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Teachers' Retirement Funds Are Piling Into Manhattan Real Estate At Record High Prices
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Rather than buying equity interests in buildings, TIAA-CREF and KTCU are seeking to invest in mortgages backed by office towers, retail properties, warehouses and apartments in major U.S. cities. The venture between the two companies, which manage teachers’ savings in their respective countries, is 51 percent owned by TIAA-CREF and 49 percent held by Seoul-based KTCU.
“You invest in a huge office tower in New York because you want a safe place to put your money and a decent return,” over the long-term, he said. “This is more a capital preservation play than it is a capital appreciation play.”
– From the Bloomberg article: Manhattan Towers Lure Koreans in $1 Billion Joint Venture
As soon as I woke up this morning, I saw an email from a very smart friend of mine in the finance industry. He forwarded me an article from the New York Post, about how TIAA-CREF had paid $3,158 per square foot for a building in the Meatpacking area of Manhattan (a record for the area), which isn’t far from where I lived for several years in the mid-2000s.
For those of you who aren’t aware, TIAA-CREF stands for Teachers Insurance and Annuity Association – College Retirement Equities Fund. According to the company’s own website, it:
We specialize in the distinctive needs of those who work in the academic, research, medical and cultural fields. We’re here to listen to you, to advise you, and to help you feel confident about making financial decisions.
So it essentially manages the investments of people who know the least about investing, i.e., muppets. As such, it came as no surprise that TIAA-CREF might serve as an important bag-holding vehicle for bubble assets just before a fall, tempted by juicy 4% yields. As my friend noted: “In other words, teachers and nurses are shattering property records to fund their retirement.”
Here are some excerpts from the article:
Our first thought on hearing the price for this sale was whether it was even a Samsung “remote” possibility. But yes, we’ve confirmed that TIAA-CREF is in contract to shatter a Meatpacking District sales record by paying $200 million for 837 Washington St.
The price for the newly constructed 63,131-square-foot boutique office and retail building works out to $3,158 per square foot, largely based on the value of the retail space and future upside in one of the world’s hottest neighborhoods.
For now, the buyer will have a “coupon to clip” as it rakes in just over 4 percent, based on Samsung’s rent for the 10-year deal which, similar to others, has two five-year renewals.
Reading this made me wonder whether it was just a one-off or part of a larger trend. It appears to be a larger trend, particularly between TIAA-CREF and South Korean companies. I came across an interesting Bloomberg article from late last year. Here are some excerpts:
(Bloomberg) — The Korean Teachers Credit Union and TIAA-CREF are staking a claim on Manhattan’s Socony-Mobil building in the first investment of a $1 billion joint venture.
Rather than buying equity interests in buildings, TIAA-CREF and KTCU are seeking to invest in mortgages backed by office towers, retail properties, warehouses and apartments in major U.S. cities. The venture between the two companies, which manage teachers’ savings in their respective countries, is 51 percent owned by TIAA-CREF and 49 percent held by Seoul-based KTCU.
“In the Korean investment environment, where interest rates remain low at about 2 percent, we believe this is a good opportunity to diversify the portfolio through investments in prime assets in the United States with strong fundamentals and steady income streams,” Sung-Seok Kang, head of global investments at KTCU, said in an e-mail. “We plan to expand this relationship further into other investment types.”
Mezzanine lending is a complex approach to property investment that not all foreign investors are comfortable with, said Ben Thypin, an analyst at New York-based Real Capital. Koreans typically prefer a direct ownership stake in a property because it gives them more control of the asset, he said.
Not to worry, TIAA-CREF is apparently doing that too.
Asian buyers have been a major force behind climbing real estate values in New York City. Bank of China plans to purchase 7 Bryant Park, a tower under construction by Hines, for about $600 million, a person with knowledge of the matter said this week. China’s Anbang Insurance Group in October agreed to buy the Waldorf Astoria, the 83-year-old Art Deco building occupying an entire block in midtown Manhattan. The $1.95 billion transaction is the largest ever for a U.S. hotel, according to research firm Lodging Econometrics.
