More On Big Hit Taken By California Pension Funds On Investments In "Predatory Equity" Real Estate Deals Designed To Dodge Local Rent Control Laws

In East Palo Alto, California, The Sacramento Bee reports:

• At the top of the real estate bubble, CalPERS [California Public Employees' Retirement System] invested $600 million in two deals that were 3,000 miles apart but linked by a common vision: Buy apartments governed by rent-control laws and turn them into cash cows. The plan failed in a flurry of litigation and bad debt. A project in East Palo Alto is in default. The second deal, in New York, is likely headed that way. CalPERS could lose most or all of its money.

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• [Advocates for tenants' rights] say the $200 billion investment fund was party to a pair of schemes to jack up rents at the expense of thousands of working-class and middle-class tenants.

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• In East Palo Alto, where CalPERS invested $100 million in a cluster of rental units, the project was hit with a default notice from Wells Fargo & Co. That's the first step toward foreclosure. In New York, CalPERS poured $500 million into a massive apartment deal that's turning into one of Manhattan's largest real estate debacles ever. [...] In another big setback for investors, the state's highest court recently ruled that the partnership was raising rents illegally.(1)

• The California State Teachers' Retirement System [CalSTRS] has written off the $100 million it invested in the New York deal. CalSTRS and CalPERS lost a combined $100 billion in the fiscal year ending June 30 and say taxpayers might have to put more money into the pension funds.

For more, see CalPERS realty deals and image take a beating.

(1) For the ruling, see Roberts v. Tishman Speyer Properties, L.P., 2009 NY Slip Op 7480; 2009 N.Y. LEXIS 3953 (October 22, 2009).