Wall Street Journal covers CalPERS' predatory equity investments

In today's Wall Street Journal, reporter Craig Karmin covers the story of CalPERS' predatory equity investments in an article titled "Backlash Hits CalPERS Property Deals." With partners, Page Mill Properties (in East Palo Alto) and Tishman Speyer/BlackRock (in New York City), CalPERS invested some $600 million in schemes that had a devastating impact on tenants.

It's a story that has now been widely covered from the Sacramento Bee to the New York Times.

For more than a year, Tenants Together has been pressuring CalPERS to adopt policies that will prevent its involvement in predatory real estate investments that are predicated on displacing tenants to turn profits.

The WSJ report comes on the same day that Assemblyman Tom Ammiano's announcement that he will be introducing legislation to prevent state public pension funds from investing in predatory real estate investments (see previous post.)

The article includes accounts from East Palo Alto tenants who were forced to deal with Page Mill Properties' abusive practices as the city's largest landlord:

Eric Oberle, a history teacher, moved out of the East Palo Alto complex in August 2008, a few months after the new owners raised his monthly rent to $1,450 from $1,095. Page Mill officials told him that they had incorporated each property separately, which they maintained exempted them from rent-control laws.

Before he left, Mr. Oberle recalls the quality of life at his building deteriorated. "There was a Kafkaesque feeling to it," he says. "People would park their trucks in the driveway, so we couldn't get our cars out for hours. The owners removed all trees in front of the building. They would repeatedly measure the inside of the units, or would keep checking the gas, constantly invading our privacy. They wouldn't repair laundry machines, which all stopped working about the same time."

Assemblymember Ammiano introduces bill to prevent public pension investments in predatory schemes that displace tenants

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."

Tenants Together Members Fight Bank Evictions and Win: CNN Covers Their Stories

Thousands of tenants in California have been unlawfully evicted by post-foreclosure landlords, typically banks. With the help of Tenants Together, a growing number of tenants are standing up for their rights and winning.

Today, CNN profiled the victory of two Tenants Together members. Sandra Pearson, a Santa Maria tenant, got OneWest Bank to dismiss an eviction lawsuit against her and allow her to stay in her home through the end of her lease. Owen Casper, a San Diego tenant, fought back against an aggressive real estate agent and got Fannie Mae to offer him a new, year-long lease. Now both of these tenants have the security of knowing they can continue residing in their homes.

As Sandra posted on our Facebook page, "Remember that song - I fought the law and the law won? Today I'm singing - I fought the bank and I won!"

Read the full article CNN article by clicking here.

Fannie Mae Taking Steps in the Right Direction

In response to TT's February 2, 2010, letter to Fannie Mae, calling it out for contracting with real estate agents that harass and mislead tenants living in its foreclosed properties, Fannie Mae has taken a big step in the right direction. Fannie has informed TT that it is offering one year leases to eligible tenants and, further, that in response to our letter it is sending “communication to all Fannie Mae agents that not complying with the letter and the spirit of the Protecting Tenants at Foreclosure Act and Fannie Mae’s rental policies will result in termination.” The letter also makes other commitments about which we have requested more information.

Tenants Together will continue to work with Fannie Mae to assure that tenants living Fannie Mae foreclosed properties are treated fairly. We’ll keep you updated on our progress.

The Federal Move to Protect Tenants

Tenants Together Executive Director, Dean Preston has published an article in the latest issue of Shelterforce, the journal of affordable housing and community building from the National Housing Institute.

The article includes an overview of the protections afforded tenants under the Protecting Tenants at Foreclosure Act, the first federal tenant rights law in nearly 20 years.

Preston states in the piece:

"It is not clear whether the PTFA was simply a one-time legislative response to mitigate abusive conduct by banks toward tenants after foreclosure or whether it signals a new era of federal concern over the plight of tenants. With an estimated one-third of Americans living as tenants and struggling to make ends meet in the current economy, now is a perfect time for the federal government to take a more proactive role to protect tenants."

