CalPERS Changes Multi-Family Investment Policy

By Jon PetersonCalifornia Public Employees’ Retirement System will be considering an investment policy change for rent-regulated multi-family housing at its April 19th investment committee meeting. According to pension fund staff materials, the new policy promotes responsible property investment by prohibiting excessive rent increases and the involuntary displacement of low income households in rent-regulated multi-family housing.

CalPERS refused to comment for this story. Many people in the real estate investment industry have raised questions about investments to which CalPERS had committed in the past involving rent-regulated properties and trying to force some of the tenants to move out. The end result has been $600 million in losses by the pension funds in this investment strategy.

The loss of capital was in two high profile projects. The largest of these was in a $500 million loss in the investment that CalPERS made in the 11,232-unit Stuyvesant Town and Peter Cooper Village complex in Manhattan. The other $100 million setback was in the 101-property apartment portfolio run by David Taran and his Page Mill Properties company in East Palo.

According to staff documents, a clear policy protecting rent-regulated multi-family housing is needed because CalPERS is often a limited partner in investments and, hence has little or no control over the investment strategies its investment managers use. The impact of certain strategies on rent-regulated, multi-family housing has been of great concern to the pension fund’s investment committee and staff. Tenant groups have voiced their concern over the strategies used by certain managers. These investments have exposed CalPERS to risks including, but not limited to, damage to CalPERS’ reputation as a responsible, socially conscious investor.

Recently the California State Assembly introduced Assembly Bill 2337 to address the issue of tenant impacts associated with CalPERS and CalSTRS investments. As drafted, the proposed legislation would effectively prohibit CalSTRS and CalPERS from investing in the creation and preservation of affordable housing. This would call for CalPERS to not participate in private real estate investment strategies that rely on or result in eliminating rent-regulated multi-family housing units, converting such units to market rate units or raising rents above regulated levels as determined by the appropriate governing authority.

CalPERS still wants to be an equity investor in the development and re-development of existing rent-regulated housing units. There are two stipulations with this. One is any rent-regulated housing units that are demolished as part of such investment or project are replaced with new rent-regulated housing units. The other is that any persons lawfully resident in rent-regulated units who are displaced as a result of such strategies receive relocations benefits in accordance with the the local housing authority or by state or federal laws, if applicable.

CalPERS worked with three companies in drafting the proposed policy revision. One of these was the pension fund’s real estate consultant, Encino, Calif.-based PCA. The consultant, in a document to the pension fund’s investment committee members, stated that the strategic objective of CalPERS is to prevent the displacement of low-income or workforce households in rent regulated units while maintaining the ability to invest in strategies that create new or re-developed existing rent-regulated housing units. PCA wants to see the investment policy revisions happen.

CalPERS also worked with two of its existing affordable housing managers on the investment policy changes. One was San Francisco-based Bridge Housing Corporation and the other was KSC Affordable Housing Investment Fund. These two companies reached out to key stakeholders and reviewed and approved the new policy revisions.

West Coast Commercial Real Estate News