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Teacher's pet: a $2.1 billion portfolio makes the grade for 12,000 retired educators in Arkansas.

Teacher's Pet

A $2.1 billion portfolio makes the grade for 12,000 retired educators in Arkansas

A $4.9 million deal received little attention when it closed at Beach Abstract on Nov. 7. Pat Riley Jr. inked a 10-year financial package for The Little Rock Athletic Club.

The mortgage, however, didn't come via a bank or insurance company. The permanent financing is courtesy of the Arkansas Teacher's Retirement System and part of a new focus for the state's largest pension fund (Total assets: $2.1 billion as of June 30).

Real estate mortgages are nothing new for ATRS. The organization has invested $27.16 million in 13 real estate projects around Arkansas since June 30, 1989 alone. In the wings are commitments for $8 million in financing for two other projects.

Until recently, all of the ATRS real estate loans involved refinancing or expansions of existing developments. The Little Rock Athletic Club deal and the commitment of $7.3 million in permanent financing for the Bale Chevrolet project in west Little Rock mark the first time ATRS has provided takeout funds for new projects.

Before it's all said and done, ATRS could even play a role in helping back the proposed Diamond Center in downtown Little Rock.

"It's like I tell people on the phone," relates Wayne Greathouse, ATRS investment coordinator. "We look at anything. Whether we do anything is a different story."

The pension fund is willing to consider Arkansas-related developments ranging in size from $300,000 to $50 million. However, it's not a simple matter of ask and ye shall receive with the ATRS, even if the investment is tied to enhancing the state's economic well-being. Pension fund guardians follow a stringent criteria before they will pay ball with developers.

ATRS receives pitches for out-of-state developments but current policy limits participation to Arkansas only. The playing field may expand to a regional approach or at least deals in contiguous states.

"I'd like to see it in the next five years," remarks Greathouse.

Nice Nest Egg

Most of the ATRS portfolio is a 60/40 mix of fixed-rate investments and stock. A growing portion of that is devoted to fixed-rate mortgages tied to real estate developments in Arkansas.

About 12, 140 retirees draw a monthly pension check from ATRS. Those benefits totaled $92.21 million for the fiscal year ending June 30, 1990.

The pension fund took in $125.37 million in annual contributions from employees and their respective employers. The investments produced total income of $234.95 million of which $107.39 million represented undistributed net income.

That's a nice ratio, considering total expenses for the year ran at $127.56 million. Only $2.59 million of that was used to cover administrative costs for the 40 staffers at the ATRS office on the state capitol grounds.

Board policy calls for a maximum maturity of no more than ten years for all investments. To make the most of its money, ATRS holds onto investments yielding fixed rates of return (notes, mortgages, bonds, etc.) until the final maturity date.

"We are on what they call a passive ladder," Greathouse explains. "When we buy it, we buy it."

Last year, the ATRS foreclosed on its first project -- Oakbrook Apartments, a 144-unit complex in Fort Smith. The development is undergoing renovation and will be put on the market in 1991.

Another ATRS-backed project -- Somers Plaza in North Little Rock which is owned by the Crestwood Co. -- is going through bankruptcy. Like Oakbrook, Somers Plaza is no headache.

"We're adequately covered with the collateral, and the project cash flows," Greathouse reports. "Crestwood has told us they will pay us through this month."

Running The Gauntlet

Personal guarantees are standard operating procedure on striking a bargain with ATRS. A proposal typically takes 60 days to run the review gauntlet that begins with the Screening Committee.

The four-member group is composed of Bill Shirron, executive director of ATRS; Dr. Betty Anderson, deputy director; Mavolene Booth, manager of retirement fund investments; and Greathouse. The committee has authority to invest up to $5 million.

Any proposal above that ceiling requires additional approval by the Investment Committee composed of Charles Dyer, superintendent of the Alma School District; Dr. Silas Snow, retired president of the University of Central Arkansas; Bill Ford, state bank commissioner; Brady Gadberry Jr., labor relations specialist with the Little Rock School District; and Linda Parsons, teacher at Pine Forest Elementary in Maumelle.

Proposals that make it through the screening committee are forwarded to the Arkansas Development Finance Authority, which further reviews the deal and sends back a written report to ATRS. Depending on the size of the deal, the screening committee or investment committee decides whether to fund the project.

"If ADFA recommends a proposal, it weights very strongly," Greathouse points out.

So strongly in fact, that ATRS has never turned down a funding request given the ADFA stamp of approval. Applicants given the thumbs down by ADFA can still go before the committees, which have final say on the matter.

However, all applicants receiving a "no" recommendation by ADFA have withdrawn their requests rather than risk the potential public embarrassment of rejection by the committees.

They would rather suffer the defeat in private and not risk having a negative stigma attached to their deal. After all, a rejected proposal might prompt alternative funding sources to look unfavorably on the deal.
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Title Annotation:Arkansas Teacher's Retirement System
Author:Waldon, George
Publication:Arkansas Business
Date:Nov 19, 1990
Previous Article:Getting a cut of the diamond.
Next Article:Changing of the guard.

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