The Watcher Cat

The Watcher Cat

Tuesday, January 26, 2010

Moral Hazard

The Church of England has lost £ 40 million it invested in New York's Stuyvesant Town apartment complex, a deal which cost it less than 1% of its total asset portfolio, but which the Guardian newspaper points out "was a large layout for a single investment and it comes on the back of other setbacks in the recession." (In a chart accompanying this article in the print edition, the New York Times puts the CofE investment at $70 million).

However, the investment with Tishman Speyer raises more than prudential concerns; it involved the Church of England in a deal which has been called a form of "predatory equity," in this case, when a building is "purchased by owners whose business model requires driving out rent stabilized tenants." (More on this practice may be found here). Rent stabilization in Stuy Town was protecting, in the words of the Guardian,"one of the few remaining bastions of affordable living among the multimillion-dollar tower blocks of lower Manhattan." The Church of England's investment strategy required wiping out this bastion, and depriving these tenants of what are for many long-time family homes.

Moreover,this predatory equity strategy was a feature, not a bug. According to the Gothamist at the time of the sale, "The purchase price of $5.4 billion can only be supported by substantial increases in the rents, by taking units out of rent regulation over time. The offering circular for the sale suggested that the complex could be converted from 75 percent rent regulated units now to only 30 percent rent regulated by 2018." The fact that Tishman-Speyer was found by New York State's highest court to be illegally raising the tenants' rents while simultaneously receiving tax breaks predicated on their provision of rent stabilized housing demonstrates just how central to the offering the aggressive raising of rents was.

Ironically, on January 28, Arcbishop Williams will be the keynote speaker at the Trinity Institute, speaking on theology and the global economy:

In view of the primacy the Gospels depict Jesus giving questions of economic justice (Matt 25, anyone?), perhaps Archbishop Williams would be better occupied with removing the log from his own eye, before he meddles with other church's affairs?

(edited to correct date of Abp. Williams' presentation).

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