Over the course of just 48 hours in 2012, Superstorm Sandy rolled through New York City, taking with it 43 lives and leaving behind $19B in economic loss.
The storm destroyed 800 buildings and 70,000 homes, and it revealed the city’s exposure to flood risks and extreme weather in the process. In the decade that followed, tens of billions of public and private dollars were spent to rebuild and reinforce infrastructure across the five boroughs.
Among those efforts was a half-billion-dollar investment by the city’s five pension funds into two real estate funds. Retirement accounts for teachers, police officers and firefighters poured $300M into a fund managed by Related Cos. to invest in rent-stabilized apartments, an effort meant to preserve housing for low-income residents and support the retirement of city employees.
The investments were expected to have returns of between 9% and 12%. But more than a decade later, they have lost close to half their value, according to a Bisnow analysis of property records and city data.
Bisnow/created with assistance from ChatGPT
Related, which invested $10M of its own equity alongside the pensioners, has been selling the properties for deep losses in recent years after state legislation crushed property values for rent-stabilized apartments. Net losses from the fund’s dispositions total more than $127.5M, according to Bisnow’s analysis.
The loss should have “raised big, red alarm bells,” said Eric Sanders, an attorney whose work includes representing pensioners of the New York City Employees’ Retirement System, which manages the retirement funds of city workers like janitors, corrections officers and hospital employees.
“The question is not whether housing and resiliency projects were worthy goals — they were,” Sanders said. “The question is why trustees allowed pension funds, structured as public benefit corporations, to assume unreasonable risk with such a minimal capital commitment from private partners.”
“In effect, these deals socialized the downside while privatizing the upside.”
But many real estate investors argue that at the time the purchases were made, they seemed like a sure bet. The first properties the partnership sold generated big profits, like a complex Related bought on Story Avenue in the Bronx for $66M in 2015 and flipped for nearly $88M four years later.
But when then-Gov. Andrew Cuomo signed the Housing Stability and Tenant Protection Act of 2019 into law, well-trodden pathways for owners to increase their properties’ income were cut off in an effort to stop bad actors from removing housing from regulation and jacking up rents. The years that immediately followed brought a pandemic, rent freezes and skyrocketing inflation, sending rent-stabilized landlords across the city into what one nonpartisan watchdog has called a “death spiral.”
“This was a good investment strategy that had been time-tested over many, many decades of buying New York City multifamily,” said a fund manager in housing development, who requested anonymity due to their relationship with pension fund systems. “The story isn’t ‘shame on Related’ or ‘shame on the city.’ To me, the story is ‘shame on the legislature.’”
The properties were bought under at least 67 limited liability companies that begin with “NYSandy.” In an analysis, Bisnow pulled all deeds tied to those LLCs, totaling more than 80 properties, to determine the fallout from the venture.
Many are in prime areas and had a steady flow of income at the time, like a string of Prospect Heights walkups a block away from Prospect Park and the Brooklyn Museum. The Sandy fund bought the four properties on Lincoln Place between Underhill and Washington avenues for $30M in 2016. Last year, it let them go for $15.7M.
“As financial stewards of New York City’s five public pension funds, investing in rent-stabilized housing reflects our commitment to utilizing our pension systems to steadily deliver long-term risk-adjusted investment returns while preserving access to stable and affordable housing as our housing crisis grows more dire,” a spokesperson for the comptroller’s office said in a statement.
“We can – and have continued to – create value for our members and beneficiaries while creating value for our neighbors across the five boroughs.”
It’s unclear what Related’s returns were in the deals — it spent millions fixing up the properties, but it likely also collected management fees from the funds. A spokesperson from Related declined to comment for this story.
‘Wake-Up Call’
City Comptroller John Liu announced the $300M deal with Related in 2013, his last year in the role. In addition to the equity, approximately $1B in additional loans would go towards the initiative’s $1.5B rebuilding effort.
At the same time, the funds put $200M of equity toward a deal with Hudson Cos. to develop affordable and market-rate housing and retail. Hudson invested $8M of its own money into the venture, giving the firm just a sliver of skin in the game.
