More pension funds went into real estate last year than ever before, according to a survey by Greenwich Research Associates. The Connecticut firm surveyed 1,073 of the country's largest corporate pension funds and found that 32 percent invested in real estate equities in 1981, compared with 22 percent the previous year, and a mere 10 percent in 1976.
The Mortgage Bankers Association calculates the total amount of equity, mortgage and mortgage security investments by pension funds last year was $31 billion. That breaks down into $8.5 billion by corporate funds and the rest by state and local funds. Corporate funds have the vast majority of their portfolios ($6.5 billion) in equity holdings, whereas just the opposite is true for government pension funds; $10.5 billion in mortgages versus $1 billion in equity investments.
The reasons public funds' real estate investments are more than two and a half times greater than those of the corporate sector are twofold: lack of political pressure to make socially worthwhile investments and the constrictions in the Employe Retirement Income Security Act of 1974, which affects only the private sector. Both these circumstances now appear to be changing. President Reagan has called for more pension fund investment in housing and the Department of Labor is in the process of removing impediments to this investment. Moreover, for the past decade, real estate has been a better value than stocks and bonds, the once-traditional investments of pension funds.
The boom in office construction in the Washington area has attracted considerable pension fund financing and equity investment. Whereas public funds tend to invest individually, private funds tend to invest through co-mingled funds. The Prudential Life Insurance Co. of America runs the country's largest open-end co-mingled account, PRISA I, which has $4.3 billion in assets. PRISA has an estimated $400 million in real estate investments in the greater Washington area; many of the purchases were made within the past two years.
Mallory Walker, president of the Washington real estate firm Walker & Dunlop, sees pensions funds as providing an important source of additional capital to the real estate market. Walker & Dunlop has been active in putting together a number of deals with pension monies, including George Washington University's 2000 Pennsylvania Avenue development.
Although property ownership is a matter of public record, no aggregate lists of pension fund holdings have been drawn up in this area. Besides the customary reluctance of businesses to talk about their deals, pension funds are also sensitive to possible criticism by beneficiaries that their investments are not in their best interest. Another reason for reticence was expressed by the administrator of a large private pension fund. He said, "If the public finds out that [the site] is owned by a 'rich' pension fund, a lot of people will start suing us for injuries allegedly suffered on the site. We've had a number of such cases. It's an operational liability [of an owner]."
The following pension funds have investments in the area:
The National Electrical Contractors Association Pension Benefit Fund of the International Brotherhood of Electrical Workers owns the Georgetown Safeway building on Wisconsin Avenue NW and the land on which it site. The building cost $4.8 million. IBEW also recently bought from the District government for $1 million a vacant lot at 13th and N streets NW.
George Washington University's $40 million development at 2000 Pennsylvania Ave. NW was constructed as a joint undertaking by the university and the Pennsylvania Public School Employes Retirement Fund, which put up $33 million. It is scheduled for completion in September 1983.
A nearly completed building at 440 First St. NW will be the new headquarters of the National Association of Counties. The Pennsylvania State Employes Retirement Fund, making its first commercial mortgage in the area, put up $9 million.
The General Electric Pension Trust has committed $27 million to a new office building by Rose Associates at Pentagon City. It will be a mortgage and equity participation, GE's first venture in this area.
The New York State Teachers Retirement System holds mortgages on a number of properties in the central business district including 1725 I St. NW, 1660 L St. NW, 1310 L St. NW, 1425 K St. NW, and 733 15th St. NW.
The New York State Common Retirement Fund holds $179 million in District mortgages, including a $6.3 million mortgage on the FDIC building at 1776 K St. NW. It owns the land, valued at $13 million, under the Investment Building at 15th and K streets NW. It has $79 million in mortgage commitments. Two of the intended sites are the National Press Building at 14th and F streets NW and the Design Center in Southwest, a project of the Kennedy family.
Two foreign pension funds have important investments in Washington. British Electricity Supply Superannuation Scheme acquired 50 percent of the L'Enfant Plaza complex in 1980. Britain's National Coal Board, through Pan American Properties in New York, has had a 50 percent interest in the Watergate complex since 1979. The Coal Board also owns an office building on Capitol Hill.
The Ohio State Teachers Retirement Fund, which has held $100 million in FHA mortgages in Washington's inner city for a quarter century, is planning its first equity venture here. It recently signed a commitment with Kaempfer Co., which will build a hotel and office building at 23rd and M streets NW. The fund's executive director, Jim Sublett, declined to give an amount. He said the deal has "equity features."
Prudential Life Insurance Co.'s PRISA -- a comingled or mutual type fund for pension funds -- owns about $400 million in real estate in the Washington area. The properties are: an office building at 1325 G St. NW, the International Club at 1800 K St. NW, and 50 percent ownership of the Capital and Washington Hilton hotels. PRISA has an interest in the Baltimore-Washington Industrial Park in Jessup, Md., a half interest in the Great Falls shopping center and a half interest in the Oakwood Apartments in Alexandria. It owns the Ward Two office building in Rockville, two office buildings on First Field Road in Gaithersburg, and office buildings in Gaithersburg at 2 Research Ct., 1300 Quince Orchard Rd. and 2092 Gaither Rd. It also owns the land under the Landover Mall in Prince George's County.