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Alaska's Permanent Fund boosts real-estate portfolio, including malls

Pat Forgey
Alaska Dispatch image

Forget Donald Trump, the Alaska Permanent Fund Corp. is a true real estate mogul.

With about $5 billion in various real estate investments, including apartments, single-family homes, industrial and office space, the state's $48-billion oil-wealth savings account now has more than a tenth of its investments outside the traditional stocks and bonds in its portfolio.

Alaska's premier properties, however are based on retail shopping, and include the huge Tysons Corner Center outside Washington, D.C., and the upscale Shops at North Bridge in Chicago. Those real estate investments have rebounded from setbacks during the nation's housing crisis, and now the Permanent Fund is actually hoping to profit from the foreclosures that beset much of the Lower 48 in recent years.

The showpiece Tysons Corner Center is in Virginia's Fairfax County, the nation's second wealthiest county and one of its fastest growing. The mall is anchored by Bloomingdale's, Macy's and Nordstrom, but is getting a new link to the D.C. Metro subway system, which is spurring a big expansion.

'Going to be stunning'

Permanent Fund Corp. Executive Director Mike Burns isn't given to Donald Trump's bragging and bloviation, but even he's excited about the expansion.

"It's going to be stunning," Burns said, and worth hundreds of millions of new investment in combination with 50-percent owner Macerich Partnership, a real estate management firm.

Under construction are new office, apartment, hotel and retail spaces to join the existing structures.

Burns briefed the Permanent Fund Board of Trustees in Anchorage last week on the progress. The trustees will visit Virginia and Chicago to observe the progress of both malls later.

"I think you'll be very impressed with what's going on there," Burns said.

At Tysons Corner, the combination of office space, shopping and residential saves on costly parking, said Rose Duran, real estate manager for the APFC. "The office users aren't going to be there on the weekend when the mall shoppers are there," she said.

The apartments will have a mix of sizes, but there is strong interest from urban professionals in studios, she said. Some of the apartments have already been pre-leased by employees of one of the companies moving into the office space, she said.

"It's going to be a phenomenal project, I think," she said.

Total cost: $540 million 

Burns said he thinks the apartments near the subway are likely to be the development's "real home run."

The project is about 40 percent complete, with $209 million of an expected total cost of $540 million already spent. Burns described it as the second-largest construction project on the East Coast.

The Tysons Corner Center expansion will add about 1.3 million square feet to the mall's existing 2 million square feet.

The leasing fees are already looking to provide a good return for the Permanent Fund, she said, but they're expecting the real profit to come in 2017 when the project is complete, fully leased and gets a new appraisal.

"That's where the big value is going to come in," Duran said.

Real estate has been a growing part of the Permanent Fund's portfolio, but the 1995 Tysons Corner Center investment was one of the first. A 50-percent ownership in The Shops at North Bridge came in 2008.

Not much Alaska real estate 

Other Permanent Fund properties include retail buildings in Seattle, New York, Houston, New York and Hawaii. There are office buildings, apartment buildings and industrial properties worth billions -- all managed by real estate firms on behalf of the Permanent Fund.

Very few of the properties are in Alaska. Burns said it is difficult for its advisory firms to find Alaska properties large enough.

New Chief Investment Officer Jay Willoughby outlined several investment ideas for the trustees as he was arriving two years ago. Now, one of those ideas is already paying dividends -- literally, Burns said.

The Permanent Fund helped form a company called American Homes 4 Rent that has been buying up foreclosed properties. It hopes to rent them out until housing markets bounce back, and then sell them.

That's working well, Burns and Willoughby said, with thousands of homes purchased and 96 percent being rented out within 90 days.

From vandalized to spotless 

The homes purchased are often available in hard-hit real estate markets such as Arizona or Georgia at a fraction of their former assessed value, leaving them with significant potential to appreciate.

They've ranged in condition from being stripped and vandalized to spotless, with the garage door opener sitting on the kitchen counter, Burns said. American Homes 4 Rent has become a publicly traded company, and it has become the Alaska Permanent Fund's single largest stock holding, eclipsing even Apple Computer.

The company is now financially strong enough and getting steady enough cash flows to enable it to begin paying a dividend, Burns said. At a penny a share, the dividend is tiny, he acknowledged, but it is enough to provide credibility to the stock market.

Contact Pat Forgey at pat(at)alaskadispatch.com