Tower will eventually be resolved, the sexiness of the argument dissolved into some kind of pedestrian solution — new glass, maybe, or a "skin" on the outside of the tower to cut the glare. But the police and firefighters of Dallas will still have a large chunk of their nest eggs wrapped up in property that no one else wanted, a project that's now surrounded with doubts about its future. And that project will still be one of many.

At the foot of Arizona's Tucson Mountains, 10 minutes or so from the heart of downtown Tucson, there's a hilly, steep 300 acres, densely studded with saguaros, some of them more than 150 years old. It's one of the largest remaining stretches of saguaros for miles, and it's teeming with animal life, too: mule deer, javelinas, screech owls, rattlesnakes.

The people who live nearby have long wanted to keep it that way. Pima County residents voted in 1997 and again in 2004 to have the county buy the privately owned parcel, hoping to make it part of a nearby nature preserve. But the county never found the money, and the land's owner didn't want to sell — at least not for the land's appraised value, around $4 million.

Then, in 2005, the cops and firefighters from Dallas showed up. And they came wielding a checkbook.

At the time, the Dallas Police and Fire Pension System worked like most other public-employee pension funds, and in most ways it still does. Every active-duty cop and firefighter contributes 8.5 percent of each paycheck. That money is supplemented by City Hall, which kicks in an amount equal to 27 percent of police and fire payrolls — around $108 million last year. The average retiree collects $39,000 from the fund every year.

Until relatively recently, the fund invested those contributions the way pensions traditionally have: in stocks and bonds. Almost 80 percent of its portfolio was in stocks and bonds in 2000. But around the time the pension fund showed up in Tucson, and accelerating around 2007 and 2008 as the worst of the recession hit, fund officials began leaning heavily on those "alternative investments."

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Anna Merlan
Contact: Anna Merlan