The investment was made as pension funds were riding a wave of growth.
Over the course of three full fiscal years ending in June 2013, the pension funds achieved an annualized rate of return of 11.9%, above the prior 10-year return of 2.8%, according to a press release at the time. The funds went from being in the bottom quartile of their peers to approaching the top. The returns allowed the city to reduce pension contributions.
In an interview with Bisnow, Liu noted that Sandy investments are tiny in the greater scheme — the pension funds hold nearly $295B in assets combined — and “anybody with hindsight can cherry-pick specific investments.”
“Without this investment, many more families would be without homes. This did result in the restoration, as well as the construction, of new housing that in all likelihood would not have happened without this investment,” Liu said. “We don’t count the value, necessarily, of all of those aspects within the confines of the audited pension statements. The value to New York is very real.”
Superstorm Sandy caused billions of dollars in property damage across New York City
He added that, unlike other systems, in New York City, the comptroller is only an adviser to the pension funds. Each has its own board that makes decisions on investments.
In response to Bisnow’s request for comment, the Fire Pension Fund, Teachers Retirement System and the city employee fund deferred comment to the comptroller’s office. The Police Pension Fund and Board of Education Retirement System didn’t respond.
In the February 2013 press release announcing the investment, the city boasted that Related had “demonstrated a commitment to the preservation of affordable housing.”
Stephen Ross, now a billionaire and owner of the NFL’s Miami Dolphins, founded Related in 1972 as an affordable housing developer. By the time of the Sandy investment, its real estate assets were valued at over $15B, and the firm had a strong partnership with the city.
The groundbreaking for Hudson Yards, its $25B redevelopment of the West Side railyards, was held just months earlier.
Related now has $60B in assets it owns or manages, and it continues to have a close relationship with the city. It struck a deal with city officials this summer for the $12B second phase of Hudson Yards, with less housing than initially proposed.
Retirement accounts from public servants financed its outer borough shopping spree in Sandy’s wake. Related owns just a 3.2% stake in the Sandy investment funds, according to an organizational structure chart obtained by Bisnow as well as public data.
The Related-managed Sandy LLCs bought more than 80 properties between 2013 and 2016, according to Bisnow’s city records analysis. Initially, the investment was delivering impressive returns — the five funds’ combined net asset value in the vehicle was $381.6M in December 2018, according to city comptroller data.
It sold 10 of those holdings between 2015 and April 2019, generating a combined profit of just over $61M. But two months later, state legislators passed a series of sweeping rent reforms that would almost immediately cripple the value of stabilized buildings.
Prior to HSTPA, landlords were able to use a series of legal loopholes to buy up buildings, deregulate housing and pump up rents. They could remove units from stabilization entirely if their rent surpassed a certain threshold, which was fairly simple if they spent enough on capital improvements. They were also allowed to increase a unit’s rent after a tenant voluntarily vacated by up to 20%.
It was a common playbook — 155,000 units had been deregulated over the previous 25 years — and values rose accordingly.
But horror stories of tenant harassment and displacement spread, prompting legislators to respond. The legislation was seen as a triumph against the real estate industry and a way to keep low-income tenants in their homes.
“Did the Housing Stability and Tenant Protection Act of 2019 put a damper on the speculative investments? In all likelihood, sure,” said Liu, who is now a New York state senator and co-sponsored HSTPA. “If that meant a financial loss to real estate speculators, well, honestly, that was not our main priority. Our main priority was keeping people in their homes, which we did so successfully.”
Stripped of the ability to cover repairs with rent increases, landlords now have to rely primarily on the city’s Rent Guidelines Board if they want to boost rents. A January report by Ariel Property Advisors found that property values have declined 35% to 60% from their 2017 to 2018 peak, based on the number of rent-regulated units in a building.
The Sandy fund exemplifies the value destruction. Related and the pensions bought the prewar building at 442 Lorimer St. in Williamsburg, Brooklyn — an area that has experienced surging real estate values otherwise — for $25.5M in 2016. They sold for $12M in 2024.
