We're very pleased to announce that State Assemblymember Tom Ammiano has introduced AB2337, a bill that would prohibit the use of state public pension funds in "predatory equity" real estate investment schemes.
Predatory equity is a particularly nasty form of real estate speculation that has a devastating impact on tenants and their larger communities. In these schemes investors knowingly pay far more for properties than they are worth based on actual rental income. The investment model is predicated on displacing low and middle-income tenants so that rents can be drastically increased or so that units can be vacated and converted to high-priced condominiums.
California public pension funds, CalPERS and CalSTRS, have both been the subject of nationwide media attention for their controversial investments in predatory equity schemes in California and New York. Tenants caught in one such scheme in East Palo Alto have faced unjust evictions, excessive rent increases, harassment, serious maintenance neglect, etc. The very future of EPA as one of the last affordable communities in the Silicon Valley region has been seriously threatened.
Today's Wall Street Journal covers this very topic in the article, "Backlash hits CalPERS property deals."
"It is unconscionable that hundreds of millions of dollars in public funds have been used in efforts to evict tenants from New York to California,” said Ammiano. “Actions speak louder than words and CalPERS needs to make its claim of socially responsible investing a reality.”
For more than a year, Tenants Together, along with tenants, activists, and elected leaders from East Palo Alto, has been pressuring CalPERS, the nation's largest public pension fund, to adopt its own policies that would prevent it from becoming entangled in predatory equity schemes. CalPERS' failure to take action has made the move to create legislation to address this issue a necessary step.
“The retirement funds of working people should not be used to evict working people. We applaud Assemblymember Ammiano for introducing this important bill that will ensure that public employee pension funds are not invested in predatory schemes that displace renters,” said Dean Preston, our executive director.
CalPERS a co-author and signatory to the UN Principles of Responsible Investment, has taken pride in being a leader in socially responsible investing. Yet it has invested hundreds of millions of dollars, with partners Page Mill Properties in East Palo Alto and with Tishman Speyer/BlackRock in New York City, in speculative real estate schemes that have proven disastrous for tenants.
The investments have also proven financially irresponsible to the public employees who have entrusted the pension funds with their retirement savings. It appears CalPERS will lose at least $600 million and CalSTRS $100 million in predatory equity schemes on both coasts as the risky investments faced push back from tenants and the properties eventually went into foreclosure.
Chris Lund, a tenant and spokesperson for the EPA Fair Rent Now Coalition who has witnessed first hand the devastating impact the schemes have on communities, also applauded the introduction of AB2337. "At its heart, this bill introduces greater transparency and accountability into California's pension fund investment decisions, something that will benefit communities across the country."