Read the full article at the Shelterforce website.

Tenant Victory! Fannie Mae Scrambles to Save Face by Offering Tenant New Contract

On Friday, February 8, just three days after Tenants Together issued a press release calling out Fannie Mae for contracting with real estate agents that aggressively and illegally push out tenants living in their foreclosed properties, Fannie Mae scrambled to save face by offering Owen Casper, the San Diego tenant and cab driver whose story was profiled, a new one year contract.

Owen reports that two Fannie Mae representatives visited him at his home, treated him very nicely, and offered him a new, one year rental contract. As Owen explains, after Fannie Mae felt the public pressure, things quickly changed and “a tense situation that started pretty bad, ended pretty good.”

Tenants Together is very happy about Owen’s victory. However, it is not enough for Fannie Mae to address these incidents on a case-by case-basis. If Fannie is serious about following the federal law and its own policies, it must respond to the letter Tenants Together sent it a week ago demanding that it comply with tenant protection laws and its own policies, establish a tenant-friendly complaint system for its tenants to file complaints over harassment by its contractors, and that it terminate all its contractual relationships with real estate agents, lawyers, and contractors that provide false or misleading information to its tenants.

Guardian UK reports real estate agents in the U.S. flout federal law and bully tenants in foreclosure

Sasha Abramsky of the British newspaper, the Guardian, has published some solid reporting on how real estate brokers and agents bully tenants after foreclosure as though the Protecting Tenants in Foreclosure Act (PTFA) "didn't exist."

Tenants Together's report "Hidden Impact: California Renters in the Foreclosure Crisis" is cited in the piece and Program Director, Gabe Treves, was interviewed at length for the story. Abramsky will be publishing a complete Q and A with Treves in the coming weeks.

Under PTFA tenants with outstanding leases have the right to remain in their homes for the the terms of their leases (with some exceptions) and tenants with month-to-month agreements are entitled to 90-day notices. Yet, it remains the practice of foreclosing banks to hire real estate agents who mislead or intimidate tenants into leaving their homes before they have to.

It is not uncommon for tenants in these situations to come home and find intimidating, anonymous, and legally misleading, posters stuck to their doors. One such starts with "Attention!! This property has been foreclosed and is now bank-owned. The eviction process has started. The property is being monitored." The words are in bold and the text is circled for emphasis. Another begins: "To whom it may concern: We were informed this property was vacant. We have changed the locks." Another resorts to financial intimidation: "The eviction process has been started by the bank. It is in your best interest to avoid having an eviction added to your credit report. It is very difficult to rent a property with an eviction on your credit report."

Read the full article at the Guardian UK website.

FTC nails tenant screening company -- $100,000 fine

A tenant screening company named First Advantage SafeRent must pay a $100,000 fine for rejecting tenant requests to check information on reports used by landlords to screen prospective tenants. According to the Federal Trade Commission's press release:

A tenant screening agency that rejected consumers’ requests for their files and failed to recheck information on their consumer reports after they had disputed it has agreed to settle Federal Trade Commission charges that it violated federal law. The settlement order requires the company to pay a $100,000 civil penalty and bars future violations.

The settlement also includes an order forcing the company to promptly provide copies of the report to tenants upon request, and to investigate disputed contents in reports.

Inaccurate tenant screening reports can have devastating contents, making it extremely difficult for tenants to obtain housing. Federal law allows tenants to get copies of their reports and challenge inaccuracies.

To learn more about your rights under the Federal Fair Credit Reporting Act, check out the FTC's fact sheet.

Tenant Activists Call Out Fannie Mae for Throwing Out Tenants After Foreclosure

Fannie Mae is being called out by tenant activists for pushing tenants out of their homes in violation of both the Protecting Tenants at Foreclosure Act and its own written policies.

