NYC to invest $60B of pension funds in affordable housing

The New York City Employees’ Retirement System will invest up to $60 million in affordable housing units, part of a public-private partnership taking over loans on nearly 35,000 units left behind after Signature Bank collapsed last year, Comptroller Brad Lander announced Tuesday. 

“This investment will — in addition to preserving those 35,000 units, over 80% of them rent-stabilized — deliver a healthy return for our pension funds and our retirees,” Lander said, “with a target gross [internal rate of return] of over 12% and a target net IRR of nearly 11%.”

When Signature Bank closed last year, city, state and federal officials initially saw not an investment opportunity, but a potential disaster, New York Mayor Eric Adams recalled. 

“I remember being on the phones, burning up the phones, when we were afraid of what was going to happen next to Signature,” Adams said. “There could’ve been a run on the banks. It could’ve been a real crisis.”

Much of the focus was on Signature’s heavy investments in cryptocurrency, as the bank’s collapse was precipitated by Silicon Valley Bank’s failure. But New York City housing advocates were focused instead on Signature’s housing stock — the bank owned $15 billion of mortgages across four of New York’s five boroughs, making it the largest lender to rent-regulated housing in the city. 

City and state officials were worried the loans would be acquired by slumlords seeking to push out current tenants or let buildings fall into disrepair. Tenant advocates had been warning about Signature’s risky loans before its collapse, Lander said, as the bank loaned to nearly a third of the worst landlords in the city. 

When the FDIC was appointed as receiver for Signature’s commercial real estate loan portfolio, the Community Preservation Corp. took over parts of Signature’s portfolio in record time, Lander said. 

With input from city and state advocates, the FDIC parceled Signature’s more than $14 billion of housing loans into billion-dollar pools and tried to form partnerships with banks. However, Lander said, the FDIC struggled to find banks interested in the loans.

The CPC, a 50-year-old nonprofit multifamily housing finance company, made a deal with the FDIC for $5.8 billion of the parcels in December. That venture includes nearly 35,000 affordable housing units — 3% of the city’s entire rent-regulated housing stock, Adams said. 

The FDIC retained 95% equity over this venture; the CPC, which holds $240 million of the deal, will handle management of 868 loans. The CPC partnered with investment manager Related Fund Management and nonprofit Neighborhood Restore Housing Development Fund Corp. for this deal to create Community Stabilization Partners. 

The other $9 billion of Signature Bank’s housing portfolio is in a venture with Santander Bank. The FDIC retained 80% equity of that deal.

With its $60 million investment, the NYCERS is now a 25% partner in the Community Stabilization Partners.

The trustees of NYCERS have also become part of the venture; trustees include Lander; Mayor’s Office of Pension and Investments Director Bryan Berge; New York City Public Advocate Jumaane Williams; presidents of three local unions; and the presidents of each of the city’s boroughs. 

New York is trying to increase NYCERS’ investments in affordable housing, speakers at the press conference said. Including this $60 million, NYCERS has now invested nearly $700 million in rental apartments in the city. The 30,000 apartments in this venture have nearly doubled the number of units in NYCERS’ portfolio. 

This “responsible investing approach” is “paying big dividends,” Lander said. 

“New York City’s pension funds are at historic highs. We recently moved into the number three spot of all the U.S. public pension funds behind only CalPERS and CalSTRS, ahead of every other city and state,” Lander said. “We recently adopted a great strategic asset allocation, which increases our exposure to private markets that we believe will help us succeed in the years ahead.”

“As trustees, we take our shared responsibility [over the pension fund] very seriously,” said Henry Garrido, executive director, district council 37, AFSCME. “But there’s nothing that prevents us from doing well and doing good at the same time. And that’s what we’re doing today.”

Housing advocates at the press conference also praised the investment, celebrating that the affordable units didn’t fall into the wrong hands. 

Jim Buckley, executive director of University Neighborhood and Housing Development, recalled how past financial crises and foreclosures allowed banks and landlords to force tenants out of their apartments or live in dangerous conditions. 

“I’m one of the guys who was here in the ’70s … We saw what redlining did to the Bronx. We lived it. People worked together to kind of stop it,” Buckley said. “So it’s terrifically exciting to see this playing out differently.”