STUMP » Articles » Friday Trumpery: Did You Know Trump is Involved in Real Estate? » 28 April 2017, 07:37

And did you know that institutional investors, like public pensions, are involved in investing in real estate?

No?

Does Reuters have an EXCLUSIVE for you!

Exclusive: A New York hotel deal shows how some public pension funds help to enrich Trump

WOW!

Let’s read more!

Public pension funds in at least seven U.S. states have invested millions of dollars in an investment fund that owns a New York hotel and pays one of President Donald Trump’s companies to run it, according to a Reuters review of public records. That arrangement could put Trump at risk of violating an obscure constitutional clause, some legal experts say.

The Trump SoHo Hotel and Condominium in Manhattan is an upscale 46-story property owned by a Los Angeles investment group, the CIM Group, through one of its real estate funds. (Read the most recent amendment to the Trump SoHo’s offering plan: tmsnrt.rs/2q3HJH8)

The possible problem for Trump lies in the fact that state- and city-run pension funds have invested in the CIM fund and pay it a few million dollars in quarterly fees to manage their investments in its portfolio, which includes the Trump SoHo, according to state investment records.

In return for marketing and managing the hotel-condo, CIM pays Trump International Hotels Management LLC 5.75 percent of the SoHo’s operating revenues annually.

That payment chain merits closer scrutiny because it could put Trump at risk of falling foul of a little-known constitutional rule prohibiting the flow of money from states to the pockets of a sitting president, five ethics and constitutional law experts interviewed by Reuters said. (Graphic on Trump SoHo payment chain: tmsnrt.rs/2pfkZ40)

No other public pension fund investments in Trump-affiliated businesses have been reported.

The White House referred comment to the Trump Organization, the parent conglomerate for Trump’s businesses, which did not respond to repeated calls and emails for comment.

While Trump turned over management of the Trump Organization in January to a trust controlled by his two elder sons, he still earns revenue from the SoHo. That’s because he still owns the businesses in the Trump Organization, including Trump International Hotels Management LLC.

Article II of the U.S. Constitution bars the president from receiving additional payments beyond his salary from state governments. This so-called “domestic emoluments clause” prohibits “any other emolument from the United States, or any of them.”

…….
FUNDS HAVE 5 MILLION MEMBERS

The SoHo hotel-condo management contract is a significant revenue generator for Trump through his hotel management company. In 2015 and the first five months of 2016, Trump International Hotels Management LLC drew at least $3.1 million from the SoHo, and Trump received $3.3 million in income from the hotel management company, hotel records and campaign filings show. (Read the 2014 and 2015 financial statements for the Trump SoHo: tmsnrt.rs/2q3VNjP)

CIM said its policy is not to comment on its private funds, agreements, or the operations of its funds’ investments.

The state- or city-run pension funds are in California, New York, Texas, Arizona, Montana, Michigan and Missouri. They have more than 5 million members – from state lawmakers in California to teachers in Texas and police officers in New York. They include the California Public Employees’ Retirement System, the nation’s largest public pension fund.

The pension funds’ money accounts for about half of the total capital CIM raised from its investors to invest in the properties in the fund, including the Trump SoHo, according to the pension funds’ financial records and SEC filings. CIM declined to disclose how many properties are in the fund.

Some of the 11 pension funds contacted by Reuters declined to comment on the payment chain between them and Trump. Others referred the question to CIM, saying their investment in the CIM fund does not give them control over its asset acquisitions.

……

Divesting from the CIM fund would likely force the public pension funds to sell their CIM shares at a loss, said Tom Lopez, the chief investment officer of the Los Angeles Fire and Police Pensions, one of the pension funds in the CIM fund, which is also known as a real estate partnership.

I highlighted a particularly important item there.

You know, these pension funds are not trying to curry favor with Trump, and nobody really thinks they are. Anybody trying to make that claim….

They’re trying to achieve returns on their assets.

But Trump is ALL THE EVIL, you see, and we can’t have ALL THE EVIL in our pension fund investments.

Or something.

And mumble mumble emoluments… moisturizers… eh, just throw it on the pile lawsuits if that’s the route you’re going to go. Having seen that idiocy on the right re: “THIS TIME WE’VE GOT OBAMA!”, I think you’re going to have just as about as much luck. But I could be wrong.

DIVESTMENT FOLLIES

I have covered this before, but eh, let’s whirl through the past:

• April 2014: Public Pensions and Blacklists: Harmful to the Pensions
• October 2015: Public Pension Follies: Divestment! Divest from All the Dirty Things!
• November 2015: A Week of Bad Pension Ideas: Finally, Divestment
• December 2016: Calpers: Moving Targets, in More Way than One – including divesting from tobacco stocks
• January 2017: Setting the Stage for 2017: Questionable Pension Asset Management Practices, of which one is politically-motivated divestment
• March 2017: Stupid Public Pension Trends: Divestment Expands

It turns out that Calpers’ actual fiduciaries have been pushing back on divestment measures passed by the California state legislature (and promoted by various groups). And no, the California state legislators are not fiduciaries, i.e. not responsible for the responsible management of the pension funds (thank goodness).