Tenants Together, which operates a hotline for tenants in foreclosure situations, announced in a press release today that it has received a growing number of calls from tenants living in properties acquired by Fannie Mae at foreclosure. Tenants in these properties report being harassed and misinformed by Fannie Mae-contracted real estate agents in violation of their rights both under tenant protection laws and Fannie Mae’s own, recently adopted policies.

Additionally, Tenants Together has sent a letter to Fannie Mae demanding that it comply with tenant protection laws and its own policies, establish a tenant-friendly complaint system for its tenants to file complaints over harassment by its contractors, and that it terminate all its contractual relationships with real estate agents, lawyers, and contractors that provide false or misleading information to its tenants.

In Texas, Robert Doggett, Texas Rio Grande Legal Aid reports that Fannie Mae is being as bold as to serve tenants with Notices to Vacate that spell out how it will go about violating the federal law. Check out his blog post.

The impact of foreclosures on the mental health of tenants

The Merced Sun-Star has published an outstanding series of articles titled "Houses of Blues: the Extreme Stress of Merced's Foreclosure Epidemic." The series is the product of a four-week investigation of the psychological and other health problems wreaked by the local foreclosure crisis. The paper partnered with California HealthCare Foundation Center for Health Reporting to gather the stories of dozens of people caught in the mortgage meltdown, many of them tenants.

One of the articles, "Renters, beware of trapdoor" focuses specifically on the immense stress foreclosures are putting on unsuspecting tenants.

"For a homeowner, it is hard, but for a renter in a home, being swept from underneath with no notice, it is rather abrupt and scary," said Jannel, 28.

Another article, "Foreclosure takes heavy toll on hearts and minds," sites a study published in October in the American Journal of Public Health about residents undergoing foreclosure in Philadelphia:

The findings are grim. More than one-third of those residents met the screening standards for major depression, such as feelings of sadness and changes in appetite or sleep patterns, said the article's lead author, Dr. Craig E. Pollack, a Rand Corp. researcher and assistant professor of medicine at George Washington University in Washington, D.C. That compares to about 13 percent for people living in poverty.

Read the series online at the Merced Sun-Star.

Breaking news: Court of Appeal strikes down fee award for predatory landlord

David Taran's companies (Page Mill Properties, Woodland Park Management LLC, etc) have been at war with the City of East Palo Alto and its residents. In one case, the predatory landlord successfully sued the City and then got an order directing the city to pay the landlord's attorneys fees of over $20,000.

The Court of Appeal has thrown out the fee award, holding that the City is not on the hook for paying the fees of a landlord who sues and wins under East Palo Alto's Rent Stabilization Ordinance.

Check out the Court of Appeal ruling here.

Congratulations to the City of East Palo Alto for this victory. At least this will prevent some funds from going to bail out David Taran and his failed venture in EPA.

The Eviction Tax: Time for Banks to Pay for the Displacement They Cause

By Dean Preston

In his State of the Union address, President Obama announced his intention to tax the largest financial institutions “to recover every single dime the American people are owed.” His desire to recoup direct costs of bank bailouts is a positive step, but a tax on banks must go further by addressing ongoing misconduct. Every day, banks are throwing people out of their homes. Banks should be taxed for each post-foreclosure eviction they perform.

Banks have a choice after they foreclose on property. They can evict all residents or they can keep residents in their homes. Banks choose to evict all occupants of the properties they acquire through foreclosure, even if the residents are willing and able to pay market rent to stay in their homes.

Amazingly, not a single governmental policy discourages banks from making the choice to evict, a choice that is ruining lives and costing our communities millions of dollars. It is time to change the incentives. Taxing evictions would be a good start.

Bank evictions have major societal costs. People displaced from foreclosed properties are increasingly forced into homelessness, inflicting trauma on families and requiring government expenditures to house and provide basic services for displaced persons. Those who find replacement housing often must move to new areas, severing them from places of employment, schools and other support networks. Evicting residents after foreclosure also causes vacancy and blight, triggering a downward spiral in neighborhood property values and property tax revenues. All of this is due to the decision of banks to evict residents after foreclosure.

