August 22, 2013 Leave a comment
NYU’s Furman Center for Real Estate and Urban Policy is in the middle of #NYChousing, a ten day series which looks at ten affordable housing policy issues facing the next mayor. This morning, the Furman Center lead a Twitter conversation on Mandatory Inclusionary Zoning. Read their policy brief here, and be sure to check out Councilmember Brad Lander’s and ANHD’s longer reports as well.
Tomorrow’s topic is city pension funds: “Should the next mayor seek to expand the use of pension funds to develop affordable housing?” Several candidates have recommend leveraging up to $1 billion of the pension funds’ $137 billion in assets to create and preserve more affordable housing.
There is another dimension to the pension fund debate that UHAB has particular interest in, that (to our knowledge) no candidate has yet discussed. Predatory equity companies that invest in NYC affordable housing are backed by investors, and many of those investors are public pension funds. One of the many problems with predatory equity is that it assumes a financial return that is virtually impossible without breaking New York State rent regulation law and violating tenants’ rights. The City could declare that it will only invest in groups that make responsible real estate investment, in line with the State’s rent regulation laws.
In New York City, this is not without precedent. In 2008, we discovered that city pension money was being used in $950 million deal on five former Mitchell Lama buildings in Northern Manhattan. We asked then-Comptroller Bill Thompson to do something about it; he agreed to insist on an “opt out” clause for future real estate investments so the City can pull its money from purchases where the financials don’t make sense. City Limits called it “shareholder activism” t the time. We don’t know if the practice continued past Thompson’s term.
Public pension funds are still heavily involved in predatory real estate investments. For instance, we discovered that the New York State Teachers Retirement System (NYSTRS) is invested in the Lone Star’s LSREF II. Lone Star used this fund to buy up distressed housing in Washington Heights and flip it, re-overleveraging it in the process. This kind of behavior by pension funds is particularly unconscionable when you consider that many of the working people living in housing at risk due to predatory equity are the very people who one day hope to live off the pensions in question – public employees.
Of course, there is another fundamental problem with mayoral candidates hoping to leverage pension funds. As John Liu would almost certainly tell us if Bloomberg tried to get his hands on the pension: it’s just not the mayor’s business. Perhaps the candidates should weigh in on how they plan to work with the Comptroller, or perhaps the question should be posed to Stringer or Spitzer.
Either way, the question of pension funds is an interesting one. Be sure to join the Furman Center tomorrow on Twitter (@FurmanCenterNYU) to talk about it more. We’ll see you there.