CalPERS, a leader in socially responsible investing, gave $100 million to a firm accused by activists and city officials of pushing low-income tenants out of rent-controlled housing in East Palo Alto.
The plan to improve more than 1,700 rental units in a crime-ridden neighborhood, with poorly maintained apartments, has produced charges and counter-charges from a community activist and the developer.
The activist, Chris Lund, told the CalPERS board that the firm receiving the CalPERS funding, Page Mill Properties, offered to give him $25,000 if he would stop complaining to the giant pension fund.
“We were being shaken down for money by this guy,” Jim Shore, Page Mill general counsel, said in an e-mail. “The ‘offer’ was made at the direction of the police as part of their extortion investigation of Chris Lund. That’s all I can say at this time.”
Lund said a man he has seen with Page Mill officials tried to intimidate him by blocking his car in a parking lot, then later by loitering around Lund’s rental unit. A Shore spokesman said Lund may have posted fliers at Shore’s home and followed Shore’s wife in an auto.
The California Public Employees Retirement System reported in November that its housing investments have taken a big hit, a 35 percent loss dropping the value to $6.1 billion by last June.
The Wall Street Journal reported in December that CalPERS made ill-timed real estate investments, some with borrowed money, and was facing a potential $1 billion loss on one deal in Southern California.
But it was a loss of another kind, the big fund’s social values, that seemed to disturb board members when Lund and a delegation from East Palo Alto spoke to the CalPERS investment committee in December.
Ruben Abrica, the East Palo Alto mayor, told the CalPERS investment committee that he wanted to “strongly protest” the use of pension funds to finance “displacing residents,” causing “pain and hardship.”
The committee chairman, George Diehr, told the East Palo Alto delegation he believed he was speaking for all of the committee when he said, “We don’t condone these kind of practices.”
The committee vice chairwoman, Priya Mathur, said the allegations have “tarnished” the reputation of Page Mill. “I am deeply distressed by this situation,” she said.
The CalPERS senior real estate investment officer, Ted Eliopoulos, told the committee that a consultant has been hired to help investigate the allegations made by the East Palo Alto delegation.
“We will look into every fact and disputed point brought to our attention,” said Eliopoulos. Board members told the East Palo Alto delegation that CalPERS, because of legal contracts, may have few options for remedy.
Page Mill, with funding from CalPERS and other investors such as Wachovia, purchased the rental units in a strip of land cut off by Highway 101 from the rest of East Palo Alto, a low-income area once predominantly African-American but now heavily Latino.
University Avenue, after its freeway exit, goes through the middle of the parcels purchased by Page Mill, running on to wealthy Palo Alto and the magnificent sprawl of the Stanford University campus.
Page Mill says it’s improving the rental units in an area troubled by gangs, drug dealing and a number of landlords who let their property deteriorate into slum conditions, some with garbage in the hallway.
Russell Schaadt, Page Mill portfolio director, said about $13 million has been spent on improving rental units, strengthening buildings against earthquakes and adding 24-hour security, with fences, cameras, and external lighting.
It hasn’t been easy. Page Mill says that after exhausting other options to get rid of gang-related drug dealers in one apartment building, it finally tore down the building to remove the unwanted tenants.
Schaadt gave a reporter a tour, showing improved apartments, newly painted buildings, massive steel beams added for seismic safety, new landscaping, one of 15 rehabilitated swimming pools, security cameras and fencing with card-controlled gates.
He also noted clashes with city officials over Page Mill’s paving of some alleys and the installation of security fences, which has stalled as the developer negotiates with the city.
Page Mill contends that city officials reneged on an agreement to allow rent increases, triggering a series of lawsuits in which Page Mill prevailed. The city’s rent control law allows small annual rent increases.
But many previous landlords did not raise rents, apparently because of complex procedures and other reasons. Page Mill retroactively applied the unused annual increases, raising some rents from 2 to 38 percent.
Page Mill says the average rent increase was $107 a month, about 12 percent, and rents were only raised in about 62 percent of the more than 1,700 units, which range from single houses to the 223-unit West Park Apartments.
When he met a reporter, Lund was joined by a half dozen tenants and a lawyer from Community Legal Services of East Palo Alto — a move to illustrate his point that he is not a lone shakedown artist trying to enrich himself.
Lund said he is a Stanford graduate, with a doctorate in biosciences, who became progressively outraged by Page Mill’s drive to push out low-income tenants. He and others have a web site, www.epa-tenants.org, that outlines their Page Mill complaints.
One Latino tenant, Louis Roman, praised Lund and his colleagues for fighting to protect the rights of the many tenants who are illegal immigrants, wary of authority and easily pushed out of low-rent units.
When a rent-controlled apartment becomes vacant, the rent can be raised and reset at market rates. Schaadt said the vacancy rate in the Page Mill units is 15 to 16 percent, some empty for remodeling.
Lund said his surveys show a much higher vacancy rate, about 24 percent. He thinks Page Mill revenue is falling well below projections, making its loan repayments difficult.
Schaadt said the tenant turnover rate in the Page Mill units is “exceptionally low,” about 20 percent a year compared to an industry average of around 50 percent. “We are not losing a ton of people,” he said.
In the last six months, Schaadt said, Page Mill has only evicted about 60 tenants for non-payment of rent. He said about 15 or 20 of them are still in their units because they signed legal agreements to pay off back rent.
Lund and his colleagues contend that Page Mill “harasses” tenants into leaving by posting notices of late payment on their doors or an official-looking notice of “unlawful detainer” eviction proceedings.
They said the tactic amounts to a legal threat that can cause tenants, who lack the means to pay for a court fight and fear legal entanglements, to voluntarily vacate their rental units.
Schaadt said Page Mill issues standard notices of late payment and is willing to work out payment arrangements with tenants having financial difficulty, if they reply to the rental office.
Lund has personal knowledge of one way Page Mill gets around rent control. Properties with no more than four rental units were purchased through limited liability corporations, which Page Mill contends are not covered by rent control.
The rent Lund pays for his unit jumped Feb. 1 from $800 a month to $1,400 a month. He thinks this Page Mill evasion of rent control will eventually be overturned by the courts.
Meanwhile, Lund said, “I have to pay it or I’m going to get an eviction.” Schaadt said Lund has “one of the more high quality” rental units and was given more than the required 60-day notice for a rent increase.
Another way Page Mill pushes out tenants, Lund and his colleagues contend, is to leave some units in disrepair. He said Page Mill ignored a request from tenants to be moved to other units when a balcony buckled.
Schaadt said Page Mill did move two tenants. He said others chose to stay in their units while the balcony, which buckled recently, is repaired after Page Mill obtains the proper permits.
One long-time tenant, Gaye Mitcham, said she has been trying for months to get her bath tub repaired.
Schaadt said tenants can request repairs by going to the rental office or using the telephone or Internet. He said he was unaware of Mitcham’s complaint, but would dispatch repairmen.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 2 Feb 09