The PRISA and PRISA II realty portfolios stand to lose more than a fourth of their combined $2.87 billion in assets, a lawsuit reveals.
The $39 billion pension fund for American Telephone & Telegraph Co., Berkeley Heights, N.J., notified Prudential Real Estate Investors in the first quarter of this year it would withdraw its $250 million investment in PRISA, the suit says.
And, in the second quarter, consultant Frank Russell Co., Tacoma, Wash., advised clients representing $500 million in PRISA and PRISA II to issue redemption requests to the insurer, according to the suit.
The suit was filed against The Prudential Insurance Co. of America, Newark, N.J., by New York real estate appraiser Paula Konikoff. She alleges the dissemination of a report that detailed instances of pressure exerted by Prudential Real Estate Investors' staff on the internal and external appraisals of properties in the two portfolios contained "unsubstantiated accusations about her professional independence and integrity."
"Plaintiff is now perceived in the real estate investment community as lacking objectivity in the performance of her duties," the suit states. Ms. Konikoff is seeking $10 million in monetary and punitive damages.
In response to the suit, a Prudential spokesman said: "We know of no basis for her to bring any legitimate claim against the Prudential."
Ms. Konikoff's revelation about Frank Russell Co. in the lawsuit was made in an attempt to portray Prudential as not fulfilling promises it made to investors after the insurer admitted in May that properties were overvalued.
It is alleged in the suit that Russell made the recommendation because of a "general feeling of a lack of integrity."
A Frank Russell spokesman said he could not confirm that a letter was sent to clients recommending they redeem shares in PRISA and PRISA II, for reasons of client confidentiality.
The Prudential spokesman, however, acknowledged the consultant did advise its clients to place redemption request for investments in the two funds at the end of the second quarter, but after Prudential staff communicated with the clients, some decided to stay invested in the portfolios.
The spokesman declined to discuss whether AT&T was staying in PRISA. Telephone calls to Joseph Russo, vice president with AT&T Investment Management Corp., were not returned.
At a recent forum on pension fund investment in real estate, Mr. Russo acknowledged the AT&T pension fund is a seller of its commingled fund investments, although he didn't mention any specific investments. Commingled fund investments make up 30% of AT&T's $4.5 billion of real estate investments, Mr. Russo said.
The AT&T pension fund is a member of the Institutional Real Estate Clearinghouse, a planned exchange that aims to facilitate the trading of commingled fund shares.
In her suit, Ms. Konikoff alleges the Sonnenschein Investigation and Report - which Prudential undertook in response to allegations by former Managing Director Mark Jorgensen that some properties in the portfolios were overvalued - was to be confidential.
The report, she alleges, contained an "uncorroborated recollection" of a conversation Ms. Konikoff had with a Prudential employee about 130 John St., an office building in the PRISA II portfolio Ms. Konikoff appraised.
John Garth, the Prudential employee, told investigators from the New York law firm Sonnenschein Nath & Rosenthal that Ms. Konikoff called him during her appraisal work. According to Mr. Garth, Ms. Konikoff told him that this was a new assignment she did not want to lose, but 'they' (portfolio management) had a number in mind she did not agree with and was having trouble reaching.
Ms. Konikoff denied to the Sonnenschein investigators she made the comment.
"Apparently based upon that one disputed statement, the Sonnenschein report stated that plaintiff might have been 'compromised or coerced by Prudential into reporting biased or false property values," the lawsuit states.
A reporter's copy of the Sonnenschein report draws no such conclusion.
"Prudential made no effort to eliminate from the Sonnenschein report any unsubstantiated comments made by witnesses," Ms. Konikoff's suit alleges.
Ms. Konikoff points out in her suit that as part of its investigation into Mr. Jorgensen's allegations, Prudential hired Kenneth Leventhal & Co. to review the appraisals. Leventhal concluded Ms. Konikoff's appraisal was reasonable.