CalPERS eyes ban on rent-control conversion investments

CalPERS' investment committee at its meeting next week will consider banning investments in real estate projects that eliminate rent-controlled apartments, according to the meeting's agenda.

The $209.3 billion California Public Employees' Retirement System, Sacramento, lost $500 million in an investment in Stuyvesant Town and Peter Cooper Village in New York in 2006 in a failed plan to convert subsidized rental apartments to market-level rentals.

CalPERS wrote off its entire investment after lead investors Tishman Speyer Properties and BlackRock (BLK) defaulted on mortgages for the large Manhattan apartment complexes. The buyers had purchased the complexes for $5.4 billion. Their plan to repay the debt depended on rent on regulated apartments being raised to market levels.

CalPERS staff says in the agenda item for the April 19 meeting that the new policy would not prevent the system from investing in projects that tear down rent-regulated apartments as long as they are replaced with new rent-regulated units.

The ban would be a victory for tenants groups that have called on CalPERS to ensure that its real estate policies do not adversely affect low- and middle-income tenants.

Legislation introduced in the California Assembly earlier this year would ban CalPERS from making similar investments. The bill is still pending, but has not been heard by committee yet.

“Affordable housing is an important aspect of CalPERS real estate investment strategy,” CalPERS investment staff is quoted in the agenda as saying in support of the legislation.

CalPERS has more than $13 billion invested in such real estate projects.