O.C. Pension Fund Board to Liquidate 12 Properties

Trustees for the county’s pension fund will begin liquidating $112 million in real-estate properties around the U.S. plagued by dropping values and alleged mismanagement, swallowing a $53-million loss from its total $165-million investment.

Board member Thomas Fox said a group of trustees visited the 12 properties this spring, purchased in 1989, and have been managed by Heitman/JMB Advisory Corp. of Chicago. The tour of the office buildings and malls was revealing, he said.

“We went on the road and looked at the properties and the on-site management and we’re not comfortable with it,” Fox said at the board’s monthly meeting Monday.

The retirement system, which invests funds for about 23,000 current and retired government employees, decided to pull the plug on the properties rather than suffer additional losses, he said. The retirement board’s policy dictates an assumed return rate of at least 8% on its $3-billion investment portfolio.

Board members said the properties have lost value because of both real-estate downturns and neglect by Heitman managers. Several board members traveled to Chicago in April to protest an announcement by Heitman that it intended to transfer the properties to special real estate investment trusts, which would have increased its management fees.

“We already felt we were paying too much in management fees,” Fox said.

Selling the properties should take from 18 months to three years, said Trustee Bruce A. Moore, who chairs the real estate committee for the Orange County Employees Retirement System.

Doing so will reduce the fund’s overall reliance on real-estate investments to about 10%, down from its current 14%.

The board recently voted to keep real-estate holdings at no more than 10% of its total investments.