STRS FLASHBACK - 3 YEARS AGO TODAY - Hazel's last "junket" and what happened to those video conferences, Laura?

Canton Repository, September 7, 2003

STRS board inspects its real-estate holdings
By PAUL E. KOSTYU Copley Columbus Bureau chief

COLUMBUS — After 17 years on the State Teachers Retirement System board, Hazel Sidaway took one last junket, and it cost the pension fund $1,723.

Less than two months before she retired from Canton City Schools and had to leave the board, Sidaway took a trip to New York City to look at real estate. She wasn’t there to buy, but to visit seven apartment buildings, an office building and some retail space, all owned, at least in part, by the teachers retirement system.

Five other board members accompanied Sidaway on what is an annual spring ritual of visiting the fund’s real estate holdings. This year’s May 4-7 trip cost STRS $8,766. A similar trip to New York City for seven in 2000 cost $10,918; in 2001, eight members went to Atlanta for $5,920; and in 2002 four went to San Francisco and Portand, Ore., at a cost of $6,660.

Sidaway was the only board member to make all four trips.

At its August meeting, the board adopted new guidelines to limit travel. That happened after STRS members complained about excessive spending on meetings and conferences to places like Hawaii and Alaska. But there are exceptions. Real estate tours and travel related to the board’s “due diligence” to oversee the pension fund’s investments are not covered.

Nine percent of the teachers’ pension fund investment portfolio is in real estate. That’s comparable to two other of the state’s five public pension systems: the Ohio Public Employees Retirement System (9 percent) and the School Employees Retirement System (10 percent).

Property holdings shift almost daily, said Damon Asbury, interim executive director of STRS.

Jay Hyde, a spokesman for the National Association of Real Estate Investment Trusts, said institutional investors generally maintain between 5 percent and 15 percent of their portfolios in real estate.

He said large investors, like pension funds, will buy real estate outright and through stocks of companies that manage real estate holdings.

“Direct property investments were ahead of the curve,” he said refering to the downturn in stock portfolios over the past several years. “They benefited from diversifying.”

A Copley Newspapers analysis shows that most of the retirement system’s real estate investments as of July were in California, Texas and Georgia. Of the 17 properties in Georgia, 14 are in Atlanta, including land, industrial sites, apartments, offices and retail space.

The teachers’ fund has 155 properties in 28 states and the District of Columbia. Most of the investments are in retail space, including 12 Kroger stores, nine Wal-Marts and four Kmarts. A number of the retail buildings are occupied by drugstores. The pension fund also solely owns acres of timber in eight states.

Asbury said board members attend a real estate seminar in conjunction with site visits. He said the trips are rotated annually by region among the Northeast, Southeast and Northwest. He didn’t recall one to view Midwest properties.

Hyde said it is not unusual for property investors to want to “keep an eye” on their holdings through visits. But he couldn’t speak to whether board members would need to make visits if in-house investment managers do.

According to teachers’ fund spokeswoman Laura Ecklar, board members now will be required to file evaluations of the real estate trips. Such evaluations were not required before a story by Copley Newspapers reporting that board members rarely filled out voluntary evaluations on conferences, workshops and seminars they attended.

Before she left the board, Sidaway justified it was important to talk with real-estate clients to make sure their needs were being met.

It might be time for the board to check its holdings in Chicago. Renters at AMLI at Danada Farms complained that maintenance and service at the apartment complex in Wheaton, Ill., near Chicago, was poor. The latest complaint to an online apartment evaluation service came June 6. The anonymous writer said the apartment was “not worth the money you pay for rent.”

Another renter filing a report in January after living at the apartment complex for two months said, “I can’t complain” and complimented the maintenance staff.

But other renters said on March 3 that they had lived there seven months and “can’t wait to get out.” The reviewer criticized the staff as unfriendly and the office help as “horrible.”

The online service publishes unverified claims, and all eight of the evaluations filed since February 2002 were unsigned. Half recommended the apartment complex, which received an overall rating of three on a five-point scale.

Ecklar said the board may start using video conferences in the fall to reduce travel costs associated with investment seminars, including the real estate trips.

Asbury also said the board discussed limiting the number of board members who can attend the real estate trips. But no limit has been set.

You can reach Columbus Bureau Chief Paul E. Kostyu at (614) 222-8901 or e-mail: paul.kostyu@cantonrep.com

WHERE DOES STRS OWN PROPERTY?

The State Teachers Retirement System owns 155 properties in 28 states and the District of Columbia. They are:

California (36)

Texas (24)

Georgia (17)

Ohio and Illinois (10 each)

New York (9)

Kentucky and Florida (7 each)

Alabama

District of Columbia, Minnesota, New Jersey and Virginia (3 each)

Massachusetts, Maryland, Missouri and Washington (2 each)

Arizona, Indiana, Kansas, Louisiana, Mississippi, North Carolina, Nevada, Oklahoma, Pennsylvania, South Carolina, Tennessee and Wisconsin (1 each).

The holdings are retail space (70), office buildings (37), apartment buildings (23), industrial sites (23) and land (2).

Source: State Teachers Retirement System

WHAT TYPE OF PROPERTY DOES STRS OWN?

Among the properties in which STRS invests are:

Palladium at Cityplace in Palm Beach, Fla., described on its Web site as “one of the most ambitious urban developments in the country.” The Mediterranian-design project, with 186 arching water and air jets that provide a nightly, coordinated show with music; it includes retail spaces, offices, townhouses, lofts and a hotel, and cost $550 million to build.

Cobb Galleria Convention Center in Atlanta, a 320,000-square-foot complex on 88 acres “in prestigious Northwest Atlanta.”

n R.R. Donnelley Center along the Chicago River in Chicago. The modern, glass-dominated skyscraper is the corporate headquarters for R.R. Donnelley Financial.

Park Glen, a corporate housing complex in Minneapolis adjacent to a 100-acre nature preserve. The one- or two-bedroom units rent for $60 to $77 daily or $1,800 to $2,300 monthly.

Apartment buildings in New York City named Union Square, Tribeca Park, Sagamore, Strathmore, Lyric, Westport and Sonoma.

The Paramount, a luxury apartment building in San Francisco. On its Web site, the building’s 43 stories grow before the viewer’s eyes; it promises panorama views of the city, mountains and bay, and calls it “the tallest, most dramatic luxury rental in the history of San Francisco.” Studio apartments begin at $1,895 per month and two-bedroom apartments cost up to $8,000 per month.

Atrium II, an office building on East Fourth Street in Cincinnati.

Key Center, a downtown Cleveland mixed-use complex opened in 1992; it includes the 57-story Key Tower and 28-story Cleveland Marriott.

Macedonia Commons, a 525,000-square-foot shopping center along Interstate 271 in Summit County with a Wal-Mart, Home Depot, Tops and Cinemark Theater as anchors.

STRS also owns the lots and parcels that make up its headquarters at 275 E. Broad St. in downtown

Columbus. The land has market value of $52.4 million; STRS pays no property taxes because the pension fund is exempt as a state agency.

That figure does not include the building, which consolidated the teacher’s fund operations in 1999 at a cost of $99.9 million.

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