The Alaska Permanent Fund Corporation’s board of trustees gave their final approval Tuesday to a new investment strategy hoping to capitalize on low home prices by buying and renting foreclosed homes.
The board approved investing $400 million in the new strategy, despite concerns from at least one trustee. There have also been concerns expressed about Alaska seeming to capitalize on others’ misfortune.
The fund’s executive director, Mike Burns, said the state is not compounding individuals’ housing woes in any way, but simply recognizing that in many areas home prices have fallen dramatically.
“We are taking lemons and making lemonade, but they were lemons when we got here,” he said.
In the new strategy, which the Permanent Fund lists among its “special opportunity” investments, it would set up a new $500 million fund with a company called American Homes 4 Rent, llc, which would invest $100 million of its own money in the fund and manage its operations.
Burns said the goal is to buy the houses, generally through foreclosure sales, and rent them out.
Rental payments can be expected to cover taxes, expenses and provide a return to the Permanent Fund, he said, even without the prospect of being able to sell the properties when housing markets rebound.
One representative house originally sold for $650,000, with a $480,000 mortgage. When prices plunged, the owners stopped making payments and the bank foreclosed. It was then purchased for $130,000 to become part of the portfolio.
Burns said the investment’s economics factors in an assumption that all the houses will need at least new paint, carpet and landscaping.
Burns said the loss to the homeowners and banks came before the Permanent Fund became involved, and is not being exacerbated in any way by the investment.
“The painful part of the people losing their house happened before we were involved,” he said.
The fund’s Chief Investment Officer Jay Willoughby first raised the investment opportunity as he was being hired last October, and has been considered since.
The board Tuesday acknowledged that it was a new direction for Permanent Fund investments.
“This program has probably been vetted as extensively as any I’ve seen since I’ve been on the board, said Chair Bill Moran, who also serves as president of Ketchikan’s First Bank.
Trustee Steve Frank, who said his questions had since been satisfactorily answered, had raised concern about the investment.
“I think the staff has done a good job of nailing down the open questions I had,” he said.
The remaining concern, he said, came from the demands on staff time from the unique investment.
“I’m still not sure it’s the kind of thing that we should be pursuing from the standpoint of the time it takes to monitor it,” he said.
Frank said he wound up supporting it, and the approval of the investment passed unanimously.
Burns said he expects the deal to be signed with American Homes 4 Rent soon, with the company contributing as its $100 million investment properties it has already purchased.
• Contact reporter Pat Forgey at 523-2250 or at email@example.com.