DETROIT - The $2.2 billion City of Detroit Policemen and Firemen Retirement System is searching for a real estate adviser to take over management of six office and two retail properties and a hotel from MIG Realty Advisors Inc., West Palm Beach, Fla.
The retirement system also is rebalancing its $168 million real estate portfolio and plans to make additional investments in retail, industrial and apartment properties.
The search for a new real estate manager for the nine-property portfolio is the latest step that diminishes MIG's influence with the pension fund. The retirement system's board of trustees in May hired Carter Primo Chesterton, Chicago, to review property deals brought to it by MIG.
The moves are ironic because Detroit Police & Fire owns 15% of MIG. The firm didn't make most of the investments that will be transferred, said Nick Degel, the system's assistant administrative supervisor. He declined to identify the manager that invested on behalf of the system.
In spite of the changes, the retirement system will continue to use MIG as an apartment manager, and will continue its part ownership in the firm, said Mr. Degel.
MIG is being replaced because its management wants to focus exclusively on apartments, said Mr. Degel. The adviser manages total tax-exempt assets of $1.9 billion; 54% of those assets are invested in apartments.
But MIG will continue to manage other property types for other pension clients that want to use its services, said Larry Wright, president of MIG.
Mr. Wright said he initiated the Detroit system's search for a real estate manager for the portfolio.
"They are just following through on the recommendation we made to them," he said. "That's all there is to it."
The Townsend Group, Cleveland, is the retirement system's consultant and is assisting with the search.
The $33 million portfolio consists of properties that are either 100% owned by the retirement system or in which it is a participating mortgage lender. The investments are dispersed among the Southwest, Southeast and Midwest.
According to the request for proposals that went out to managers, one property, a 13-story office building in Ashland, Ky., is described as distressed. The building's sole tenant is not renewing its lease when it expires in January.
Detroit Police & Fire own the building as a result of foreclosure. The pension fund made a non-recourse $6.6 million loan to Ashland Associates in 1986. Ashland, a real estate investment company, used the proceeds of the loan to buy the office building for $8.1 million.
The building is in disrepair and will require $2 million to refurbish, according to Harold Kelley, the building's developer who was appointed by the bankruptcy court to manage the property until foreclosure was completed.
"Whoever was crazy enough to make a loan like that ought to be in a mental institution," Mr. Kelley said earlier this year when he was appointed property manager.
Pittsburgh-based Mellon Financial Services made the investment on Detroit's behalf. The trustees terminated Mellon in 1988 and sued the company in 1990, claiming it had led trustees into a number of bad investments.
Other properties in the portfolio have double-digit vacancies. A Tulsa, Okla., office building is 24% vacant; a Boca Raton, Fla., office building is 15% vacant; the vacancy rate in an Orlando, Fla., office building is 23%; and a Melbourne, Fla., shopping center is 21% vacant.
The retirement system intends to transfer the management of these assets to its new manager this quarter or the next. The manager will be given the opportunity to reinvest, on a non-discretionary basis, the proceeds from properties it concludes should be sold.
Mr. Degel declined to identify managers that responded to the RFP.