Risky Bets Cost Detroit Pension Funds $480M

[SWMAP]

I see that Flint will raise Water/sewer rates 22-25% in 2011. More than half the increase will be used to provide the mandated income stream for bonds that Flint sold through the State. So when your monthly bill shows an increase, just know that more than half is going back to Flint.

[SMRJim]

I live alone in a home in Novi, my typical quarterly water bill is around $65 or so. Can't really complain about that. Don't do much watering in the summer. Trying to compare gas/electric is a bit different - this depends greatly on how efficient your furnace and A/C are, how well insulated your house is, what you set the thermostat at, how big your house is, whether you have a ranch or 2 story, what appliances you regularly use and how often, etc, etc.

I read that article this morning that someone referenced, about the building they've already spent $30 million on. Now there's a perfect example of what looks to me to be obvious corruption [[and/or incompetence) to the extreme. Curious to see what will happen with that. I can't imagine that there isn't some kickbacks and/or just outright theft involved there.

[Lowell]

The actual purchaser of the building was a newly created subsidiary of one of the Pension Funds used as a vehicle to acquire it. It paid $7 million and committed to renovate the building for for almost $23 million more..

How can one know if the $23 was actually put into the building vs., say, one million in paint-over-the-cracks cosmetics? If the building is never occupied who will ever know? Is there any way of verifying the expenditures or is that a private matter for the pension board to 'oversee'?

Not accusing anyone, just wondering how that gets accounted for.

If it was spent, the building must be pretty impressive and attractive to tenants. Right?

[Packman41]

How can one know if the $23 was actually put into the building . Is there any way of verifying the expenditures or is that a private matter for the pension board to 'oversee'?

It should be VERY easy to reconcile what was spent on the building.

First, there are the draw requests from the advisors [[Capozzoli and then Mayfield Gentry) to the pension fund for money. Both the advisors and the PF should be keeping records on the money requested/spent.

Second, the advisors should be paying the contractors through a title insurance company. The TI company then collects lien waivers from the contractors before they fund the money to the contractors. So the title insurance company has a record of construction costs.

Third, the advisors should have hired an inspecting architect to monitor construction and payments to the contractors. He would approve the monthly payments to the contractors andmake sure the work was done to code.

However, the article says that Cushman Wakefield could not find the appropriate documentation -- that spells TROUBLE. Lack of accounting and financial controls points to ethics violations and perhaps fraud.

If it was spent, the building must be pretty impressive and attractive to tenants. Right?

Attractive to tenants? Not necessarily. You can over-improve a property or use the "wrong" materials. As the good professor said in the article, "...firms want a nice pure rectangle.." as a floor plate. If the floor plate has a lot of nooks and crannies, then space is wasted and the rental rate goes down.

Just because it is new or a lot of money was spent on it does not mean it is attractive to tenants.

[LeannaM]

It's nice to know that this building is in an immaculate shape but is the sensible business? $30 million dollars could have reconstructed the Fine Arts building I gather.

It's a beautiful building and it's not uncommon for $30 million to be spent renovating a large building. However, usually the building is worth a lot or will produce more income [[like lofts and apartments or renting office space). Seems hard to believe that they efficiently spent $30 million on a $1 million building.

I'm all for historic building renovation, but that doesn't seem like a wise investment.

[Gistok]

Sadly the former Stroh's HQ Building was "modernized" in the mid 20th Century, as were many of the GCP buildings...

The David Whitney lost its elegant top and a lot of Daniel Burnham's facade details...

The Broderick Tower lost the cornice around the octagon top and the "Chippendale headboard" gables on the 4 main sides of the top...

The United Artists Building had its' top left alone... but lost the Romanesque Revival fancy stone and terra cotta work of the first 5 floors... and its' north wall facing GCP had windows punched into that side at a later date [[when it was built it had a solid windowless wall facing north)... that didn't match the other 3 sides...

... but the former Stroh's HQ [[later Michigan Mutual Building) had a fancy top with 2 fancy corner pavilions... somewhat reminiscent of the Hurlbut Memorial Gate at Waterworks Park.

