NYC Pension Fund's Rent-Stabilized Investments Plunge by 69%, Marking Over $360 Million Loss

New York City's pension fund has reportedly incurred substantial losses on its investments in rent-stabilized apartment buildings, with recent analyses indicating a significant devaluation since the 2019 Housing Stability and Tenant Protection Act (HSTPA). The investments, once valued at $531 million, have plummeted to $165 million, representing a 69% decrease, according to reports by The Real Deal. The situation has drawn sharp criticism, with Kenny Burgos, CEO of the New York Apartment Association, stating on social media, "> The NYC pension fund purchased rent stabilized buildings and have since lost hundreds of million$$ They even have a 13% vacancy rate with 263 empty apartments! Now tell me, did the city speculate? Are they “warehousing”? Or is our housing policy seriously broken?"

These losses stem from investments made by two city-managed pension funds with developers Related Companies and Hudson Companies Incorporated, initially aimed at preserving affordable housing post-Hurricane Sandy. A specific portfolio of 34 buildings, once part of these investments, was recently sold for 24% less than its purchase price, revealing 263 vacant units, a 13% vacancy rate, and over 3,000 housing code violations. Bisnow further reported net losses from dispositions exceeding $127.5 million, with some sales occurring at more than 50% discounts.

Industry observers and landlord groups largely attribute the financial downturn to the 2019 HSTPA, which significantly restricted rent increases in stabilized units. Kenny Burgos, quoted in The Real Deal, asserted that "New York City’s own pension fund proves the damage of the 2019 rent laws." This legislation, designed to protect tenants, is argued to have made it economically unfeasible for owners to maintain and repair properties, leading to increased vacancies and declining property values.

Conversely, city officials have maintained a different perspective on the impact of the 2019 law. Comptroller Brad Lander's office stated there is "no evidence that the HSTPA led to an increase in vacancies, or distress on the city’s rent stabilized housing," suggesting that a "modest adjustment" to improvement caps and targeted strategies could address any genuine hardships. Former Comptroller John Liu, who co-sponsored the HSTPA, defended the legislation, noting that "Without this investment, many more families would be without homes."

The initial investments, totaling $500 million, were made in 2013 with an expectation of 9-14% returns, which were met for a time. Despite the substantial losses in this particular segment, the overall New York City pension fund, valued at $294.6 billion, remains robust and has met its target returns, primarily driven by strong stock market performance. This specific real estate venture represents a small fraction of the total fund, yet it highlights a contentious debate over the long-term financial viability of rent-stabilized housing under current regulations.