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Report: CalPERS reviews relationship with BlackRock

The California Public Employees' Retirement System is reportedly weighing its future relationship with asset manager BlackRock following its investment in the New York Stuyvesant Town deal.

The California Public Employees’ Retirement System is reconsidering its relationship with asset management BlackRock following its troubled investment in the Stuyvesant Town/Peter Cooper Village deal, according to the Wall Street Journal.

CalPERS invested $500 million in the multifamily transaction after it was acquired by BlackRock Realty Advisors and Tishman Speyer for $5.4 billion in 2006, the report said.

The investment is now considered “worthless”, the report said citing sources. Earlier this month, a $3 billion senior mortgage  secured against the 80-acre Manhattan residential complex was transferred to special servicing following a “request for relief” by Tishman and BlackRock.

Stuyvesant Town/Peter
Cooper Village

The Journal said CalPERS began a review of its real estate portfolio several months ago, and it could be complete by the end of the year. CalPERS paid BlackRock $12.6 million in real estate advisory fees last year, it added.

Brad Pacheco, a CalPERS spokesman, told the paper the $200 billion pension fund wouldn't “speculate on the future of our real-estate relationships until the review is complete”.

In September, Florida State Board of Administration revealed it had written down to zero its 2007, $250 million commitment to the Stuyvesant Town/Peter Cooper Village deal. CalPERS’ neighbour the California State Teachers’ Retirement System (CalSTRS) also permanently wrote down its $100 million investment in the New York deal, according to a performance review of its real estate investments released in August.

CalSTRS committed the capital in May 2007 but following the credit crisis, and problems deregulating the New York multifamily complex, the investment is now valued at “$0 as [its] impairment is considered to be a permanent condition”, the pension said at the time.

The Stuy Town deal, as it is known, has been troubled since it was acquired by Tishman and BlackRock in 2006. Efforts to convert rent stablised apartments into market rents failed to meet original assumptions and were thrown into doubt when a court ruled such conversions were improper while the landlords received certain tax abatements. That could leave Tishman, BlackRock and the previous owner MetLife facing hundreds of millions of dollars in back rent.

The transaction’s debt service reserves are also expected to be depleted by the end of December. After the senior mortgage entered special servicing, ratings agency Fitch said there would be “many factors” involved in a workout of the loan and its recovery, including “possible modification, potential legislative changes to rent stabilisation laws, commitment of the loan sponsors, the remaining seven-year term of the loan and the low loan per unit ($267,213).”

Speculation is mounting as to whether the special servicer will foreclose on the deal, or work out a deal whereby Tishman continues to manage the complex, which comprises 11,227 apartment units.