Our society can tax conduct that has costs that are not adequately addressed by the market. Such taxes, referred to by economists as “Pigovian taxes,” are levied to correct the side effects (also know as “negative externalities”) of market activity. For example, some jurisdictions impose a “carbon tax” on corporations spewing excessive pollution into the environment. The tax helps deter corporations from polluting while addressing environmental damage and other related social costs. Likewise, a cigarette tax helps deter smoking and address health care costs that result from tobacco usage.

An eviction tax would have several benefits. First, by driving up the cost of evictions, it would discourage banks from evicting after foreclosure. Banks would have a financial incentive to keep homes occupied. Second, the tax would help offset the costs to society of evictions. There is no good reason banks should not pay their fair share of these societal costs that result from their decision to evict residents from their homes. Third, the tax revenue, or at least some of it, could be used to fund direct relief to the people evicted. Former homeowners and renters who are forced out of their homes often need assistance to find new housing, cover new security deposits and pay for other moving costs. An eviction tax would raise revenue and modify behavior, while providing long overdue relief to the victims of predatory banks.

Banks have refused to change their unconscionable (and fiscally unwise) practice of kicking residents out of their homes after foreclosure. So far, displaced residents and society at large have paid the costs of these senseless bank evictions. An eviction tax would be an appropriate response to the mass evictions being carried about by banks across our nation every day.

Dean Preston is the Executive Director of Tenants Together, California’s statewide organization for renters’ rights. For more information, visit www.TenantsTogether.org.

New York Times publishes excellent letter and article on predatory equity

The New York Times published a great letter today from one of it's readers who calls out CalPERS and CalSTRS for their investments in a predatory equity scheme in New York in which profits were premised on the displacement of middle-income tenants.

One outrageous aspect of the “failed” deal for Stuyvesant Town and Peter Cooper Village, where the buyers have turned the keys over to the lenders, was that pension funds for teachers and public employees in California — California State Teachers’ Retirement System and Calpers — squandered hundreds of millions of dollars on an investment predicated on pushing middle-class tenants like New York City teachers and public employees out of their apartments and shrinking the supply of affordable housing for those constituencies and other middle-income New Yorkers.
-- Ellen Freilich

This follows an outstanding piece by Gretchen Morgenson from Saturday's edition of the Times about a rash of predatory equity schemes in New York City titled "All Those Little Stuyvesant Towns."

Morgenson reports that New York Attorney General Andrew Cuomo is preparing to sue private equity firm, Vantage Properties, for it's practices as a predatory landlord. In a letter warning Vanguard of impending litigation the AG's office contends that Vanguard:

engaged in a “systemic pattern of harassment” to generate significant tenant turnover. Increasing turnover was central to Vantage’s business strategy, the attorney general’s office said, so that it could charge much higher rents after renovating the newly vacant apartments.

Replace "Vantage" with "Page Mill" and you'll get an almost perfect description of what Page Mill Properties, backed by a $100 million CalPERS investment, attempted to do in East Palo Alto:

“Vantage’s ability to satisfy its projected profits largely depends on its ability to evict rent-regulated tenants and raise rents to market levels,” wrote Alphonso B. David, chief of the Civil Rights Bureau in the attorney general’s office, in a letter to the company last week. Vantage tried to force out long-term tenants “by serving baseless legal notices and commencing frivolous housing court eviction proceedings,” he wrote.

The article is definitely recommended reading. Attorney generals in states where predatory equity schemes have been perpetrated may find it particularly interesting.

A Crucial Moment for Affordable Housing in the Silicon Valley

By Andy Blue

East Palo Alto stands at a crossroads as one of the last affordable communities in the Silicon Valley. Today, more than half of the city’s rental housing stock was scheduled to hit the foreclosure auction block.

