County pension officials eye Trammel Crow audit.

Investment fund loses more than half of its value

The Los Angeles County Public Employees Retirement System is among the investors eagerly awaiting the results of a soon-to-be-completed, investor-ordered audit of a Trammel Crow Ventures Inc. real estate investment fund that has lost more than half its value.

The investors decided to audit the fund because of charges of conflicts of interest in the selection of investments, said Chuck Conrad, spokesman for the L.A. County Employees Retirement Association in Pasadena. LACERA manages the pension fund.

Allegations have been made that partners in Dallas-based Trammel Crow Co. benefited from bad investments made by TCV, which is an affiliate of the Trammel Crow Co.

"There were questions that were raised regarding interests that Trammel Crow partners had in certain investments," said Conrad.

The L.A. County pension fund invested about $10 million in Trammel Crow Equity Partners I, the $200 million fund being audited, said LACERA's in-house attorney Steve Johnson.

The audit, which is being conducted by a New York law firm and has been in the works for a few months, is expected to be completed in about two weeks, said Johnson and Conrad.

The firm conducting the audit -- Cravath, Swane & Moore, which is known for litigating large claims -- is expected to recommend to the investors whether a class-action lawsuit is warranted in this case.

"We have no recommendation yet," said Johnson. "We're waiting for a report."

Phil Norwood, managing partner at Trammel Crow Realty Advisors in Dallas, said the same issues were raised years ago to an investor advisory committee that decided there was no problem. He said he hopes the audit puts the debate to rest.

"The common thread in the allegations is the possible conflict between investments and the Trammel Crow Co.," said Norwood. "We've produced something like 30,000 pieces of paper for the law firm doing the audit, much of which the investors already had."

Roger Turner, the partner at Cravath, Swane & Moore in charge of the case, refused to comment.

The Dallas Business Journal reported recently that the audit examines three to four TCEP I transactions, including the purchase of a downtown Dallas office building called One Dallas Centre, which has been under Chapter 11 bankruptcy court protection since May.

TCEP I bought an interest in One Dallas Centre from a Trammel Crow Co. partnership, the Dallas Business Journal reported.

According to that story, about 42 percent of TCV's $15.5 million in 1991 revenues came from fees and commissions connected with TCEP I and II (a second, larger fund). The Dallas Business Journal quoted an unnamed investor as saying that TCEP I and II paid the Trammel Crow Co. $80 million over a four-year period to manage property the funds owned.

The investors have been told by Trammel Crow officials that they've lost 57 cents for every dollar they put in TCEP I.

Since the county pension fund's investment represents about 5 percent of the total money placed in the fund, LACERA has agreed to pay for a similar percentage of the audit costs, said Conrad.

Although the investment is a small portion of the pension fund's $13 billion portfolio, Johnson said the $10 million was important enough to the LACERA board that it wanted to participate in the audit.

Other TCEP I investors include the Michigan state employees pension fund and Salomon Bros., the New York investment bank that acted as the fund's underwriter. Cravath, Swane & Moore represented Salomon Bros. prior to being retained to do the audit, said Norwood.

Johnson said Salomon Bros. Vice President John Buza has been designated the spokesperson for the investors, but Buza could not be reached for comment.

An official with the Michigan state treasurer's office also failed to return phone calls.

Trammel Crow Co. is in the process of an internal corporate reorganization and restructuring.