CalPERS and CalSTRS are moving to prohibit controversial real estate investments that rely on raising rents on housing units that had been subject to rent-control laws.
Critics call such investments "predatory equity" and have blasted CalPERS in particular for investing in these deals. Two big ones blew up in CalPERS' face in the past year, one in East Palo Alto and one in New York, costing the pension fund a combined $600 million. CalSTRS lost $100 million on the New York deal.
CalPERS' investment committee next Monday will take up a staff proposal to ban many of these investments. "These investments have exposed CalPERS to risks including, but not limited to, damage to CalPERS reputation as a responsible investor," staffers said in a written proposal to the investment committee.
The move comes several weeks after Assemblyman Tom Ammiano, D-San Francisco, introduced legislation to bar both pension funds from making investments like this.
Tenants' rights advocates gave the CalPERS staff propopsal a cautious endorsement. "It's a step in the right direction," said Dean Preston, executive director of San Francisco advocacy group Tenants Together. But he said he believes the proposal could go further. For instance, it only affects multi-family housing. In East Palo Alto, CalPERS invested in a huge cluster of single-family rental homes.
In New York and East Palo Alto, the plan was to liberate the units from the rent controls. Generally, rent-control units become free-market when a new tenant moves in, and existing tenants were complaining they were being harrassed and illegally evicted.
CalSTRS is working on a similar prohibition but hasn't yet enacted it, according to staff memos circulated last week. The new policy "will make clear our desire to not invest in strategies that are dependent on reducing the affordable housing units," staffers said in a memo to the teachers' fund's investment committee.