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In the wake of some big money-losing real estate deals, the California Public Employee's Retirement System, the largest public pension fund in the nation, is reviewing its investment policies. But it's too late to help working-class people displaced by two major CalPERS investments.

In 2006, at the height of the real estate bubble, CalPERS put $600 million into real estate deals in New York City and East Palo Alto that, critics say, have led to rent hikes, displacements, and harassment of moderate-income tenants.

The pension fund invested $100 million in Page Mill Properties II, which used the money, along with a sizable bank loan from Wachovia, in a 2006 building-purchase frenzy. The outfit wound up with more than 100 buildings in East Palo Alto — some 1,800 housing units. Another $500 million went to Tishman Speyer Properties and BlackRock Realty, cash that was used in the $5.4 billion deal to snag the Manhattan apartment complexes Stuyvesant Town and Peter Cooper Village.

Those investments are currently teetering on financial ruin. The San Jose Mercury News reported Sept. 9 that Page Mill Properties missed a $50 million dollar balloon payment on its $243 million loan. Now the properties owned by Page Mill are in receivership, placing the landlord's future and CalPERS' investment in peril. (Our calls to Page Mill haven't been returned.)

A Sept. 9 New York Times article quoted real estate analysts predicting that Tishman Speyer and BlackRock would exhaust their funds by December and face loan defaults. A recent New York state court ruling may hold the companies responsible for an estimated $200 million in improper rent overcharges.

Rent overcharges — in violation of rent-control laws — is one piece of what some have labeled "predatory equity" schemes. A May 9, 2008 Times article described the idea: buy rental housing with a lot of middle-income tenants, remove those tenants from rent-controlled units, and re-rent the places to richer people at higher rent. The outcome was supposed to be a quick, profitable return on high-risk investments.

TROUBLE IN EAST PALO ALTO

The Page Mill properties in East Palo Alto border the more affluent neighborhoods of Palo Alto and Menlo Park on the west side of Highway 101. The neighborhood is home to service workers and public employees, many of them people of color. "It's choice real estate, no question about it. I don't think Page Mill's plan was to serve the low-income tenants," Andy Blue of the advocacy group Tenants Together told us.

But local officials haven't been thrilled with the results. "We are under siege by Page Mill Properties," East Palo Alto Mayor Ruben Abrica told the Mercury News last month. The city is locked in several court battles with the real estate outfit, including two over the city's rent stabilization ordinance.

A resolution passed by the City Council last year stated that Page Mill had imposed rent increases beyond the 3 percent allowed by the ordinance, and urged CalPERS to intervene.

In an document e-mailed to CalPERS and obtained by Tenants Together, Page Mill claims its rent increases averaged 9 percent. But a class-action suit filed by several Page Mill tenants reported increases of more than 30 percent. A 2008 injunction filed by the city against Page Mill cited increases ranging from 5 percent to 40 percent.

According to the Fair Rent Coalition's Web site, nearly half the people affected were cost-burdened as defined by government standards — meaning that more than 30 percent of their income already went to rent. The result of the rent increases, according to the city's resolution, was the displacement of low-income tenants from their homes.

In fact, vacancy rates in East Palo Alto spiked after Page Mill came on the scene.