A troubled $500 million CalPERS investment was dealt another serious blow today, courtesy of a major court decision in New York.
The New York Court of Appeals, the state's highest court, ruled that the owners of a big Manhattan apartment complex overcharged tenants by improperly converting their rent-controlled units to free-market prices. The tenants are seeking $215 million in damages.
CalPERS invested $500 million in the mostly rent-controlled Peter Cooper Village and Stuyvesant Town apartment complex in 2006, when the project was sold for an eye-popping $5.4 billion.
The plan was to convert as many of the units as possible to market-rate apartments, with the idea of jacking up rents. That fell apart when the economy collapsed and tenants began fighting back in court. The apartment complex might soon go into default.
California's other big public pension fund, CalSTRS, has already written off its $100 million investment in the deal.
The New York court ruled that the owners of the apartment complex couldn't raise rents beyond a certain level as long as they were receiving certain tax breaks.
To read the court's decision, click here.