How The Head Of Real Estate At NYC's Employee Pension Fund Views Investments In Volatile Times

Choosing investments at a pension fund means playing the long game. 

While investment managers of many stripes watched in frustration and dismay as interest rates climbed two years ago and stayed stuck at more than 5%, John Gluszak, head of real estate for the New York City Employees' Retirement System, knew his next move: stay the course.

Now that rates are creeping down, Gluszak remains similarly even-handed.

“I personally don't think a reactionary movement is wise if you're managing pension money because these are long-term benefits that we have to pay out and we need long-term performance,” he said.  

Every few years, the $274B New York City Employees’ Retirement System — which includes retirement funds for the city’s board of education workers, firefighters, police officers and city employees — goes through strategic asset allocation with its team of consultants. This process sets the target investment amount for each vertical over the next three to four years.

Right now, real estate’s target is about 8% of total assets under management, Gluszak said, a number that didn’t change because interest rates dropped and won’t change if there are more rate cuts in coming months.

For around a decade, pension funds looked to increasing investments in real estate to deliver returns and close funding gaps. But even as rates have fluctuated over the last two years, the NYC retirement system's investment in real estate has mostly stayed the course.  

Most of Gluszak’s moves are 10-year investments, making it hard to react quickly to something like a recent rate cut. 

“We haven't changed that much,” Gluszak said. “We're a long-term investor, so we don't respond to immediate shocks in the system.” 

Within real estate, the fund’s allocation has shifted, as many other pension funds have, away from office properties. Right now, the system's portfolios lean heavily on multifamily and industrial and logistics assets through the funds it invests in. 

“Yes, there is an oversupply right now of multifamily and industrial, but once that gets absorbed in three years, where would you like your portfolio to be?” Gluszak said. “Would you like your portfolio to be in the favorite asset du jour, or would you like your portfolio positioned to take advantage of future developments in the real estate market?” 

The retirement system also invests in debt and equity. Gluszak said distressed real estate loans and debt are still interesting areas for investment, ones the retirement system has already made a notable investment in. 

The city employees pension fund, through a $60M investment, is a 25% partner in Community Stabilization Partners, a joint venture led by Community Preservation Corp. and Related Fund Management.  

Earlier this year, Community Stabilization Partners purchased a 5% equity interest in a rent-stabilized loan portfolio from Signature Bank. The remaining 95% is held by the Federal Deposit Insurance Corp. as receiver.

The portfolio includes about 1,140 buildings and 35,000 units, 80% of which are rent-stabilized. Together, the units represent about 3% of New York City's rent-regulated housing stock.

Gluszak said the decision to invest came after the system considered the fact that a significant number of tenants in these units could also be city employees — and members of the city employee pension fund — “so it was important for us to try to do something to stabilize that.” 

That said, Gluszak acknowledged that his job is to look out for those employees by ensuring their money is invested wisely. And in this case, the deal made sense. 

A critical element was Related’s involvement. The company’s long history and extensive experience in the affordable housing world made it an ideal partner for this deal, he said.  

“You need to know who your partner is, and you need to know that they have the expertise in doing this, because New York City is a separate animal relative to the entire country,” Gluszak said.

The deal’s attractiveness was also boosted by the discount at which the loans were purchased. The winning bid from Community Preservation Corp. was 59 cents on the dollar, Gluszak said. 

“If I was paying par for these loans, it wouldn't make financial sense,” Gluszak said. 

Gluszak said he is looking for more opportunities to invest in housing that is attainable and aimed at working-class people in New York City and across the country. And while the numbers have to make sense, the retirement system is also using its dollars to try and generate social and financial good. 

Earlier this year, the city employees pension fund adopted the Responsible Property Management Standards, guidelines that seek to improve living conditions for residents in housing owned by investment managers who receive money from the retirement system. 

These guidelines were developed in conjunction with the Office of New York City Comptroller Brad Lander as a response to “an unprecedented level of investment capital in the rental housing market,” a release from Lander’s office says. 

Critics say these owners are more likely to create housing instability as they seek to increase profits for their investors. The standards say there is a business case to be made for adopting the guidelines, including the benefits of resident stability and mitigating the risks that bad actors pose. 

“You have to balance out the social aspect with the financial aspect, and it always has to make a good return for the systems to be considered for an investment,” Gluszak said. 

CORRECTION, OCT. 29, 8:32 A.M. PT: A previous version of this story incorrectly characterized the type of return that investments must make in order for them to be considered by the pension. The story has been updated.