Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. ASSET OWNERS
September 16, 2013 01:00 AM

Errors, wrong impressions found in story

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The Sept. 2 Pension & Investments article on page 2 relating to the Arizona Public Safety Personnel Retirement System's real estate values contained a number of errors and created some misimpressions which we wish to correct.

    First, the Sept. 2 story stated that PSPRS “boosted its investment returns twice in two years by disregarding market-value real estate appraisals it commissioned and, instead, us(ed) higher hypothetical valuations from the firm managing the portfolio.”

    This is not correct.

    In 2011, PSPRS retained an independent appraiser, CBRE, to value a portion of its real estate portfolio managed by Desert Troon Cos. When Desert Troon complained that the independent appraiser's value was too low, PSPRS advised it would retain Ernst & Young to value the portfolio unless CBRE and DTC could agree on a proper valuation. CBRE and Desert Troon then agreed that the portfolio should be valued using an “investment” methodology (which the article called the “hypothetical value”). Both the Financial Accounting Standards Board and the Governmental Accounting Standards Board authorize real estate assets to be valued using “investment methodologies,” which value properties based upon their expected returns rather than current liquidation values.

    After CBRE and Desert Troon agreed on the use of an “investment” methodology, PSPRS took the extraordinary step of having the CBRE/Desert Troon valuation re-examined by EY to ensure that the assumptions underlying the valuation were reasonable and based upon market data. Ernst & Young confirmed that this was the case and as a result, PSPRS reported the CBRE/Desert Troon valuation for fiscal year 2012. Thus, while it is true that the valuation reported was an “investment-based” instead of a “market-based” valuation, it was the result of an independent appraisal process. To suggest otherwise is incorrect.

    During fiscal year 2013, PSPRS went even further in its efforts to assure that the investment-based values it reports are accurate. Both Ernst & Young and PSPRS' independent real estate consultant, ORG Portfolio Management, were asked to confirm that the investment-based valuation was reasonable and supported by market data, and they both agreed that it is appropriate for the PSPRS to use the investment-based valuation in its financial statements. The PSPRS independent auditor also approved such reporting. Given all this, the PSPRS certainly did not “disregard” independent appraisals it commissioned; instead, it relied upon those independent appraisals (those generated by CBRE, Ernst & Young and ORG) to arrive at the valuations reported.

    Second, your story cites unnamed real estate officials at other pension plans as criticizing the PSPRS for “hiring an appraiser and then rejecting its recommendations.” As noted above, that's not what PSPRS did. It hired CBRE to value the portfolio, relied upon CBRE and Desert Troon's joint valuation, and even took the extraordinary precaution of asking Ernst & Young and ORG to confirm that recommendation, which they did. That's hardly akin to “hiring an appraiser and then rejecting its recommendations.”

    Third, your story says unnamed real estate investment officials at other pension plans “say it's unusual to allow the manager to set its own non-market based valuations.” We would point out that virtually all real estate managers of the PSPRS' real estate portfolios (many of whom are household names) value portfolio assets using investment-based, not market based methodologies, and ORG has confirmed that this is the case throughout the industry.

    Fourth, the story that the “pension fund represented that Desert Troon's portfolio was on its books at market value, not the hypothetical value that was being used.” This is not true. Your story acknowledges that PSPRS annual reports explicitly state that “joint venture real estate investments are reported at fair value using either appraisals or manager assessments to estimate fair value.” As we made clear to your reporter, “fair value” can be determined using either a market-based methodology or an investment-based methodology, and most real estate managers employ the latter to value non-core real estate assets such as those managed by Desert Troon. The PSPRS annual report noted that its joint venture real estate investments are reported “at fair value using either appraisals or manager assessment to determine fair value.” The values reported by PSPRS for the portfolio in 2012 and 2013 are clearly manager assessments of fair value. Therefore, PSPRS did not misrepresent how the portfolio was valued in its annual reports, and to the extent the Sept. 2 story's suggestion otherwise is incorrect.

    Finally, the theme of the article seemed to be that PSPRS reported an investment-based value of the portfolio instead of a market-based value to illegitimately increase the PSPRS' returns. But if the point of an appraisal is to estimate an asset's true value in the marketplace, then it seems that the investment-based valuations have actually proven to be the most accurate, for recent sales of portfolio assets have wildly exceeded even the investment-based values reported.

    As just a few examples, Desert Troon recently sold a subdivision called Sossaman Estates for $10.6 million, despite the fact it was appraised by an independent appraisal firm as worth just $3.4 million at the end of 2011. Similarly, DTC recently sold two subdivisions (Tortosa and Sorrento) for $11.95 million, nearly double the price at which an independent appraiser valued those subdivisions at the end of 2011. There are many more examples of Desert Troon's achieving materially higher sales prices for properties that within a year of such sales were valued far lower by independent appraisers and even by Desert Troon itself. Thus, the actual sales prices being achieved indicate that the investment-based property values PSPRS reported were very conservative and certainly not inflated, as the Sept. 2 article implies.

    JAMES M. HACKING

    Administrator

    Arizona Public Safety Personnel

    Retirement System

    Phoenix

    EDITOR'S NOTE:

    P&I stands by the story.

    Related Articles
    Appraisals become issue in Arizona's real estate investments
    Recommended for You
    ONLINE_190329864_AR_0_YBKZZQSSKIZH.jpg
    IMCO returns 9.6% in 2021, outperforming its benchmark
    SLIDESHOW2_824009999_PH_7_HOEACWCAWVKF.jpg
    Northern Trust plan universe returns 0.2% in Q3
    Northern Trust: Institutional asset owners post 6% gain in Q2
    Northern Trust: Institutional asset owners post 6% gain in Q2
    Alternatives: Investing Across the Spectrum
    Sponsored Content: Alternatives: Investing Across the Spectrum

    Reader Poll

    May 9, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Are Factors a Thing of the Past?
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    Out of the Shadows: The Revolution in Shadow Accounting
    The pivotal role of fixed income markets in the ESG revolution
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    May 9, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference