FAC—Monday July 19—The First Amendment Coalition (FAC) today announced that it has sued CalPERS, the retirement system for California government workers, over access to records about the agency’s ill-fated investment in an East Palo Alto residential real estate development that has gone bust–at a loss to CalPERS of all of its $100 million stake in the controversial venture.
FAC, a nonprofit based in San Rafael, CA, filed suit Friday in San Francisco Superior Court, demanding access under the Public Records Act and Prop 59 to records shedding light on the factors influencing CalPERS’ financial commitment in 2006 to the Page Mill Properties II project. FAC’s initial record request was filed in January. Although CalPERS has turned over other records, it has withheld the offering memorandum and partnership agreement for the Page Mill deal, as well as internal emails and other relevant communications.
CalPERS’ Page Mill investment has been controversial, not only because of its losses, but also because of allegations by community groups that the project’s management sought to oust low-rent tenants in order to increase cash flow needed to finance the project’s heavy debt. CalPERS was a major investor in other real estate developments involving the displacement of low-rent tenants, including the massive $5.4 billion Peter Cooper Village and Stuyvesant Town apartment complex in lower Manahattan. CalPERS sunk $500 million into that venture, which has also collapsed.
“The public has an overriding interest in learning how CalPERS could have determined that Page Mill, despite the ouster of poor tenants, the high debt levels and other risks, was an appropriate investment for CalPERS’ assets,” said FAC executive director Peter Scheer. “Only by understanding how the investment was made can the public be confident that CalPERS has made sufficient changes to prevent this from happening again.”
CalPERS has come under increasing scrutiny due to heavy recent losses, which have triggered bills to state and local governments for bigger pension contributions. CalPERS’ performance in 2008 was one of the worst in the country among public pension plans (although, like most public pensions, it returned to profitability in 2009). Oversized real estate losses–nearly double the rate of loss on CalPERS’ investments overall–are a major reason for CalPERS’ financial woes.
CalPERS historically has been a conservative investor in real estate. Starting in 2002, however, CalPERS began a series of real estate deals involving increased leverage, large, concentrated investment positions, the use of recourse debt, and other factors that increased CalPERS’ expected returns. However, they also greatly magnified CalPERS’ risk.
“Socially responsible investors aim to do good and to do well,” said Karl Olson, the lawyer representing FAC in the CalPERS case. “In its disastrous Page Mill investment, CalPERS did bad–by funding the ouster of poor tenants from rent-regulated apartments–and did very badly.”
FAC is a section 501(C)(3) nonprofit organization dedicated to freedom of speech, freedom of information, and government accountability. FAC’s website is HERE.
This is the petition filed Friday to initiate the lawsuit against CalPERS.
Here is FAC’s brief in support of the petition.
Peter Scheer, FAC
Karl Olson, FAC counsel for CalPERS case
Ram & Olson