“You invest in a huge office tower in New York because you want a safe place to put your money and a decent return,” over the long-term, he said. “This is more a capital preservation play than it is a capital appreciation play.”
Think about that logic. Manhattan office towers at record-breaking valuations several years into what is the greatest Central Bank created bubble in world history for oligarch type assets is considered a “capital preservation play” for teachers’ retirement money.
As of October, property sales in Manhattan were on pace to reach $63 billion this year, surpassing the record $62.2 billion from 2007, according to Massey Knakal Realty Services.
Debt investments like KTCU’s may be gaining appeal as funds seek alternatives to the meager returns being generated by owning top-tier real estate, according to Thypin.
Capitalization rates, a measure used to calculate yield on real estate investments, have been falling since 2010, according to Real Capital. The best buildings in Manhattan are yielding less than 4 percent, the lowest since at least 2002.
The venture between TIAA-CREF and KTCU is targeting investments in major metropolitan areas like New York and San Francisco that yield 5 percent to 7.5 percent, according to TIAA-CREF’s Amato.
The growth in property values in those areas is outpacing the recovery in the rest of the country. Prices in the biggest cities are about 13 percent above their 2007 peak, while buildings in small cities and towns are 10 percent below the prior highs, according to the Moody’s/RCA Commercial Property Price index.
This is a classic case of groupthink amongst asset managers. Everyone thinks these assets are safe and untouchable, so they are all piling into the same trade.
It appears clear that pension funds are being set up as the ultimate bag holders when the latest Central Bank bubble pops, and in the meantime, they are a perfect source of illegal fee gouging. A win-win for financial oligarchs.
For more on that topic, see:
Leaked Documents Show How Blackstone Fleeces Taxpayers via Public Pension Funds
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A greater fool has been found. Go ahead and pop the bubble now, with the same people who sold that fund this garbage shorting it all the way down and cleaning these retirement funds out
WONDERING WHY ZH HASN'T PUBLISHED YET ANY ARTICLE RELATED TO THE ONGOING EVENTS IN NORTHERN ISRAEL ...BIASED JOURNALISM?
Tensions in the North: Not war – yet
Wednesday’s events do not mean a full-scale war is inevitable, but it is now a few steps closer.
http://www.jpost.com/Arab-Israeli-Conflict/Tensions-in-the-North-Not-war...
UPCOMING MATCH:
Zionist/Arab military coalition vs. Iran/Hezbollah/Assad's regime
MAKE YOUR BETS
IMPORTANT NOTE: this event won't be the match that ignites WW3, it will be just a regional conflict, short and extremely intense. Too bad that civilian populations in Arab countries and Iran are not prepared for the type of weaponry intended to use in this conflict...lots of DU ammo (and blame their governments).
Snake or alligator. Don't care. Hopefully one will die trying to eat the other one.
Sweet..
When the blade comes down, the little piggy's head will roll into the chute.
Investing in hi-rise buildings? Hey, it worked for Larry 'pull it' Silverstein.
yup and the jokes on them; without the million dollar parking spot that ten million dollar condo is already fucking worthless.
I do this shit for a living. Prices in the last 10 years have doubled, 08 was a hiccup.
Come on nigga.....they say its 2%?
hey lookit!
Roger W. Ferguson, Jr. (born October 28, 1951 in Washington, D.C.) is an American economist, who was Vice Chairman of the Board of Governors of the Federal Reserve System from 1999 to 2006 and has served as President and Chief Executive Officer of the Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) since April, 2008.
http://en.wikipedia.org/wiki/Roger_W._Ferguson,_Jr.
good job, revolving door!
