Mental Health Land Trust Office faces unprecedented third legislative audit over handling of commercial real estate
A former executive director of the Alaska Mental Health Land Trust Office once “engaged a friend” to represent the trust land office in negotiations to acquire two investment properties.
The seller of the properties paid the executive director’s friend about $370,000 in commissions as part of the transactions. “The relationship was not formally disclosed,” a Feb. 8, 2018 legislative audit found. “While no state of Alaska funds were paid to the executive director’s friend, the friend was compensated and thus financially benefited from the trust transactions.”
The audit cited the $370,000 in commission payments as one of several “professional and personal relationships that created an appearance of related parties or increased the risk of fraud or abuse.”
The audit also found that a former Trust Land Office executive director hired a subsidiary of the executive director’s former employer to manage a newly acquired commercial property, with the subsidiary collecting at least $396,000. The office did not follow the procurement code and no procurement records could be found.
The main finding of the 2018 audit was that the trust violated a clear and unambiguous state law requiring the Alaska Permanent Fund Corp. to handle investments for the trust. A dispute continues today about whether the trust has followed the law with its seven commercial properties.
Seeking higher returns after the 2008 financial collapse, the trust bought seven commercial real properties, five of them Outside, from fiscal year 2012 to FY 2017, for $39.5 million.
The 2018 audit received scant coverage from Alaska news organizations.
The same was true of a followup audit published on July 6, 2021.
The trust has long rejected one of the central findings of the audits—that the trust should not be managing the commercial properties it bought in Anchorage, Tumwater, Ogden, Austin and San Antonio.
The second audit criticized the trust’s decision to continue to manage the commercial properties and charged that the trust did not have the expertise for a nationwide commercial real estate investment program.
The second audit said the trust should consider selling the properties or transferring them to the Alaska Permanent Fund Corp. for management.
But the Alaska Permanent Fund Corp. said it didn’t want the properties because they are not of “institutional quality” and there were no annual appraisals to reliably determine their value.
There has been no news coverage of the startling development that for the third time in the last six years, the Legislature has ordered an audit because of continuing questions about the commercial properties, their value and how they are being managed.
An Aug. 21 memo says that while the trust told legislators early this year it has a real estate investment advisor under contract, the trust terminated its management contract with Harvest Capital at a May 25 meeting.
The budget and audit committee voted Aug. 30 to move ahead with a third audit, though some legislators said they wanted a stronger response, given the clear language in state law that the Permanent Fund should be handling investments for the trust.
The memo mentions allegations “that the commercial real estate properties are not subject to independent audits, and it has been alleged that related financial information is not accurate.”
The Trust Land Office is part of the Department of Natural Resources, “contracted exclusively by the Alaska Mental Health Trust Authority to manage its approximately one million acres of land and other non-cash assets to generate revenue.”
The authority is a state corporation that is governed by a seven-member board of trustees, appointed by the governor.
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