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 and East Palo Alto Delegation Address the CalPERS Board of Administration on Page Mill Properties Investment

On Monday, December 15th a delegation from Tenants Together and East Palo Alto traveled to Sacramento to address the CalPERS Board of Administration raising the urgent issue of Page Mills Properties' deplorable conduct as a landlord in the city of East Palo Alto.

The group addressing the Board included Mayor of East Palo Alto, Ruben Abrica, tenant and activist Chris Lund, and Jon Frohnmayer from Community Legal Services East Palo Alto (CLSEPA) as well as Tenants Together Director, Dean Preston, and organizer Andy Blue.

CalPERS, the nation's largest pension fund with more than $181 billion in assets, committed a 100-million-dollar investment in a partnership with Page Mill Properties, a Palo Alto based real estate investor, to acquire more than 1700 rent-controlled units in East Palo Alto, more than half the rent-controlled units in the city.

The members of the delegation provided compelling testimony before the Board, telling the story of Page Mill's battle over the past year with the working people and city government of East Palo Alto. Preston explained how Page Mill has shown contempt for its tenants and the city's rent stabilization ordinance by raising rents far in excess of the allowable annual increase and by unjustly evicting and harassing good tenants. He noted that Page Mill's actions present a serious financial and reputational risk to CalPERS, a fund that has prided itself in sound and ethical investments.

Mayor Abrica noted that Page Mill claims on its website to be engaged in a "public/private" partnership with the City of East Palo Alto, when in reality the relationship has been an adversarial one due to Page Mill's aggressive conduct. Abrica announced that he would be introducing a resolution to the EPA City Council this week denouncing Page Mill's illegal rent hikes, evictions, and harassment of its tenants. The resolution also expresses the city's deep concern with CalPERS' investment with Page Mill and calls upon the Board and staff of the pension fund to do everything in their power to intervene and move Page Mill to rescind its excessive rent increases and cease its evictions. [Note: The resolution passed 4-1 on December 16.] The city council resolution came on the heels of a similar resolution passed unanimously by the executive board of SEIU Local 521 which represents over 25,000 public employees that participate in CalPERS, including at least 20 members currently living in units owned by Page Mill.

Mr. Frohnmayer, who serves as Volunteer Attorney Program Coordinator at CLESEPA, briefed the Board about the multiple lawsuits that have resulted from the controversy. He also gave examples of the numerous eviction cases filed by Page Mill that they are routinely forced to drop due to lack of merit, once the tenants secure counsel. He explained the arrogant nature of Page Mill and its attorneys as they seek to "win by default" filing unjust eviction cases knowing that many tenants will be unable to afford legal representation and that the local legal service agencies are overloaded and unable to serve all the tenants who need help.

Tenant and activist Chris Lund began with the startling annoucement that Page Mill had offered him a sum of $25,000 to cease speaking with CalPERS staff about the controversy. He estimated that in the last several months some 1500 tenants have been evicted or forced to move due to harassment and excessive rent hikes. Mr. Lund said that he has been in touch with CalPERS staff since August of this year informing them of the situation in EPA and that action on their part was needed as soon as possible.

Preston also pointed out to the Board that Page Mill's investment in rent controlled housing is a clear example of a notorious practice called "predatory equity" that relies on displacement of low-income tenants in order to make profits on overleveraged investments. He said that Tenants Together looks forward to working with CalPERS in the creation of investment policies that will prevent the fund from unwittingly becoming entangled in future predatory investment schemes.

Some board members expressed surprise and concern upon hearing the presentations. Investment Committee chair George Diehr, after learning of Abrica's city council resolution, stated that CalPERS would never knowingly make an investment with such harmful social impacts. Diehr asked Senior Investment Officer of Real Estate, Theodore Eliopoulos, to respond to the delegation's comments. Eliopoulos said that CalPERS staff was concerned about the situation and would be meeting with Page Mill representatives on December 16 to discuss the matter.

We'll keep you updated on the situation. Tenants Together will continue to work to protect the tenants of East Palo Alto and to make sure that CalPERS adopts strong policies to prevent future real estate investments that hurt tenants.