In a major victory for tenants, New York State’s highest court ruled yesterday that the owners of two large New York City apartment complexes, in which CalPERS was an investment partner, improperly raised rents on tenants in thousands of rent-regulated apartments. The news follows a similar decision by a San Mateo County court in California which granted an injunction last month against Page Mill Properties, also a CalPERS partner, barring it from raising rents on a number of its 1800 rent-controlled apartments in the Silicon Valley community of East Palo Alto.
These decisions mark major legal setbacks for predatory landlords whose investment schemes were premised on evicting tenants in order to evade rent control laws for quick profit. These schemes are classic examples of what housing rights advocates call “predatory equity.”
As has been widely reported, in both instances the predatory equity schemes are on the verge of collapse and investors stand to lose billions of dollars. CalPERS, the nation’s largest public pension fund, will likely lose $600 million, the entire amount it invested in the New York and California predatory equity schemes.
Because of their mass displacement of residents, these investments have raised the widespread ire of tenants, advocates, community organizations, elected officials, and labor groups.
CalPERS, a co-author and signatory to the United Nations Principals of Responsible Investing, has effectively invested (and lost) the retirement funds of working people in projects that were designed to displace working people from their homes. Tenants Together, California’s statewide organization for renters’ rights is calling on CalPERS to adopt predator-free real estate investment policies that will prevent it from ever again committing funds to these types of schemes.
“CalPERS needs to adopt policies that will prevent the fund from ever again getting involved in these investment schemes that have been so devastating to local communities and to the retirement accounts of working people,” said Dean Preston, Executive Director of Tenants Together.
Under yesterday’s ruling by the New York Court of Appeals, Tishman Speyer Properties and BlackRock Realty, may be obligated to pay some $200 million in rent overcharges and damages to tenants of about 4,000 apartments, according to the New York Times.
“This should be a lesson to any investor considering involvement in a predatory equity schemes,” said Preston, “not only are they highly unethical because of their devastating human impact, but they’re terribly risky financially as well. By investing in these predatory equity schemes, CalPERS has failed in both its ethical obligations and in its fiduciary responsibilities to its public employee members.”
Further Background Information
For more than a year, Tenants Together has been working with tenants, advocates, labor unions, and city officials in East Palo Alto (EPA), Page Mill Properties, has been engaged in open conflict with the city and its residents. In 2006, after acquiring some 1800 properties in EPA, Page Mill began implementing drastic rent increases (many far in excess of the annual increase permitted under the city’s rent stabilization ordinance) and forcing many tenants to leave their homes through unaffordable rents, harassment, and eviction lawsuits.
After learning that CalPERS was a principal investor in the project, Tenants Together, along with advocates and tenants from EPA met with CalPERS staff and testified before the Board of Administration bringing the crisis to their attention and calling on them to intervene with Page Mill to move it to rescind the rent increases and cease the unjust eviction of its tenants.
Yet the situation continued to deteriorate in EPA as evictions and litigation continued. Finally, last month, Wells Fargo Bank reported that Page Mill was in danger of losing its properties after missing a $50 million mortgage payment. Soon after, its properties were put into receivership as an initial step towards foreclosure.
At the same time as its troubles in EPA, CalPERS’ investment with Tishman/BlackRock in New York City began to go bust as well. In this instance, a half a billion dollars worth of CalPERS retirement funds were at stake.
Three years ago, Tishman Speyer and BlackRock Realty devised a plan to buy Stuyvesant Town and Peter Cooper Village in New York City for $5.4 billion, a purchase that would amount to the largest real estate deal in American history. But as is the case with all predatory equity investment schemes, the buyers paid more for the property than could be justified by the rental income that the property was earning at the time of sale.
However, as the Wall Street Journal reports (“An Apartment Complex Teeters,” 10/15/09), “the new owners predicted they would be able to convert thousands of protected apartments to higher market rents. These projections convinced CalPERS and the pension funds of several other states to make large equity investments in the deal.”
In other words, profit was expected to come at the expense of lower-rent paying tenants who would be pushed from their homes so that they could be replaced with higher-rent-paying tenants -- and CalPERS signed on.
Apparently, like Page Mill, Tishman/BlackRock did not count on the fact that tenants would not so easily be forced from their homes. In the case of both of these schemes, tenants organized and resisted displacement. They dug in, brought their stories to the media, and filed lawsuits against the predatory investors. It now appears the tenants may outlast their landlord foes, though the future of these soon-to-be foreclosed properties remains uncertain.
CalPERS has had very little to say publicly about its partnerships with predatory investors and has refused to disclose information in response to a Public Records Act Request from Tenants Together Tenants. Tenants Together is demanding an immediate inquiry into how and why CalPERS invested in these predatory schemes.
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