The retirement plan “has seen some decline in value this past quarter,” says Charles Spiller, head of private equity and real estate investments at the Pennsylvania teachers’ fund. But he refuses to comment on Broadway. Last September he valued positions in 58 private real estate investment funds at a total $3.6 billion. What’s this pot of money worth now? That’s a secret for a few more months, and Spiller isn’t releasing any of the communications he’s had from the fund operators about their recent results.

The Other Real Estate Disaster
Stephane Fitch 06.26.08, 6:00 PM ET
Forbes Magazine dated July 21, 2008

Your state’s employee pension fund is probably (a) doing badly with recent real estate pools and (b) working very hard with the private equity operators of these pools to keep you in the dark. By Stephane Fitch
Scott Lawlor and the managers at Pennsylvania Public Schools’ $63 billion pension fund had a beautiful relationship. From an office on New York’s Park Avenue Lawlor and his firm, Broadway Partners, ran real estate “opportunity funds,” fat with capital from the teachers’ pension and other institutions. He had invested the funds in a $10 billion pool of glamorous office properties like Boston’s John Hancock Tower. Lawlor delivered profits–or so the Pennsylvania fund managers reported–of up to 40% a year. The state fund managers kept capital flowing, both to his funds and to his pocket, in the form of fees.

Everything was private. No Wall Street analysts, no regulators, no outsiders and no interference. No ordinary Pennsylvania pensioner got to see Lawlor’s quarterly financial reports. The managers in their pension plan’s Harrisburg headquarters had all signed nondisclosure agreements with Lawlor.

The picture turned grim by March. Lawlor was struggling to keep his buildings, purchased with as much as 90% debt, from falling into the hands of lenders. He owed $1.2 billion of short-term “mezzanine” debt to New York investment bank Lehman Brothers (nyse: LEH – news – people ) and other lenders. (The debt has since been extended.) The funds’ previous gains? Mostly, if not entirely, gone. It will be months before Pennsylvania’s 500,000-plus public school employees and retirees know how much of their $196 million in principal in Lawlor’s funds is left.
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http://www.forbes.com/forbes/2008/0721/064.html
more at link
[Mod Note; Edited by Mod for length. To help keep the FDL servers running smoothly and to avoid any copyright issues, please do not post entire articles. Thank you. ]

CAFFERTY: How much attention should investors pay to that, one, interest rates have begun to rise, and there is probably we are off the lows in interest rates, won’t see them again for who knows how long, and two, we’ve been looking at 15 percent, 20 percent escalation in real estate prices, almost across the board in this country for the last several years.

Has the sweet spot already faded into the woodwork here? How should individual investors take a look at those conditions?

FITCH: I’m glad you’re asking that question, because, you know, when you see stocks going up for a long time, and now, jeez, you start to see those vacancies, and interest rates rising, it’s not going to be as easy these next couple of years. But I’m a long-term person. I hope your viewers are as well. And so you kind of dip your toe in, and you spread it around a little bit. A good way to maybe deal with, well, I don’t know which company’s going to come out on top, hire a professional. Get a REIT mutual fund. Let the mutual fund manager sweat the details. He’ll spread you better around in 20, 30 stocks. And get ready for a little bit of volatility in the next year or two.

But long term, you know, this sort of temporary moves in interest rates and stuff, I mean over the next 20 years, people are going to forget there were interest rises this year

.

http://74.125.95.104/search?q=…..#038;gl=us

STEPHAN FITCH, “FORBES” MAGAZINE: Hi there. How are you?

LISOVITCZ: I’m fine, thanks. And you think REIT’s are fine as well. But…

FITCH: Well, yes, it’s been an interesting year, because they’ve performed so well. and I’m never a fan of buying, you know, stocks that are rising but there’s still value here.

LISOVITCZ: Do you separate them from commercial versus residential REIT’s? For instance, there’s plenty of vacancies, as we are well aware in Silicon Valley, Silicon Alley here in New York City. FITCH: Absolutely. And that’s important. I definitely separate them. You’ve got office REIT’s, and shopping mall REIT’s, and strip center REIT’s, and then there are apartment REIT’s, and apartment REIT’s are the more residential REIT’s obviously, and they are probably not doing as well as everybody else because the housing market has been so hot, that in a lot of ways, you know, the customers for apartments are buying homes instead. So it’s — that sector is a little out of favor. Maybe those stocks are a better deal now, if you’re looking at the future.

http://74.125.95.104/search?q=…..#038;gl=us

I think the Bear Stearns thing was necessary. And it worked. It just didn’t stem the tide because of the underlying massive amount of unsustainable debt in the real estate market, both residential and commercial.

Part of the problem is in the laws that were changed, laws that weren’t inforced and the new laws that were implemented.

And somethings are just so simple. The government taxed our income and then began taxing interest on our savings and then found ways for them to get their hands on our money by making up retirement and college saving accounts accounts so that we could “rescue” our money from being taxed again.