Still getting his orders from his masters, ol' Roger is.
what a scam...this happened to the Florida teachers pension fund back in 2010. Some douchebag with the state of Florida invested 250 million of the teacher's pension fund in a Manhattan apartment complex and the fucking deal went tits up when the real estate market tanked and they lost it all.
http://www.nytimes.com/2010/01/26/nyregion/26stuy.html?pagewanted=all&_r=0
Sounds like the same scam is being run again on these pension funds and they're going to lose it all over again when this shit crashes. Fucking idiots.
My crystaal ball sees a tax payer funded bailout coming....sigh
Yup.
If you have ever had the misfortune of trying to pitch a retirement fund then you know how meta the reach for yield is, and they are willing to chase it anywhere but their own backyard for the sake of 'diversification'. Or just read that nifty economist article in December. I'm going to call it that The One or at least a Hyde Park will be sold to an underfunded US midwest pension fund before we are done with this game. Current high watermark is that one fund which invested in a key Canary Wharf project, only to have the major anchor occupant get up just ahead of the inking + lease hikes.
Second shoe top drop is the new round of REIT financing and M&A games which happen when REITS/RIOC's take advantage of the brief bid panic for yield, and ZIRP wages to refi or mark up their property portfolios for tax planning.
NY Real Estate is fundamentally a LONG position on the Triumph of Central Banking, fiat and the debt sourced money creation process laundered through the banks of Manhattan.
I'm not sure that's a bad position to take. I am sure it's a sad position...
The incest between Washington and Wall Street will do everything possible to make sure they're the last to suffer.
Actually, it's Trickle Down Economics at its best. The risk part trickles down. Free money trickles up from the Fed fiat spigot and the taxpayer funded bailout trough. Those best-connected are first in line to drink.
Teachers unions are huge consistent contributors to candidates of the government party. The government party gives them unnaccountability, easy work conditions, good insurance and extravagant pension promises. The teachers pay it back with votes and pro government party propagandist brainwashing. Take California and Jerry Brown, please.
I guarantee you that the fund managers at TIAA-CREF are getting juicy kickbacks, and hookers and blow.
They don't give ONE SHIT about the teachers and nurses (and the teachers include University employees).
This is Wall Street parasitism at its worst; the leeches, fleas, ticks, and tapeworms are busy!
They'll use the losses these retirement funds rack up as an excuse for the government to confiscate all the money in pension funds, 401ks, ROTHs, and IRAs, saying you NEED the government to ensure your retirment. They need those trillions to keep all the balls in the air and confiscation is what is always done when a government goes bust.
Oops, duplicate post
Iran, Russia to create joint bank for national currency trade
Tell me again, ZH, how fuched up it is to be a farmer!!!
If you insist ...
You will sweat your guts out, drag racing plow mules around your grand parents land in an effort to prevent you and yours from starving during winter ... and when prices finally work in your favor, taxes will go up, and if that doesn't keep you down they will just nationalize your shit.
You know, for the good of the people sitting around at home eating your sweat.
If I missed any highlights, let me know.
Two words; alloidial title, otherwise, best of luck.
Regards,
Cooter
Guessing you missed a previous thread. The ones I bought some acreage from sold the rest of theirs for 1.5, free and clear.
Say what?
What. As in what the hell is the meaning of "acreage from sold the rest". English much?
and what exactly is the meaning of "english much"? Grammar nazi huh?
people live on farms anymore? most farmhouses around here are boarded up. sometime in late May a lowboy pulls up with a tractor on it. itll reappear every so often until harvest. cant remember the last time i actually saw someone in the field...
At least they weren't invested in Polish mortgage bonds haha
1. I have EXTENSIVE dealings with TIAA-CREF. They are NOT the sharpest knives in the drawer.
2. They botch things up all the time. Fortunately, they are a behemoth and a total loss on this entire investment wouldn't amount to much more than a spit in the ocean for them.
3. This is part of TIAA-CREF's "general fund" (probably also their proprietary real estate fund) and is not the only investment available to teachers and other non-profit employees TIAA-CREF typically serves.
