(Bloomberg) — New York City’s $86 billion pension fund for public employees is investing in a nonprofit-led partnership that underwrote real estate loans related to rent-controlled and rent-stabilized apartments from failed Signature Bank.
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The New York City Employees’ Retirement System (NYCERS) will invest up to $60 million in a Community Preservation Corporation-led partnership to provide approximately 1,000 rent-stabilized units affected by Signature Bank’s sudden collapse last March. The city announced that it plans to preserve 35,000 homes. Comptroller Brad Lander said Tuesday. The fund owns 25% of the partnership, which also includes Associated Fund Management and Neighborhood Restore HDFC.
“Protecting and expanding the affordable housing supply through sound investment decisions is a key priority for my office,” Lander, who serves as investment adviser to the city’s retirement fund, said in a press statement.The comptroller estimated the internal rate of return on the investment, excluding fees, was nearly 11 percent.
Lander’s office said the bulk of the apartments under the deal are in Manhattan and the Bronx, with 13,000 and 10,000 units, respectively, with the remainder in Brooklyn and Queens.
Signature Bank was one of the few local banks to fail in 2023. That failure sparked anxiety among New York City tenants and elected officials about how it would affect the bank’s loan portfolio for rent-stabilized buildings.
“We have to make sure that union members and working-class people have the opportunity to stay in the city they helped build,” Mayor Eric Adams said at a news conference announcing the investment. “This is an area we can all agree on. New Yorkers must be housed, and they must be housed in an affordable way.”
New York banking regulators placed Signature Bank in receivership last March after depositors lost confidence in management and fled the bank. The Federal Deposit Insurance Corporation has formed a venture company to take over $33 billion in commercial real estate loans held by Signature. In December, the FDIC sold a 5% stake in two businesses that back rent stabilization and rent control loans to a CPC-led partnership. The $5.8 billion portfolio includes approximately 35,000 units, 80% of which are rent-regulated, representing approximately 3% of the city’s rent-regulated housing stock. CPC repays loans held by venture companies.
CPC CEO Rafael Setero said the nonprofit will work with building owners to restructure or refinance debt as it comes due and evaluate needed renovations. He estimated it could take 10 years to pay off the mortgages on 35,000 homes.
Read more: Non-profit bid supported by related organizations wins stake in Signature Debt
The pension fund’s investment will provide a boost to the program overseen by Lander’s office. The program seeks to generate risk-adjusted market returns through investments in affordable housing and economic development. Five pension funds for city employees, police officers, teachers, firefighters and non-teaching school employees have fallen short of their goal of investing 2% of their assets in so-called economically targeted investment programs. .
Currently, less than 1% of $272 billion in pension assets is invested in financing affordable workforce housing.
Lander’s office has previously said that the share of pensions in ETI investments has not increased because most are long-term, fixed-income assets that lost value when mortgage rates started rising in 2022. He said that. Over 40 years, the city’s public employee pension fund has invested about $700 million in rental apartments. All five pensions have invested $4.5 billion in the ETI program.
Read more: New York City’s $264 billion pension fails to invest more in affordable housing
The New York City investment comes amid the worst housing crisis in more than 50 years.
Rental vacancy rates fell to 1.4% from 4.5% in 2021, the lowest level since 1968, according to a city survey in February. Apartments suitable for rent were even more scarce for low-income New Yorkers. Only 0.4% of units were available for rent for less than $1,100.
–With assistance from Natalie Wong.
(Updated details in 3rd and 8th paragraphs and added words from Mayor Eric Adams in 6th paragraph.)
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