The Wall Street Journal is good this morning to look at how public entities dirtied their hands in the bubble by teaming up on investment deals that preyed on low-to-middle-income people.
It’s specifically looking at Calpers—the enormous California pension fund—here and its real estate investments. Calpers was a big part of the notorious Stuyvesant Town-Peter Cooper Village purchase, which has the distinction not only of being one of the worst real estate deals of all time, but also one whose business plan was to aggressively dump middle-class tenants out of its apartments and raise rents sharply. Again, this is a government entity doing this, even if not to its own people.
The California Public Employees’ Retirement System has partnered with firms that have bought and converted rent-regulated buildings in East Palo Alto, Calif., and in other New York City neighborhoods, including Harlem and Manhattan’s Upper East Side.
Some deals have led to losses; at least one has paid off. But whatever the investment result, the conversion of low-rent properties to market-rent apartments—and the ejection of some tenants in the process—is raising concerns within and beyond Calpers about its role in these deals.
To say the least. With Stuy Town, Calpers’ money helped put the screws to thousands of tenants—illegally. And that’s not the only nasty deal it was involved in:
In 2006, Calpers invested $100 million in an apartment-complex purchase in East Palo Alto, Calif.
Tenants accused the real-estate investor and Calpers’s partner, Page Mill Properties, of using aggressive tactics, like failing to fix leaks or threatening litigation, to make rent-stabilized residents feel unwelcome…
In late 2008, after two successive months of rent increases on his East Palo Alto apartment, from $1,100 to $1,150 and then to $1,200, Sione Mahoni said Page Mill wouldn’t accept more payments from him.
“I gave them a money order” for the rent due, he says, “but they wouldn’t take it. They told me to talk to the Page Mill lawyer. They told me they wanted me to move out.”
He did. Mr. Mahoni, a 40-year-old truck driver born in the South Pacific archipelago of Tonga, and his wife spent the next week sleeping in his car. Then they moved into his parents’ home, where he is still looking for work and a new apartment.
Nice anecdote.
Needless to say, while for some reason we’ve pretty much lost much of the stigma against private industry acting like predators (see second item here), it’s a different thing altogether when the government does it—for money.
All this was foreseeable, of course—these guys made no secret of their intentions, at least with the Stuy Town deal. It would have been better to have seen this story before people were put out rather than after, but we’ll take what we can get.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.