4. TIAA-CREF does not "serve" their clients, despite what their radip commercials and their support of nicey-nice NPR programs might claim. They are an insurance company like any other. They are there to make a profit. For themselves. At your expense. If it benefits their clients along the way, it's only by accident. THEY ARE THERE TO SELL YOU SOMETHING LOADED WITH FEES AND RESTRICTIONS AND SURRENDER CHARGES TO MAKE MONEY FOR THEMSELVES.
Class dismissed.
I am trapped in an Annuity with this outfit. My employer choses it for me. I have no say, but at least I don't contribute.
FUCK!
MsC, you just have to look at all the retirement vehicles for what they are; lies and scams.
I don't even open my shit anymore. I have the option for MMMF, I park all my crap there, and I don't care. It won't be there when I retire. Hell, the MMMF will get yanked when shit gets real because the whole retirement system is a planned bag holder for when things truly fall down.
Isn't that oligarchy?
The best retirement is building skills doing something you enjoy and trying to shoot for working the hours you want as you get older. That is my goal. I will be able to sit for my CPA within a year and I am building very unique skills on top of my CompSci career with an EE education. And once I get that knocked out, I am going to finally read the whole Will Durant series (gift from my father - out of print these days) and after that maybe I might get around to that law degree I always wanted to get.
Paying cash for classes and just doing a couple at a time. I got forty years left on the right side of the dirt, God willing. But what the fuck else am I going to do, watch TV?
Oh, and fishing. Doing lots of fishing. :-)
Regards,
Cooter
Retirement in Brazil just got cheaper...
Stay away from the TIAA Traditional fund/annuity inside your TIAA-CREF retirement plan (typically a 403b plan). Back when interest rates were higher, it was a solid bet. Now it pays next to nothing and it has a 10 year out. You can NOT just "take your money out of it". Max withdrawal rate is 10% per year for 10 years. Even if you're still contributing to the plan. Even if you're retired. Even if you leave the company and want to roll everything into an self-directed IRA
(Loophole: if you liquidate within 120 days of separation of service from your employer they will allow a full 100% liquidation from the Traditional fund but if you wait even 1 day longer, you're locked in for the full 10 years. It's a small window of opportunity and most people miss it).
The rest of the funds they offer in most plans are mediocre at best, but at least they are separate from the TIAA-CREF general/traditional fund AND they are held in trust so that even in the unlikely event TIAA-CREF goes bust, they're still your assets. Plus you can liquidate them 100% any time you want, roll them into an IRA when you separate service or whatever.
If your employer offers a match on your contributions, contribute enough to get the full match. Beyond that, pay the taxes, take the money and put it to work elsewhere (buy some gold or something- whatever floats your boat). It's always a good idea to have assets that AREN'T locked away from you in a retirement plan.
My TIAA Traditional is pulling down 4% on average. Trapped, as you describe. They disliked the commitment to pay me 3.5-5.5 so they just stopped the product. What is in there is in there, still collecting on an average of 4%. They are obligated to keep paying that (until they can't, eh?) until I start drawing the funds.
TIAA Stable Return sucks smelly balls. 1-2%. Still better than CDs. I am like Crazy Cooter above, I have already kissed it goodbye. I have never contributed so I will feel the loss less. But I have always looked at that as my "hedge" in case I was wrong about collapse.
I can change the "Stable return" (it is a small amount) but to what? I don't trust any of it. I don't trust their "counselors."
I am doing a little saving outside this, but damn it feels like dodging bullets. I don't spend a lot. I don't buy shit because it is high status or pretty, I am very practical. I pulled out of the stock market in 2006 because I saw the crash coming. I was early, but my colleagues lost 40% and I did not. Some were wiped out. I did not stay on board for these damn gains though. To me, being greedy is what gets you killed.
I did not know about that loophole, not sure you are right in my case, I thought I had looked all over, but I will redouble my efforts.
Thanks, that is a tiny bit of hope.
The Stable Value account (assujming that's the stable return fund you're talking about) is about the only other "next best" choice there is that's got a guarateed return in the TIAA-CREF world. Anything guarateed these days pays next to nothing. But like you said, it's better than rolling 1 year CDs at the bank and there isn't that draconian 10 year out clause.
