NYC pushes to plow city’s $ 265 billion boarding house hits wall

(Bloomberg) – Brad Lander, the Democratic candidate for New York City comptroller, wants to pump more of the city’s $ 265 billion in retirement assets into apartments for poor residents and the working class, invest in rooftop solar panels and lend to small businesses owned by women and minorities.

But his ambition to use pensions to invest in the five districts will come up against the law and economic reality. The trustees of New York’s five pension plans, including the mayor and the comptroller, have a fiduciary responsibility to maximize returns for retirees while limiting risk. This means that they cannot provide below-market financing.

And with interest rates near record lows, public pensions, including New York’s, have increased their allocations to riskier, more profitable investments in private equity and speculative real estate. The five pensions for teachers, police, firefighters, city workers and school administrators accounted for about $ 2.5 billion in “economically targeted investments” as of May 31, about a percentage point lower than the allocation target of 2%.

“The goal here is not just to reach the 2% threshold, it is to provide the necessary capital,” Lander, 52, said in an interview. “Finding opportunities to invest in New York City – in affordable housing, job creation, infrastructure and clean energy – while achieving this risk-adjusted market return, is a challenge. “

A city councilor who represents the Park Slope section of Brooklyn, Lander defeated current city council chairman Corey Johnson and eight other candidates in the June primary. In the November election, Republicans line up Daby Carreras, a community leader in East Harlem and financial advisor at Spartan Capital Securities LLC.

With registered Democrats outnumbering Republicans nearing 7-1 in the metropolis, Lander, a former city planner, is likely to be elected, becoming the city’s chief auditor and investment advisor for pensions. The funds aim for an annual rate of return of 7% on their portfolio of stocks, bonds, real estate and private equity. They gained 10.86% for the five years ending March 31 as US stocks exploded.

Invest locally

Pensions have invested nearly $ 4 billion in the five boroughs and six surrounding counties since the targeted economic investment program began in 1981, with the goal of helping revitalize neighborhoods and develop affordable housing. ETI investments gained 4.86% for the 10 years ending June 30, 2020, compared to a return of 3.82% for the Bloomberg Barclays US Aggregate Bond Index, according to the city’s annual financial report.

One of the biggest ETI pensions investments is an initiative, called the Public Private Apartment Rehabilitation Program, which helps finance the construction and rehabilitation of affordable apartments. Retirement funds injected $ 1.5 billion into the program, allowing developers to lock in 30-year fixed-rate mortgages before construction begins. Working with nonprofits and banks, including Citigroup Inc., PPAR has funded the preservation or construction of over 43,000 affordable housing units.

But PPAR has been crippled by policy changes made more than a decade ago under former city comptroller John Liu, said Michael Lappin, former head of the Community Preservation Corporation, an affordable housing lender to the city. New York City.

The policy required 30-year loans purchased by the pension to have a minimum interest rate of 4.5%, with mortgage default insurance adding 0.5%. Currently, Fannie Mae and Freddie Mac offer 4% multi-family financing, although the rate varies by market and borrower, according to Karen Marotta, spokesperson for Greystone, a real estate finance company.

Pension funds have introduced a floor rate of 4.5% because loans are held to maturity, said Skye Ernst, spokesperson for City Comptroller Scott Stringer.

“Pension funds offer interest rate freeze up to 2.5 years in advance; few lenders offer this long rate foreclosure, ”Ernst said in an email. “We regularly monitor comparable products and discuss comparable products to ensure we remain competitive. “

The percentage of ETI assets fluctuates based on both asset performance and overall pension performance, she said. The program peaked at nearly 1.8% of assets in 2016.

Lander said he saw no reason for an “arbitrary” interest rate floor and that he would review the policy.

“Obviously, in the wider market, when interest rates have come down, banks are still finding profitable ways to lend,” he said.

Two other candidates are also running for comptroller – Paul Rodriguez on the conservative line and John Tabacco on the libertarian and independent lines.

“Severe rental burden”

The widespread lack of affordable housing in New York City, the skyrocketing homelessness and the potential for a deportation crisis among those who have lost their jobs amid the pandemic have become the main issues during the Democratic primaries for the mayor and the controller. More than 450,000 households pay more than 50% of their income in rent, a measure of “heavy rental charge”, according to the Citizens Budget Commission.

In order to preserve affordable housing, Lander wants to use the retirement capital to expand a down payment assistance program that helps nonprofits acquire and rehabilitate rental properties in stabilized and unregulated rent. The interest rate on loans is currently 3%.

Lander also proposed to use the city’s debt, and potentially pension money, to fund a new entity called Public Solar NYC, which would install 25,000 solar panels over eight years. The city would buy and install signs and pay rent to landowners. Public Solar NYC would sell the energy at market rates, generating a return for the pension funds.

“This could be an opportunity to invest the city’s pension funds alongside the city’s capital in a way that will help achieve a really critical goal of developing renewable energy and creating a lot of jobs here at. New York and paying a solid return, ”Lander mentioned.

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