[rjlj]

The Grand Park Centre Building pre-modernization always reminded me of the 1899 Park Row Building in New York City.

Grand Park Centre Building pre-modernization can be found here:

http://www.buildingsofdetroit.com/co...tage-postcards


Park Row Building in New York City can be found here:

http://www.aviewoncities.com/nyc/parkrowbuilding.htm

[reddog289]

I need to read the article about the pension fund. Mine is through the state and I blindly trust them. As for my water bill.I live in Wayne My water bill due in July was around $45.00,The one due in Sept was around $85.00. I put in about $25 bucks worth of sod and I finally got half a lawn.After it took I didn't water as much. But the next bill Nov was the same, PLUS $5 more dollars for the new monthly service fee. No leaky pipes, running toilets, etc.
This months bill $65.50 for 2 months. I don't think that is too bad $30 bucks a month. As for the pension systems, I just hope my money is there when I wanna draw it out.

[gumby]

3. What brought you to the conslusion that your increase is unwarranted

Because the increases have been every year since I move in 4 years ago with no change in what is offered. When I first moved in I would quite often have bills between 20-25 bucks a month. There is no reason for my bill to almost double in a span of 4 years. I expect my bill to stay about the same after our new pipeline is built which is a lot better than the massive increases predicted if we stay with the Detroit Water system because that pipeline would need to be replaced in the next couple of years because it is already past its expected lifetime.

[MikeM]

There is no reason for my bill to almost double in a span of 4 years.

http://www.mlive.com/news/flint/inde...y_more_fo.html

http://www.connectmidmichigan.com/ne...aspx?id=550620

Townsend said the water and sewer rate increases are necessary to keep the city in compliance with a bond agreement with the state. “The Water Fund must maintain a substantial operating income because of the bonds the City sold through the State,” said Townsend. “The State requires the Water Fund to maintain operating revenues greater than 125 percent of the amount of debt service on the bonds. For Fiscal Year 2010, the City did not meet the 125 percent requirement.”

Both the water and sewer funds suffered significant revenue declines in Fiscal Year 2010. The Water Fund recorded an operating loss of $8.5 million and the Sewer Fund an operating loss of $17 million.

The City last raised water rates in June 2009. At the same time they restored sewer rates to their 2003 levels after several years of a rate decrease.

[gumby]

http://www.mlive.com/news/flint/inde...y_more_fo.html

http://www.connectmidmichigan.com/ne...aspx?id=550620

[/size]

So like I said for no good reason other than to help fund the mismanagement by the City of Detroit.

[MikeM]

So like I said for no good reason other than to help fund the mismanagement by the City of Detroit.

The city referred to above is the City of Flint.

[Packman41]

Spending $30 Million on a $1 Million Building

Just read the second part of the Free Press article on the Detroit Pension Funds and all I can say is – WOW! The sheer idiocy of the project is mind numbing.

Let’s put things in perspective.

When Detroit was on a roll in the early part of this decade it was remarkable when an office building sold for more that $100 per square foot. Yet in 1999 the first advisor, Capozzoli, recommends the PF pay $7.0 million [[$70 psf) for the building and then promptly pours in $11.0 million [[$110 psf) in renovations. Total so far: $18.0 million or $180 psf.

When Capozzoli is fired in 2003 the PF replaces them with Mayfield Gentry – a newly formed company in the pension fund advisory business. Then MG doubles down the bet and pours in another $18.0 million [[$180 psf). By the Pension Funds own records they have $36.0 million or $360 psf in to this building.

In the burbs today the average price of an office building is about $40 psf. Earlier this year Crain’s reported that the Travelers Tower building had an option to buy at $25 psf and the option holder declined the offer. And the PF has $360 psf in this investment?

Isn’t ANYONE keeping and eye on this property?

Clearly the advisors are not. In fact, because they are paid management fees based on the value / cost of the investment they have every incentive to add costs to the building.

And then you have the chairman of the trustees, Cdmr. Moore defending the investment. Instead, he should be cooperating with the FBI and the SEC so that the DPD can slap some cuffs on someone.