The reason you're earning 4-5% on your TIAA Traditional fund/annuity is because every individual deposit your put into over they years had its interest rate fixed at whatever the then-current declared rate was the day it went into the fund. So if you've been contributing for a while your earlier deposits went in at higher interest rates. As rates have come down over the years, and especially over the last 4-5 years, the declared rate went down with it.
So what you're seeing on your statement is the AVERAGE interest rate earned over all your deposits over X years you've contributed. But if you put any new money into it TODAY that money is locked in at TODAY'S declared rate. Which is like ~2% or something, if memory serves.
Wow, right? 2% return and for that privilege they lock your money up for 10 years. Super deal, sign me right up!
ND, I've been doing with TIAA-CREF more or less what you recommend. I rotate my retirement basically among three funds: fixed income (100% since last summer mostly), an S&P index fund, and a money market fund. I just check the online boxes, and it seems to work OK. They did offer a real estate fund, which would have been a component in their diversified funds, I suppose, and I avoided it.
Not so fast.
It looks like some kind of a self contained reverse interest repo operation that can't be legal.
County renovates a building, teacher fund buys building knowing Samsung is set to pay 4% using korean investor currency plus pocketing the diff on the crossover rate.
Which one was the dumbass again??
Luckily for them, "house prices never drop."
Gafaw ... Gafaw ... Gafaw ....
Well then, hopefully they will get their asses handed to them.
I feel bad for them. You shouldn't have to be an expert in finance to retire with a reasonable pension and access to a resonable amount of medical care. It's these yeild chasing bastards and the Fed Satan that prints for them that forces these poor stupid wretches to grasp for the highest risk bets in order to get at least an inflation-beating payout.
They should fold the fund into Social Security and then they can all retire as well as the rest of us.
Its a no brainer. Even if the property market crashes, teachers' pensions will get a bailout from the Government because "its all for the children."
Another bailout is born...
Edit: Beat by 3 seconds!
Public sector unions are the most reliable bag-holders there are. Run motherfuckers!
Public sector unions are the most reliable bag-holders there are (excluding, of course, the taxpayers).
Fixed it for ya'.
All things considered, buying Manhattan RE is not by a long shot the worst place to put their money. Are they overpaying? Probably. But if the last 400 years are any indicator, people still flock there in droves and Manhattan is still amongst the most pretigious addresses to have for a corporation (NB: I'm not saying it makes sense or is rational, it is just a fact). Unless and until enough people cease to buy into the Manhattan-as-center-of-the-universe ethos, these mooks could do a lot worse if they're actually buying the dirt, bricks and mortar.
Which it appears they might not be if they're funding mezzanine debt. In which case they (along with the poor Koreans, who apparently have historically known better) are just lining the financier's pockets with fees and will get fucked in a downturn, since they're subordinate to senior debt and don't own the actual asset.
In ant case, all the money is coming out of your pocket from the taxes you pay to pay TIAA-CREFs bloodhosts' salaries, so it isn't like they're even really playing with their own money.
The growth of cities always depends on energy.
So, the purchase of prime RE in an urban center is a proxy bet on future energy supply.
Cities are one of the best places to be, as long as food, water, and essential resources (e.g. the long list of clothes, security, family, etc) are available and affordable.
Place your chips!
Regards,
Cooter
Teachers are not TBTF.
Their retirement monies are.
Hell, add on all big insurance companies to the list. Obie will simply sign another memorandum for more invisible bailouts.
The problem they face is where else do you put $200M today? Sure its a 4% yield, but they figure it isnt likely to go down in price, the tennants are good and the rents therefore fixed for sometime. What of course they discount is the lack of liqudity they give up in exchange for the cash. Ironically, a better investment would have beeen in some EUR city, especially with the USD going higher, but thats too exotic for them.....