“It should be a wake-up call to everyone that the pension fund made money on this investment when they sold buildings before 2019 and lost money afterwards,” New York Apartment Association CEO Kenny Burgos said.
In July, the fund had a net asset value of $26M, less than what certain individual properties were once bought for. The teachers’ fund stake was $12.6M.
Bisnow’s analysis found four properties that have not yet been sold. Three are in Long Island City, and one is in Clinton Hill.
Overall, the five funds hold $18.4B of private real estate, making up 6.2% of total assets under management, according to the retirement system’s annual report. The sector was the pensions’ worst performer in fiscal year 2025, posting just a 1.9% return.
Still, the retirement systems had an aggregate return of 10.3% in the year through June, exceeding its 7% target rate of return. Much of that was thanks to skyrocketing returns from the public equities and debt markets, which combined make up over 70% of their portfolios. The funds’ S&P 500’s returns totaled 15.2% over the past fiscal year.
442 Lorimer St. in Williamsburg, Brooklyn, which Related and NYC pension funds sold in 2024 for less than half of what they paid.
‘Kiss Of Death’
For owners of the million rent-stabilized apartments in the city, the majority of which are more than 50 years old, the pandemic, swollen inflation, soaring insurance and the march of time have taken their toll. Besides the decline in values, net operating income has dwindled.
Despite New York City’s demand for housing, property owners have increasingly fallen behind on their mortgage payments, according to a report released by KBRA in February. Debt tied to multifamily properties in the five boroughs made up 43% of the national balance of delinquent or specially serviced loans, with a 14.4% distress rate. That rate was more than double what it was a year prior.
Apartments that were built before 1974 had a 25% distress rate by balance and nearly 7% by loan count, according to KBRA. Post-2000 properties, with few rent-stabilized units, had a distress rate of 2.9%.
In an attempt to protect themselves from foreclosure and bankruptcy, some property owners have sought to turn their keys over to the banks, which don’t want them either.
As financial distress has risen, properties have deteriorated, according to a report by nonpartisan nonprofit Citizens Budget Commission. Pre-1974 units had 75% more deficiencies than post-1973 stabilized units and 79% more than market-rate units.
At an April 3, 2024, event hosted by the Federal Reserve Bank of New York, NYC Retirement Systems Head of Real Estate John Gluszak acknowledged that the rent laws “100%” impacted the city’s investments.
“I probably went back to the values of where we purchased those properties,” Gluszak said onstage.
The Sandy investments are far from the only mission-driven or affordable housing investments that the five pension funds have made. To promote economic development in underserved communities, 2% of pension assets are allocated towards what they have defined as economically targeted investments.
Since the 1980s, $4.5B has been invested in affordable housing through the commitment. While it is unclear how much of that is in rent-regulated properties, the fund for city employees invested $60M in a venture that bought Signature Bank’s loan book tied to rent-stabilized apartments.
Many of those loans were made prior to the passage of HSTPA. The venture has ramped up foreclosures, despite previous promises to preserve the properties.
The Signature investment was also done in collaboration with Related and two nonprofits. Related also manages a real estate debt fund that the retirement systems are invested in, according to data on the comptroller’s website.
Today, rent-stabilized landlords are encountering an even bigger threat — one that has been described by a small property owner as a potential “kiss of death.”
Democratic candidate for mayor Zohran Mamdani has run a campaign on promises of freezing stabilized rents for the next four years. Doing so would cut off property owners’ ability to address rising costs, including insurance, taxes and maintenance, while still making debt payments.
Real estate leaders have most recently thrown their weight behind former Gov. Andrew Cuomo as the November election inches closer. Among his staunchest backers is Related CEO Jeff Blau, who has watched the Sandy investments, along with others, deteriorate in value following HSTPA’s passage.
“Six years ago, the state legislature decided they wanted to destroy rent-stabilized housing, and the pension fund losses are just collateral damage from that decision,” Burgos said.