Although the auction has been postponed because of ongoing negotiations between the city and the receiver appointed by the courts to run the properties in lieu of the defaulting predatory landlord, the matter of what will become of half the city's rental housing remains a very urgent one. It is imperative that tenants, advocates, elected officials, and the foreclosing lender, Wells Fargo Bank, work together to make certain that safe, affordable housing is preserved in the City of East Palo Alto.

For the past two years, EPA residents have suffered the predictable and devastating consequences of a “predatory equity” scheme at the hands of the city’s biggest landlord, Page Mill Properties and its founder, David Taran. “Predatory equity” is a nasty and reckless form of real estate speculation that has resulted in the displacement of countless tenants across the country.

In these schemes, investors knowingly pay far more for rent-regulated properties than can be justified by the actual rental income at the time of purchase. To turn profits, investors push out existing tenants – through excessive rent increases, evictions, and harassment – so that they can be replaced with higher-rent tenants, or so the units can be sold off as high-priced condominiums.

Starting in 2006, with bank loans and a $100 million investment from CalPERS, California’s public employee pension fund, Page Mill began an over-leveraged buying spree of 1800 units of rent controlled housing on EPA’s west side. By December 2007, Page Mill began aggressively raising rents and stepping up evictions. Still, things did not go as David Taran and his fellow investors had hoped.

While many low income residents were indeed forced from their homes and rents were drastically increased, tenants and organizations such as the Fair Rent Coalition and Youth United for Community Action challenged the greedy scheme that threatened their community. They fought back by filing lawsuits, staging rallies, and getting their stories in the media. Now, with foreclosure looming on Page Mill, it appears the tenants and advocates have outlasted the predatory landlord, but the community has paid a terrible price.

Many are glad to see Taran’s company lose ownership of the properties. In fact, there was a sigh of relief when the court appointed a receiver to manage the properties recently and Page Mill disappeared into the night, literally abandoning their offices without notice. However, the celebration must not come too early. A similarly bad situation may play out again in EPA if all the parties involved do not make certain to prevent it. With the property on the auction block, a significant risk exists that a new group of speculators will buy the property and continue the assault on affordable housing in EPA. Much turns on whether the property will again be overleveraged, or whether it can be transferred to a responsible landlord.

In New York City, where a number of similar high-profile predatory equity schemes have begun to collapse, we see a model for how tenants, city officials and lenders can work together toward an acceptable outcome that preserves affordable rental housing.

As the Ocelot Capital Group went into default on its large portfolio of over-leveraged rental properties in the Bronx, the properties degraded into virtual squalor. But in December, advocates and city officials proudly announced that a responsible investor, with a favorable record of preserving and refurbishing affordable housing, would be purchasing the debt on the properties en route to outright ownership. Significantly, Congressman Jose Serrano and Senator Charles Schumer took leadership roles by intervening to protect tenants from further abuse.

As lender Wells Fargo considers buyers for the properties in EPA, it must prioritize the impact this decision will have on the tenants and the entire community. The bank should work with residents, community organizations and city officials to transfer the property to a responsible buyer who will preserve affordable rental housing. The portfolio must be sold at a price that reflects its true value, based on pre-Page Mill rental income in compliance with the city’s Rent Stabilization Ordinance, not on an imagined value based on what investors think they might earn in a predatory equity scheme.

Nonprofit affordable housing organizations should be consulted about their interest in acquiring or managing some or all of the portfolio. Investment groups, such as Preservation of Affordable Housing, that are committed to preserving affordable housings, should also be brought to the table.

As in New York, elected officials, including Congresswoman Anna Eshoo and Senators Barbara Boxer and Dianne Feinstein should take an active and vocal role in this process, using their influence to see that a responsible buyer is selected.

East Palo Alto has suffered enough. Now is the time to ensure the preservation of affordable rental housing in this community for generations to come.

UPDATE: This piece was quoted in a Mercury News article by Jessica Berstein-Wax about the delay of the foreclosure auction.

This was republished at Beyond Chron.