But ultimately, if one keeps going on these crusades to divest of all the EEEEEVIL things, the amount of work the fund managers have to do (and have to charge to do it) keeps increasing… and you’re very likely ending up with lower returns… possibly lower returns than the market overall.

If I would take this argument to its absurd level, perhaps the pension funds shouldn’t be invested in anything at all, because it’s ALLLLL EEEEEEEVIL.

YOU THINK THIS IS REDUCTO AD ABSURDUM, BUT….

So HA HA HA, nobody would be so stupid as to totally divest of everything because it’s all evil, right?

Portland, Oregon can show you that it IS just that stupid:

Portland to stop corporate investing despite Mayor Ted Wheeler’s opposition

Portland is getting out of corporate investing altogether. The Portland City Council voted unanimously on Wednesday to end the practice following pressure from activists to withdraw from companies that are problematic for the environment, human rights or government.

The city has $539 million invested in corporations this year, City Treasurer Jennifer Cooperman said.

Activists for months have urged the Portland City Council to divest from controversial companies. They pleaded with them in December to withdraw from Wells Fargo due to its investments in the Dakota Access Pipeline and from Caterpillar, a company that makes trucks and bulldozers, some of which they say are used to harm Palestinians in the Israel Palestine conflict.

nstead, commissioners decided not to invest it in any corporations period, in part to avoid the trouble of having to perpetually decide which corporations the city considers bad actors.

As it divests, the city will put its money in federal bonds and other non-corporate options, Cooperman said. She said the switch will cost the city at least $4.5 million a year.

“This is a win,” said Hyung Nam, a member of the city’s Socially Responsible Investment Committee tasked with looking into companies’ environmental, social and government impact scores. “The city is actually willing to lose money to their budget because they want to get out of these big corporate nightmares.”

…..
Wheeler said he also generally opposes divestment because he sees it as a lost opportunity to influence corporations from the inside. He shared examples of times that he said he successfully changed corporate policy as state treasurer, including a time Oregon’s pension fund joined with other Chipotle Mexican Grill shareholders to oppose the bonuses and salaries of top executives. Wheeler said he also influenced the Security and Exchange Commission’s decision to require corporations to publicly disclose the ratio of their chief executive officers’ salary to that of the average employee.

I was just going to point out that Trump and the Republicans control the federal government (for certain definitions of “control”, but go with me on this)… so wouldn’t putting the money in federal bonds ALSO be investing in EEEEEEEEEVIL?

Okay, don’t think about it too hard.

So I was wondering what that policy would do to Portland, Oregon’s pension funds….

…HA! trick question! It doesn’t HAVE any pension funds!

Though there are pensions….

June 30, 2016 Actuarial Valuation of the Fire & Police Disability & Retirement plan:

The pay-as-you-go structure of FPDR benefits means that
the valuation is not used for:
 Establishing the funded status of the FPDR program
 Determining an actuarially calculated pre-funding contribution rate

Oh, they’re pay-as-you-go. That’s so much better.

Going by that Actuarial Valuation, it’s a $3.7 billion liability (6/30/2016, using a 2.85% discount rate)… over $100 million in benefit flows per year, and projected to increase for a couple decades, peaking at over $200 million/year in 2036 (in the projection).

Here is the most recent Portland budget, which is $4.3 billion per year.

Oh wait, it looks like new hires are getting put on a pre-funded plan (it wasn’t exactly clear to me — but even if so, this part is puny right now). I wonder if all their funds will be put in Treasuries? That should be fun to explain as a fiduciary.

Can’t say I’m surprised that this idiocy is coming from a town where they can’t have a parade with any Republicans in it without “provoking” the tolerant left to violence.

That pension fund was wearing a short skirt… it was asking for it….

ASKING FURTHER QUESTIONS

Thing is, this Trump Soho thing is chump change. It’s a small part of the specific pensions’ assets, and I doubt that Trump Soho will be much hurt by public pensions not doing business with it. It’s a large investment world out there.

But there are definitely some funky arrangements in real estate investing in public pensions. And other asset management concerns – not just real estate, but any of these “alternatives”. Perhaps these should be investigated.

Thanks for raising the issue, Reuters! Have I some followups for you….

There definitely were some questionable real estate investments in Dallas Police & Fire Fund. That seems to be a matter of active investigation right now, and a civil settlement came out of that trouble.

I think Alabama asset management could probably stand some looking into.

Don’t get me started on Kentucky.

I’m curious — might there be some interesting relationships with regards to Illinois pensions investments? What was it that head of the legislature, Michael Madigan, does for his real money?

Private Practice

Mr. Madigan has been actively engaged in private practice since 1972, concentrating in ad valorem real estate taxation and administrative law. Throughout his years of experience, both in government and private practice, Mr. Madigan has established a reputation for credibility and forthrightness which has proved invaluable in advancing taxpayers’ claims before assessment bodies.

Well. He has a private practice involving real estate taxes. Hmmm. I wonder who he has had as clients.

Reuters – I am giving you a gold mine avenue here — obviously you were able to pin down one small piece of investment in public pensions. Perhaps you can dig through pension assets and find all sorts of involvement with current politicians?

I bet you could win a Pulitzer!