So at least they didnt invest in equities at the top, or bond at 1.8% yield...still...220bpt yield spread for treasuries for a RE investment doesnt seem very smart to anyone who thinks it throuhg, but this is the world the CBs have left us. Low yields or high risk - thats your choice - no in between.
4% yield with a 8-9% inflation, QE4 oncoming and a likely real estate bust - BIG deal. Try gold for a change, won't you make rich but at least keeps your wealth intact.
I'd bet that there a lot of properties owned by executives/salesmen from the likes of JPM, GS etc. in NYC that are all getting a lift in values because of it. Sort of like letting a real estate agent handle both sides of the transaction. No, you're not going to get screwed. No way.
A well directed rising tide raises all yachts.
Investing like the Japanese in the 1980s. Real estate will never go down. LOL
Worked out for them! Rock Center was Japanese owned at the top of their bubble. So was pebble beach. That was so in your face, America, for the bomb and all. And then the buying just stopped and they were the bag holders. There's a misty Haiku in there
YEP. If I were a teacher, I'd be very worried about my pension fund.
Any passive investor with a pension, 401k, 403b, IRA, etc., needs to be very worried. These funds are all chasing yield only god knows where, and they invariably land in overvalued and/or fake assets.
Samsung the tenant with a ten year balloon? I'll take the first few tranches of that CBM deal! The appetite for yield is voracious worldwide. Teachers will mortgage the property (120%) with one of the TBTF banks who will securitize the cash flows into commercial Mortgage Backed Securities and sell them to people like Mr. Kang, an astute professional who knows the risks! After all Samsung his fellow countryman is it's main tenant and hey, where can you get 4%! That 20% over collateralized equity piece with double digit yield? Hello Mr. Muppet if you don't mind investing with TIAA-Creef and Samsung have a got a deal for you!
MORE HARD EVIDENCE: Our Public Schools are run by nitwits.
That's what your brain came up with after reading this article? Now you are just being stupid.
That's what your brain came up with after reading my comment? Now you're just acting like a school pension fund administrator!
As long as there is a Fed NYC real eatate will never go down.....much ... and if it does buy,buy,buy.....
This is a scam that will end badly. Its unfortunate how Koreans exploit their own race, and i know it firsthand. The japanese, swiss and jews dont do this to their own kind, so props to those guys.
Except for Bernie?
Oh God... my parents are retired teachers. They're going to get robbed...
Energy is bleeding out of the system. There are no safe investments in a period of contraction. My gut tells me that we are going to be drug kicking and screaming back into the 19th century. There may be enclaves and safe havens that do not suffer the full brunt of the collapse but most of us are in for a rough ride. I do not expect to survive it. My hope is to put my kids in a position that most of them will. Herd avoidance may be the safest tactic.
Ok, teachers have a seat. We are now going to watch a movie, "Wolf of Wall Street"...Ahhhhhhhhhhhhhh!!! Ahhhhhhhhhhh!!!, more screams, fainting, tossing cookies, culinary reviews.....
3 words...
Pyongyang Real Estate.
Nowhere to go but up.
I hear there's a lot of available real estate in Detroit to invest in.
tiaa-cref and calpers will buy anything
The presidence has been set that there is no recourse for sketchy investing, criminally speaking. If people just sit back and trust their pension managers then the end result, whether good or bad, is what they get. So once this investment fueled chaos wanes, what happens to your investment?
Personally, I am waiting for the USA to start the ghost town boom, we can build something for no reason in the middle of nowhere better than China.
What does it matter to the bank or gov't pension fund mgrs that gambles their money?
The unfortunate reality will be us bailing them out when it turns sour...
Rather than buying equity interests in buildings, TIAA-CREF and KTCU are seeking to invest in mortgages backed by office towers, retail properties, warehouses and apartments in major U.S. cities
So they won't even own anything, and, if a building does poorly, they will lose all of their investment. Brilliant.
What do the managers of these funds have in common with the sellers of these overpriced (empty) boxes, and the state department?