PENSION FUND POWER Real estate is new target


Maryland's largest investor is bullish on real estate -- $100 million bullish.

That's how much real estate the Maryland State Retirement and Pension System is seeking to buy. And it has hired a subsidiary of Alex. Brown Inc. to help.

In a briefing to legislators last week, MSRPS Director Herbert Dyer said his agency, which covers almost 200,000 state workers, hired Alex. Brown Kleinwort Benson last summer for $10,000 a month to look for "desirable properties" in Maryland and its environs.

The pension fund wants to invest directly in properties. It already has invested $219 million in four equity real estate funds.

So far, Kleinwort Benson, with management centers in Baltimore and Sacramento, Calif., has come up with nothing that meets the retirement system's investment standards -- including nearly fire-sale prices.

"The fact that we're in effect bottom-fishing isn't going to send a good message to property owners," Mr. Dyer said.

"On the other hand, those in distress, who are bleeding every month," can find a buyer in the pension system.

With a $14.1 billion portfolio, a $100 million commitment may not sound like much.

But it shows that one of Maryland's savviest investors believes prices soon will rise.

How savvy?

The fund had a return of 24.1 percent last year, 36.7 percent from stocks and a whopping 18 percent return on its fixed-income securities (from bond yields and as-yet-unrealized price appreciation.)

"At the prices for which transactions are being made today, we think there's reasonable value out there," Mr. Dyer said.

Property owners in the last few years have suffered a double whammy, he said.

"The people who bought commercial property in the mid-80s were hoping for not only good income, but appreciation," he said.

They got neither. Cash flow is down because of widespread office vacancies, and prices have fallen.

"We happened to have kept our powder dry in the last four or five years," Mr. Dyer said. "In a market where most of the investors are shunning real estate, we have cash."

The newspaper ad that caught the eye of Del. Casper R. Taylor D-Allegany, said: "Advance Finance loans money to individuals who have suffered personal injury due to auto accidents and are awaiting settlement."

Advance Finance Co. Inc. of Baltimore appears to be the only company in Maryland that makes loans secured by projected proceeds from the borrower's lawsuit.

The ad appeared in The Daily Record, most of whose readers are lawyers. Lawyers themselves are forbidden by law from lending money to clients, for fear that will encourage lawsuits.

Mr. Taylor's bill, debated last week in committee, would make it illegal to lend money if the loan is secured by the proceeds of a personal injury or worker's compensation claim, thus putting Advance Finance out of business.

Maryland's attorney general has written that the practice is perfectly legal. And the company's president, Lewis Schulman, testified that attorneys are never involved in the loan, except to refer clients to Advance Finance, for no fee.

And to make sure borrowers already have decided to pursue a lawsuit, he said, the company waits six weeks after the accident before it will lend.

Mr. Schulman testified that his firm is filling a legitimate need.

"We've made payments for clients who were being evicted from their homes, whose electricity was being turned off, who couldn't get medical treatment they needed because the physician or hospital wouldn't take assignment of the settlement as security."

His case wasn't helped by the revelation that the company lends at a 33 percent annual interest rate for the first $1,000 (and 24 percent for the next).


In legislative action last week, the Senate agreed to allow credit unions to lend $10,000 for consumer loans, up from $7,500. It's a turnaround from a year ago, when the Senate voted to dissolve the private insurer of credit unions, for fear that a run on credit unions could leave Maryland owing depositors (the House balked). . . . Sen. Frederick Malkus, D-Dorchester, argued for a bill to lower the monthly surcharge on the state's telephone relay system for the deaf. Originally 45 cents a month, Chesapeake & Potomac Telephone Co. agreed to lower it to 31 cents on Jan. 1, and Mr. Malkus wants a 25-cent surcharge.


On this week's legislative agenda, the Senate Economic and Environmental Affairs Committee will consider Wednesday whether to set a $10 million liability limit on parties involved in cleaning up oil spills. . . . The House Economic Matters Committee will begin the tortuous process of reforming Maryland's health care system, with Wednesday and Thursday hearings on mandated benefits and small group market reform.

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