NYC Pension Adopts ‘First in Nation’ Guidelines for Private Real Estate Investments

The Responsible Property Management Standards are intended to increase the quality and sustainability of residential real estate investments across seven core principles.

New York City Comptroller Brad Lander on Wednesday outlined new standards for private real estate investments within the portfolio of the New York City Employees’ Retirement System, which has adopted the standards into its investment policy. The standards have been proposed for the city’s other four pension systems.

Known as the Responsible Property Management Standards, the guidelines aim to improve the long-term quality and sustainability of residential real estate investments in properties owned by or funded by investment managers and aim to reduce housing instability and encourage fair practices for residents living in these properties.

The standards were developed by the Office of the New York City Comptroller, which manages the investments of New York City pension funds, as well as For the Long Term, a nonprofit organization which advises treasurers, comptrollers, controllers and auditors at pension funds across the country.

Combined, the five New York City pension systems manage $16.62 billion in private real estate assets, comprising 6.15% of the $270.46 billion in assets under management across the systems, as of May 31.

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The systems include the New York City Employees’ Retirement System, the Teachers’ Retirement System of the City of New York, the New York City Police Pension Fund, the New York City Fire Pension Fund and the New York City Board of Education Retirement System.

NYCERS manages $5.81 billion in private real estate assets, roughly 6.82% of the fund’s $85.3 billion portfolio.

Standards

The standards were developed in response to the growing institutional ownership of rental housing. The comptroller’s office noted that institutions acquired 200,000 single family homes between 2011 and 2017, across $36 billion in investments.

“For institutional investors purchasing these homes who are interested in the long-term sustainability of the market, there is a clear lack of guidance on property management,” state the Responsible Property Management Standards. “Implementing a uniform set of standards for quality property management is critical to protecting the long-term profitability of investments.”

According to a spokesperson for the comptroller’s office, the standards apply to prospective and new investments; preexisting investments would not be subject to the standards

The Responsible Property Management Standards comprise seven core principles, which each have one or more standard practices. The seven principles are:

Implement consistent and fair tenant screening and selection practices;

Offer clear and fair leases and reduce undue burdens of security deposits;

Maintain safe, quality, accessible housing;

Foster positive tenant-landlord relations;

Honor tenants’ rights to free speech and free association;

Optimize tenant stability; and

Minimize evictions and other negative exits.

Among other guidance, the standards require one to 30 days’ notice for rent increases, which would be limited to no more than the 12-month change in the Consumer Price Index, plus 5%. In total, there are 26 standards which the NYC Comptroller’s office would expect its asset managers to follow

If the standards are widely approved by the city’s pension funds, asset managers would be asked to adopt the standards in their real estate investment policies.